The Changing Dynamics of U.S. Defense Spending

The Changing Dynamics of U.S. Defense Spending

The Changing Dynamics of U.S. Defense Spending EDITED BY

LEON V. SIGAL

Library of Congress Cataloging-in-Publication Data The changing dynamics of U.S. defense spending / edited by Leon V. Sigal. p. cm. Includes bibliographical references and index. ISBN 0–275–96640–2 (alk. paper) 1. United States—Armed Forces—Appropriations and expenditures. 2. United States. Dept. of Defense—Appropriations and expenditures. I. Sigal, Leon V. UA23.C5127 1999 355.6'229'0973—dc21 99–18721 British Library Cataloguing in Publication Data is available. Copyright
1999 by Leon V. Sigal All rights reserved. No portion of this book may be reproduced, by any process or technique, without the express written consent of the publisher. Library of Congress Catalog Card Number: 99–18721 ISBN: 0–275–96640–2 First published in 1999 Praeger Publishers, 88 Post Road West, Westport, CT 06881 An imprint of Greenwood Publishing Group, Inc. www.praeger.com Printed in the United States of America TM

The paper used in this book complies with the Permanent Paper Standard issued by the National Information Standards Organization (Z39.48–1984). 10 9 8 7 6 5 4 3 2 1

Contents

Preface

vii

1.

Introduction Leon V. Sigal

1

2.

The U.S. Defense Spending Context Michael O’Hanlon

7

3.

The Shrinking Military Pork Barrel: The Changing Distribution of Pentagon Spending, 1986–1996 William D. Hartung

4.

Playing the Add-on Game in Congress: The Increasing Importance of Constituent Interests and Budget Constraints in Determining Defense Policy Morton H. Halperin and Kristen Lomasney

5.

News Media Coverage of the Defense Budget Elliott Negin

6.

Jobs, Jobs, Jobs, and the Defense Industrial Base: What Did Seawolf Save? Joan Cavanagh

7.

Restructuring the American Defense Industry Eugene Gholz and Harvey M. Sapolsky

8.

False Expectations: Can Arms Exports Make Up for Cuts in Pentagon Procurement? William D. Hartung

29

85 107

135 153

177

vi

Contents

For Further Reading Index

217 221

About the Contributors

229

Preface

Despite the enormous claims it makes on American resources, the defense budget is the object of surprisingly little academic or press scrutiny. A study by Sandra Ionno, David Andersen, and Jennifer Seltzer for the Defense Budgeting and Policy Project documents how academic interest since 1983 is declining from an already low base. The number of articles on the subject in academic journals has dropped to just six in 1996 from a high of 25 in 1990. University presses published just one book on the defense budget in 1996, down from six in 1991. The authors could find no courses devoted to the defense budget at the nation’s leading colleges and universities, although some courses touched on the subject. The story was the same at the country’s most prestigious newspapers and newsweeklies. What has been published says very little about the changing politics of defense. The dearth of such work prompted this book. While I was on the editorial board of the New York Times, I called on government officials and experts in the academy and non-governmental organization (NGO) community from time to time with questions about defense budgeting and policy. A number of my questions went unanswered because no one had done the research needed to answer them. When I left the Times in 1995, I wrote to several foundations, posing nine questions that I thought deserved attention. Christine Wing at the Ford Foundation agreed. Thanks to funding from Ford, the Defense Budgeting and Policy Project began. Thanks to Ken Prewitt, the Social Science Research Council agreed to house the project. Thanks to my dedicated colleagues who undertook the studies, we now have some answers to my questions. The conclusions they reached are their own, not the Ford Foundation’s or the Social Science Research Council’s.

viii

Preface

I hope this book will stimulate others to take a fresh look at the changing dynamics of defense spending. It is too important a matter to be left to the Pentagon.

Chapter 1

Introduction LEON V. SIGAL

The defense budget has proven remarkably resilient despite the end of the Cold War. The principal threat that sustained the budget, the Red Army, fell apart in the late 1980s, followed in rapid order by the Soviet Union itself. Yet the budget has levelled off at around $275 billion in outlays, down by roughly one-third from the recent peak of $390 billion in 1989, when calculated in constant 1998 dollars. If the current glide path holds, the budget will decline to roughly $255 billion by 2002. Similarly, the politics of defense budgeting also has the appearance of remarkable stability. Republican-controlled Congresses have sought marginal increases in defense spending while a Democratic administration has tried to hold the line. Structurally, too, stability is the rule. Despite all the merger and acquisition activity, the defense industrial base remains largely intact. Not a single major defense production line has been shut down in the past decade. But appearances can be deceiving. If the budget seems stable in fiscal terms, it is not. There are growing pressures beneath the surface to increase the budget despite the persistent absence of a clear and present danger to American security. By 2002, according to most reasonable projections, the budget will not be adequate to fund current requirements, as set out in the Quadrennial Defense Review. President Clinton’s fiscal year 2000 budget projects a rise of about $20– 30 billion in outlays, to about $275–$285 billion. The budget surplus of the moment might suggest to some that the government will have ample tax revenues to meet that budget shortfall. Yet any future projection of surplus rests on at least two questionable assumptions. One is that the economy will not slow or slip into recession, which would lead to increases in entitlement spending and a decrease in revenues. Another is that the draconian

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The Changing Dynamics of U.S. Defense Spending

cuts currently projected in domestic discretionary spending will prove sustainable. Political appearances of stability are also deceiving. The political base of defense spending is eroding. Only a minority of congressional districts now derive substantial economic benefits from defense spending. The same is true for the proceeds of foreign military sales. As the defense pie shrinks, larger shares of that pie are going to fewer and fewer constituencies and fewer and fewer business firms. Structurally, too, although new weapons acquisitions are now planned for every defense production line, it will be difficult to sustain the pace of acquisition at current budget levels. In his chapter on ‘‘The U.S. Defense Spending Context,’’ Michael O’Hanlon anticipates a rise in budget authority after a decade of cutbacks. He shows how much more the United States spends on defense than other countries, about onethird of total world spending on defense. That is vastly more than any potential foe spends. U.S. allies account for another third of total world spending. O’Hanlon also shows how current funding will fall short of the excessive requirements set forth in the Quadrennial Defense Review. He then poses some alternatives for reducing those requirements and cutting the budget. William D. Hartung’s first chapter, ‘‘The Shrinking Military Pork Barrel: The Changing Distribution of Pentagon Spending, 1986–1996,’’ shows how politically precarious the politics of defense policy and budgeting may be. An examination of the distribution of Pentagon contracts reveals that a majority of congressional districts are now almost out of the defense business. If $100 million in defense contracts, a small percentage of the economic activity of any congressional district, is taken as a benchmark, 274 out of 435 districts should feel little or no demonstrable economic pressure to vote for military projects at the expense of other budget priorities. This represents the number of districts that are getting $100 million or less in Pentagon contracts or are rapidly going out of the defense business, having lost 60 percent or more of their defense contracts. Even as the membership of Congress as a whole is becoming less defense dependent, the members of key committees that shape the defense budget are becoming more defense dependent and more parochial in their voting behavior. The chief beneficiaries of current congressional budgeting practices are the members of these committees. The same holds true in the Senate. The pattern of spending for military bases is different. The base realignment and consolidation process has undermined the influence of key committee members. If military payrolls are taken as an index of military bases, bases have closed even in states and congressional districts represented by committee members. Morton H. Halperin and Kristen Lomasney, in their chapter, ‘‘Playing the Add-on Game in Congress: The Increasing Importance of Constituent Interests and Budget Constraints in Determining Defense Policy,’’ show how the rules

Introduction

3

of the defense-budget game have changed in Congress since the end of the Cold War. With budget committees now responsible, along with the president and the congressional leadership, for determining the parameters of the overall budget, members of defense-related committees are in an advantageous position to play the ‘‘add-on’’ game, authorizing and appropriating funds above the level requested by the administration in order to fund pet projects. Given the constraints on increases in the defense budget and the lack of consensus on postwar military spending, the parochial politics of Pentagon pork has taken over. The most likely constraint on congressional add-ons is a balanced budget, which leaves less money available for pet projects. U.S. obligations and events overseas have generated concerns about U.S. military readiness, putting additional pressure on members to curb spending on low-priority add-ons. News coverage supposedly informs the politics of defense. In ‘‘News Media Coverage of the Defense Budget,’’ Elliott Negin shows why many of the findings in this study and much else about the defense budget may be unfamiliar to even the most assiduous reader. A count of news stories, editorials, and opinion columns in six leading newspapers (the Chicago Tribune, Los Angeles Times, New York Times, Wall Street Journal, Washington Post, and Washington Times) and three newsweeklies (Newsweek, Time, and U.S. News & World Report) found only 98 stories on the defense budget in 1994, and 91 in 1996. When covering defense, the news media show much greater interest in crises, such as Bosnia, and sex scandals. In 1997, for example, the Los Angeles Times, New York Times, and Washington Post published 117 news stories on the sexual harassment case against Army Sgt. Maj. Gene McKinney. The news media rarely raise the possibility of deeper cuts in the defense budget: just five of 58 news stories, seven of 19 editorials, and five of 14 opeds did so in 1994. Critics who wanted to cut the defense budget were seldom cited as sources in news stories—only 16 times that year. The explanation, says Negin, is that the press frames the defense-budget story in partisan terms: the administration holding the line against pro-spending Republicans in Congress. Advocates of defense budget cuts, such as Rep. John Kasich, a deficit hawk, and Rep. Barney Frank, a defense dove, did not fit in that frame. As a result, in 1994 the main sources for stories were administration officials (30 citations), military officers (37), and pro-spending critics (72). So long as the news media pay little attention to the defense budget and even less to the defense budget–cutters, it will be difficult to conduct reasoned discourse about how the Pentagon spends $250 billion or more of taxpayers’ hardearned money. The case for sustaining or increasing defense spending has capitalized on two arguments in recent years: the need to spare workers’ jobs and the need to preserve the defense industrial base. The campaign to save the Seawolf submarine program, which saw the Navy make no claim that the submarine was required for national security purposes, was a model for post–Cold War defense politics in this regard. In ‘‘Jobs, Jobs, Jobs, and the Defense Industrial Base:

4

The Changing Dynamics of U.S. Defense Spending

What Did Seawolf Save?’’ Joan Cavanagh shows how both arguments turn out to have been specious. Employment data from the Electric Boat Division of General Dynamics and the Connecticut Department of Labor shows how layoffs continued with little respite throughout construction of the three Seawolf submarines. Even assuming for the sake of argument that construction of a third Seawolf postponed 5,000 layoffs—the difference in the size of the labor force between the beginning and the end of construction—for three years, the cost was $240,000 a worker per year. (A Seawolf submarine costs $3.7 billion per submarine—$2.5 billion to build and another $1.2 billion to man, operate, and maintain over its expected life.) A 1994 RAND study provided the defense industrial base rationale for the Seawolf. Yet a careful reading of that study shows that RAND concluded that Electric Boat itself was not part of the defense industrial base that had to be preserved. It could have been shut down and reconstituted at a later date. Shutdown and reconstitution, RAND concluded, was cheaper than building a third Seawolf to keep Electric Boat in operation. RAND argued for construction of a third Seawolf on grounds other than the need to protect the submarine industrial base. The $700,000 in savings, it contended, was ‘‘well within the margin of error’’ of its cost projections and discontinuing production ran ‘‘substantial risks.’’1 The RAND study, however, was based on a questionable but unexamined assumption, that 45 to 55 submarines were required, necessitating the start of construction of a new generation of attack submarines to replace aging ones after a short (four-year) hiatus. If the requirement were 30 submarines, not 45 to 55, the hiatus would be much longer—20 years—and the savings from shutdown and reconstitution would be in the billions of dollars. In ‘‘Restructuring the American Defense Industry,’’ Eugene Gholz and Harvey M. Sapolsky identify structural sources of pressure for a higher defense budget than necessary: the shift toward private control of defense technologies with the demise of public arsenals, and overcapacity in the defense industry. A key finding is that, despite all the mergers and acquisitions in the defense industry over the past decade, not a single defense production line for weapons platforms (aircraft, ship, armored vehicle) has been closed. The authors also show how current weapons systems could keep all of the lines in operation, which will generate political pressures to increase the defense budget. Indeed, these pressures have led Wall Street to perceive defense-dependent firms as less risky investments since the end of the Cold War. Arguing that the Clinton administration’s defense-industrial policies have not reduced the capacity overhang, Gholz and Sapolsky suggest the need to recognize that the United States now has a private arsenal system that requires government management. The ‘‘free market’’ is not a solution. In the final chapter, ‘‘False Expectations: Can Arms Exports Make Up for Cuts in Pentagon Procurement?’’ William D. Hartung shows how, contrary to

