THE FUTURE OF THE U.S. DEFENSE INDUSTRY

Defense contractors in the United States face a painful choice between downsizing or investing in new high-risk commercial ventures. Past experience reveals numerous failed efforts to penetrate commercial markets and few, if any, successes.
The capabilities required to succeed in civilian business are fundamentally different from those needed to design and produce weapon systems. Defense firms and defense divisions of diversified corporations lack adequate knowledge of commercial products, production methods, advertising and distribution, financial approaches, and customer demand.
Given the outlook for a sustained decline in U.S. military spending, the author advises companies catering to military markets to cut their costs by reducing excess capacity. Smaller but more competitive positions can be achieved through restructuring, mergers, sales of assets, and, if necessary, closing down unneeded facilities. Firms that ignore the pleas for "conversion" and do not dissipate their assets in civilian markets alien to them stand the best chance of surviving during a period of reduced military demand.     

THE COST OF THE U.S. SUGAR PROGRAM REVISITED

The article analyzes the welfare cost of the U.S. sugar program using a multimarket model of U.S. sweetener markets. The latter includes raw crops, sugar extraction and refining, and sweetener users (food-processing industries and final consumers). The authors address the industrial organization of food industries using sweeteners and treat the United States as a large importer. With the removal of the program, this article estimates (all figures in 1999 dollars) that in 1998 cane growers, sugar beet growers, and processors would have lost $307, $650, and $89 million, respectively; sweetener users would have gained $1.9 billion. World prices would have increased by 13.2%. The deadweight loss of the program is estimated at $532 million.     

THE SOURCES OF THE DECLINE IN U.S. OUTPUT VOLATILITY

In this paper, we investigate the sources of the decline in U.S. output volatility. We estimate structural vector autoregression models before and after the structural break date of the first quarter of 1984. We find that the magnitude of both supply and demand shocks in the pre-1984 period is greater than that in the post-1984 period. We also find that the relative importance of the demand shocks in the post-1984 has decreased drastically compared to the pre-1984 period. Further counterfactual analyses show that good luck, good policies, and better business practices might have played a role in reducing U.S. output volatility. ( JEL E30, E60, C32)     

INCOME DISTRIBUTION IN THE U.S.S.R. IN THE 1980s

In 1989 Soviet authorities released unprecedented new data on the size distribution of income in the U.S.S.R. in the 1980s, including the distributions by republics. With the goal of providing a benchmark for evaluating the effect of current and future economic reforms on income distribution in the former Soviet Union, this paper estimates inequality measures for the new data. The estimation uses a simple nonparametric technique based on the Kolmogorov-Smirnov test to fit the Soviet data to a lognormal distribution. The results suggest that, for income from official sources, (1) inequality in the Soviet Union as a whole declined throughout the 1980s-both before and after Gorbachev's accession in 1985, and (2) income inequality was greater in the poorer, southern republics of the U.S.S.R. than in the north. While the inclusion of unofficial (unreported) private income would probably reinforce the second of these two trends, its effect on the first cannot be determined on the basis of available information.