Iraq War Boosts High-Tech States

The war in Iraq will help California and other states rich in high-tech military know-how and bolster flagging aerospace economies in Washington and Missouri, economists predict.

While it’s too early to tell the full impact of the war on states, it’s likely the U.S. reliance on technology over troops and reservists over full-time soldiers will affect state economies differently compared to previous wars, experts told Stateline.org.

California, Massachusetts, Florida and Texas are among the high-tech states that will likely see economic gains from the war, said Ernest Goss, an economics professor and the Jack MacAllister Chair in Regional Economics at Creighton University in Omaha, Nebraska. These states, along with Maryland and Virginia, are home to companies that provide the technology for aircraft navigation equipment, military armament on fighter jets and unmanned spy planes, he said.

This new direction of defense spending – away from building ships and planes toward providing high-tech intelligence, logistics and surveillance – is a boon for states with high-tech expertise, said Jim Diffley, an analyst with Global Insight, an economic consulting firm headquartered in Waltham, Mass.

Diffley said it’s still unclear which types of new technology the Pentagon will want next, but the military is not going back to its usual contractors and simply asking for more of the same.

“It’s uncharted territory,” he said.

At the same time military spending is swelling, the commercial airline industry is in dire straits. This means that states with big aerospace operations, such as Washington, are seeing potential gains from new military aircraft contracts offset by losses in the commercial airline sector, said Irving Leveson, president of ForecastCenter.com, a liability company in Jackson, N. J.

As the United States geared for war, states that rely heavily on tourism braced for crippling declines in revenue, fearing a U.S.-led invasion of Iraq would scare travelers away. The results are mixed, economists said. “SARS is probably having a bigger impact [on tourism] than the war,” Diffley told Stateline.org, referring to the outbreak of the illness called severe acute respiratory syndrome.

Creighton University’s Goss predicted that states with large military training centers, such as Fort Benning in Georgia and Fort Sill in Oklahoma, will feel the impact of the shift away from training “massive numbers of foot soldiers” toward a more advanced technology-driven force. It will likely mean fewer soldiers at these facilities contributing to the local economies.

The shift in the kind of soldiers the military relied on during the Iraq war also will affect state economies differently. The huge call-up of reservists is having an impact on states across the board, said John Dunham, president of John Dunham and Associates, a New York City-based economic consulting firm. States not only lost workers to the war, but took a financial hit as they acted to protect citizen soldiers’ income.

Dunham said most of the soldiers sent to Iraq came from a handful of states Texas, Colorado, Georgia and North Carolina and that these states will see a small “boom-let” when soldiers return and are eager to spend the money they couldn’t spend while in Iraq. “A lot of these guys have been there [in Iraq] a year … and there’s just not a lot to buy when you’re out in the desert,” he told Stateline.org.

The rebuilding of Iraq has already landed huge contracts for Halliburton and Bechtel, based in Texas and California respectively, but it’s still too early to tell what kind of impact these contracts will have on state economies. Don Hoyte, who specializes in local and regional economic issues at the Texas Comptroller in Austin, predicted the federal government will award many more contracts for rebuilding the Iraqi oil industry “and a lot of those will go through Houston,” he said.

But Diffley of Global Insight cautioned that while most contracts to rebuild Iraq will go to U.S. firms that doesn’t mean the workers or materials will be subcontracted to U.S. firms. The Philippines, for example, “is very interested and able to provide large number of workers for rebuilding efforts,” he said.

Because the war was relatively swift and didn’t adversely affect oil markets, economists expect states’ economies will get a lift along with the national economy. “As the world becomes a little more certain, I think we will see more business spending and that will have a more positive impact on state budgets,” Dunham told Stateline.org.