Introduction

5

the expectation of many in and out of the defense industry, arms exports, despite an initial boost from the Gulf War, have failed to offset cutbacks in defense procurement. The decline in defense procurement around the globe has more than offset the increase in U.S. market share of arms sales. Hartung shows that more than half the costs of arms sales were borne by the U.S. taxpayer—in the form of subsidies and offset agreements. He also identifies a considerable risk that the export of arms technology or the arms themselves could some day be used against American troops. In an important finding, he shows that the political base for exports is narrowing by demonstrating how concentrated the benefits of arms sales are. Few defense sectors had significant exports. Just two defense firms were the primary beneficiaries, accounting for over 60 percent of all foreign military sales. The political concentration was just as pronounced: just 10 Congressional districts accounted for nearly 70 percent of all arms sales and more than half the congressional districts—278—had $1 million or less in arms exports in 1996. The same concentration was evident in the Senate—just two states accounted for 55 percent of all arms exports that year. This book, in short, does not address the usual subjects of defense budgeting: how much is enough, what the force structure should look like, which weapons the Pentagon should procure, and the like. Instead, it takes a snapshot of the emerging political and structural environment for defense policy and budgeting. The authors do not share the same views of what spending should be or what the requirements are. Many of us think defense spending is too high, some of us think it is too low, and others would be willing to increase defense spending if that is what it would take politically to boost domestic discretionary spending. What the authors do share is a concern that the resources devoted to defense are not allocated very rationally, that underlying political and structural conditions affect those allocations, and that these conditions are not widely appreciated or well understood either by defenders or by critics of current budget allocations. Until these conditions are better understood on Capitol Hill, in the news media, and by taxpayers, the United States will continue to spend billions of dollars each year on weapons and facilities that have little strategic rationale but are funded primarily for political purposes. NOTE 1. The U.S. Submarine Production Base: An Analysis of Cost, Schedule, and Risk for Selected Force Structures (Santa Monica, CA: RAND, 1994), pp. xviii, xxiii.

Chapter 2

The U.S. Defense Spending Context MICHAEL O’HANLON

Although broad measures of defense spending trends cannot resolve the question of what resources the United States should devote to its military in the future, they can offer a valuable perspective that many policymakers and other citizens do not now have. For that perspective, this chapter provides some general information on the size and structure of the current U.S. military as compared with the recent past and with the armed forces of other countries. It also attempts to shed light on likely future U.S. defense-spending debates in the context of the recently successful efforts to balance the federal budget—as well as efforts to keep it balanced in the future. To the extent that a message emerges from the data and trends, it is that one cannot resolve the matter of how much the United States should spend on defense in the future from broad spending and manpower indicators. The reader would be well advised not to heed arguments made primarily on the basis of such highly aggregated data comparisons. The U.S. armed forces enjoy a remarkable degree of superiority over any other country, and most of the world’s second-tier powers are U.S. allies. At the same time it is true that defense is costing the United States a good deal less than in the Cold War, and far less as a percentage of national economic output. Moreover, international and historical comparisons do not begin to wrestle with two very important asymmetries in American defense planning: this country is the only one in the world that has chosen to take on a wide range of global security responsibilities, and it also believes in winning wars decisively to minimize casualties. Complaints from the left that Cold War defense-spending habits and levels continue, and from the right that the once-proud U.S. armed forces are now being misused by irresponsible politicians and atrophying for lack of resources, are equally fallacious and unconstructive. The issues remain: what are our interests in the

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The Changing Dynamics of U.S. Defense Spending

world, and what capabilities are adequate to secure those interests against foreseeable threats? THE POST–COLD WAR DEFENSE DRAWDOWN Where does U.S. defense spending now stand in the context of the post-1990 military drawdown and the overall federal budget? Most of the following discussion is in terms of spending or outlays—what actually flows out of the U.S. treasury each year in support of national security. It is that number, rather than the ‘‘budget authority’’ that gives the military the ability to enter into new financial contracts each year, that enters into calculations of the deficit and that is directly constrained under future plans for a balanced budget. In fiscal year 1999, U.S. national security spending was roughly $275 billion. That number includes not only Defense Department spending but also those accounts dedicated to military activities within the Department of Energy— together known as the ‘‘050’’ federal budget function. In terms of constant 1998 dollars, used throughout this chapter unless otherwise noted, the $275 billion level is roughly $100 billion below defense outlays at the end of the Cold War. Viewed another way, it is roughly $50 billion below the overall Cold War average. Although recent press reports have typically emphasized the degree to which defense spending is being protected or even increased, the fact of the matter is that the post–Cold War defense drawdown is not yet over and real 050 spending is still going down. It will decline to less than $270 billion in 2000 under President Clinton’s February 1999 defense proposal (even though the proposal was billed as a significant increase in spending). Thereafter, real spending would rise to $275 billion by 2002 and to more than $290 billion by 2005—provided that inflation does not increase beyond current projections and, more fundamentally, provided that one believes a way will be found to pay for such increases. As of March 1999, that is far from assured.1 In fact, President Clinton’s 1999 budget request for fiscal year 2000 and subsequent years seems unlikely to be adopted unless the 1997 balanced-budget accord is scrapped—a step the administration did not propose when submitting its budget proposal to Congress. Some analysts, pointing to growth in Pentagon spending on nontraditional activities like environmental cleanup and peacekeeping operations, argue that the true amount of resources being devoted to national defense in the strict and proper sense has been cut even more than these numbers suggest. Indeed, these added costs do constitute about $10 billion more of current national security outlays than in past decades.2 Yet Cold War spending levels were inflated in their own ways that had little to do with equipping, training, and routinely operating the country’s main combat units. First, nuclear weapons expenditures were generally at least $20 billion higher than today.3 Second, the Cold War average also includes expenditures for two regional conflicts that do not have counterparts in current Pentagon

The U.S. Defense Spending Context

9

Figure 2.1 U.S. Defense Spending (relative to gross domestic product)

Note: The 1998 spending level is 3.2 percent; the 2002 spending level will be 2.7 percent. Sources: Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 1998–2007 (Washington, DC: Congressional Budget Office, January 1997), p. 29; Office of Management and Budget, Budget of the United States Government, Fiscal Year 1998: Historical Tables (Washington, DC: Government Printing Office, 1997), p. 109.

budgeting—supplemental funds would be needed if the country went to war today. A conservative estimate is that the Korean War cost the United States $150 billion more than it likely would otherwise have spent on defense over fiscal years 1952–1954. That total is calculated by comparing defense spending during the war with subsequent Eisenhower administration spending levels. Vietnam cost the country at least $250 billion. (In this case, for sake of reaching a conservative estimate, the period just before the war is taken as the benchmark for comparison, rather than the post-Vietnam years when 050 accounts dropped precipitously.) These wars together account for at least $10 billion of the Cold War annual average.4 If anything, therefore, the end of the Cold War has resulted in more hidden savings than hidden costs in DoD’s budget. A high percentage of 1999’s $275 billion defense spending level was indeed being devoted to forces and military activities of direct relevance to core U.S. security interests. Still, defense spending has been declining considerably. Viewed as a percent of GDP rather than in real-dollar terms, moreover, it is declining even faster (see Figure 2.1). While there is little reason, if any, to think that U.S. defense spending should be linked to the size of the nation’s overall economic output, it is nevertheless difficult to argue that U.S. defense spending can be considered

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The Changing Dynamics of U.S. Defense Spending

Table 2.1 U.S. Federal Spending by Category, 1997 and 2002 (percent of total)

Note: Percentages do not add exactly to 100 because of rounding. Sources: Congressional Budget Office, The Economic and Budget Outlook: Fiscal Years 1998–2007 (Washington, DC: Congressional Budget Office, January 1997), p. 36; Executive Office of the President, Budget of the United States Government, Fiscal Year 1998: Historical Tables (Washington, DC: Government Printing Office, 1997), pp. 109, 266.

a significant strain on the economy. By 2002, it is scheduled to represent less than 3 percent of GDP, in contrast to 1970s and 1980s averages of about 6 percent of GDP and 1950s and 1960s levels generally around 8 to 10 percent.5 DEFENSE AND THE FEDERAL BUDGET A thumbnail sketch of the last 40 years shows that defense spending represented almost half the federal budget throughout the 1960s. It then declined throughout the 1970s to just under a quarter of federal spending, was restored to just over a quarter in the 1980s, and has been declining ever since. As of 1999, it represented about 15 percent of the federal budget, a figure that will drop to just under 15 percent by 2002 (see Table 2.1). Other broad trends in the federal budget over the past generation include the relative rise and fall of domestic discretionary spending, the continued decline of international affairs spending, and a steady growth of federal interest payments, tapering off somewhat between now and 2002. These various trends roughly cancel out over the 1962–2002 period. Therefore, the main budget story over those four decades is a massive shifting of federal resources from defense to entitlements. Such legally mandatory accounts—dominated by social security, Medicare, and Medicaid—will have risen from about one-quarter of the federal budget to over 55 percent of the total by 2002.6 Over the last four decades, discretionary spending, what Congress appropriates each year, has declined from roughly two-thirds to one-third of the federal budget. Considering the broad budget categories used in 1990s deficit-reduction

The U.S. Defense Spending Context

11

legislation, only two of those categories—international discretionary accounts and national defense discretionary accounts—have declined in real terms this decade. Domestic discretionary accounts, which fund everything from federal highways to health research to NASA to housing programs to criminal justice to veterans’ health care benefits, have increased about 20 percent in real terms in the 1990s. That is partly in reaction to the cuts they suffered in the 1980s. Today, this domestic budget category represents about the same share of GDP as in the Reagan years and well below that of the Nixon years. Arguably, much of the domestic discretionary account should be viewed relative to the size of the nation’s GDP—or at least relative to the size of its population—since much of it responds to demands for infrastructure, education, environmental cleanup, crime control, and other priorities that are linked to the amount of human and economic activity in the country. By 2002, discretionary spending will represent a share of GDP that has not been so low since early in the Kennedy administration.7

U.S. DEFENSE SPENDING IN INTERNATIONAL PERSPECTIVE In 1989, the world spent about $1,350 billion on defense, according to U.S. Government estimates (in 1998 dollar terms). Of that total, the United States accounted for $390 billion, or 29 percent, and NATO as a whole for $600 billion or just under half of the grand total. The Soviet Union accounted for $400 billion, again according to U.S. Government estimates, or 30 percent; the Warsaw Pact spent $475 billion in all, or 35 percent of the world’s total. China was spending an estimated $30 billion; most of the remainder of the world’s defense spending came from the rest of East Asia and the Middle East.8 By 1995, the picture was much different, as it remains at the end of the 1990s. Total global military spending was down to about $900 billion.9 More significantly, the bipolar structure of the Cold War had been replaced by a unipolar, U.S.-centered alliance structure. The United States now accounts for just over one-third of global defense spending, up about five percentage points, and NATO as a whole about 60 percent of the world total, up 10 percentage points. When Japan, the Republic of Korea, and Australia are added in, the United States and countries formally allied to it accounted for two-thirds of global defense spending (see Table 2.2). Adding in other friends of the United States, what might be more loosely called the Western community accounted for threefourths of total world military expenditure. The so-called rogue states—Iran, Iraq, Libya, North Korea, and Cuba—contributed under 2 percent of global spending; China and Russia accounted for about 15 percent between them, roughly speaking (slightly higher by U.S. Government estimates), and other Asian countries most of the rest.

