What happened to the peace dividend?: The end of the Cold War cost thousands of jobs. Andrew Marshall looks at how the world squandered an opportunity

PEACE ON Earth, goodwill to all men, and here's your P45. For those whose jobs depended on military spending, that is the bleak reality of what was once hailed as 'the peace dividend'.

As the United States and the Soviet Union sign a historic accord that brings an era of military competition to an end, a price is being paid. Defence cuts and reductions in military forces have brought in their wake a series of job losses.

The transitional costs of the end of the Cold War, combined with the inadequacy of government responses across Western Europe, have meant that we are worse, not better, off. Defence cuts are taking place in an unplanned flurry, with little co-ordination between state and industry or among governments.

The Stockholm International Peace Research Institute (Sipri) estimates that employment in the European arms industry will decrease by a third to a half by 1995. In Britain alone, tens of thousands of jobs have been lost in the past two years, a significant factor in the recession in some regions.

For many the outlook is bleak indeed. Cumbria faces the loss of 12.8 per cent of its working population as a result of defence cuts, according to the European Commission, since submarine building is such a vital part of the economy. For Essex, the figure is 5.6 per cent. Avon, Gloucester and Wiltshire, the most prosperous part of the South-west, could lose 8.8 per cent of the working population.

Yet once, great things seemed possible as the Berlin Wall fell and military tensions eased in Europe. In its 1991 Human Development Report, the United Nations Development Programme estimated that cuts of 2-4 per cent a year in global defence spending could free up dollars 200bn to dollars 300bn a year, leading to savings of dollars 2,000bn during this decade. Even taking into account increased social spending, Western countries would be able to increase their foreign aid, it said, cautiously welcoming a new era.

The reality has been more sombre. To put it bluntly, 'There is no peace dividend,' says Dr Saadet Deger of Sipri. She describes the more optimistic projections as having been 'ridiculous, naive at best, misleading at worst'. The main point, she says, is that restructuring defence spending has entailed large costs for European countries. 'Unfortunately they are going through a recession. They do not have the funds to restructure.'

The peace dividend was supposed to come in three forms. First, an 'internal' dividend: government spending on defence could be redirected to other purposes. There has, it is true, been a decline in the growth of defence spending. In 1991, it fell by 1.26 per cent in Europe, according to Sipri. It is expected to fall by 10 per cent by 1995, and by up to 25 per cent by 2000. There has been an even more marked drop in defence spending in Britain.

But the benefits have yet to be seen. The Gulf war distorted the trend, and there have also been costs of implementing the Options for Change programme: refitting the British Army for the Rapid Reaction Force, for instance. Priorities have shifted to accommodate new tasks: the F3 Tornado's mid-life refit was cancelled and long-range transport aircraft have moved up the list as the chances of full-scale war in Europe fall, and those of police actions in the Third World increase.

The level of cuts has also been held back by the personnel budget, which has to accommodate the costs of redundancies.

But, more important, critics say there has been no clear strategy for handling the run-down of defence. 'Savings are being absorbed in other sectors, or going to keeping the public sector borrowing requirement lower than it would otherwise be,' says Sue Willett, research fellow at King's College Centre for Defence Studies. 'To have a peace dividend, you need substantial political will, and it hasn't been there.'

The second source of the peace dividend was to be direct conversion of military to civilian production: making earth-moving equipment instead of tanks, for instance. That relied on new investment, new markets and a stable environment for change. None of those is present. The result of shifts in government funding was that equipment spending decreased faster than spending as a whole, with devastating effects for industry.

Defence diversification is the new slogan: diversifying production rather than converting it; for instance, moving defence electronics companies into civil markets as well. But defence production is typified by a distinct approach to quality, timing and client relationship that does not easily fit in with the commercial market.

Third, there was to have been an international dividend: as spending on arms was reduced, foreign aid could be increased. In fact, the pressures on aid budgets have been so severe that some previously liberal countries, such as Finland and Sweden, have cut their foreign aid. Although the worst fears of some developing countries - that aid would be redirected to Eastern Europe and the Soviet Union - have not materialised, 'the result has been that aid has at best stagnated', says Adrian Hewitt, of the Overseas Development Institute. 'There's no identifiable peace dividend at all.'

In the past few months concern about these trends has started to lead to action. During the new year, a group of local authorities will try to launch a national lobby to obtain more resources for regions hit by cuts.

