Defense Conversion Has Few Converts So Far : Economy: The Administration will announce its first awards this week. Skeptics say the program will perpetuate dependency.

Frank Power watched sales dwindle for five years at his Anaheim aerospace shop--with employment dropping by almost half to 82 workers early this year--before he decided to act.

Using his aerospace technology, he launched the production of a new line of hot tubs, and now the firm is back up to 140 workers and running three shifts. The experience convinced Power that defense conversion programs managed by the federal government are no answer for the aerospace industry’s transition from a Cold War economy.

“You have to go out and find opportunity,” Power said, “rather than wait for a government program so laden with bureaucracy that you have to hire consultants to understand it.”

The Clinton Administration has a much different notion. It proposes to spend $19.5 billion over the next five years on defense conversion that will help contractors redeploy their industrial might to new civilian markets.

“The private sector is the engine of lasting economic growth in our system, and therefore our plan must help companies to make these transitions to compete and win,” Clinton said when he unveiled his plan in March during a speech at Westinghouse Electric Corp. in Maryland.

Whether Clinton’s plan works or perpetuates the dependency of defense contractors on government programs, as some critics fear, holds enormous importance for hard-hit areas such as California.

The program declares that it seeks to “demonstrably enhance U.S. competitiveness”--a lofty goal but one that is unlikely to be a panacea for California’s serious economic and social maladies.

The Pentagon, which is leading five federal agencies, is preparing this week to announce the first awards under the centerpiece of the conversion policy, known as the technology reinvestment program.

The program has only an initial $471 million to spread around the nation--an amount sure to be disappointingly small to regions devastated by defense cutbacks. Many will be left out, since 2,844 proposals were made, requesting $9 billion, about 18 times more money than is available.

Many localities feel the effort is far too modest given the depth of the problems, particularly in Southern California. At best, California will receive $100 million this year, compared to the $30 billion a year that flowed into the state at the peak of the 1980s defense buildup.

“There certainly is not enough money to keep everybody happy,” said Rohit Shukla, director of aerospace business at the Economic Development Corp. of Los Angeles County. “If Congress is serious about defense conversion, they are going to have to put more than 1% of the defense budget into this.”

Clearly, the federal conversion program is too small to be a traditional pork barrel jobs program. But other critics are just as concerned that any spending is a waste, because conversion is best left to private capital markets.

“Risk takers are not the kind of people who file endless paper with the government to get some money,” said Richard Pearle, a former assistant defense secretary under President Ronald Reagan.

“The discipline of the marketplace is invaluable. It rewards people who are right and it punishes people who are wrong,” he said. “As soon as you put the government in between, you start making decisions on a whole other set of criteria--what is fashionable, what lobbyists want or what some congressional staffer thinks.”

Many officials feel that defense workers should take their lumps the same way workers in the steel, auto and oil industries did in the last decade.

Martin Marietta Chairman Norman Augustine agrees.

“I am not a believer that the government owes defense workers any more than it owes all other workers,” he said.

But Augustine, like Clinton officials, believes that the government should address serious defense industry problems that could undermine its ability to equip the military services.

The technology reinvestment program is at the very heart of Clinton’s vision of how government can assist industry through the formation of regional alliances and direct investment to create high-paying jobs.

At the same time, the clipped defense budget has undermined the Pentagon’s ability to support development of its own in-house technology, forcing it to rely on commercial markets for so-called dual-use technology that has commercial and military applications.

“We are going to be much more aggressive in investing in technology and the industrial base,” said Kenneth S. Flamm, deputy assistant secretary of defense for dual-use technology policy. “And some of our defense (technologies) have revolutionary implications for the commercial world.”

Lockheed, for example, has proposed building a highway bridge out of advanced plastics. Electus Technology in Loma Linda thinks a Star Wars proton beam could help treat cancer. Applied Solar Energy in the City of Industry has designs for a semiconductor chip that converts propane flames to electricity.

These proposals, rooted in the idea that a huge reservoir of military technology is ready to fuel new commercial growth industries, are among the roughly 600 ideas submitted by California corporations and universities to Clinton’s technology reinvestment program.

Applied Solar, for example, has made its living for several decades by supplying solar cells for military satellites, but more recently it has diversified into the commercial satellite industry, said David Van Buren, company president.

Now Van Buren believes he has a chip resembling a solar cell that can convert heat from a propane flame directly into electrical current. The device could replace portable generators powered by gasoline engines, he said.

Judging the merit of these proposals, something usually done by the private market, will be tricky for government bureaucrats. The effort is being led by the Pentagon’s Advanced Research Projects Agency.

Gary Denman, agency director and the final authority on selecting winners, said he formed 28 panels with more than 300 scientists and engineers to weed through the proposals. “Merit is the only criteria,” he said.

But some members of Congress want to tinker with the competition. They want to designate through legislation and reports who will get much of the money, a process known as legislative earmarking.

For example, the House subcommittee on defense appropriations, chaired by Rep. John P. Murtha (D-Pa.), recently earmarked 41% of the 1994 funding for Clinton’s technology reinvestment program.

The effort was beaten back by Rep. George E. Brown Jr. (D-Colton), a staunch foe of the practice. But it is unlikely that Murtha, a powerful broker of federal money, has been knocked out for good. If the competition is subverted, it would represent a severe blow to the Clinton plan.

“The Administration has tried very hard to make sure this doesn’t happen, but the opportunities for abuse are tremendous,” said Loren Thompson, a Georgetown University defense expert.

California officials have their own agenda. Democratic U.S. Sen. Dianne Feinstein wants to target conversion spending so that hard-hit states receive funding proportional their loss of defense jobs.

On that basis, California might expect 20% to 40% of all conversion spending, according to Julie Meier Wright, secretary of the California Trade & Commerce Agency.

Feinstein failed in passing a law to mandate targeting, though she said Clinton officials promised that California will get its fair share.

“If it doesn’t happen, I will feel betrayed in a major way,” Feinstein said.

Federal officials insist that no secret deals have been cut. “We are doing everything we can to avoid pork measures,” Flamm said.

The Clinton team has structured its program to avoid the pitfalls of past government technology programs. It focuses on three goals: developing dual-use technology, transferring existing technology and creating manufacturing education programs.

Clinton’s plan requires that companies share 50% of the cost, which is intended to inhibit them from pursuing flawed concepts only because the government is underwriting the effort.

The program also requires that projects be sponsored by two or more companies, universities or other organizations to create regional alliances. These alliances are already having a positive impact, Denman said.

However, Flamm said federal agencies have played a key role in promoting industrial technology, citing the government’s role in the U.S. computer industry’s rise to world domination in the early 1960s.

The Defense Department accounted for the majority of computer purchases through the early 1960s and made early investments in the technology.