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The Changing Dynamics of U.S. Defense Spending

Table 2.2 Global Distribution of Military Spending, 1995

Notes: (1) Japan, South Korea, and Australia; (2) New Zealand, Thailand, Philippines, and the Rio Pact Countries minus Cuba (including all South American countries except Belize, Guyana, and Suriname, and also four Caribbean islands or island groups: the Bahamas, the Dominican Republic, Haiti, and Trinidad and Tobago); (3) Austria, Czech Republic, Hungary, Ireland, Poland, Sweden, Switzerland, Israel, Egypt, Jordan, Kuwait, Oman, Qatar, and Saudi Arabia; (4) Cuba, North Korea, Iran, Iraq, and Libya; (5) principally African and Caribbean countries. Source: International Institute for Strategic Studies, The Military Balance 1996/97 (Oxford: Oxford University Press, 1996), pp. 306–311.

Defense Burdens Within the Western Alliance System The breakdown of defense spending within the Western alliance is shown in Table 2.3. Japan, France, Germany, and the United Kingdom, plus Italy and South Korea in a second tier of spending, account for 75 percent of the allied total; adding Canada, the Netherlands, Spain, and Australia to the list pushes that figure to 90 percent. As of 1995, the United States was devoting nearly four times as much of its economic output to defense as was Japan, and two-thirds again as much as all of NATO Europe. Even when those countries’ greater foreign aid contributions are considered, the United States was spending 50 percent more of its GDP on international activities than NATO Europe, and three times as much as Japan.

The U.S. Defense Spending Context

13

Table 2.3 NATO and Major Formal U.S. Allies: Defense Spending for 1995

Source: International Institute for Strategic Studies, The Military Balance 1996/97 (Oxford: Oxford University Press, 1996), pp. 306, 308.

China and Russia Because of the difficulty of comparing spending levels between fundamentally different types of economies, and because of the importance of understanding defense spending levels in China and Russia, a fuller discussion of these comparisons is in order. Officially, Russia budgeted about $18 billion for its military in 1996, based

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The Changing Dynamics of U.S. Defense Spending

on the ruble-dollar exchange rate. The equivalent of another $5 billion was provided for internal security, defense research and development, arms control and demilitarization, and other related costs that standard NATO definitions would consider to be national security spending. So the true total was about $23 billion (it has declined further). China’s official 1996 budget was $8.4 billion, but that figure only includes a modest fraction of what would normally be considered total military spending. It appears to exclude the budgeted costs of most weapons acquisition programs and of civilian employees of the armed forces, as well as certain revenues that the armed forces are allowed to raise and spend on their own. An adjusted total at official exchange rates would be about two and a half times as high, or roughly $20 billion (it has increased somewhat since).10 Even after these corrections, defense budget estimates for China and Russia based on official exchange rates are too low. The main reason is that they do not reflect real spending power within the countries at issue. The resulting systematic understatement of their budgets can be corrected through use of purchasing-power parity (PPP) comparisons. These comparisons account for the fact that, because many goods that any military and its soldiers need cost less in poorer societies, countries like Russia and China ‘‘get a discount’’ relative to what would be required to support the same number of troops in the West. If one is going to use defense spending as even a rough guide to evaluating military balances and assessing threats, PPP corrections should be used. It makes little sense to claim a military advantage because an American soldier’s quarterpounder costs more in dollar terms than a Chinese soldier’s lunch, or because a house in Santa Barbara costs more than one in Vladivostok. Unfortunately, purchasing-power parity measures are very difficult to compute and inherently imprecise. Among the chief challenges are uncertainty over which goods to place in the ‘‘defense spending basket’’ and which goods to consider strictly comparable between one country and another. As a result, reputable PPP estimates often vary by a factor of two; sometimes they can vary by a factor of five or more. These facts help explain why a recent RAND study could argue, albeit very controversially and not particularly persuasively to most, that China was spending $150 billion a year on its military.11 They also explain why the U.S. government estimates China’s defense spending at more than $60 billion, or roughly twice IISS’s figure.12 The key point is that any comparison of U.S. to Russian and Chinese defense spending levels is highly inexact. For example, ignoring the more extreme possible estimates, the IISS’s 1996 U.S.-Russian defense spending ratio of 3.5:1 might be more fairly expressed as somewhere between 2.5:1 and 5:1.13 The United States outspends China by somewhere between 3:1 and 10:1. U.S. MILITARY FORCE STRUCTURE AND POSTURE So much for money. What about the size and force structure of the U.S. military and its overseas presence patterns?

The U.S. Defense Spending Context

15

Considering first the matter of military manpower, as of early 1999 the United States had 1.40 million active-duty service members. That number of uniformed troops is now less than the 1.42 million that had been called for in the 1993 bottom-up review. The Quadrennial Defense Review (QDR) has called for additional cuts to 1.36 million. The civilian workforce of the Department of Defense, more than one million strong in 1990, is headed down to 640,000 but remains about 100,000 above that target as of early 1999. In terms of manpower, the United States now has the second largest armed force in the world. China’s is the largest—indeed, its military is roughly twice the size of the U.S. armed forces, although its average fighting readiness is far below that of the United States.’ Russia’s military is just slightly smaller than DoD, and scheduled to remain that way under the recent Yeltsin reform plan to cut active-duty troops down to an authorized strength of 1.3 million. The only other militaries with more than one million active-duty troops are India and North Korea (although as many as half of the North Korean troops are not employed in military tasks and many have not engaged in training exercises for years). Pakistan and the large Arab countries of the Middle East each have about half a million troops. Among major U.S. allies, South Korea’s forces of about 600,000 are largest, Turkey’s half million are the next most numerous, and the European G-7 countries typically each field about one-third of a million troops. The smallest of these European forces, Britain’s, is probably the best all-around military for the likely challenges of the post–Cold War world, just as Israel’s active force of less than 200,000 is clearly the best in the Middle East.14 With only a few minor exceptions, the U.S. military has now reached its anticipated steady-state force posture. As shown in Table 2.4, active Army divisions now number 10 (down from 18 in 1990); Navy aircraft carrier battle groups number 11 active and one reserve units along with 10 active and one reserve air wings; Air Force fighter wings are now at their final anticipated level of 20, though the mix between active and reserve is now to be changed from 13 and 7 to 12 and 8. Nuclear forces are slated to decline to a total of 3,500 strategic warheads if START II is ratified, eliminating the MX or ‘‘Peacekeeper’’ missile, deMIRVing the Minuteman force to one warhead per missile, converting the B-1 bomber fleet to a strictly conventional role, and reducing the Trident submarine fleet to 14 ships, each with 24 missiles armed with five warheads apiece. Until that treaty is ratified by the Russian Duma, U.S. forces are otherwise expected to remain more or less unchanged with around 8,000 long-range warheads. They will continue to be based on 50 MX carrying 10 warheads each; 500 Minuteman ICBMs carrying three warheads each; 16 to 18 Trident submarines, each carrying 8 warheads per missile for a total of 192 warheads per boat; and roughly 95, 66, and 15 B-1, B-52, and B-2 bombers respectively, carrying in turn 16, 20, and 16 warheads each.15 The major proposed effects of the QDR were to reduce significantly the size of the Army National Guard combat force structure, from roughly 42 brigade-

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Table 2.4 Major Elements of Force Structure

Note: Numbers for 1990, 1997, and 2003 are as of September 30. Source: Secretary of Defense William S. Cohen, Report of the Quadrennial Defense Review (Washington, DC: Department of Defense, May 1997), pp. 30, 33; Secretary of Defense William J. Perry, Annual Report to the President and Congress (Washington, DC: Department of Defense, February 1995), pp. 275, D-1; Secretary of Defense William J. Perry, Annual Report to the President and Congress (Washington, DC: Department of Defense, March 1996), p. D-1; International Institute for Strategic Studies, The Military Balance 1990–1991 (Riverside, NJ: Macmillan, 1990), pp. 17–27.

equivalents today to about 30; to buy only 13 JSTARS surveillance and targeting aircraft instead of the 19 earlier planned; to reduce dedicated continental air defense squadrons further; to operate two fewer submarines than the 52 planned under the bottom-up review; and to reduce the total number of major surface combatants from 131 to 116 (including cruisers, destroyers, and frigates, of which there are about 30, 50, and 50 in the present fleet, respectively). Defense infrastructure is also declining, though by less than the one-third reduction in active-duty troops and forces since 1990. The total number of major domestic bases will have declined by 97, roughly from 500 to 400, once the installations slated for closure by the Base Realignment and Closure Commissions of 1988, 1991, 1993, and 1995 are all completely shut down. At present, only the first two rounds have run their full course, while the 1993 round is nearing completion and the 1995 round is just halfway into effect. In all, roughly

The U.S. Defense Spending Context

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60 major domestic bases had been closed as of the end of fiscal year 1997. Net savings from the closures have been realized more slowly than had been hoped, but each round has been breaking even within about five years. Total annual savings from the four rounds combined are expected eventually to reach $6 billion.16 Overseas bases have been reduced by slightly more than half since the end of the Cold War, roughly in keeping with the reductions in overseas military manpower indicated in Table 2.5.17 At present, the United States maintains roughly 100,000 troops in the Asia-Pacific region and 100,000 in the European theater at any time. Those in the Asia-Pacific are based mainly in Japan and South Korea, with the remaining 15,000 to 20,000 afloat, on Guam, and in smaller numbers elsewhere. About half of the European forces are located in Germany, with roughly 15,000 in Italy, 10,000 in the United Kingdom, about 10,000 in Bosnia and Hungary, around 3,000 in Spain, and several thousand at sea in the Mediterranean.18 BUDGET SHORTFALLS, PRESSURES, AND FUTURE REQUIREMENTS Can these force levels be maintained, given officially planned budgets through 2002, as well as the resources likely to be available thereafter? It all depends on what budget numbers one believes. If, as seemed likely in 1997 and 1998, defense spending follows the contours of the balanced-budget accord, the answer is no. Even the president’s proposal to add $112 billion to previous Pentagon budget plans through 2005 may fall short of the requirements. The Near-Term Budget Outlook Defense spending does not seem likely to fall into the crosshairs of most politicians again soon. The improved economic outlook has reduced the need for deep cuts in different parts of the budget to achieve fiscal balance by 2002. For example, both the president’s and Congress’s 1996 proposals to reduce real annual funding for domestic discretionary programs by more than 20 percent— described as ‘‘the unfulfillable promise’’ by former CBO director Robert Reischauer—are now scheduled to be less than half that magnitude by the year 2002.19 Moreover, the fiscal picture has improved further since the balancedbudget deal was reached in 1997. A cumulative surplus that had been expected to total about $600 billion over the coming decade is now forecast at more than $2 trillion. Before accepting this rosy picture, however, some caveats are in order. First, excluding the social security trust fund, the budget is still in deficit. Second, an economic downturn clearly remains a possibility. Third, reducing nondefense discretionary spending by even 5 percent in real terms by 2002, as envisioned under the balanced-budget deal, will be politically difficult.

