County Defense Firms Told They Should Diversify : Economy: Participants at economic conference agree Orange County can weather Pentagon spending cutbacks by coordinated action of the private and public sectors

IRVINE —  Despite the prospect of sharply lower Pentagon budgets, Orange County’s vast defense industry can remain viable in the 1990s by increasing its efforts to diversify into commercial markets, local business executives were told Monday.

While participants in the daylong economic conference generally agreed that the county can weather the cutbacks, they said it will take coordinated action by the defense industry, private business and local governments to soften the loss of defense dollars and jobs.

Organizers said the meeting was the first of its kind to bring together such a wide spectrum of participants--local, state and national officials, defense contractors, economists and educators--at a local level.

The consensus expressed at the meeting echoes a recent study by the Defense Budget Project, a nonprofit think tank, which concluded that U.S. defense spending cuts will not affect the country’s economy in general.

Irvine Mayor Larry Agran, who organized the meeting, said this dialogue among the leaders of the community can set the stage for discussions in areas where the defense industries may redirect their manpower and capital.

“The handwriting is on the wall,” said Agran, who began planning the meeting six months ago when it was apparent that “the Cold War era is over and an opportunity to diversify the county’s economy is momentary and could be missed.”

“Business is changing,” Agran said. “If we can diversify fast enough, we can create an industrial renaissance in this county and we can inspire similar activities in other counties in the state.” He added that Irvine is willing to provide a forum for such discussions in the future if private industry and educational institutions pitch in.

The Bush Administration has proposed a 2.6% cutback in defense spending in the fiscal 1991 budget in response to sweeping economic and political changes in the Soviet Union and Eastern Europe. And Defense Secretary Dick Cheney has said the defense budget could be cut by an additional $106 billion between 1991 and 1994.

But profound changes have occurred in the world that call for swift action to diversify the county’s economy, said Rep. Barbara Boxer (D-Greenbrae).

“Deregulation took place globally and that resulted in more competition,” Boxer said. “Irvine will have to compete with Europe and the Pacific Rim countries. There’s a tremendous market in the world market and a promise of increased trade is there for the county’s defense-related industries.”

Washington is aware of the possible dislocations that a military cutback may bring to cities and counties, Boxer said. Three bills that attempt to ease the economic impact of defense cuts have been introduced in the House and one in the Senate. But a lot of work will have to be done locally to achieve the success of diversifying into areas the communities can be comfortable with, she said.

Despite the prospect of lost defense jobs, the speakers generally agreed that the county will survive the Pentagon’s cutback. And, they said, the defense industry may be better off in the long run by expanding into commercial markets and by retraining workers and retooling factories to meet increasingly fierce international competition.

The Japanese are not slowing down, and the warming of relations between Washington and Moscow could declassify a number of defense programs for civilian use and sale abroad, said a former Hughes Aircraft Co. executive.

“The bonus of being free at last should be a boon to science and technology,” said Tom Hall, a retired Hughes executive. “There will be spontaneity and high creativity since the initiative is dependent on scientists and engineers, and we have a lot of that here.”

Lloyd Dumas, an economics professor at the University of Texas at Dallas, agreed. “The technical talent of Orange County will allow it to generate alternative markets for its goods and services. Hughes and Rockwell will have to downsize, but neither of them will disappear.”

But perhaps the major problem facing the local defense industry is that many companies do not expect a cutback in government spending to affect their areas of specialty, Dumas said.

“Obviously, many companies in the industry are not planning any conversion from military hardware to commercial products,” he said. “Companies need to start long-range planning, and we need to get away from short-term planning.”

During the meeting at Irvine City Hall, defense industry executives and educators alike agreed that the diversification process will be less painful if local governments and industry developed a coordinated plan for diversifying the county’s economy.

“The military industry can retool to produce products by getting the civilians involved,” suggested Joseph Wahed, senior vice president and chief economist of Wells Fargo Bank. “I expect dramatic, quick changes in Eastern Europe and we have to discuss and act together to stay on top of things.”