At the Business School ten years ago, WARP studied how the government Could get its weapons more efficiently

NEARLY ten years ago, a group of Harvard Business School researchers decided to take a look at the economic efficiency of defense contracts.

They arrived at this decision in a round-about way. For some twenty years, a committee headed by George P. Baker '25, then a professor and now dean of the Business School, had been researching the problems caused by the tremendous growth of aviation. In 1957-58, some of the members of this committee met to discuss the basic economic problems of the aircraft industry.

After a few meetings, the committee decided these problems presented a typical case of the relations between government and the defense industry. They decided to expand their research into the wider field.

The prospectus of the project said that it would attempt to "determine the nature of the relationships between the government and weapons contractors in the acquisition of advanced weapons." The researchers hoped to find out how these relationships affected the cost and development time of weapons, and to recommend improvements in the system of awarding defense contracts.

To finance this research, the group sought a grant from a "neutral" source, to avoid charges that the study was "industry-oriented" or "government-oriented." Approaching the Ford Foundation for a grant, they were given $260,000. A name--The Weapons Acquisition Research Project--and a project head--Paul W. Cherington '40, James J. Hill Professor of Transportation, completed the preparations.

From 1958 to 1961, the WARP studied 12 major defense contracts including the Atlas, Jupiter, and Polaris missiles, the F4H intercepter, and the Nike Zeus anti-missile. Their case studies covered more than 1200 draft pages.

Researchers for the group received access to classified materials of the Defense Department on a "need to know" basis. In return, they agreed to submit all publications by the WARP to the Security Office of the Secretary of Defense for clearance.

One basic feature of the defense industry struck the WARP researchers from the beginning. They found that defense business takes place in a "unique environment of uncertainty." A high proportion of the effort of defense industries involves unpredictable research and development activities.

One researcher had second thought about participating in the project: "I am not proud of what seem to be my principal motives-intellectual fascination with a complex and challenging problem...and the well known need in academic circles to publish or perish....

"Stimuli of this sort have long been a driving force in the advance of science, both physical and social. But now, unfortunately, scientific advance seems to contribute more to our capabilities for destroying civilization than to building a better world. The scientist, by tradition reserving judgment on the moral implications of his work, will continue to publish, and perhaps we shall all perish."

Technical difficulties in a defense project can create soaring costs, or add years to the anticipated development time. Furthermore, technical advances can make a weapons system obsolete before it is even in operation.

The domination of the market by one buyer--the government--adds to the uncertainty. Changes in national defense policy (such as the Eisenhower emphasis on nuclear, rather than conventional weapons) create havoc in the market.

Thus, the defense business takes on a non-market character. The WARP found that the government relieved defense firms of economic risk, and played a correspondingly larger role in the managerial decisions.

After analyzing the government's incentive policies, the WARP found that they gave defense contractors relatively little incentive to reduce costs. However, the existing system did provide maximum quality and a minimum development time for weapons.

To strengthen cost incentives, the group recommended that incentives be determined by an objective board after a given weapons contract had been completed. The more efficient the performance the higher would be the profit. Furthermore, they advised that past performance be taken into account when awarding new contracts. High-performance contractors would be rewarded by a rapid rise in their share of the defense awards.

To date, the Harvard Business School Press has published two volumes of the WARP's findings. The first, entitled The Weapons Acquisition Process: An Economic Analysis, appeared in 1962; it is 736 pages long. A second volume--The Weapons Acquisition Process: Economic Incentives (447 pages) was printed in 1964. A third volume is now being written.

A co-author of the first volume, Merton J. Peck, now professor of economics at Yale University, felt that it had "some impact, but how great an impact I couldn't say" on the changes made by Secretary of Defense Robert S. McNamara in the awarding of defense contracts. "It didn't outsell Earle Stanley Gardner in the Pentagon bookstore, but it sold well for its type of book," Peck commented.

At least one member of the WARP had some reservations about the project. The author of the second volume, Frederic M. Scherer, now an associate professor of economics at the University of Michigan, wrote in his preface.

"The publication of this volume terminates a long struggle with my conscience. It is difficult to write a book of this sort without suppressing doubts about the morality of contemporary weapons development and production efforts...

"The indiscriminate slaughter of hundreds of millions of innocent persons through total nuclear war could clearly be wrong. In my mind, even resolving to wage total war under some set of conditions poses moral problems. Although I admit numerous doubts, I feel it may even be wrong to participate actively in the creation of improved instruments for waging total war. And my work on this volume certainly constituted participation, however indirect, in the creation of such instruments.

"I am troubled more directly by a basic policy premise of this book; that efficiency is a desirable objective in the conduct of advanced weapons development and production programs. The weapons production process may be too efficient already...

"One might justify efficiency measures in the hope that freed resources could be devoted to education, exploration of the universe, technical aid to emerging nations, urban redevelopment, etc. Given the pervasive pressures for added arms spending, however, it seems likely that efficiency gains would lead more to increases in our already formidable arsenal than to the reallocation of resources into applications yielding greater social benefits. An efficiency-induced increase in U.S. military strength would in turn, if recent history can be extrapolated, spur the Soviet bloc to intensified efforts in forging new and more powerful countervailing weapons...

"Why did I persevere in writing this volume despite my reservations? I am not proud of what seem to be my principal motives--intellectual fascination with a complex and challenging problem, the desire to be recognized for proposing an improved analysis of and solution to the problem, and the well-known need in academic circles to publish or perish...

"Stimuli of this sort have long been a driving force in the advance of science, both physical and social. But now, unfortunately, scientific advance seems to contribute more to our capabilities for destroying civilization than to building a better world. The scientist, by tradition reserving judgment on the moral implications of his work, will continue to publish, and perhaps we shall all perish."

It was publicly announced shortly after the Dow demonstration that Ramparts magazine had planned to publish an expose of Business School "complicity" with the war. Ramparts has since abandoned the article. It is understood that it dealt primarily with WARP. -- Ed.