This article is from Dollars & Sense: Real World Economics, available at http://www.dollarsandsense.org
This article is from the
March/April 2017 issue.
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On September 11, 1941, the U.S. War Department commenced construction of its new headquarters, the Pentagon: With each of its five sides running the length of three football fields, encompassing 4 million square feet of work space, it remains even today the world’s largest office building. Placing it where President Roosevelt wanted meant that the edifice would be constructed on the Potomac River’s flood plain, largely over a swamp in an area known as Hell’s Bottom, requiring the sinking of 41,192 pilings —approximately one piling for each person to be housed in the Pentagon—to keep the giant, fortified edifice from sliding into the swamp.
President Trump has repeatedly boasted of his intentions to drain the Pentagon swamp—as one commentator put it, “taking down the Military-Industrial Complex one tweet at a time”—emphasizing the need to alter the long-known propensity of the U.S. Department of Defense (DoD) for coddling military contractors and facilitating the cozy, “revolving door” employment opportunities provided for high-ranking retired military officials. During the 2016 presidential campaign, he committed his administration “to conducting a full audit of the Pentagon” to eliminate duplicate personnel and to uncover profligate contracting procedures.
But is there reason to expect that the increasingly secret, increasingly remote, increasingly unanalyzed National Security State—the Pentagon’s “State within the State”—will experience a major reconfiguration? This is the deeply embedded State which exercises its “relative autonomy” through the coordination of the National Security Council (NSC), the chairman of the Joint Chiefs of Staff, and the 17 intelligence agencies which define and project global U.S. military power. The Trump administration will operate the NSC in an unprecedented manner, with the President’s top political advisor, “alt-right” militarist Stephen Bannon, as a voting member of the key Principals Committee of the Council. The Principals Committee exercises sweeping powers over the nature and scope of U.S. foreign policy decisions by framing and recommending stratagems to the President. That the Industrial-Military-Congressional Juggernaut (IMCJ)—which constitutes the institutional base on which the National Security State was erected—could be slowed or redirected by the incoming presidential administration defies credibility. If anything, there is every reason to anticipate that in the Pentagon’s lucrative and murky wetlands, wherein the giant “prime” military contractors and their subcontractors dwell, the swamp will increase in depth and opacity.
Plumbing the Depths
Like so many of the details surrounding the IMCJ, the annual total number of contracting firms cannot be accurately determined. The fact that a single “multiple awards” contract—issued by the Navy on June 20, 2016—went to 608 firms indicates that a very large number of U.S. corporations are directly tied to the IMCJ. The total number of U.S. corporations feeding at the Pentagon trough—directly or indirectly—is unknown, because the DoD does not track the thousands of subcontractor firms. The Defense Contract Management Agency stated that in 2014 they were supervising over 20,000 direct (or “prime”) contractors, meaning that the total number of firms involved could easily be around 60,000. Notably, there are military contractor “enclaves,” such as San Diego, Calif., where $45 billion in military spending in 2016 functioned, according to economist Lynn Reaser, as the “most important and largest economic catalyst,” accounting for 20% of the regional economy. Yet a review of the daily contracts issued by the DoD clearly demonstrates that contracts were spread across almost all of the United States in 2016.
In the 1970s and early 1980s, a steady stream of research focused on how the IMCJ functioned, and for whom. In the post-9/11 era of constant war, critical scrutiny of the IMCJ (save the occasional revealing broadside) has waned. A culture increasingly marked by militarism—the glorification of or unconscious deference to all things military—has created a new ideological climate wherein an analytical critique of U.S. military power projection and the economic and structural role of the National Security State is most unwelcome. Even when it does occur, it is largely overlooked.
However, once in a while some outsized travesty perpetuated by the IMCJ briefly draws critical attention. Over the past 15 years, the $400 billion F-35 fighter plane contract has become the standard reference point used by critical observers, including many on the left, to illustrate the IMCJ’s affinity for cost overruns. In December 2016, then-president-elect Trump unexpectedly disparaged the F-35 contract and, in February 2017, he wrangled a promise from its contractor, Lockheed Martin Corporation to push the price down from an astronomical $102 million per plane to an elephantine price of $94.6 million.