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Table 2.5 U.S. Military Personnel in Foreign Areas (in thousands)

Notes: As of September 30 of each year. Numbers may not add up to totals due to rounding. ‘‘Miscellaneous’’ category for 1991 does not include an additional 118,000 shore-based forces in support of Operation Desert Storm. ‘‘Other European Countries’’ category for 1996 includes 26,000 troops in the former Republic of Yugoslavia and Hungary in support of operations in Bosnia and Herzegovina. (In 1995, prior to the IFOR deployment in Bosnia, the United States had about 37,000 troops in the ‘‘Other European Countries’’ category.) Source: Secretary of Defense William S. Cohen, Annual Report to the President and the Congress (Washington, DC: Department of Defense, April 1997), p. C-2.

Despite its budget-cutting fervor, the 104th Congress only managed to reduce domestic discretionary accounts by 3.5 percent, although it would have done more if left to its own devices. The president’s successful reelection effort was built partly on the idea of protecting education and the environment from allegedly excessive Republican budget cutting—and the message appears to have worked with the American people. Closer examination of what is found within the domestic discretionary budget helps explain why. Of the $270 billion spent in 1997, more than $60 billion was spent on education and the environment, and another $100 billion was in the politically very popular areas of federal support for transportation (mostly highways), law enforcement, veterans’ benefits, and health research. The remaining $100 billion or so may be more politically vulnerable—but it also includes funding for NASA, the Women, Infants, and Children (WIC) income support program, administration of the popular Medicare and social security programs, and a number of other public favorites. There is waste in this part of the budget, to be sure. If even the 104th Congress had trouble finding it, however, future policymakers will probably not find the task simple either.

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19

Medium-Term Budget Prospects The authors of the QDR built their plan on the assumption that real defense resources, slated to decline to about $250 billion by 2002, will increase after 2002. That assumption is stated explicitly in the QDR document.20 The need to boost 050 spending arises principally from the fact that procurement accounts will need to rise as systems purchased during the 1970s and the 1980s wear out. Historically, the ratio of the procurement account to the rest of the defense budget averages about one to three; at present it is only about one to five. That rule of thumb implies a steady-state procurement level of at least $65 billion for a force of the planned size and cost, or some $15 billion per year more than now anticipated for the early years of the next decade. Using a more sophisticated methodology, CBO estimated in 1997 that the average cost of the QDR force in the next decade would be $260 billion to $300 billion (still in 1998 dollars). The uncertainty is due principally to questions about how much planned weapons systems would actually wind up costing.21 If one takes $270 billion from that range, converts that to 1999 dollars, and then adds another $5–10 billion to account for the recent well-designed initiatives to shore up near-term military readiness by funding equipment repair, training, and personnel compensation at higher levels, actual requirements would be estimated at $280–290 billion a year on average.22 Requirements will be even greater if bases are not closed or civilian payrolls not substantially reduced through privatizations and other efficiency improvements, as called for by the QDR. Costs would also grow as a result of any peacekeeping operations or the decision to build and deploy a national missile defense. Is that spending level politically realistic? Perhaps. Defense outlays would still decline as a percent of GDP over the 2002–2010 period even if real spending was kept at roughly $280–290 billion, so such an increase would surely not be an excessive strain on the economy. Also, discretionary spending accounts cannot forever be expected to fund growth in federal entitlements. Yet long-term entitlement trends also imply that all parts of the federal budget will remain under significant pressure. Reforms in entitlement programs will not be easy to make. They will probably be put in place only incrementally. In the absence of major reforms in entitlements, moreover, there will be no surplus for years. That is, there is only a short-to-medium-term surplus in the social security trust fund (with the rest of the budget being roughly in balance, as noted). And the size of the social security surplus is insufficient to assure the long-term solvency of even that particular federal program. What is more, lawmakers will be tempted to use any surpluses not devoted to entitlements for tax breaks or new domestic initiatives. Absent a new acute threat to U.S. security, most will probably not consider the Pentagon the most politically redeeming beneficiary of the nation’s improving economic fortunes. In such an environment, discretionary accounts—and in particular defense

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spending, which as argued above has little natural claim to a given share of the nation’s GDP—will probably do well to grow with inflation. WHY PRIVATIZATION AND TECHNOLOGY ‘‘REVOLUTIONS’’ WON’T SAVE THE DAY Are there any ways to redress likely budget shortfalls without making additional painful tradeoffs between weapons procurement, the existing defense force structure, and military readiness levels? Much of the defense-analytic community these days is focused on the idea of a revolution in military affairs, by which advances in precision munitions, real-time data dissemination, and other modern technologies can allegedly transform the nature of future war and with it the size and structure of the U.S. military. Others argue that, by allowing the private sector to carry out many defense support activities like logistics, health care, and equipment maintenance that together cost well over $100 billion annually, perhaps 30 percent of that amount might be saved and devoted to more pressing defense needs. Caution is in order. The lofty estimates of potential savings held out for these kinds of transformations, while not unreasonable as long-term goals, assume a type of U.S. military that no one actually knows how to create right now. Since we are not inventing organizations and outfitting forces from scratch, but starting with a trillion-dollar defense asset base and a highly ready force that must remain capable of handling immediate security challenges, the only way to realize a long-term vision is through evolution rather than wholesale and radical reinvention. As for the much-touted revolution in military affairs (RMA), it has in fact actually been going on throughout this century. It is not clear what is now different about its pace or relative significance. Even since the advent of blitzkrieg warfare and carrier-based airpower, the following technologies or capabilities have been incorporated into modern military forces: radar, helicopters, infrared sensors for guidance and for targeting, laser-guided bombs, laser rangefinders, high-performance jet engines, stealth technology, autonomous and accurate missiles, reconnaissance satellites, and the modern high-speed computer (not to mention thermonuclear weapons and intercontinental ballistic missiles). Are the munitions, sensors, and integrated communications systems now being developed or produced of even greater significance? That seems doubtful. They should be incorporated into the force, but their overall effectiveness should probably be seen as evolutionary rather than revolutionary. Nor do most believers in an RMA actually think that their approach to military transformation would save money anyway. The basic logic of their position would seem to legitimate deferral or a more leisurely pace of acquiring expensive weapons platforms like fighters and combat ships. Many would hedge their bets as much as possible, and also buy new systems like arsenal ships or more

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B-2 bombers to compliment an increase in resources for munitions, communications devices, sensors, and computers.23 Can ‘‘doing business better’’ and privatizing many defense support activities, which according to the QDR may now involve about 60 percent of all DoD manpower, provide enough money to sustain and modernize the force?24 Annual savings estimates as high as $30 billion have been bandied about, even from sources as reputable as the Defense Science Board, in a November 1996 report.25 These projections are almost surely too optimistic, particularly for the near term. Often, such analyses simply define huge areas of defense activity as support, tally the number of employees associated with each area, and apply a single cost-savings factor based on private sector or previous DoD experience to estimate theoretically realizable savings. This approach is useful for calling attention to the potential of privatization, but should never be confused with a blueprint for how to implement it. Somewhat more realistically, perhaps, a Defense Science Board August 1996 report on outsourcing and privatization estimated that $7 billion to $12 billion in annual savings might be achieved by the year 2002. Its specific recommendations were less ambitious than that, however. They suggested privatization of three agencies—the Defense Commissary Agency, Defense Information Systems Agency, and Defense Finance and Accounting Service—with a combined current payroll of less than $4 billion.26 It is probably most accurate to think of defense reform as an ongoing, difficult, and rather tedious process than as a magic new approach. Some savings from it have already been realized and internalized into existing budget plans. For example, allowing more competition between private and public sectors based on the so-called OMB Circular A-76 process yielded annual savings of about $1.5 billion in 1996.27 Such savings should continue to be achieved, but will not provide new sources of funds above and beyond what is already anticipated. Appropriately, the QDR Report treats the matter of defense management reform and privatization much more carefully and rigorously than the Defense Science Board studies had done. It documents about a dozen specific changes that the Pentagon now intends to implement. The sum total of all of these initiatives is expected to lead to a cut of more than 100,000 full-time DoD employees, accounting for most of the QDR’s total personnel reductions.28 But as noted earlier, it will do well to save $5 billion annually with these changes— some of which are attributable not to privatization but to base closures and modest cuts in some military capability. Again, two lessons emerge. First, large savings from privatization and other defense reforms can probably be realized, but they cannot be achieved without a careful game plan. Moreover, vague proposals for achieving them are likely to meet resistance or indifference from the DoD managers and officers charged with carrying them out, as RAND analysts Carl Dahlman and C. Robert Roll have recently argued in a lengthy study.29 Second, many savings are already

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being realized, and being factored into DoD’s future budget baseline—meaning that they are no longer available to redress any shortfall that may still exist in that baseline. WAYS TO ACHIEVE A SUSTAINABLE FORCE WITH LOWER BUDGETS If further defense cuts are needed in the medium term, how might some $10 billion to $30 billion in annual savings be found? Considering this question is not intended to prejudge the desirability of such cuts; indeed, one of the reasons for laying out options is so policymakers and the country can weigh whether the likely strategic costs and military risks of such options are worth the fiscal relief they could provide. My own judgment is that some additional cuts in forces and weapons procurement plans are possible, but that real defense spending should hold roughly constant. Even with these added cuts in personnel and planned hardware, the resources will be needed to assure readiness and replace aging equipment stocks. Four conceptually distinct approaches might be considered to reduce the U.S. steady-state defense spending requirement below the QDR’s estimated requirement of $280–$290 billion. They might be thought of as the efficiency model, the retrenchment model, the coalition model, and the specialization model. The following set of ideas is intended simply to lay out these distinct approaches rather than develop any one at length. Efficiency Model Arguing that the United States has overestimated the capabilities of the Iraqi and North Korean threats, underestimated the military capabilities of key allies like South Korea, and remained unnecessarily inflexible in certain military operations (such as the way it conducts its overseas naval presence), one could argue for a more streamlined approach to maintaining all present U.S. defense priorities. These priorities include a two-war deterrent posture; global presence and engagement, featuring large land-based forces in Korea, Japan, Germany, Italy, and the United Kingdom as well as extensive naval presence in the Mediterranean, Persian Gulf, and western Pacific; continued technological dominance, including a robust military R&D program and selected acquisitions of new capabilities as they become available; nuclear deterrence coupled with limited missile defenses; and continued participation in selective peace operations. Three specific ways to implement this type of vision would be to cancel or severely scale back selected weapons modernization programs like the F-22 fighter and V-22 tilt-rotor aircraft, focusing instead on upgrades to current systems as well as new munitions, sensors, and communications systems; dispense with the notion that a two-war strategy requires a two–Desert Storm capability, and instead emphasize mobility and rapid responsiveness; and either homeport

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more Navy vessels in overseas countries or leave ships on routine deployment for extended periods while rotating crews by airlift.30 Strategically Selective Model Although its credibility as a global leader and ability to dissuade regional allies from developing weapons of mass destruction could suffer by renouncing commitments to current allies, the United States may be able to wean one or more of them off their current high defense dependence on American armed forces. This argument might be best applied to South Korea, a country with an economy now 20 times larger than that of its potential enemy across the DMZ, and with several decades of time to have prepared defensive positions favoring it in any future attempt to stave off a North Korean invasion. When chairman of the House Armed Services Committee in 1992, Les Aspin suggested that U.S. forces provide a tripwire ground presence on the Korean peninsula together with the ability to bring a ‘‘Desert Storm equivalent’’ of airpower to assist South Korean forces in the event of war. That posture and capability could, he felt, have deterred North Korea or defeated it had deterrence failed.31 Something along those lines could be adopted now (some have proposed an even more drastic approach that envisions complete U.S. withdrawal from the Korean peninsula).32 This approach could also be considered, though with smaller likely cost savings, for U.S. naval presence in the Mediterranean Sea. Arguably, U.S. allies like Israel and Turkey need such a presence much less than in the earlier days of the Cold War. Should a future crisis in the region develop, carriers could be sent in from the United States and access could probably be arranged in one of a number of allied countries in the area for U.S. forces that operate from land bases. Coalition Model Current U.S. military plans assume no contribution whatsoever from the primary Western allies in a major theater war.33 That situation is in stark contrast to the Cold War, when the NATO allies as a group supplied fully half the force that would have tried to check the Warsaw Pact if it had attempted an invasion of Western Europe, and even so, much of the trans-Atlantic defense debate was about improving burden-sharing. The United States clearly cannot dictate to its allies how much they should spend on defense and what they should spend it on. Nor can it presuppose that they would actually agree to fight with American forces in any given future war in a faraway region. But the current situation, in which allied forces are physically incapable of quickly getting to a fight outside Europe in significant numbers, or functioning there effectively, is highly undesirable. A major U.S.

