Defense. And, in fact, that responsibility says that we should propose to you the force structure that we believe is necessary to deter aggression, and, if necessary to fight and win any conflict which would protect the vital interests of this country.

That is our job, and therefore we would be negligent if we colored what we presented by other factors without fully labeling what those other factors were.

What we have proposed in our long-range plan, as well as in our 1993 budget submission, is a force structure a weapons acquisition program, a program for continuing research and development-which we believe fulfills the requirements of the national defense strategy and gives us the capability of deterring aggression, and if necessary responding rapidly and winning any conflict that may ensue.

And that I consider to be a prime responsibility of the management of the Department of Defense. And it is not colored by what we think would be a responsibility to maintain jobs or to maintain an industry going to prevent the loss of jobs. We are concerned about the viability of the defense industry. And we do and are conducting studies of critical processes, critical technologies, that would be very difficult to reconstitute. And that does not mean reconstitute only if there is a crisis. It means, because we have a such a large number of weapons, there may be gaps in our production.

I mentioned the nuclear attack submarine earlier. I mentioned the tanks earlier. Therefore, we need to be sure that we have this capability of reconstitution on critical technologies.

As a citizen, I am obviously with you, and with all of the country, very concerned about the industrial base. One of the things that I would like to point out-and this came visibly home to a number of us who had a long trip through Eastern Europe, and later a long trip through the republics of the former Soviet Union. In evaluating the problems they face-here, we have a defense budget which is headed toward about 3.4 percent of the GNP. It is a little over 4 percent of GNP now. That says that if we take out 20 or 25 percent of what we procure, we are affecting less than 1 percent of the GNP.

And fortunately, we have a large and basically strong commercial industrial base for that to work into. It makes a big difference.

In Eastern Europe and in the Soviet Union, it is quite the contrary. Their military expenditures are often in excess of 30 percent of the GNP. And furthermore, the remaining commercial industry is extremely weak. They have a very serious problem, unlike ourselves. So, as a citizen here, I am concerned. But it is small compared to the commercial base we are working into.

You asked about, I think finally, the appropriation that Congress approved setting up a commission to study just this problem. And I would tell you that we have not moved as rapidly in setting up a commission, I think probably because we, within the Department ourselves, are evaluating just this.

And I assure you-I think the appropriation was $5 million. And I assure you, sir, we will do that and we will get back to you on

it.

PEACE DIVIDEND

Senator INOUYE. There are many words and phrases that politicians use, and this is a great political season now. One of those, made up of two words-peace dividend.

Now, obviously, with your budget proposal, there will be a reduction in your books. But should we be concerned about the increase in costs in other areas, which would more than make up for this gain on your side, such as unemployment compensation, welfare costs, food stamps, retraining programs, increase in crime-which would more than gobble up the peace dividends?

Mr. ATWOOD. Yes; I would like again-I am not running for cover. As a citizen I am happy to answer those questions. But let me say, as Deputy Secretary of Defense, with the prime responsibilities we have, I am here to stand behind the budget we proposed for defense our force structure, the acquisition, the size of our Armed Forces, and so forth.

These other matters are fundamentally outside of the realm of the Department of Defense. But all of us, as citizens, have viewpoints on them.

INTELLIGENCE INPUT

Senator INOUYE. I just have one more question before I call on my vice chairman. Am I correct to assume that in submitting your budget proposals, you have conferred very carefully with the intelligence community, and with other experts as to what we can anticipate, what problems, contingency plans and such?

Whenever I think of the intelligence community and protections, and possibilities, I cannot help but remind myself of 1990, which is not too long ago. In January 1990, the Department of Defense was prepared to retire General Schwarzkopf. The Department of Defense was prepared to dismantle the Central Command because it was no longer considered necessary.

The administration approved the loan guarantee for Saddam Hussein. We gave him a $200 million line of credit in the Exim Bank. The Commerce Department was preparing to set up a trade fair in Baghdad to sell them computer technology and aerospace technology. In fact, the word was everything was fine and this was the man we could look upon to guide us down the path to peace.

