Updated: 25-Apr-2002 NATO Review

Web edition
Vol. 41 - No. 4
Aug. 1993
p. 19-22


Daniel George
Director of NATO's Economics Directorate

Following the inauguration of the North Atlantic Cooperation Council (NACC) in December 1991, NATO's economic functions have been restructured to cover joint activities with the Cooperation Partner countries. A major effort of the Economics Committee, with support from the Economics Directorate, is now directed towards assisting Partners in those security-related economic areas where NATO enjoys special competence.

In organizing this work for NACC activities, we have tried to fulfil three criteria. First, projects should be of interest and benefit to Partners. For that purpose, we attempt to ensure their maximum participation in all stages, from formulation to execution. Numerous meetings are held with the Partners before projects are proposed for the Work Programme to be approved by the NACC. Second, we maintain close touch with other international organizations and Alliance agencies which provide bilateral programmes of assistance to Partner countries since it is important that we do not duplicate the work of others. And, third, we design our programme with budgetary implications strictly in mind. Our cooperation cannot consist of costly technical assistance, in this time of reduced resources. But NATO's expertise in numerous security-related economic areas is second to none and more valuable to our Partners than might appear when measured in purely budgetary terms.

Developments in 1992

With these principles in mind, the Economic Committee implemented its mandate for defence economics cooperation under the 1992 NACC Work Plan for Dialogue, Partnership and Cooperation. Three major meetings were held in 1992:

  • a Defence Conversion Seminar, 20-22 May;

  • a meeting on the Interaction between Defence Spending and Economic Development, with Particular Emphasis on Defence Budget Issues, 30 September-2 October; and

  • a meeting on The Human Dimension of Defence Conversion, 3-4 December.

Some two months after the publication of the 1992 Work Plan about 200 government and private sector representatives, from 13 Alliance and 12 Partner countries (plus nine international organizations), gathered at NATO Headquarters for a seminar on defence conversion. Defence conversion concerns the re-allocation of resources from defence to civilian uses, as governments reduce numbers of military personnel and their purchases of defence equipment and materials. Countries need successful defence conversion programmes if their populations are to benefit from lower military expenditure; conversion helps to raise living standards and avoid unemployment. It was selected as an early and major topic for consultation for these reasons, and because it is central to the evolution of command economies towards market and democratic systems. The seminar had two main goals: to better understand Partners' problems and needs in this field, and to examine ways of jointly redressing their difficulties. Highlights of the discussions, which focused mainly on the first goal, included:

  • the new political and security environment creates the conditions for reduced defence expenditures, lower arms production and sales (including exports), and thus raises the potential for conversion;

  • other elements (national defence strategies, force planning, defence budgets) will influence conversion efforts;

  • governments must play a large role by defining national security needs, creating legal frameworks, providing social safety nets and, in Partner countries, ensuring the transition to market economies;

  • conversion in Partner countries is impeded by outmoded equipment, scarcity of investment, lack of know-how, and so on;

  • Western technical assistance, especially that provided through private sector investment and cooperation, is of crucial importance to the success of conversion.

A Working Group, which met in the margins, examined the lessons arising from the Seminar and identified possible future activities. Among these were:

  • consultations on issues such as the appropriate character of defence industrial bases, and the inter-relationships between defence expenditures and general economic developments;

  • NATO can play an information collection role, through such activities as creating databases of defence conversion experts, experiences, and potential enterprises to be converted. In coordination with other international organizations and bilateral programmes, a clearing house for conversion information could be created;

  • technical assistance and research projects could be organized under NACC auspices, within budgetary constraints and the need to avoid duplication of other multilateral or bilateral work.

The second of the major meetings, concerned with defence budgets, was attended by representatives of 13 Partner countries and 11 Alliance members. Participants examined the overall macro-economic effects of conversion on internal and external markets, related investment needs, and social repercussions. Several briefings on defence budget processes, focusing on structure, transparency and planning were presented by national experts. The discussions which followed revealed the need for a 'common budget language' to facilitate future co-operation. The UN or the NATO system of defining and arranging defence expenditure, or some fusion of the two systems, might be appropriate. Other topics addressed included defence goods price formation and structure, military production and budget implementation under high inflation. Participants were asked to complete a questionnaire to provide possible directions for future cooperation in this area.

The December meeting on the Human Dimension of Defence Conversion was targeted on conversion issues from the viewpoint of managers and government officials running industrial or military establishments and, of equal importance, of the workers.