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diplomatic initiative to reverse it might have some chance of success. One recent proposal showed how, for an annual investment of $10 billion over five years by the major European powers in certain kinds of transport and logistics equipment, their aggregate forces could become a second major pillar of the Western alliance for possible conflicts in places like the Persian Gulf.34 Specialization Model If that initiative failed, the United States might decide to inform its European and other allies that it would have to specialize in its future military activities. Rather than provide general global engagement, specific deterrence against current threats, and a full panoply of capabilities for peacekeeping and humanitarian missions, it might choose to depend on its allies for the latter activities. A number of defense analysts in the United States now favor such an approach to burden-sharing. Indeed, to some extent it is already employed, in that U.S. armed forces rarely participate significantly in peacekeeping missions under U.N. auspices. Yet that fact belies a broader truth: U.S. forces today are often involved in backstopping U.N. forces or conducting operations that are approved by the United Nations but carried out by other organizations (as with the NATO-led IFOR and SFOR missions in Bosnia).35 As a practical matter, this option could entail reducing forces in the Army and Marine Corps by three to five of their existing total of seven relatively light divisions (those seven divisions include all Marine units and almost half of the Army). Should such troops prove necessary in a future regional war for purposes such as protecting rear areas, guarding prisoners of war, maintaining an occupation, or conducting some other relatively low-intensity operation, either allied forces or U.S. reserves would have to take on that role under this approach. CONCLUSION The United States enjoys a favorable security position at the end of the twentieth century, though not one without its own challenges and potential problems on the horizon. The post–Cold War defense drawdown, now nearly over, has been accomplished without damaging the force or harming the country’s remaining security interests, as past military downsizing efforts have generally done. Defense spending has been reduced quite considerably since 1990, but remains sufficient to leave the United States the world’s only global military power and permit it to deter conflict and instability in several key overseas theaters at once. At the same time, further budget pressure may soon arise from purely domestic causes, either when the continued stream of good economic news is finally interrupted or when the public and policymakers increasingly feel the pain associated with cutting domestic programs. Continued growth in entitlement spending, combined with likely demands to keep domestic discretionary

The U.S. Defense Spending Context

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programs at reasonably solid levels, combined also with Americans’ predictable aversion to tax increases, will constrain defense spending signficantly. Absent a major geopolitical event, the Pentagon is unlikely to enjoy enough real spending increases to keep the QDR force in place through the next decade. Resources seem unlikely to plummet precipitously. But some difficult choices and creative policies will almost certainly be required if American interests and values are to be protected effectively in the future. NOTES 1. Executive Office of the President, Budget of the United States Government, Fiscal Year 1999: Historical Tables (Washington, DC: Government Printing Office, 1998), pp. 78, 117, 118. 2. See Stephen Daggett and Keith Berner, ‘‘Items in the Department of Defense Budget That May Not Be Directly Related to Traditional Military Activities,’’ Congressional Research Service memorandum, March 21, 1994, p. 39; Department of Defense, ‘‘FY 1998 Defense Budget Briefing,’’ February 6, 1997; Ellen Breslin-Davidson, ‘‘Restructuring Military Medical Care’’ (Washington, DC: Congressional Budget Office, July 1995), p. 16; Deborah Clay-Mendez, Richard L. Fernandez, and Amy Belasco, ‘‘Trends in Selected Indicators of Military Readiness, 1980 through 1993’’ (Washington, DC: Congressional Budget Office, March 1994), p. 38. 3. See Stephen I. Schwartz, Director, U.S. Nuclear Weapons Cost Study Project, ‘‘Maintaining Our Nuclear Arsenal Is Expensive and Dangerous,’’ Washington Times, March 26, 1997; David Mosher and Michael O’Hanlon, The START Treaty and Beyond (Washington, DC: Congressional Budget Office, October 1991), p. 135; Michael O’Hanlon, ‘‘Implementing START II’’ (Washington, DC: Congressional Budget Office, March 1993), p. 34. See also Stephen I. Schwartz, ed., Atomic Audit: The Costs and Consequences of U.S. Nuclear Weapons Since 1940 (Washington, DC: Brookings Institution, 1998), pp. 1, 104. Even if one factors out the costs of conventional military systems that had nuclear capability as well, Schwartz and coauthors estimate that nuclear weapons cost $40 billion per year more during the Cold War than they do today. 4. Office of the Undersecretary of Defense (Comptroller), National Defense Budget Estimates for FY 1998 (Washington, DC: Department of Defense, 1997), pp. 108–109. 5. Executive Office of the President, Budget of the United States Government, Fiscal Year 1998: Historical Tables (Washington, DC: Government Printing Office, 1997), p. 112. 6. Ibid., p. 111. 7. Ibid., p. 112. 8. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers, 1990 (Washington, DC: Government Printing Office, 1991), pp. 2, 3, 51, 58, 85. 9. Here I employ the estimates of the International Institute for Strategic Studies, since they are generally more up-to-date than those of the U.S. Arms Control and Disarmament Agency. The estimates differ most for China—by roughly $20 billion, ACDA’s number being higher. See discussion at the end of the chapter, as well as Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers,

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1995 (Washington DC: Government Printing Office, 1996), p. 42; International Institute for Strategic Studies, The Military Balance 1995/96 (Oxford: Oxford University Press, 1995), p. 176; International Institute for Strategic Studies, The Military Balance 1996/97 (Oxford: Oxford University Press, 1996), p. 179. 10. See International Institute for Strategic Studies, The Military Balance 1995/96, pp. 176, 272, and The Military Balance 1996/97, pp. 107–113, 179. 11. See Charles Wolf, Jr., et al., Long-Term Economic and Military Trends, 1994– 2015 (Santa Monica, CA: RAND Corporation, 1995), p. 15. 12. This estimate is for the year 1994, and is expressed in terms of constant 1997 dollars. See U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1995, p. 69. 13. The possibility that Russia’s adjusted military budget could be even larger than $80 billion might be worrisome were it not for its general downward direction, the poor state of Russian equipment, the decline of morale among troops, and the collapse of the procurement budget. See, for example, Clifford Gaddy, The Price of the Past (Washington, DC: Brookings Institution, 1996), p. 171. 14. International Institute for Strategic Studies, The Military Balance 1996/97, pp. 306–311. 15. Secretary of Defense William S. Cohen, Report of the Quadrennial Defense Review (Washington, DC: Department of Defense, May 1997), p. 32; ‘‘Factfile,’’ Arms Control Today, Vol. 26, No. 8 (October 1996), p. 28. 16. Wayne Glass, ‘‘Closing Military Bases: An Interim Assessment’’ (Washington, DC: Congressional Budget Office, December 1996), pp. 2, 30, 32, 63–68; Department of Defense, Defense Almanac 96 (Alexandria, VA: American Forces Information Service, 1996), pp. 48–49. 17. Glass, ‘‘Closing Military Bases,’’ pp. 2, 30, 32, 63–68; Department of Defense, Defense Almanac 96, p. xi. 18. Secretary of Defense William S. Cohen, Annual Report to the President and the Congress (April 1997), p. C-2; International Institute for Strategic Studies, The Military Balance 1996/97, pp. 28–31. 19. Robert D. Reischauer, ‘‘The Unfulfillable Promise: Cutting Nondefense Discretionary Spending,’’ in Reischauer, ed., Setting National Priorities (Washington, DC: Brookings Institution, 1997), p. 145; Press Briefing by the President’s Budget Team, The White House, May 2, 1997. 20. Cohen, Report of the Quadrennial Defense Review, p. 59. 21. Weapons systems often go up in cost by 50 percent relative to initial expectations. Rachel Schmidt, ‘‘An Analysis of the Administration’s Future Years Defense Program for 1995 through 1999,’’ Congressional Budget Office, January 1995, pp. 10, 50. 22. ‘‘CBO Finds Potential $55 Billion or Higher Defense Budget Shortfall,’’ Inside the Pentagon, November 6, 1997, p. 1. 23. See for example, Jim Blaker, ‘‘An Accelerated RMA Force,’’ in Institute for National Strategic Studies, National Defense University, 1997 Strategic Assessment (Washington, DC: Government Printing Office, 1996), pp. 273–281; Joseph S. Nye, Jr., and William A. Owens, ‘‘America’s Information Edge’’; Eliot A. Cohen, ‘‘A Revolution in Warfare,’’ Foreign Affairs Vol. 75, No. 2 (March/April 1996), pp. 20–54; Andrew F. Krepinevich, ‘‘The Air Force of 2016,’’ Center for Strategic and Budgetary Assessments (Washington, DC, October 1996). 24. Cohen, Report of the Quadrennial Defense Review, p. 53.

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27

25. Defense Science Board 1996 Summer Study, Achieving an Innovative Support Structure for Twenty-first Century Military Superiority (November 1996), p. ES-2. 26. Defense Science Board, Report of the Defense Science Board Task Force on Outsourcing and Privatization (Department of Defense, August 1996), pp. 1, 6A, 11. 27. Ibid., p. 32. 28. Cohen, Report of the Quadrennial Defense Review, pp. 54–57. 29. Carl J. Dahlman and C. Robert Roll, ‘‘Trading Butter for Guns: Managing Infrastructure Reductions,’’ in Zalmay M. Khalilzad and David A. Ochmanek, eds., Strategy and Defense Planning for the Twenty-first Century (Santa Monica, CA: RAND Corporation, 1997), esp. pp. 294–306. 30. For one example of this approach, see Michael O’Hanlon, Defense Planning for the Late 1990s: Beyond the Desert Storm Framework (Washington, DC: Brookings Institution, 1995). 31. Les Aspin, ‘‘An Approach to Sizing American Conventional Forces for the PostSoviet Era,’’ House Committee on Armed Services, February 25, 1992. 32. Eugene Gholz, Daryl G. Press, and Harvey M. Sapolsky, ‘‘Come Home, America: The Strategy of Restraint in the Face of Temptation,’’ International Security Vol. 21, No. 4 (Spring 1997), pp. 19–25. 33. This fact is not stated quite so starkly in official planning documents. But see, for example, Cohen, Report of the Quadrennial Defense Review, p. 24. 34. Michael O’Hanlon, ‘‘Transforming NATO,’’ Survival, Vol. 39, No. 3 (Autumn 1997), pp. 5–15. 35. For one articulation of the desirability of this type of specialization, even at current defense budget levels, see John Hillen, ‘‘Superpowers Shouldn’t Do Windows,’’ Orbis Vol. 41, No. 2 (Spring 1997), pp. 244–257.

