The Continuing Peace Dividend

NEW YORK ( TheStreet) -- Some 30 years ago, as a young reporter, I learned the secret of America's peacetime economy, its continuing peace dividends.

It came in an interview with a local technology executive. He was a former Air Force officer and noted that his lieutenants were also ex-military. I still have the tie he gave me that day, and came close to saluting as I walked back to my car.

The Air Force team was busy turning computing techniques learned in the military into something that's now commonplace, online transaction processing. The U.S. has dominated that area of business from that day to this.

The size of our peace dividend tends to rise after we cut defense budgets, as technology creators seek ways to capitalize on their research, and gain the motivation of profit to find it.

The collapsing military budgets following World War II and Korea were followed by huge booms in domestic manufacturing technology. The benefits of microprocessors and the Internet became commonplace after the Vietnam-era budget cuts.

During the first Obama Administration the Defense budget has held steady even while our foreign military commitments have declined. The president now claims a "peace dividend" is coming which Time Magazine calls a modest drawdown in constant dollars.

Even this modest reduction is causing Lockheed-Martin ( LMT), the largest government contractor according to Washington Technology , to go into strange new areas like health IT, as the Washington Post reports. Maybe all that drone technology it has invested in so heavily, which I wrote about recently at Seeking Alpha , might help Google bring self-driving cars to market faster.

At the heart of our peace dividends has been one main branch of the military, the Defense Advanced Research Projects Agency.

It was DARPA research that helped drive the development of the microprocessor in the 1950s and the Internet in the 1970s. The good news is that, under director Regina Dubin, the agency is not only keeping its budget at war-time levels, as Wired wrote a year ago, but focusing on areas that can directly benefit the economy, not just the brass.

Some of that work is already coming to the civilian market. Cybersecurity protects the cloud, and next-generation manufacturing technology is going to let us use robots and 3D printers so the per-piece cost of making one product comes closer to the cost of making 1 million.

We're already seeing a "peace dividend" from all that in the rising prices paid for shares of such 3D printing companies as 3D Systems ( DDD) and Stratasys ( SSYS), and by the planned break-up of SAIC ( SAI) into defense and civilian cyber-security units, described by David Zanoni at Seeking Alpha last month.

Next to emerge from DARPA will be "living foundries," which the agency describes as an "engineering framework for biology," creating materials that heal themselves and using biological processes to develop new fuels and medicines.

Meanwhile those defense contractors that can engineer their technology into civilian products will prosper, while those that don't will lose their best-and-brightest to start-ups that can. That's the way the American economy maintains its competitive edge. Folks will tell you it's our universities, our research centers, but these are just the tip of the military-industrial spear and always have been.

The more incoming Defense Secretary Chuck Hagel can drive defense research toward civilian aims, the better the choice will prove to be.

At the time of publication, the author was long DDD.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.