As the superpowers move to limit both nuclear and conventional forces, while providing for collective action against military aggression wherever it may occur, military budgets throughout the world can be reduced substantially.

In the case of the United States, for example, I believe it should be possible within six to eight years to cut military spending by half in relation to gross national product; that is, from 6 percent to 3 percent.Similar reductions can be made in the military expenditures of Third World countries, which now total some $170 billion annually, or 4.3 percent of their collective GNP.

Between 1978 and 1988, the Third World imported $371 billion of arms (nearly $450 billion at 1988 prices), or more than three-quarters of all arms traded internationally.

Two major factors have driven arms exports: Supply and demand. Both must be addressed.

In past years, the United States and the Soviet Union tended to use arms transfers as a means of maintaining political support in strategically located Third World nations.

For many Western Europeans and some of the emerging Third World suppliers (in particular China and Brazil), economic considerations have been paramount. Sales of weapons and arms-production technology have helped make domestic defense industries of these smaller producers economically viable and have opened the door to non-military exports.

Over the past decade or so, economic considerations have also become increasingly important for the Soviet Union.

But the demand for weapons is strong, too, and many Third World governments have actively sought to purchase arms. One of the most important demand factors is involvement in an ongoing conflict - internal or external.

Of the top 15 Third World arms importers, who together account for about three-quarters of the arms imported by the Third World, 13 have been party to conflicts lasting many years. Iran and Iraq were at war from 1980 to 1988. Egypt, Syria and Israel have been involved in the Middle East conflict. Saudi Arabia has believed itself threatened by other regional powers, notably Iran and Iraq. Algeria has been involved in disputes with neighboring Morocco and Libya. Ethiopia, Afghanistan and Angola have witnessed civil wars, while Vietnam, Libya and India are parties to longstanding regional disputes.

The two regions with the highest levels of military expenditure over the past decade are the Middle East and East Asia. It is in these two regions that many of the unresolved conflicts of the postwar period have been located, and that many of the major Third World arms importers and arms producers are found.

At the same time, it is important to recall that, while a region may spend relatively little on arms, outlays of individual nations in that region can be rather large. Countries such as Libya, Mozambique, Ethiopia, Morocco, Zambia, Zimbabwe, Afghanistan, Pakistan, Argentina and Nicaragua devote a significant proportion of both their GNP and their central government expenditures to the military. And all have been involved in major conflicts over the past decade or more. Several are among the top 15 Third World arms importers.

To reduce the demand for arms in the Third World, whether the arms are imported or produced locally, the United Nations Security Council and regional organizations - such as the Organization for African Unity and the Organization for American States - should guarantee the territorial integrity of member states. These international organizations should also agree to actively assist countries in finding negotiated solutions to conflicts.

An important element in a global collective security system would be the strengthening of such existing regional organizations as OAS and OAU, and creation of similar groups in Asia and the Middle East. These bodies would, ideally, come to function as regional arms of the Security Council.

Such a system would allow Third World countries to reduce their military expenditures by half as a percent of GNP by the end of the decade. The savings would approximate half of what they now spend on health and education, and twice the amount of development assistance received from countries in the Organization for Economic Cooperation and Development and from international financial institutions.

The role of the military is, of course, the prerogative of each government. Nonetheless, the international community needs to identify ways in which it can reward those countries that reduce their security-related expenditures, thereby signaling that priorities have been altered in favor of development.

I strongly urge the linking of financial assistance, through conditionality, to movement toward optimal levels of military expenditures. These optimal levels should, of course, take account of external threats. The conditionality could take the form of the proposal contained in "Facing One World," a report by the Independent Group on Financial Flows to Developing Countries chaired by former West German Chancellor Helmut Schmidt.

The Group, which included former presidents or prime ministers of Nigeria, Peru, Canada and Korea, urged that, when decisions concerning allocations of foreign aid are made, special consideration be given to countries spending less than 2 percent of their GNP in the security sector. The huge savings that many countries would make by reducing security spending to 2 percent of GNP or less could be used to address pressing economic and social needs.

I am conscious that application of such conditionality will be difficult and contentious. Nevertheless, I believe it is an essential part of the solution to the waste represented by excessive military spending in poor countries.

If together we are bold - if East and West and North and South dare break out of the mindsets of the past four decades - we can reshape international institutions and relations among nations. And we can reduce the military expenditures which are a derivative of such relations in ways that will lead to a far more peaceful and far more prosperous world for all the peoples of our interdependent globe.

With the end of the Cold War, we have for the first time in my adult life a unique opportunity to dramatically reshape international institutions and relations. Pray God we seize it.

1991, Robert S. McNamara

Distributed by L.A. Times Syndicate