Chapter 3

The Shrinking Military Pork Barrel: The Changing Distribution of Pentagon Spending, 1986–1996 WILLIAM D. HARTUNG

I. INTRODUCTION Pork-barrel politics is widely perceived as the U.S. arms industry’s most effective tool for rescuing costly projects like the B-1 bomber, the Seawolf submarine, and the F-22 stealth fighter plane from the budget-cutter’s ax. From a 1980s cartoon depicting the B-1 bomber as invulnerable to attack because it was the only aircraft with components built in all 435 U.S. congressional districts, to candidate Bill Clinton’s 1992 pledge to add more Seawolf submarines to the Pentagon budget as a way to curry favor before a pivotal presidential primary in Connecticut, the conventional wisdom in Washington has been that the jobs and income that flow from Pentagon spending are the unbeatable trump card in the politics of defense spending. In 1999—10 years after the fall of the Berlin Wall and 13 years past the peak of the Reagan military buildup—it is time to reassess the enduring power of pork-barrel politics in promoting the purchase of costly weapons systems. With Pentagon spending down by more than one-third from its mid-1980s peak and weapons procurement down by almost one-half over the same time period, are the economic benefits of military spending being spread too thin to serve as a reliable political underpinning for defense mega-projects? While it is true that since 1994 the Republican-controlled Congress has added anywhere from $3 billion to $10 billion per year to the military budget beyond what the Pentagon has requested, and that the Pentagon and the military industry have succeeded in staving off cancellation of any major weapons systems in 1997’s Quadrennial Defense Review, there is evidence to suggest that the persistence of political logrolling in the military budget may be more of a hangover from the Cold War than a predictor of defense-budget politics to come.1

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The best way to measure the potential weight of economic considerations in future battles over the size and shape of the Pentagon budget is to look at the changing distribution of Pentagon contracts and payrolls by region, state, and congressional district between the peak year of the Reagan military buildup and 1996, the most recent year for which comparable data is available. These contracts show that a majority of congressional districts are now out of or nearly out of the defense business. II. MILITARY CONTRACTS BY REGION, STATE, AND CONGRESSIONAL DISTRICT, FY 1986–1996 The most useful barometer of the overall economic impacts of Pentagon spending is the distribution of military prime contracts. In FY 1996, the Pentagon awarded over $120 billion in prime contracts for everything from B-2 bombers and Star Wars missile-defense research to uniforms, computers, and paper clips. These contracts represented just under half of the $265 billion in military outlays for that year. The remainder of the funds went primarily to payrolls for the roughly three million personnel employed by the Pentagon and the three military services (for data on the changing distribution of military payrolls and military bases, see section III below).2 The value of the Pentagon’s domestic purchases, as measured by contracts issued, dropped from $179.9 billion in FY 1986 to $114.4 billion in FY 1996 (in constant 1996 dollars), a decline of 36.38 percent. This decrease is in line with the overall drop in military spending of about one-third over this same period of time. Since the economy has continued to grow as Pentagon spending has declined, military spending has dropped substantially as a share of GDP, from 6.2 percent in 1986 to 3.4 percent in 1996.3 The differential Pentagon contracting cuts by region, state, and congressional district have made the impacts particularly stark: some areas have been virtually abandoned by the military industry, while others have managed to carve out a larger share of the smaller contracting pie. Table 3.1 highlights the regional shifts in defense contracting since 1986. The disproportionate losses of Pentagon contracts in the Northeast, Midwest, and the West Coast would seem to undercut the possibilities for the kinds of regional coalitions that came together in the 1980s to promote specific big-ticket systems—for instance, when members from Southern California, Long Island, Ohio, and Massachusetts joined together, irrespective of party or ideology, to support expensive projects like the B-1 bomber and MX missile. To the extent that former House Speaker Tip O’Neill’s adage that ‘‘all politics is local’’ holds, it is worth looking at the impacts at the state and congressionaldistrict level before jumping to that conclusion. Table 3.2 profiles the biggest winners and losers by state from FY 1986 to FY 1996. The first point to emerge from Table 3.2 is that being the home state of a politician of national stature does not guarantee a steady flow of Pentagon con-

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Table 3.1 Shifts in Pentagon Contracts by Region, FY 1986 to FY 1996 (by percent and in millions of 1996 dollars)

Source: Pentagon contracting tapes, formatted and analyzed by Eagle Eye Publishers of Fairfax, VA, with additional analysis by the World Policy Institute.

tracts. Two of the three biggest losers of Pentagon funding from 1986 to 1996 were President Clinton’s home state of Arkansas (⫺78.8 percent) and former Senate majority leader and presidential candidate Robert Dole’s home state of Kansas (⫺69.8 percent). On the other hand, states such as West Virginia (⫹48.8 percent), South Carolina (⫹47.0 percent), and Virginia (⫹43.9 percent), which are represented by senior members of the Armed Services and Defense Appropriations committees, have done extremely well. West Virginia’s chief political asset is former Senate majority leader and senior Appropriations Committee member Robert Byrd, whose talent for getting projects steered to his home state is legendary. For its part, until early 1999, South Carolina had the distinction of being home to the chairmen of both the Senate Armed Services and House National Security committees (Strom Thurmond and Floyd Spence). Virginia has two senators on the Armed Services Committee, Chuck Robb and John Warner, who took over as chairman in 1999 after years as de facto chairman, during which he and his staff assumed more responsibility from Senator Thurmond’s office. As might be expected, many of the biggest losers in the Pentagon contracting sweepstakes have been in Northeastern and Midwestern states like New York (⫺73.1 percent), Connecticut (⫺63.1 percent), Ohio (⫺60.7 percent), Michigan

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Table 3.2 Biggest Winners and Losers in Defense Contracting by State, FY 1986 to FY 1996 (by percent and in millions of 1996 dollars)

Source: Pentagon contracting tapes, formatted and analyzed by Eagle Eye Publishers of Fairfax, VA, with additional analysis by the World Policy Institute.

(⫺60.4 percent), Illinois (⫺55.8 percent), and Indiana (⫺52.4 percent). Gains and losses have not been distributed on a neat North-South divide, however. California, with its massive $18.9 billion in reductions, has lost nearly twice as much Pentagon-contract revenue in the past ten years as any other state currently receives. And although states in the Deep South have avoided disproportionate losses in contract revenues, none of them have been among the select list of states that have been big gainers from Pentagon spending over the past 10 years. Appendix 3.1 provides a regional and state-by-state breakdown of Pentagon contracting changes from 1986 to 1996. The most revealing data about the diminishing political-economic clout of the

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weapons industry is found at the congressional district level. For FY 1996, a majority of congressional districts—238 in all—had Pentagon contracts in the zero to $100 million range. That meant that for all practical purposes those districts were out of the defense business. This is a gain of 38 ‘‘non-defense’’ districts over FY 1986, enough to swing the balance of voting power towards districts with little or no Pentagon contracting presence (see Appendix 3.2 for a full listing of these ‘‘non-defense’’ districts). In addition, 168 congressional districts suffered massive losses in defense contracting between 1986 and 1996, losing 60 percent or more of their Pentagon awards over that time span. Adjusting for the overlaps in the ‘‘non-defense’’ and ‘‘massive losers’’ lists, in all there were 274 congressional districts in FY 1996 which either had no significant Pentagon contracting presence or had suffered contract losses of 60 percent or more over the prior decade. This represents a substantial majority of congressional districts—274 out of 435—in which members should feel no demonstrable economic pressure to vote for major military projects at the expense of other budget priorities. A full breakdown of the distribution of Pentagon contracts by district for FY 1996 shows just how concentrated the benefits of military spending have become: only 24 districts had prime contracts valued at $1 billion or more; another 25 districts had prime contracts in the range of $500 million to $1 billion; 86 districts received prime contracts valued at $200 million to $500 million; 65 districts received contracts worth $100 million to $200 million; 70 districts received contracts worth $50 million to $100 million; and 169 districts received contracts worth $50 million or less (including five districts that received zero in prime contracts). So a significant majority of districts (239 out of 435) receives $100 million or less, with an additional 65 districts receiving still-modest sums between $100 and $200 million. Before concluding that a majority of congressional districts are virtually out of the defense business, there are a few important qualifiers that need to be considered. One is the issue of subcontracts. All major defense contractors dole out a significant portion of the work on a major weapons system to subcontractors, and these subcontractor networks have always been an important political tool for big weapons manufacturers. Theoretically, this process of subcontracting the work could result in a more even geographic spread of weapons production than one would expect by looking at prime-contract data alone. Yet, as Ann Markusen and her colleagues have pointed out in The Rise of the Gunbelt: The Military Remapping of Industrial America, ‘‘the fragmentary research on the subject suggests that far from redistributing defense dollars, subcontracting tends to favor prime-contract locales.’’4 In short, it is possible that weapons manufacturing is even more concentrated geographically than the data in this chapter suggests. The only way to test this thesis in the current environment would be for Congress to mandate a systematic subcontracting study. Unfortunately, as Markusen notes, a similar study done at the request of Congress in the early 1980s was based on too small a sample to provide reliable data on the subject.

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Nonetheless, the advantages of this kind of transparency in subcontracting for congressional policymaking could be considerable, because absent the necessity to report this information publicly, the major military contractors are the only ones with the data at their disposal, and they are free to distribute it selectively in the way that best suits their purposes—emphasizing subcontracts into the districts of members they are trying to impress while ignoring the subcontracts that go out of those districts. Systematic public data on subcontracting would further ‘‘level the playing field’’ in congressional debates over the size and shape of the Pentagon budget. Another issue that bears on the concentration of Pentagon contracting is the question of ‘‘commuter effects.’’ For example, former House Speaker Newt Gingrich was a big advocate for the Lockheed Martin F-22 because his district is adjacent to the district where the aircraft is built, and many of the workers at the plant lived in Gingrich’s district. Similarly, in a defense-dependent urban area like Los Angeles, workers may commute across one or more congressionaldistrict borders to work at a facility like the Northrop Grumman B-2 plant in Hawthorne. That may go part of the way towards explaining why there was such a solid pro-B-2 vote in Southern California last September, as discussed below. It is hard to quantify the number of‘‘commuter districts’’ precisely, but it would not be surprising if there were two or three dozen districts nationwide that have a significant defense interest based on their proximity to a district with a major weapons plant. This would still leave the country with a majority of districts that are either out of the defense business or on the way out of the defense business, but the margin would be smaller (perhaps something like 238 out of 435). Even so, if there is not enough military pork to go around, so that whole state delegations are not lining up behind their favorite systems and delegations are not engaging in logrolling (‘‘I’ll vote for your weapon if you vote for mine’’), then the pork-barrel power of military spending is still substantially diluted from what it was a decade ago, even allowing for the commuter effect. The other issue to consider in connection with subcontracting is that porkbarrel politics is now a global phenomenon. This further dilutes the domestic economic impact of Pentagon contracting. As a result of offset and coproduction deals, which steer military manufacturing to foreign countries as a quid pro quo for those countries’ purchasing U.S. weaponry, many of the subcontracts that might once have been issued to companies in Illinois or Texas are now being given to companies in Turkey, Taiwan, or South Korea. As part of its effort to market F-16 fighter aircraft to Eastern and Central Europe under the umbrella of NATO expansion, Lockheed Martin held a series of ‘‘Industrial Team Cooperation’’ conferences in which 11 units of the company and 39 major company subcontractors met with businesses from Poland, Hungary, and the Czech Republic to discuss possible business partnerships linked to sales of U.S. weaponry to the region. The company has already committed to building an F-16 plant in Poland if that country opts for the Lockheed Martin fighter, and Boeing has a similar deal in the Czech Republic if that nation chooses the F-18. These

