A $100 Billion Understanding

A $100 BILLION___ UNDERSTANDING Barry M. Blechman with Ethan Gutmann TL re continuing improvement in U.S.-Soviet relations provides the best political environment for arms control since the advent of the cold war. The treaty on intermediate- and shorter-range nuclear forces (INF) is a by-product of this political trend, as is the progress made in the talks on strategic forces and the prospective opening of new negotiations on conventional forces in Europe. But continued meaningful arms control progress depends on continued improvements in superpower political relations. Economic Incentives for Arms Control In pursuing better relations, each side is motivated by a variety of factors; a fortunate coincidence of domestic and international conditions has made the détente of the 1980s feasible. Among the two great powers' incentives for improved relations are economic considerations. While never explicitly alluded to in their negotiations, the economies ofboth the United States and the Soviet Union could benefit from improved relations. The USSR stands to gain the most, as superpower concord could increase access Barry Blechman is a fellow of TheJohns Hopkins Foreign Policy Institute (FPI) and president of Defense Forecasts, Inc., a research and analysis enterprise in Washington, D.C. He served as assistant director of the U.S. Arms Control and Disarament Agency from 1977 to 1980 and currently directs an FPI study of Defense Department reorganization. Ethan Gutmann received an M.A. in security policy from the School of International Affairs at Columbia University and is currently a research assistant for the Conventional Balance Project at The Brookings Institution. 73 74 SAIS REVIEW to the advanced technologies, capital, and managerial know-how available only in the West and crucial for a Soviet economic revival. But a less threatening political atmosphere would also reduce internal pressures in both states for continuing increases in military spending. And for different reasons, both the United States and the USSR currently have compelling economic reasons to curb such military growth. In the United States, defense spending rose sharply as a share offederal expenditures throughout the 1980s, increasing from 22.7 percent in 1980 to 28.7 percent in 1987. This jump, following the 1981 tax cut, complicated efforts to reduce the federal deficit. Although the Reagan administration sought to control the growing deficit by cutting domestic programs, the limits of this tactic soon became apparent. The political constituencies of most programs ensured bipartisan congressional support for at least current levels of spending. And the political outcry that followed even hints ofcuts in the major entitlement programs, especially social security, placed this alternative completely out of bounds. With politicians of both parties unwilling to contemplate more than tiny increases in taxes (and then only when carefully disguised) and with the administration protective of the defense budget, domestic discretionary programs—a total of only $166 billion in fiscal 1987—were left as the sole potential sources of significant savings. And even many of these programs found effective political champions . As a result, the deficit has remained high. Passage of the Gramm-Rudman-Hollings legislation in 1985 made clear the nation's priorities. Overriding was the effort to cut the deficit. Although tax increases were not ruled out, the preference clearly was to reduce federal spending. Discretionary programs were to be cut, although most entitlements were exempted from the legislation's automatic reductions provisions. Finally, Gramm-Rudman-Hollings required that defense share the burden: any spending cuts made necessary by a failure to meet the legislation's targets for deficit reductions would be shared proportionately by the Pentagon and domestic discretionary accounts. The domestic economic summit that followed the October 1987 stock market crash reaffirmed these priorities. The president and the Congress agreed to make only token increases in federal revenues, exempt entitlements from spending reductions, and cut both the defense and the domestic discretionary accounts. The agreement produced cuts of $20 billion in the pending fiscal 1988 defense budget and another $33 billion worth of reductions for the planned fiscal 1989 budget. The resulting Pentagon budget of $291 billion represented an increase of less than 3 percent from the previous year, not enough to cover increases in the prices of defense goods and services. All told...