Defense Contractors Insulated from Budget Cuts

WASHINGTON - In one of U.S. president Dwight D. Eisenhower's most remembered speeches, he warned against "the acquisition of unwarranted influence" resulting from the close brotherhood between the country's defense agencies, Capitol Hill and private business interests.

Fifty years later, the Republican leader's Jan. 17, 1961 admonition of the military-industrial-Congressional complex is as relevant as ever, argues William D. Hartung, director of the Arms and Security Initiative at the New America Foundation based here.

Despite U.S. Defense Secretary Robert Gates's announcement last week of a 78-billion-dollar reduction in Pentagon spending by 2016, analysts predict that defence contractors - the "industry" leg of the so-called "iron triangle" alluded to in Eisenhower's speech - will come away largely unscathed.

"If you were looking for an apt metaphor to describe what happened to makers of military hardware on Thursday, you might say they 'dodged the bullet,'" said Loren B. Thompson, chief operating officer of the Virginia-based Lexington Institute.

Overall, the budget savings announced last week are modest, analysts say.

"The numbers that we're talking about are relatively small," Gates said at a press conference Thursday. "The focus here is on a reduction in the rate of growth, as opposed to absolute cuts."

According to some estimates, defence spending since the new millennium has about tripled to nearly 900 billion dollars for 2011. Gates's 78-billion-dollar five-year reduction plan is thus a decline of only less than two percent, without accounting for inflation.

"We vastly overspend on the military," said Gordon Adams, an expert on U.S. foreign affairs and defence budgeting at the Stimson Center, at a panel discussion here Tuesday.

"We vastly overuse the military tool. We vastly overdramatize the military as the conceptual framework of our global engagement," he said. "And we vastly over-worry and overestimate the threats and challenges that we face in the world."

In Adams's estimation, despite being in the midst of a defense budget "build-down" - as cautious as it is - even deeper cuts would not affect the readiness or ability of U.S. troops. "The capacity of the United States military is stunning," he said.

Underlying this capacity is a small cadre of private defence contractors. According to Danielle Brian, executive director of the Washington D.C.-based Project on Government Oversight, more than half of the nation's defense budget is spent on contracts and the top 10 firms receive about 25 percent of these contracts.

Early last week, shares in leading defense companies dipped in anticipation of Gates's cuts. But the marketplace gave its verdict when, after the secretary's announcement, holdings again rose when investors realized the budget reshuffle would only modestly impact operations - an assessment confirmed by a Standard & Poor's report, published Monday, reaching the same conclusion.

Some see a link between this insulation of contractors in a time of belt-tightening to these companies' fleet of lobbyists, history of generous political donations, and the "revolving door" of influential personnel who travel easily back-and-forth between important posts in government and defense firms.

In his new book, 'Prophets of War' (Nation), Hartung exposes the myriad of connections - mostly fiscal, often human - between the U.S. government and its most favored firm, the Lockheed Martin Corporation, which he claims consistently pushes for overpriced and unnecessary defence programs.

Lockheed Martin, the country's top contractor, spent 15 million dollars in campaign contributions and lobbying last year and its top staff have filled key positions in both the George W. Bush and Barack Obama administrations.

Outpacing its closest competitor by nearly 30 percent, the aerospace and security corporation received about 36 billion dollars in federal contracts in 2008, with over four-fifths of that pie coming from the Pentagon.

But the contracts aren't all for cluster bombs, stealth fighter jets and nuclear weapons, Hartung shows. Lockheed Martin also provides services for a multitude of domestic agencies, including the U.S. Census, the Department of Education, the U.S. Fish and Wildlife Service, the Internal Revenue Service, the U.S. Postal Service and the Smithsonian Institution, among others.

And, as is often found in the grand tradition of U.S. public-private partnerships involving multinational corporations, the company also has a hand in U.S. foreign policy, Hartung writes.

"Lockheed Martin has done everything from supplying interrogators for U.S. military prisons at Guantanamo Bay, Cuba, to staffing a human rights monitoring mission in Darfur, to training police in Haiti, to running a postal service in the Democratic Republic of Congo, to helping to write the Afghan constitution," he explains.

In light of last week's budget reshuffle, Lockheed Martin will have to undergo a two-year probationary period for the production of a certain model of its F-35 fighter jets due to performance glitches. However, overall production of the firm's F-35 fleet will remain the same, Gates said.

And according to Thompson, the company will even benefit from expanded Air Force purchases in the near future, with other top contractors like the Boeing Company and the Northrup Grumman Corporation also standing to gain from green-lighted projects, despite the announced reductions.

Half a century ago, Eisenhower warned, "The potential for the disastrous rise of misplaced power exists and will persist."

For Hartung, "If there was ever a need for the engagement and awareness urged by President Eisenhower... the time is now."