More broadly, the Pentagon’s Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) programs have historically overrun their scheduled costs by 67%, space programs by 89%, and drone programs by 109%. Meanwhile, the Lockheed Corporation has spread F-35 production activities through 35 U.S. states, claiming that the vast project now maintains, directly and indirectly, 146,000 jobs. Even if the administration cuts back a bit on the rate of price increases for the planes, this will be no more than a Presidential showman tactic—the small sums saved will be redirected toward other programs.
The Secret $100 billion B-21 Raider
More important at this juncture, in terms of public policy, are the contractors’ current marketing tactics. Combined with the military doctrines and strategic policies pursued by the National Security State, they set the present and future course of the Pentagon steamroller. For one example, there is the case of the forthcoming B-21 Raider, a follow-on contract to the B-2 stealth bomber.
The stealthy, drone-toting, missile-laden, long-range B-21 Raider nuclear bomber project was quietly announced by the Pentagon on October 27, 2015: Virginia-based Northrop Grumman Corporation received the “prime” contract award—with an estimated full-development price of $100 billion (including all support systems) according to the Senate Arms Services Committee Chairman. Meanwhile, the anticipated delivery date (rumored to be 2025), as well as the quantity (thought to be 100, but maybe 150), both remain unknown to U.S. citizens.
More than a year later, little if anything is known regarding this fantastic artifact except that steps toward development and production had been initiated by several subcontractors, including Janiki Industries near Seattle—a location represented by members of important military-related subcommittees in the Senate and House. Likewise, production or engineering has begun in several other states or congressional districts represented by powerful members of the armed services committees: major subcontractors in these states/districts include Orbital ATK (Ohio), BAE Systems (New Hampshire), Pratt & Whitney (Connecticut), GKN Aerospace (Missouri), Rockwell Collins (Iowa), and Spirit Aerosystems (Kansas). For Northrop Grumman, the B-21 contract is particularly attractive because the company will orchestrate the complex web of first-, second-, and third-tier subcontractors while holding a “cost plus” (instead of a fixed-price or competitive-bid) contract with the Pentagon, for the initial development phase. This is business as usual.
Military contracting is essentially a “cost maximizing” undertaking. The Pentagon is fundamentally disinterested in controlling procurement and maintenance costs, since they are a “quality maximizing” institution with the ability (generally) to pay any price for cutting-edge performance. Fat profits on the initial Pentagon contract are not necessarily the major inducement for contractors. With the taxpayers funding all the learning involved in the mastery of new engineering, design and production processes, the “prime” contractor frequently can count on a big “after-market” for weapons systems in terms of foreign arms sales and rich licensing agreements. Potentially even more important are the long-term benefits arising from the technological advancements, sometimes yielding patents and innovation breakthroughs. Prohibitive research and development costs are frequently offloaded onto the Pentagon while the contractors reap a cornucopia of technological spinoffs.
As recently documented by Marianna Mazzucato in The Entrepreneurial State and by Linda Weiss in America Inc.? Innovation and Enterprise in the National Security State, military/government contracts have been instrumental in covering much of the developmental costs for major technologies giving rise to the computer, the semiconductor, biotechnology, and nanotechnology. The world’s largest tech company in 2016, Apple, soared because it “mastered designing and engineering technologies that were first developed and funded by the U.S. government and military” notes Mazzucato. The same has been true for key technologies such as the satellite, the global positioning system (GPS), artificial intelligence, and robotics.
The estimated value of the B-21 contract is not overwhelmingly large by the standards of the IMCJ—the giant F-35 fighter aircraft contract is currently anticipated to ring out at $400 billion. The B-21 may not be exactly “representative,” but it is close. Large contracts are routinely let to only a handful of giant military contracting corportations: Northrop Grumman, the number two military contractor in fiscal year 2014, received $5.76 billion from its direct sales to the Pentagon. (The company is also an important subcontractor in the F-35 program.) While the B-21 bomber will puportedly have an astonishing range of military capabilities, it is not conceived as a stand-alone project. Rather, it will apparently require an “escort” fighter plane, under the Penetrating Counter-Air (PCA) Program. This vaguely described “power projection aircraft,” or “sixth generation” war plane, would have long range (intercontinental) capabilities and would be highly manuverable. As currently conceived, then, the B-21 Raider would come with a “long tail” of accompanying multi-billion dollar “escort” war plane contracts.
