Air Date: Week of February 12, 1999

In the mid-1990's the Clinton White House vowed to transform the U.S. arms industry. The administration offered weapons makers grants to turn their technological expertise to peaceful pursuits. Few arms producers were enticed to make the switch. But as Pippin Ross reports, several firms who did turned a handsome profit.

Transcript

KNOY: It's Living on Earth. I'm Laura Knoy. During President Bill Clinton's first term in office, the White House launched a plan to get defense contractors out of the arms business and into producing environmentally-friendly consumer products. It seemed a logical idea. The post-Cold War economy didn't bode well for arms manufacturers. And the world market for environmental technologies was estimated to be double that of the demand for weapons. But now, several years later, only a handful of companies have made the switch. Pippin Ross reports that despite a booming market for ecologically sound products, the political will to turn arms into ploughshares has faded.

(Clanking sounds)

ROSS: At Film Microelectronics, Incorporated, in Andover, Massachusetts, factory workers in sterilized garb spray liquid gold onto resister panels used in cell phones. The gold is being used instead of a toxic chemical called beryllium oxide. With cell phone use skyrocketing, Micro Electronics' general manager, Gary Colello, says popular demand for a non-toxic replacement is strong.

COLELLO: We're making 180,000 of these in the next couple months. You can, you know, literally break this up, breathe it. I mean you could eat it, I guess. I assume you wouldn't but --

ROSS: The resistors are one of many high-tech, environmentally-friendly products Micro Electronics' parent company, SatCon, manufactures. A decade ago, SatCon worked exclusively for the Defense Department and NASA. Now, says former Massachusetts Institute of Technology researcher and SatCon CEO David Eisenhauer, the government gives grants to contractors like SatCon to diversify into consumer products while meeting the needs of the Defense Department.

EISENHAUER: The money that's available from the government is about $60 billion a year that's available for R&D for new product development. And, you know, the total amount of money that's spent by US corporations is about $140 billion a year. So it's an enormous opportunity for everyone.

ROSS: With strings attached. Before they accept the government's money, companies must first do the Pentagon's bidding. For instance, when the military put out a request for non-toxic electrical insulators, SatCon rallied, convinced they could develop a product that doubles as the main ingredient for a cell phone. Sifting through a bin of resistors, general manger Colello says the government money has enabled him and his colleagues to invent all sorts of safe, useful products.

COLELLO: The bottom line is, it costs less. When it comes right down to it, you know, the government pays less, Boeing pays less, Raytheon pays less. Whoever else, commercial customers, they pay less. It's not only cleaner but costs less.

ROSS: And it makes money. Since 1992, SatCon has turned $30 million in government research and development grants into 70 patents.

PEMBERTON: Their enthusiasm isn't, as far as I know, shared by a lot of the Defense prime contractors or the subcontractors.

ROSS: Miriam Pemberton is a research fellow at the Institute for Policy Studies in Washington, DC. She authored A Tale of Two Markets, a report showing there's a lot more money in exporting environmental technologies than sending arms abroad. Pemberton says there's a $400 billion demand for environmentally-friendly consumer products. That's twice the current demand for arms. But, she says, companies like SatCon are the exception among defense contractors. Most arms manufacturers aren't enticed by what they consider comparatively small government grants.

PEMBERTON: They basically will go where the money is. If there's strong, you know, public investment on the civilian side, then they're happy to go there. But there hasn't been in the post-Cold War period, and so they haven't moved there.

(Milling voices at a large gathering)

ROSS: Two hundred top executives from the Raytheon Corporation, one of the country's largest defense contractors, are having cocktails in a Boston hotel following a day-long meeting on the company's future. Although Raytheon has turned some of its defense-related technologies into useful consumer products, conversion is not a company priority. Senior executive Edmund Woollen says it's not government grants that have inspired Raytheon's consumer products, but the inventive researcher and scientist with initiative.

WOOLLEN: And he decides, or has some idea of how this would be valuable in a consumer market, without any real market survey or market analysis. So he will invent his solution to a problem.

ROSS: The Internet, air traffic control, beepers, and cell phones are among the best-known spinoffs of defense technology. But when the government spends 12 times more exporting arms than it does on consumer technologies, there's little incentive for big contractors like Raytheon to make the shift to consumer products. In addition, says Woollen, the government has done little to show defense contractors the ropes.

WOOLLEN: Usually, what we found is the people who have a good technology but don't ever succeed in converting it commercially, you can usually trace that back to their lack of understanding of how to go to market, how to do pricing, how to do distribution, how to do service, how to do customer support. The sorts of things that consumers value.

(A phone rings. A woman answers: "Security Studies Program.")

ROSS: The Security Studies Department at MIT is a spawning ground for military innovation. Department chair Harvey Supulski says that since the end of the Cold War, roughly a million contractors have gone into other businesses, or out of business altogether. But, he says, there remain at least 2 million contractors with no intention of moving out of this very lucrative line of work.

SUPULSKI: You go to your Congressman instead of converting, for big facilities. And most of them are still open. It raises the issue of how much jobs we want to preserve. And I think we're preserving, in this field, too much. How to convert them, what to do? Well, that's a big issue, and the government once had a program, but it got laughed away and it shouldn't have.

ROSS: But SatCon's Gary Colello made the program work for his company. He says using government money to move out of defense was the smartest thing his company could have done.

COLELLO: So a lot of great technology was developed and a stake was put in the sand. Now, that work kind of slowed down the last couple of years. But we didn't slow down, because now we're sitting on sort of what all that came to.

ROSS: SatCon recently received a new client. The Chrysler Corporation thinks the company's low-cost, non-polluting insulator should play a significant role in the company's latest generation of high-efficiency electric cars. But few contractors are likely to follow SatCon's lead in the short term. The Clinton Administration has recently proposed adding $110 billion to the defense budget over the next 6 years. That gives defense contractors even less incentive to move into alternative lines of work. For Living on Earth, I'm Pippin Ross.