Do we anticipate any problems of this nature? What does your intelligence say about the problems in the Korean Peninsula? Is the Middle East now stabilized? Are Pakistan and India shaking hands, little problems like that?

Mr. ATWOOD. I do not want to put myself in the position of speaking for the intelligence community. I think they do speak for themselves quite actively, but let me speak from our standpoint within the Department and those elements of intelligence that we do rely on.

Without trying to undergo history, let me talk about the present status. We see trouble spots, or potential trouble spots throughout the world. No. 1, we have seen the breakup of the Warsaw Pact countries, and these countries are struggling for economic stability. We have seen the dissolution of the former Soviet republics, but as yet an unsettled shape. The true face of the new republics is just

now being formulated, and so, indeed, we are facing great uncertainties and will until those have settled out.

In particular, we need to be concerned about No. 1, the large store of nuclear weapons that exist there. No. 2, the store of technology in weapons of mass destruction and the potential availability of that to Third World countries, or the countries whose governments are unstable, or practice aggression, or practice terrorism.

No. 3, we need to worry about their commitment to a democratic system, and to a free-market system. So long as their standard of living is sufficiently low that people walk the streets looking for food, looking for pharmaceuticals, looking for the bare essentials of life, yes, there are concerns, and they are deep concerns about the stability of the whole world.

Compounding that is the concern, as you turn to the Third World countries, and the availability of this technology of weapons of mass destruction, and the ability to deliver them, and the fact that a Saddam Hussein does still exist, the fact that Cuba still exists, and Castro exists, the fact that North Korea is still there, and we need always to be concerned about potential actions in those areas. Those are the sorts of things that we take into account when we establish what we see as our defense posture, our Armed Forces of the future, and the weapons that we need.

Senator INOUYE. Senator Stevens?

INDUSTRIAL BASE IMPLICATIONS

Senator STEVENS. Mr. Chairman, I will be brief, because I did get about a 10-minute window here until my next appearance.

Gentlemen, I think our problem is we keep hearing, notwithstanding what you have done and I think we note that you have come down, for instance, on procurement from 1990, about $23 billion already, we hear that you are not doing that rapidly enough. The systems that have been cancelled have not been terminated quickly enough, so that the savings could be realized.

Now, I think you need to give us some details. I am not asking for it now, but details to indicate how rapidly these systems are being terminated and what would be the cost of moving faster. I am of the opinion that there is an increased cost to termination when the agreements provide for termination damages as opposed to buying out a line, but we need to have that detailed information.

OPTIONS AVAILABLE

Second, I keep hearing that we all have, that it is possible to cut this budget by another $100 billion in this 5-year period, and that primarily, I take it, is in the area of procurement. The budget, as I see it, has a heavy tilt right now to manpower. If we look at the cost of manpower in both salaries and O&M, and the other costs involved in housing-have you looked at those options that other people are giving?

I notice, for instance, a very, very thoughtful paper of Congressman Aspin in terms of the options that are available in defining missions, thereby cutting procurement and manpower, and all their aspects of defense, based upon the agreement as to missions.

Are there other options besides your proposal that would be consistent with our national security?

Mr. ATWOOD. I would never want to say that there are no options, because there an infinite number of possibilities. Could I make just one very minor correction, Senator? From 1990 to 1993, our acquisition procurement has gone from a little over $80 billion in 1990, to about $54 billion in 1993. It is about $27 billion and I forgot the number you used.

Senator STEVENS. I had $81 and $58 billion.

Mr. ATWOOD. That is to 1992, but that is all right. You have the same numbers that I have.

MANPOWER REDUCTIONS

Senator STEVENS. Well, I am worried about this, because we are already working on the problem of manpower reductions. The Government Affairs Committee has held a hearing. I believe there are some things we have to do to take care of not only military people whose contracts and enlistments will be canceled, and the civilians who have to be terminated. But if Congress makes these deeper reductions you will be forced to lay off additional personnel.