Trump and the IMCJ
These two new, technology-loaded, aircraft programs would form the core of the current “modernization” wave for the U.S. Air Force. Prior to President Trump’s election, widespread concern was voiced throughout the IMCJ as to where sufficient funds could be found to push these two programs forward—along with several others designed for the various branches of the military/space services. In September 2016, only a year after the B-21 program was announced, the Air Force Secretary called into question the viability of this weapons modernization program, declaring that funding for Air Force personnel needs would have to come first. It therefore followed, given what were then considered lasting budgetary constraints, that President Obama’s weapons modernization programs would have to be postponed, cut, or abandoned in deference to the payroll requirements of the DoD’s nearly three million military and civilian employees.
But then November’s presidential-election results changed the equation. Like many before him, Trump apparently wants “more bang for the buck” (high weapon capacity at low per unit cost). But, more importantly, he also stands for “more bucks for more and bigger bangs” (widescale weapons modernization programs) which will most likely mean the largest surge in military spending since President Reagan’s program to “Rearm America.” Under President Trump, the first target of the forthcoming arms buildup will be the elimination of the so-called congressional “sequestration” program that has largely capped major increases in military expenditures since 2013. The sequestration program mandated roughly a $500 billion cut in planned military expenditures over a decade, excluding the military’s payroll. Even so, the basic military budget for fiscal year (FY) 2013 (October 1, 2012-September 31, 2013) was never cut by the mandated amount of $55 billion, as fast-shuffle adjustments and accounting subterfuges brought the programmed reductions down to just over $30 billion. By FY 2014, the Pentagon was skating through a loophole befitting its customary style via a special “war funding” slush fund known as Overseas Contigency Operations (OCO) expenditures. By doing so, the actual “base” military budget (for weapons procurement, research and development, maintenance, and operations) plus the OCO budget was reduced by little more than 0.5% from planned Pentagon spending prior to the sequester program.
Nonetheless, the IMCJ wanted to push military spending up at a rapid rate to support the vast costs of modernization—something that basically could not be done under the terms of the sequestration deal. (That leaves social programs as the only target for deficit hawks’ spending cuts.) Fear of the deficit, and the ever-building government debt that it caused, had largely put the kibosh on plans to boost military outlays until candidate Trump emerged at the head of the pack in the election race. Republican congressional leaders will now implement Trump’s September 2016 call “to fully eliminate the defense sequester.”
The Obama Administration tried to maintain effective parity in growth between the military and non-military portions of the budget. Now, the military’s floodgates are swinging open once again, providing hunderds of billions of dollars in new contracts for the IMCJ over the next four years In late January 2017 Trump issued a “Presidential Memorandum—Rebuilding the US Armed Forces,” which announced a forthcoming budget amendment for military readiness for FY 2017 (thereby probably jettsoning the sequestration program) as well as issuing a carte blanche mandate to the Secretary of Defense, to prepare a “plan of action” within 30 days. This plan will be the basis for the Secretary’s Readiness Review, to be implimented before FY 2019. The Memorandum also authorized a new National Defense Strategy—a sweeping document used to define the strategic military goals and priorities of the United States—also to be prepared by the Secretary of Defense. This was followed by the President’s commitment to “one of the greatest military buildups in U.S. history” in late Feburary and the announcement that the FY 2018 military budget would rise by more than 9%. Here is a summary of the personnel, policies and programs the Trump Administration now plan to deploy:
1. A battle-tested, jingoistic, self-confidant array of former generals—exuding more than a whiff of Prussian military swagger—will occupy the key leadership positions in the National Security State, once historically reserved for civilian leaders: these include the appointment of Generals James Mattis as Secretary of Defense, H.R. McMaster as the National Security Advisor, Keith Kellogg as the NSC’s Chief of Staff and John Kelly to head the Department of Homeland Security, the third largest cabinet department. Holding a military history Ph.D. degree from the University of North Carolina, counterinsurgency expert McMaster (known as the “Inconoclastic General”) seeks to expunge the Vietnam Syndrome. Arising from the U.S.’s prolonged (1954-1975) Southeast Asian military debacle, the term encapsulates the profound reluctance of the U.S. citizenry to send military personnel into deadly combat, and to only support engagement-at-a-distance by sanctioning a minimal fighting force backed by a maximum level of advanced military technologies—such as “network-centric warfare” operations. Based on his interpretation of the Vietnam War and experience in the Iraq military campaigns, McMaster strongly advocates prioritizing unfiltered military expertise (rather than the views of civilian advisors mesmerized by “Shock and Awe” visions of technocratic warfighting) in the guidance and execution of U.S. Grand Strategy—the coordination and deployment of all national resources in pursuit of U.S. hegemony via “power-projection.”
