The common defense - defense spending

National Review, June 30, 1989 by Ed Rubenstein

THE DISPROPORTIONATE defense burden shouldered by the United States is quantified in a report of the Secretary of Defense released in April:

According to the Pentagon, approximately 60 per cent of total U.S. defense outlays are directly related to NATO, which implies that we spend 10 per cent more defending Western Europe than the 14 other NATO countries combined. The share of our population engaged in defense-related activity (1.4 per cent) is also above the NATO average, and seven times as high as Japan's. Only Greece (2.3 per cent) and Turkey (1.8 per cent) devote a larger share of population to defense, arguably arrayed against each other as much as against the Warsaw Pact forces.

The burden-sharing problem is compounded by the considerable, albeit indirect, contributions to Soviet defense spending made by Western European and Japanese banks. Gross Soviet indebtedness to Western commercial banks reached $36.8 billion at the end of 1988, more than doubling in the past four years (it stood at $16.6 billion at the end of 1984). In a spate of highly publicized deal-making, the Soviet Union secured an additional $9 billion in credit lines from Western banks in October of last year. West German banks led the way with a $1.8-billion package, followed by banks in Italy ($775 million), Britain ($1.8 billion), and France ($2 billion). Japanese and Canadian banks accounted for another $3 billion; U.S. banks, which account for less than 0.5 per cent of total Western private-sector loans to the Soviet Union, did not participate in the latest deals.

The unusual publicity surrounding the October credit-market blitz has convinced some financial observers that it was intended to reassure the Soviet military establishment, a few weeks before the December troopcut announcement, that an inflow of Western resources can partially offset the military cuts.

On paper it's hard to see why the Soviet Union needs to borrow at all. Countries with trade surpluses tend to be net international lenders, not borrowers, and the Soviet Union's hard-currency trade surplus with the non-socialist world reportedly rose from $1.5 billion in 1985 to $8.4 billion in 1987, before falling oil prices in 1988 pushed the surplus down to about $1 billion. It turns out, according to PlanEcon, a Washington-based economic consulting firm, that while Soviet statistics show a large trade surplus vis-i-vis Third World countries, the bulk of it is on paper only, reflecting the fact that Soviet "sales" of arms and capital goods to Libya, Nicaragua, and other client states are basically giveaways, consummated with long-term export credits rather than hard cash. Western banks have provided the bridge loans needed to finance these transactions.

Moscow has avoided overplaying its Western-credit card. There has been nothing resembling a debt crisis involving the Soviet Union: indeed, in 1986 Gorbachev went so far as to pay off on defaulted 1917 Czarist bonds still held by the Bank of England. The Soviets have kept their debt-service ratio down to a manageable 20 to 25 per cent of exports, for which they have been rewarded with extremely favorable interest rates by Western banks.

DURING THE Stalin era, then-Senator Claude Pepper of Florida was so enthusiastic about the Soviet Union that he became known as Red Pepper. In 1950, the voters finally got rid of him, or thought they had.

In 1960, he made a big comeback, running as a tribune of the geriatric ftom the Miami congressional district. He had nothing truly creative to contributeany redistribution to the old, from the young and middle-aged, was fine with him. His program was merely more federal spending, and his political contribution, the care and feeding of yet another specialinterest group.

The week Jim Wright and Tony Coelho resigned, Pepper lay in state in the Capitol rotunda, the 26th man to do so, and the week's third symbol of congressional corruption.