Preface Dr. Reiner Weichhardt Deputy Director NATO Economics Directorate The 1994 NATO Economics Colloquium was one of the items included in the economic chapter of the annual Work Plan of the North Atlantic Cooperation Council (NACC). Under the Chairmanship of M. Daniel George, NATO's Director of Economic Affairs, the conference brought together a broad audience of specialists from governmental bodies, the business world and academia. Thirty-one authors and speakers from Allied and Partner countries and International Organizations discussed in five panels pertinent privatization issues in NACC countries with a particular focus on defence industrial problems. The keynote speaker was Romanian Deputy Prime Minister and President of the Council for Economic Coordination, Strategy and Reform, Professor Mircea Cosea. A guest lecture was delivered by OECD's Assistant Secretary General and Director of the Centre for Cooperation with the Economies in Transition, Mr. Salvatore Zecchini. Many experts argued that defence industry privatization is to be considered as a part of overall industrial privatization. However, there are also specific elements to be taken into account. One is that the privatization and conversion potential of the defence industrial sector has to do with excess production capacities. These are capacities which go beyond core defence production needs, as determined by a country's security requirements. However, the demarcation line between core and excess capacities is not always easy to draw. There was general agreement that Partner countries, having inherited a large-scale defence sector, are faced with serious social problems in the process of defence industry privatization and conversion. No doubt, successful transformation depends on the full support of citizens, especially the defence industry workforce. Because defence production is such a major component of these economies, the millions of workers and managers in this complex can be a formidable lobby against continued economic and social adjustment. But there is no alternative to change. Few markets remain for these millions of manhours of production, and there is little money left for government subsidies. Moreover, foreign capital will only be made available if there are economically viable restructuring projects. Another interesting theme highlighted during the conference was that defence industry restructuring is also a Western challenge. The same issues of over-production, job loss and problems to compete effectively on the world market are concerns that also plague defence producers in the United States and the European Union. Western governments are finding that the down-sizing of their defence sector is a painful but necessary process. Admittedly, industrial adjustment and diversification is facilitated by the fact that Western firms are operating in well-established market economies. NATO's Partner countries certainly have a far greater challenge ahead, but their change must progress at its own pace. This book contains all the Colloquium papers. Since only a few up-dates have been made during the editing process, they reflect as accurately as possible the state of information available at the time of the conference. The views expressed by the experts have offered many new insights to the problems and challenges of defence industry privatization and conversion in Allied and Partner countries. The NATO Economics Directorate is therefore confident that the conference results will stimulate and fertilize future work in the field. I wish to thank Michael Devlin, Editorial Services, Brussels, for his most valuable editorial support and coordination in producing this book as well as for the preparation of brief summaries introducing each paper.