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offset deals often involve not only building or assembling components of the particular weapon system being purchased by the client company, but also a chance to bid on other Lockheed Martin work. Foreign companies often displace U.S. subcontractors as a result of offset arrangements. In a 1996 Commerce Department survey, a full 83 percent of the subcontractors surveyed reported losing work as a result of offset arrangements.5 Putting aside for now the complexities introduced by subcontracting and the commuter effect, it is interesting to note that data by congressional district demonstrates that heavy defense contracting losses are not limited to the Northeast and Midwest. More than one out of four districts with $100 million or less in Pentagon contracts during 1996—69 districts in all—were in the South or Southwest, regions where members have frequently been disposed to support Pentagon spending requests on the theory that some of the funds would end up benefiting their home districts. If members from long-time defense-dependent states like California (which routinely tops the list of Pentagon contract recipients) and Connecticut (which had the highest per-capita level of Pentagon contracts in the country through the early 1990s) have yet to reconsider the wisdom of relying on the military budget to prime the pump for their local economies, the data on military spending by district suggests that they should start doing so immediately. In 1996, more than one-third of California’s congressional districts (19 out of 52) were ‘‘non-defense’’ districts with $100 million or less in Pentagon contracts; and of the 45 districts that existed in both FY 1986 and FY 1996 (the state gained seven districts as a result of the 1990 census), nearly half of them (21 in all) suffered defense-contract losses of 50 percent or more, including 16 districts that had mega-losses in the 80–90 percent range. In Connecticut, three of the state’s six districts are now in the ‘‘non-defense’’ category of $100 million or less in Pentagon contracts, while four out of the six districts had losses of 50 percent or higher from 1986 to 1996. The biggest defensedependent districts in Connecticut were among the biggest losers, with the Hartford-area First District (home to the Pratt and Whitney engine division of United Technologies) losing 74.9 percent of its contracts and the Second District (home to General Dynamics’ Electric Boat submarine division) losing nearly $1.7 billion in Pentagon contracts, a 54.9 percent reduction. At a minimum, these developments suggest that the days of getting the bulk of the members from a defense-dependent state like California or Connecticut to vote as a bloc for a big-ticket weapons project may become a thing of the past. Representatives in a state like New York, which was a mid-level player in defense-budget politics during the 1960s, 1970s, and 1980s principally due to the presence of one major contractor—the Long Island–based Grumman Corporation—should be sued by their constituents for non-support if they have any inclination to continue to vote for projects like the B-2 bomber on pork-barrel grounds. A solid two-thirds of New York’s congressional districts (21 of 32) had virtually no defense-contractor presence in 1996 (with prime contracts under $100 million), while 12 districts suffered contracting losses of 50 percent or

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more from 1986 to 1996. More importantly, New York districts one through five, which cover Long Island plus the area of Queens that was formerly represented by Joseph Addabbo (who negotiated many add-ons of Grumman combat aircraft to the Navy’s budget when he served as the chairman of the House Defense Appropriations Subcommittee in the late 1970s and early 1980s), have experienced a decline in defense contracts of more than 80 percent, from nearly $6 billion in Pentagon awards to the five districts in 1986 to less than $1.2 billion to the same five districts in 1996. How have the states and districts of members of key congressional defense committees fared during the defense ‘‘build-down’’ from 1986 to 1996? As noted above, three of the states with the biggest gains in defense contracts over this period—West Virginia, South Carolina, and Virginia—are all represented by senior members of these key committees: Defense Appropriation Subcommittee and Armed Services Committee member Robert Byrd (D-WV), Senate Armed Services Committee Chairman Strom Thurmond, House National Security Committee Chairman Floyd Spence, and Senate Defense Appropriations Subcommittee member Ernest Hollings (all of South Carolina), and Senate Armed Services Committee members John Warner (R-VA) and Charles Robb (D-VA). This tendency of states represented by key committee members to do relatively well in an era of Pentagon retrenchment is replicated for the Senate as a whole: of the 34 members serving on the Senate Armed Services Committee and Defense Appropriations Subcommittee in 1996, 24 were from states that had defense contract reductions that were less than the national average from 1986 to 1996, while nine represented states that had their Pentagon contracts increase even in the face of substantial losses nationally (Table 3.3). The relative good fortune enjoyed by the jurisdictions of members of key defense committees in the House of Representatives was even more pronounced than in the Senate. In all, nearly three-quarters (47 out of 65) of the members of the House National Security Committee and the House Defense Appropriations Subcommittee represented districts that suffered defense contract losses at rates below the national average from 1986 to 1996. More than 40 percent of key-committee members (27 of 65) were from districts that went against the national trend to experience actual increases in defense contracting dollars between 1986 and 1996 (Table 3.4). Whether the relative good fortune of states and districts represented by members of key defense committees is a result of extraordinary efforts by these members to defend spending targeted to their home turf or a case of members from states with heavy defense spending making sure they get on these committees is a chicken-and-egg problem: probably both factors are at play. But in either case the result may be an increasingly parochial environment on the key committees where the economic interests of a handful of states and districts play a disproportionate role in defense decision making. In line with this hypothesis, it should be noted that all nine of the states that had net gains in defense contracting from 1986 to 1996—Idaho, West Virginia, South Carolina, Virginia,

Table 3.3 Percent Change in Pentagon Prime Contracts for States of Senators on Key Defense Committees, FY 1986 to FY 1996 (in thousands of 1996 dollars)

Source: Pentagon contracting tapes, processed by Eagle Eye Publishers of Fairfax, VA, and analyzed by the author.

Table 3.4 Percent Change in Pentagon Prime Contract Awards to Congressional Districts of Members of Key Defense Committees, House of Representatives, FY 1986 to FY 1996 (in thousands of 1996 dollars)

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Table 3.4 (continued)

Source: Pentagon contracting tapes, processed by Eagle Eye Publishers of Fairfax, VA, and analyzed by the author.

Nevada, Missouri, Nebraska, Colorado, and Maine—had members on at least one of the two key Senate defense committees. In all, members from these states accounted for 11 of the 35 slots on the two defense-related committees; the big winners—West Virginia, South Carolina, and Virginia—had two key-committee members each (in the case of West Virginia, the same member—Robert Byrd— sat on both key defense committees). Whether the issue is keeping defense contract increases going or keeping cuts to a minimum, most key defense-committee members in the House and Senate have a measurable pork-barrel interest in defense-policy issues. Another way of putting it is that even as the membership of Congress as a whole is becoming less dependent on the economics of weapons spending, the membership of the key committees that shape the Pentagon budget has become more defense dependent, and potentially more parochial in its views on national security issues. III. SHIFTS IN MILITARY PAYROLL SPENDING BY REGION AND STATE, 1986 TO 1996 Spending on payroll and military bases also affects political support for Pentagon spending on Capitol Hill. Pursuing additional rounds of base closures and cutting active duty and reserve personnel are likely to be contentious issues

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over the next few years, and pork-barrel politics will be at the center of the debate. Secretary of Defense William Cohen has raised the issue of base closings as a critical element in his strategy for pushing Pentagon weapons-procurement funding from its current level of $35–$40 billion to $60 billion or more over the next few years. As a result, different bureaucratic and pork-barrel interests (bases versus weapons, or operations and maintenance versus new weapons investments) within the military-industrial establishment are at odds over the shape of future defense spending.6 This could pave the way for some interesting defense-budget politics in the Congress, if a few well-informed members are willing and able to think strategically about how to utilize this bureaucratic infighting to impose some discipline on the Pentagon budget. At the macro level, Secretary Cohen’s concerns about spending on infrastructure and personnel taking up a bigger share of the Pentagon’s budget is borne out by budget and contracting data. Between 1986 and 1996, Pentagon-related payrolls—including military and civilian personnel plus guard and reserves— dropped from $88.8 billion to $66.8 billion in real terms, a decrease of 24.7 percent. Over this same time period, total Pentagon contracting dropped by 38.6 percent, and weapons procurement dropped by roughly 50 percent. For purposes of this chapter, Pentagon payrolls will serve as a proxy for military base activity, since the states with the largest military payrolls also have the most extensive military-base networks.7 The pattern of winners and losers on payroll and base expenditures is similar to that on Pentagon contracting, but the differences among regions are much narrower for payroll spending than they are for Pentagon contracting (see Table 3.5). The biggest losers are in the Northeast and Midwest, and the biggest ‘‘gainers’’ (in the sense of losing less than the national average) are in the South and Southwest. The differences are more pronounced if one looks at the winners and losers by state. The relative gainers in military payroll spending are by and large the states in the South and Southwest that had the biggest military base presence in the first place (see Table 3.6). The exceptions to this rule are places like Delaware, which managed to increase its relatively modest military-related payrolls from $209 million in 1986 to $237 million in 1996. The biggest losers in militaryrelated payrolls by state are mostly in the Northeast and Midwest, with New Hampshire, Maine, Massachusetts, New Jersey, Pennsylvania, Michigan, and Illinois suffering among the largest losses. For the most part, states that already had a large presence of military bases and personnel held on to most of what they had. Of the seven states that received $3 billion or more in military-related payrolls in 1986—California ($10.4 billion), Virginia ($10.2 billion), Texas ($6.2 billion), Maryland ($4.4 billion), Florida ($4.2 billion), Georgia ($3.5 billion), and North Carolina ($3.1 billion)— one (North Carolina) gained in payroll from 1986 to 1996, five lost less than the national average, and only one (Maryland) lost more than the national av-

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Table 3.5 Winners and Losers on Military Payroll/Base Spending by Region, FY 1986 to FY 1996 (by percent and in millions of 1996 dollars)

Source: Data on Pentagon-related (military, civilian, and guard and reserve) payrolls, by state, contained in the FY 1986 and FY 1996 editions of U.S. Department of Defense, Atlas Data Abstract for the United States and Selected Areas (Washington, DC: U.S. Department of Defense).

erage. As with Pentagon contracting, there is also a correlation between states that have members on the armed services or defense appropriations panels and states that kept the bulk of their military-related payrolls. Of the twelve states that either gained payroll or suffered losses at only one-third of the national average, nine had members on one of these key defense panels. There were some surprises here, however; for example, South Carolina, despite its heavy representation on the armed services and appropriations committees of both houses, lost over 40 percent of its military-related payrolls from 1986 to 1996, a dollar loss of over $1 billion, and Robert Byrd’s home state of West Virginia lost 34.9 percent of its military-related payrolls from 1986 to 1996 (for a state-by-state listing of changes in military-related payrolls see Appendix 3.3). The ability of the Pentagon to impose substantial payroll and base reductions in the state that was home to the chairmen of both the Senate Armed Services Committee and the House National Security Committee is a testimony to the effectiveness of the Base Realignment and Closure (BRAC) process, which was instituted in 1989 in an attempt to short-circuit pork-barrel politics

Table 3.6 Winners and Losers on Military Payroll Spending by State, FY 1986 to FY 1996 (by percent and in millions of 1996 dollars)

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Table 3.6 (continued)

Source: Data on Pentagon-related (military, civilian, and guard and reserve) payrolls, by state, contained in the FY 1986 and FY 1996 editions of U.S. Department of Defense, Atlas Data Abstract for the United States and Selected Areas (Washington, DC: U.S. Department of Defense), with statistical analysis and adjustments for inflation by the author.