You gave us a figure of about 1 million people already in the Defense Establishment. Do you have the comparable figure for the number from the industrial base that have been terminated as a result of our reductions?

Mr. ATWOOD. No; I do not. Of course, what happens is when you ask them, in all fairness, you ask a company, what does this mean, they always roll in the effect on the community of the drugstores and the shopping centers and so forth, so it is very difficult. The number who are terminated as a direct result of the contract, we could get. I do not happen to have that, but what we have to be careful is, not roll in the other.

Senator STEVENS. CBO estimates that to be 800,000 from the industrial establishment, so we, in effect, will have affected about 2.9 million already, if that is the case.

Mr. ATWOOD. I have no basis to argue with that.

Senator STEVENS. What I am trying to get to is whether you have any estimates of what would happen if we do have the $50 billion from personnel, and $50 billion from procurement that has been mentioned here. Has that been examined?

Mr. ATWOOD. Let me just talk about that, because I think there are a number of factors to take in. Let me talk about the ground forces first. Everything that we see we are drawing down the size of the Armed Forces, and the numbers of people at about the maximum rate consistent with preserving the high quality, the morale of this volunteer service.

If we took the Army down at a much faster rate than we are taking now than there is already programmed into 1993, everything that we can determine, we would probably end up with having to have a RIF, and that would be pretty dangerous to the morale, the training, and the discipline of the Armed Forces. So I think whatever action we took in 1993 would not be consistent with increasing the rate at which we took our armed forces down, that is one.

No. 2, as far as the civilian come down within the Department of Defense, we have been doing that virtually 80 percent or more

on normal attrition. We have a little different advantage in that we can use normal attrition, because you can hire into the civilian corps at all levels for critical people that we might lose. But normal attrition has so far taken care of close to 90 percent of all of the civilian attrition and that is not a serious problem at this time.

Now we may end up, as we get closer to our 216,000 that are coming out we are at about 85,000 or 90,000 now. We may have some layoffs, but right now, we have not-a very small number.

TERMINATION CONSIDERATIONS

Senator STEVENS. Just a last comment, and the comment is this. At this time we are reducing a force that is a volunteer force, as compared to World War II-the aftermath of World War II, when basically the force that was let go was the draftee force. This means that we do have some different considerations in terms of terminating those contracts and trying to figure out what is fair with regard to career termination in this process.

I want to commend you and our former colleague, your Comptroller, for what you have done so far, but I think we need to go further in establishing what is going to be the policy with regard to these terminations, both in the uniformed personnel and civilian personnel, or we are going to have a very difficult time in the future convincing anyone that they should, in fact, enlist or join the armed services. Despite the reductions, there are still the acquisitions at the bottom that must continue.

Our staff reminds us one other difference in terms of this period of termination as compared to the end of World War II, there is a substantial number of young women in this armed service now that are also going to be terminated. They also made a big difference in terms of this recent buildup, and I think there really has to be some consideration given as to how fast the economy can reabsorb those people. Because if we terminated even more rapidly than you have planned, then I think that exacerbates the attempt to recover from this recession.

I look forward to working with you and I thank you very much for a very interesting presentation.

Mr. ATWOOD. I appreciate it. I thank you very much, Senator.
Senator INOUYE. Senator Domenici?

Senator DOMENICI. Mr. Chairman, first I want to ask a question that has a mild parochial overtone, but do not worry, I will soon get to the questions on the other issues. Frankly, I might say, Mr. Secretary, your testimony today bothers me greatly. I do not know that I will be able to verbalize it. Something just does not set right with reference to your understanding of the American economy, and what is going to happen if we proceed without any additional plans for these military men and women, and just proceed to let them out.

ACQUISITION OF TOPAZ II

Having said that, let me reminisce with you for a minute. It seems to me that, at least tacitly, the Department of Defense, Secretary of State and, I think, even the White House supported an amendment on the floor of the Senate by Senator Nunn. Many of