2. President Obama, upon signing his last (FY 2017) National Defense Authorization Act in December 2016, opened a path to greatly extend the arms race in space by authorizing the Pentagon to begin research, development, testing, and evaluation (RDTE) for a space-based missile system. A 2012 report by the National Academy of Sciences concluded that a minimal space-based weapons system would cost at least $200 billion to build and necessitate hundreds of billions to operate. Operation would likely require establishment of a new Unified Combat Commander in Chief’s (CINCs) mission area for Space. Currently there are six area Combat Commands, such as the new U.S. Africa Command and the U.S. Central Command (covering the Middle East).
3. A massive build-up of ships deployed by the U.S. Navy—from 272 to 350—will cost an estimated $120 billion (excluding cost overruns). This is considered the largest single expenditure of the anticipated Trump build-up and would constitute a major national jobs creation program to revitalize an infrastructure of naval construction shipyards, depots, and auxilary facilities. The Navy is charged with sustaining its presence in 18 maritime regions where, ostensibly, the U.S. has “critical national interests.”
4. An increase of 90,000 active duty military personnel for the U.S. Army will require a 20% increase in the Army’s budget, or about $118 billion over the next four years, using current per soldier costs as the basis of the calculation.
5. An increase of 300 fighter aircraft (now including the “escort fighter” plane for the B-21 Raider nuclear bomber) over the current baseline of 900. The U.S. Air Force budget would have to leap upward, considering that a “generic” F-35 fighter currently may cost about $150 million. Even at half that price, the 300 new aircraft would cost $22.5 billion (once again excluding cost overruns). On top of this amount would be the estimated $100 billion to develop the B-21 Raider. And, of course, all planes come with massive support costs: operating costs per hour routinely reach $58,000.
Simply summing the costs of hardware items mentioned above reveals potential new outlays of $560.5 billion, or over $140 billion per year over a four year period. Contract delays and funding debates might conceivably hold this to a $70 billion per year jump in the base (or discretionary) military budget: This would translate into a 13.4% increase over FY 2017—which would be mandated through congressional special appropriations at President Trump’s urging.
Larger annual base budget outlays necesitate more spending for retirement funds (including health care) as well as for Veterans Affairs. With interest rates almost sure to rise, and with President Trump using deficits to finance the forthcoming arms buildup, the share of the national debt attributable to national security spending will rise, as will annual interest payments.
The Bottom Line
For 2017, based on President Obama’s last military budget, total U.S. military related spending (including the special warfighting account known as the Overseas Contingency Opertions budget, nuclear bomb building, retirement and Veterans outlays, International Affairs, Homeland Security, and interest payments attributable to past military expenditures) will be $1.04 trillion in FY 2017, or more than 5% of current GDP, according to the January-March 2016 Defense Monitor.
But this calculates only the direct effects of military spending: The indirect or “induced” effects of secondary and tertiary rounds of spending, using the calculating methods adopted by the San Diego regional economic impact study, suggest that, pre-Trumpland, about 8% of U.S. GDP is dependent in some way on the Pentagon-financed programs, past or present. Adding in direct foreign arms sales of $40 billion per year (which would not exist without the comparative adavantage created by Pentagon largesse) would modestly raise these estimates. President Trump’s administration could easily push up total military spending (including all direct and indirect effects) by 1 or 2% of GDP, excluding warfighting scenarios. Unfortunately, new high-cost warfighting scenarios are extremely likely: The leadership positions of the National Security State are now held by a troika of warlords. Living under the sway of “military metaphysics,” these “crackpot realists” (to use the terminology of sociologist C. Wright Mills) back warfighting programs across the Middle East and North and Central Africa: As Mills noted in 1958: “In crackpot realism, a highflying moral rhetoric is joined with an opportunist crawling among a a great scatter of unfocused fears and demands. ... The official expectation of war also enables men to solve the problems of the economic cycles without resort to political policies that are distastful to many politicians.”
Going forward into Trumpland, instead of draining the Pentagon’s swamp the available evidence suggests that U.S. society is headed down the military drain as “defense needs” starve-out the few skeletal social programs that have survived decades of neoliberal attack.
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