It is the regional concentration of the cuts that concerns local authorities. The South-west, for instance, already facing problems in tourism and agriculture, has a large number of military and naval bases as well as defence production. The naval base at Portland learned last year that it was to close. With other defence job losses, about 3,000 in Dorset would be made redundant. At Portsmouth dockyard, the Government decision to end refits was expected to lead to the loss of 400 jobs. The future of 2,000 engine- builders at Rolls-Royce's military division at Patchway, near Bristol, depends on the European Fighter Aircraft project.

The choice between guns or butter is a classic economic dilemma, always hard to resolve. But the central argument that critics of British policy make is that the Government has failed to provide a lead, either by assisting companies or regions to restructure, or by making clear its plans. The problems in shifting production are 'a direct result of the Government's laissez-faire policies,' argues Malcolm Chalmers, lecturer in peace studies at Bradford University. 'In principle the Ministry of Defence is charged with buying the best weapons at the cheapest cost, and isn't concerned with maintaining the defence industrial base, far less with a policy for these companies in the absence of defence orders.'

In the absence of national action, some policy-makers have started looking to the European Community for action. The regional impact of defence cuts was the subject of a study by the European Commission. It found that there were 50 European regions dependent on either the defence industry or military spending. About 3 million EC workers - 2.4 per cent of the workforce - are dependent on the military or defence industries. Of these, most are in France, Britain and Germany. France has 240,000 employees in its defence sector. Germany had 280,000 four years ago, but that number may have fallen to 100,000 by the end of 1993.

Doing something about this is complicated by the lack of any European programmes. Indeed, because many of the jobs are concentrated in the richer parts of richer countries, they are not even eligible for EC regional aid. One of the key conclusions of the EC study is that assistance will have to be far more flexible.

The second area of growing concern is Europe's performance in the world defence market, worth about dollars 1,100bn a year. More than 80 per cent of Europe's defence exports are accounted for by the Big Three: the UK, producing 34 per cent, France 30 per cent and Germany 18. But European companies are chasing a shrinking number of orders, with the market expected to contract by 10 per cent by 1995. Their domestic markets are collapsing. And new competitors in Eastern Europe and the Third World are moving in. The result is that European arms exports have declined dramatically, according to Sipri, from about dollars 9.5bn a year in 1989 to about dollars 5bn in 1991.

There have been some calls for greater European defence co-operation to rationalise what is at best a fragmented industry. Britain, Germany, Spain and Italy are jointly developing the Eurofighter, but the problems with this have emphasised the flaws, rather than successes, of co-operation.

Some companies and countries will emerge from the post-Cold War shake-up with leaner, meaner defence sectors. With obvious gains to be made by companies that can mop up competitors, it is not surprising that the fight for a bigger slice of the global arms market has become bloody.

Yet UK companies, which accounted for 13 per cent of world defence exports in 1990, seem to be losing out. For both Britain and France, defence exports have fallen from dollars 2.5bn each to about dollars 1bn. One of the marked successes of the past two years, by contrast, has been the German arms industry, which sold more than France and Britain put together, according to Sipri. The EC study says: 'There is some evidence that German companies are following a more 'offensive' strategy through moving into related civil markets. UK companies by contrast are pursuing a more 'defensive' strategy, involving lay-offs, closures and sales of facilities.'

But the most significant comparison is with the US. American exports, in contrast to those from Europe, have remained stable at about dollars 12bn. The US has plainly decided it will fight to maintain the world arms market.

The rapid unwinding of defence commitments has started to worry defence planners. The severity of economic pressures has forced some governments to make decisions that seem to defence analysts to lack any military logic. The result has been growing concern in Nato that cuts are happening without any regard for the future. Defence cuts in Canada, Norway, Belgium and the Netherlands have drawn criticism from the organisation's Brussels headquarters, since they appear to threaten the alliance's cohesion.

Nato said last year that it would cut its 1.2 million-member main army nearly in half, to a 100,000-strong rapid intervention force and several multinational corps: about 700,000 troops in total, with the US contingent reduced from 300,000 to 100,000. But over the past year, new national plans have started to undermine this. Belgium has announced plans to halve its 80,000-man army and the Dutch say they aim to reduce their 120,000-strong force by a third over 10 years.

The planning of Europe's military future is complicated by a plethora of organisations and little overall structure. Nobody really knows what the next few years hold for Nato or the Western European Union, its EC-related counterpart. The number of different possible conflicts and the range of tasks - peacekeeping, humanitarian operations, enforcing sanctions or simply guarding borders - is such that defence planning has become even more of a black art than normal. Last year European forces were deployed in Yugoslavia, but also in Africa, Asia and the Middle East, whether for peacekeeping operations or police actions.

This shows that the real tragedy is not just that there was no peace dividend in 1992, but also that there was no peace.

(Photograph and graphic omitted)