Eisenhower’s Lament: On the Military-Industrial Complex

A Treatise on How the Military-Industrial Complex is Undercutting It’s Own Future, and How to Save it from Itself

In the waning days of his presidency in 1961, Dwight Eisenhower gave his farewell address to the nation.  In it, he warned of the potential for undue influence by the military-industrial complex, to be read as the “iron triangle” of the armaments industry, government (Congress and the executive bureaucracy), and the various interlocking interests that perpetuate its growth.  Contrary to popular belief, his speech was not meant to be a cudgel with which to browbeat an industry.  He acknowledged the need for a robust defense establishment in light of the threat of communism, stating that “our arms must be mighty and ready for instant action, such that no potential aggressor might be tempted to risk his own destruction.”  However, he did want to ensure that American security policy and strategy were driven by national interest and not by the profit margins of the arms merchants.

His prescience was uncanny, but his warning has gone unheeded.  Since his speech, the defense industry has grown in size, scope, and political clout.  As he noted then, “the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields.”  This is even more true today.  The myriad small and diverse defense companies that in the past had provided everything from microchips to airplane parts to metal links for belt-fed ammunition have increasingly congealed under the umbrella of what is referred to as the “Big 6.”

These firms (Lockheed Martin, Boeing, General Dynamics, Raytheon, Northrop Grumman, BAE) collectively hold about 1/3 of all the defense contracts with the Pentagon.  Further, and rather adroitly, they have created a business model that spreads the work of these multi-billion dollar contracts across America and its many congressional districts to ensure maximum political leverage.

This is the main reason Congress continues to fund programs and platforms that the Pentagon has said it doesn’t want or need; no politician wants to be blamed for job losses in their district lest they lose their own.  As a result, we not only see national security policy subordinated to business interests, but we see the true enemies of free-market capitalism–monopoly and subsidy–take hold.

First, monopoly.  While there is still some competition between firms for contracts, it has been dramatically reduced over the past few decades with the mergers of many smaller firms into these larger companies.  As this trend continues, the bargaining power of the Pentagon diminishes further.  Whether or not the US government could or should consider breaking up these larger firms along the lines of “Ma Bell” to ensure best value for the taxpayer in a strategically important industry is beyond the scope of this post.  However, it should be noted that the Department of Defense (DOD) has objected to further mergers by these large corporations specifically because of the challenges further consolidation would pose.

Second, subsidy.  In the wake of 9/11, Congress has heaped largesse on DOD in an effort to keep America safe, irrespective of cost.  Politically, to question defense spending was to invite accusations of a lack of patriotism, or worse, catcalls of treason.  So the defense budget grew to outlandish proportions, which in turn accounted to a huge, taxpayer-funded subsidy to the military-industrial complex for new weapons, capabilities, and research.  Economics shows that when you subsidize anything, you invariably raise its price because you are lowering the cost to the consumer and thus increasing demand.  In this case, the consumer of the subsidy is the defense industry.  Because they now have an open checkbook from the Pentagon (the source of the increased demand), there is no incentive to keep development costs down.  Any and every idea can now be funded and explored with the cost of doing so foisted back onto the Pentagon, i.e., the American taxpayer.

This has caused a spike in the cost of platforms/services and a lack of budgetary discipline.  Look no further than the F-35 and Littoral Combat Ship.  As a result, we have the development of platforms and capabilities that are so costly that no entity EXCEPT the US government can afford them.  This means that international customers which are eager to purchase US weaponry (and the maintenance, service contracts, and logistics tails that go along with it) are priced out of the market.

A good example is NATO’s Strategic Air Capability.  Ten NATO countries “share” C-17 cargo aircraft because exorbitant costs preclude the countries from purchasing and operating them singularly.  Concurrently, the fact that the US subsidizes the defense of NATO countries through its extensive security umbrella exacerbates the problem by allowing NATO countries to shirk their commitment via NATO’s charter to spend 4% of their GDP on defense; they spend those “savings” on generous welfare and healthcare systems instead.  Whether this policy has created a situation contrary to its intent (a weaker and lazier Europe unable to defend itself against a resurgent Russia) and whether this outcome was by design are points for another debate.  Bottom line with arms sales, as with any other product, the lower the price, the larger your customer base.  Conversely, the higher the price, the smaller the customer base.

To be clear, this is not a treatise against the defense industry, merely a critique of its business model.  It is a large and successful portion of the US economy.  A wise man once said, “no one ever went broke selling arms; and they never will.”  It contributes to tens of thousands of jobs of all kinds, from machinists and welders, logisticians and mathematicians, software developers, engineers, contractors and scientists.  Many technological advancements have come out of this sector and will continue to do so.  The ends to which these advancements are used is a moral question, not an economic one.  To deny the economic reality that this sector is one of great importance to American national power, prestige, and protection going forward would be foolish.

But if it continues to focus its efforts on securing open-ended contracts from the Pentagon for grandiose platforms that will be obsolete by the time they are fielded rather than platforms and capabilities that can fit the budgets of the international market, it will gradually lose market share to competitors such as China, Russia, France, Britain, and Israel until the only customer it has will be the US government.  This begs the question, what then?  The military-industrial complex will be forced to dig its claws even deeper into the Pentagon to secure contracts and maintain profits because the international market will have dried up.  This will require even more money for the Pentagon resulting in more expensive gear and more debt in a self-perpetuating cycle of military Keynesianism.

What of its effects on US policy?  Industry currently benefits from the era of prolonged conflicts so it stands to reason it would do what it could to help government “go abroad in search of monsters to destroy.”  But what if public opinion were to suddenly shift against US adventurism?  It seems an unlikely event in the near term given the traditional anti-war party (Democrats) have one of their own in the White House prosecuting these wars.  But if Pentagon budgets were to dry up, we would see military aid budgets grow to help other nations prosecute their fights with the caveat that they spend the aid on gear from US defense contractors.  While this would involve other nations solving their own regional problems rather than the US policing the world, this is still US taxpayer money and we would invariably be subsidizing the national defense of other nations.  To quote James Madison, “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.”

Perhaps it is best summarized by Eisenhower’s own words:

“In holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become captive of a scientific-technological elite.  It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system–ever aiming toward the supreme goals of our free society.”

Awareness of the issue and the fortitude to tackle it are the best remedy to ensure that the animal spirits of the market do not co-opt and subsume one of the few legitimate writs of our federal government; that of national defense.