The following points were covered:

  • general principles of human conversion;

  • training and retraining for military personnel and defence sector employees. Programmes in Alliance countries were described, and considered in relation to special conditions in Partner countries;

  • efficacy of on-the-spot measures, including the local creation of new jobs to absorb redundant workers;

  • potential of arms exports for financing human conversion;

  • a specific case study of a successful cooperative project in St. Petersburg by an Alliance member as a model for similar cases.

The question as to whether there are characteristics unique to defence conversion drew considerable discussion. Some, mainly Alliance, participants argued that defence conversion is a natural part of overall economic adjustment or transformation. However, a number of Partner experts considered that both the type and location of defence production in their countries presented features which required a special approach.

A common principle which emerged from the case studies presented at the meeting was the value of explaining to the workforce of a defence plant the need for conversion so as to secure their active cooperation in implementing changes. A representative of the trade unions from one Partner country provided a clear view of the economic and social difficulties arising from defence conversion in those countries.

Taking up ideas emerging during the May 1992 seminar, the Economics Committee has implemented two modest but practical schemes through which the Alliance can assist the Partners to deal with their formidable problems in defence conversion.

One is that of pilot projects. Here the Alliance has suggested to our Partners that they submit proposals for specific defence conversion projects, on a limited and tightly defined scale. These projects are then scrutinized and assessed by the Economics Committee, with the objective that, if evaluated as worthwhile, they should be candidates for technical and financial aid from one or more Alliance members. A number of such pilot projects are now being assessed under this process.

In the other scheme, NATO acts as an information agency, by constructing a database, or computerized reference system. One database comprises the names, qualifications, interests and experience of experts in defence conversion. There are numerous individuals in Alliance and Partner countries who, working in academia, industry, or consultancy, have developed substantial experience and skill in the practical analysis and implementation of conversion projects. A coordinated list of these persons, regularly up-dated, will be made available to NACC members, as a field from which they can select those individuals most appropriately qualified to advise on particular conversion issues.

The other database is under consideration, rather than in operation. It would comprise information on potential projects for conversion in defence industries of the Partner countries.

Current activities

The first consultation with the Cooperation Partners under the 1993 NACC Work Plan was held on 13-14 May on Defence Budget Formulation; Threat Assessment and Force Planning; Project Selection. Participants examined the expected near-term linkages in several NACC countries between defence spending and the civil economy; examples of assessing defence spending projects by cost-benefit techniques; the principles of assessing security risks and force planning in the changed international environment; and further steps in developing a 'common language' for defining and categorizing defence expenditure, with reference to NATO and United Nations practices. The 1993 Economics Colloquium, held from 30 June-2 July, on the theme Economic Developments in Cooperation Partner Countries from a Sectoral Perspective, included 14 presentations by representatives of these states. The keynote speech was delivered by the former Polish Finance Minister and distinguished reform economist, Mr. Leszek Balcerowicz. In his address, he noted that successful reform will differ in Partner countries, depending on initial internal and external conditions. However, all countries must undertake a certain degree of risk, for the option of a 'no risk' policy does not exist. During the three days of the colloquium, presentations and discussions ranged from factors of internal stability such as living standards, social welfare and employment, to specific critical areas of industrial restructuring and defence conversion and energy supplies. Overall, the colloquium provided a major venue for a free exchange of views among participants and will fertilize the future economic dialogue and cooperation within the framework of the North Atlantic Cooperation Council. A third meeting, on Cost-Benefit Analysis of Arms Limitation Agreements, is planned for 30 September-1 October.


The economic functions undertaken in the first 18 months of the NACC have, inevitably, been to a degree innovatory and exploratory, both for the Alliance and the Partners. We are still in the process of developing the most effective format,content, and intensity of the joint activities. As in any new relationship, however, both parties have to 'work at it', and to find out by trial and error (but not too much error!) what things they can successfully do together and how best each can contribute. My sense is that so far the participants in the NACC economic activity have widely perceived it as worthwhile, although demanding. I have been particularly encouraged by the development of supportive and easy working relations, as participants have got to know one another better. Judging from experience to date, I am absolutely convinced that it has been right for the Alliance to put a small fraction of its limited resources into this particular way of cooperating with its former opponents. A gap would have been felt if the NACC partners had failed to exploit the opportunity of strengthening their exchanges in the sphere of defence economics, small though it is in the totality of East-West relations.

© Copyright by North Atlantic Treaty Organisation 1993.