in base-closure decisions. Under BRAC, an independent panel comes up with a list of bases that should be closed based on military planning considerations, and Congress has to vote up or down on the whole list. This prevents the kind of horse trading that had stymied base closing efforts in the past. The BRAC process is apparently working too well from the perspective of some congressional leaders. In the summer of 1997, Senate Majority Leader Trent Lott (R-MS) blocked consideration of the next round of base closings under the BRAC process, which had successfully shepherded three rounds of base closings through Congress since 1989. Some critics have argued that deeper cuts should have been sought under BRAC, and the watchdog group Business Executives for National Security exposed a series of ‘‘phantom bases’’ which were supposed to be closed under BRAC but were still receiving substantial Pentagon funding. But despite its flaws, BRAC has helped close many more bases than were closed prior to the introduction of the BRAC process. Sen. Lott and his allies like Rep. Joel Hefley (R-CO), the chairman of the Military Installations Subcommittee of the House National Security Committee, are threatening to derail the BRAC process altogether in the interest of keeping the majority of the remaining facilities in their states and districts up and running for the foreseeable future. During 1997, a Senate coalition headed by Majority Leader Trent Lott and Minority Leader Tom Daschle spearheaded a successful vote that puts off the next round of base closures until at least 2001, and in December 1997, Congress overrode the President’s line-item veto of selected

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items in the Pentagon budget, which largely involved funding for military construction projects.8 IV. THE BOTTOM LINE Now that a majority of House districts are either out of the defense-contracting business or on their way out, has there been a new openness to cutting bigticket weapons programs? On the surface it would appear not. As noted above, since 1995 Congress has been tacking on anywhere from $3 billion to $10 billion per year to the military budget beyond what the Pentagon has been requesting. Even so, there are some counter-trends at work. For example, in 1997, Congress finally resisted ongoing pressure from Northrop Grumman and capped the B-2 bomber program at 21 aircraft. The pattern of B-2 votes in the House did not fully reflect the new economic realities of military contracting. For example, in June 1997, when Rep. Norm Dicks (D-WA) and his allies narrowly overcame (by a vote of 216–209) an effort by Rep. Ron Dellums (DCA) and House Budget Committee Chairman John Kasich (R-OH) to strip the money for additional B-2s from the Pentagon budget, members from a number of historically defense-dependent districts voted for the B-2 despite the fact that military contracting had long since become a marginal activity in their home area.9 On Long Island, where a combination of defense-contract reductions and industry mergers has reduced the military industry presence in the area by nearly 80 percent over the past decade, three of the five members voting—Michael Forbes (R-1st CD), Peter King (R-3rd CD), and Gary Ackerman (D-5th CD)— stuck with Northrop Grumman and voted for the B-2 despite the fact that virtually no work on the aircraft will be occurring there. One Long Island representative, Carolyn McCarthy (D-4th CD), did vote against the B-2, and in a meeting with the author she indicated that she ‘‘didn’t want the military coming back to Long Island’’ because it was too much of an ‘‘up-and-down business,’’ and that she would prefer an industry with better growth prospects. In California, despite massive defense cutbacks that have put roughly 40 percent of the districts in the state out of the defense business or on their way out (due to major contracting losses), the delegation still voted heavily for the B-2, by a margin of 34 to 17. The pro-B-2 margin in California was nearly twice the margin by which the Dellums-Kasich anti-B-2 amendment was defeated in the House as a whole. It is interesting to note that the level of defense contracting in California districts did not correlate directly with how members voted on the B-2. Of the 37 California members who voted for the B-2, more than one-third of them (14 in all) were from districts that had $100 million or less in Pentagon contracts as of FY 1996. Of the 17 California members who voted to stop the B-2, nearly half of them (eight in all) had a significant defense presence in their district ($100 million or more in contracts). A more important phenomenon regarding the California B-2 vote is the North-South distinction. In Northern

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California, the vote was split between conservatives and moderates in districts one through five (basically from Sacramento up to the Oregon border), who voted for the B-2, and liberals in the San Francisco Bay area (districts six through ten), who voted against. By comparison, in the southern part of the state, from district 23 (Ventura County) down through Los Angeles and all the way to the Mexican border, members voted overwhelmingly for the B-2, by a margin of 23 to five. This can partly be explained by the fact that the vote was not about military spending generally; it was about a specific system that was being built by Northrop Grumman in the Los Angeles area municipality of Hawthorne.10 Black Caucus member Maxine Waters has openly acknowledged that she voted for the B-2 strictly on the basis of jobs in her district (which includes part of Hawthorne). Other progressive Los Angeles–area Democrats like Howard Berman (26th CD) and Loretta Sanchez (46th CD), who beat the notorious Republican conservative ‘‘B-1 Bob’’ Dornan in the 1996 elections, also voted for the B-2. Despite the pro-B-2 vote in the House, House members did not have the political clout they needed to win approval for more B-2 bombers in the September 1997 House-Senate conference on the military budget. This suggests that even if some historically defense-dependent areas like Long Island and Southern California may be ‘‘sticking to their guns’’ in voting for defense addons, it may be getting harder to assemble the national coalitions that are needed to push these items through the full budget process. In an era of growing budgets, the process of logrolling had a certain irresistible political and economic logic. In an era of flat or declining military budgets, however, when the Pentagon has more big-ticket systems in the pipeline than it can afford to pay for, logrolling may be replaced by a more balkanized brand of pork-barrel politics in which systems built in one region compete against systems built in another region. For example, if the B-2 were to get a second lease on life, procurement funding for the system would have to come at the expense of the Air Force’s new pet project, the F-22 stealth fighter plane, which is built primarily in Florida and Texas. Similarly, Senate Majority Leader Trent Lott is considering a move to cut off contracts to the Bath Iron Works military shipyard in Secretary of Defense William Cohen’s home state of Maine in order to leave a larger slice of the Navy’s shipbuilding budget for his home-state facility, Litton’s Ingalls yard in Pascagoula, Mississippi. In the past, this sort of problem would have been solved by throwing enough money at each of the yards to keep both of them running. The only way to prevent this kind of regional clash would be to build a political constituency for substantial increases in the military budget; Republican efforts to float such a plan, ranging from Bob Dole’s brief attempt at scaremongering during the 1996 presidential campaign, Republican consultant William Kristol’s 1996 pro-buildup piece in Foreign Affairs, and former House Speaker Newt Gingrich’s recent appeals to spend a substantial part of the projected budget surplus on military modernization, have so far failed to excite public interest.11

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Members of Congress from defense-dependent states have been more willing than before to take leadership roles in initiatives that could affect the bottom lines of home-state military contractors. There is a sort of Jekyll-and-Hyde aspect to certain members’ recent voting records that suggests that defense dependency is not automatically a controlling factor anymore. For example, in August 1995, Sen. Christopher Dodd of Connecticut vigorously defended a new $15 billion arms-export loan-guarantee fund that was being promoted by major weapons makers, including his home-state company United Technologies, which owns both the Sikorsky helicopter and Pratt and Whitney jet-engine companies, even as he bragged about a prior program he had pushed through that authorized the Export-Import Bank to lend over $1 billion to Turkey for the purchase of Sikorsky Blackhawk helicopters. Yet when President Clinton indicated in the spring of 1997 that his administration was about to lift the long-standing ban on sales of U.S. fighter planes to Latin America, Senator Dodd took the lead on legislation aimed at reimposing the fighter ban and linking it to talks on regional arms control in Latin America, even though United Technologies might benefit from increased sales to the region by virtue of its role as a major producer of fighter aircraft engines. Similarly, in the early 1990s, California Senator Dianne Feinstein went to bat for a small California firm called Eidetics which had a pending contract to upgrade U.S. F-5s that were about to be transferred from Jordan to Indonesia. The transfer plan was ultimately blocked by Congress because of concerns about Indonesia’s human-rights record, but the fact that Feinstein would stand up for such an unpopular sale based on the modest number of jobs involved in the upgrade suggested that she was firmly in thrall to porkbarrel politics. Yet by 1995, when Sen. Mark Hatfield’s Code of Conduct bill came to the Senate floor, Sen. Feinstein was among its most articulate advocates, despite the fact that this proposal to control U.S. arms sales to dictators and human-rights abusers was likely to cut U.S. arms sales to Indonesia and numerous other countries where California defense firms are marketing their wares. Similarly, on the House side, Southern California conservatives Dana Rohrabacher and Robert Dornan voted for the Code of Conduct bill when it came up in that body, contrary to the interests of the defense contractors in their districts.12 A sort of reverse pork-barrel politics regarding the defense budget may be developing among members whose districts have been big losers in the militarybudget battles of the past decade. Rep. Chris Smith (R-NJ), a conservative Republican from southern New Jersey, has been a leader on two major issues of concern to weapons manufacturers: he is an active co-sponsor of the Code of Conduct on arms sales bill, and he has joined with Vermont Independent Bernie Sanders on a partially successful effort to limit ‘‘payoffs for layoffs,’’ the provision of taxpayer subsidies to major defense firms to help pay the costs of major industry mergers. On the ‘‘payoffs for layoffs’’ issue, Smith’s interest was directly piqued by the fact that Lockheed had closed down a major satellite production facility in his district as part of the its merger with Martin Marietta,

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and had applied for government funds to help ease the costs of shutting down the plant.13 The ability of Congress to limit military add-ons and enforce some sort of budget discipline on the Pentagon may depend upon whether there are more members like Carolyn McCarthy and Chris Smith, who see military spending as a dead end; or like Maxine Waters, who wants to scramble for her district’s share of a shrinking Pentagon contracting pie; or like Newt Gingrich, who wanted to expand the pie to the point where a majority of districts can once again get on the Pentagon gravy train. What is the bottom line on the geographic distribution of military spending? Briefly, a handful of states and districts, mostly in the South and Southwest, have managed to carve out a larger slice of the defense pie at the expense of the rest of the country, with losses being felt particularly heavily in the Northeast, Midwest, and California. In general the winners in the defense shakeout have been states and districts with powerful senior members on the congressional armed services and defense appropriations committees, who are tending to the parochial interests of their areas at the expense of other parts of the country. But the very same dynamics that are driving this concentration of the benefits of defense spending in fewer districts and states have opened up the possibility of building a congressional majority for holding the line on Pentagon spending (or even imposing significant cuts) based on the economic interests of the majority of congressional districts which are now out of or nearly out of the defense business. NOTES The author would like to thank the Ford Foundation and the John D. and Catherine T. MacArthur Foundation for providing support for this paper as part of the World Policy Institute’s project on the changing dynamics of arms production and trade. 1. Data on Congressional add-ons is from Steve Kosiak, Center for Strategic and Budgetary Assessments. See also Jonathan Landay, ‘‘Congress Exceeds Pentagon’s Dreams in Spending Plan,’’ Christian Science Monitor, July 2, 1997; and Secretary of Defense William S. Cohen, Report of the Quadrennial Defense Review (Washington, DC: Department of Defense, May 1997). 2. Figures on total Pentagon contracts are from U.S. Department of Defense, Directorate of Information, Operations, and Reports, 100 Companies Receiving the Largest Dollar Volume of Prime Contract Awards, Fiscal Year 1996 (Washington, DC: Department of Defense, 1997); and figures on the FY 1996 budget are from Office of the Undersecretary of Defense (Comptroller), National Defense Budget Estimates for FY 1998 (Washington, DC: Department of Defense, 1997), p. 8. 3. Office of the Undersecretary of Defense (Comptroller), National Defense Budget Estimates, p. 172. 4. Ann Markusen, et al., The Rise of the Gunbelt: The Military Remapping of Industrial America (New York: Oxford University Press, 1991), p. 14. 5. For the data on offsets, see U.S. Department of Commerce, Bureau of Export

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Administration, Offsets in Defense Trade: A Study Conducted Under Section 309 of the Defense Production Act of 1950, as Amended (Washington, DC: U.S. Department of Commerce, 1997), p. 64; on Lockheed Martin’s offset offers in Eastern and Central Europe, see William D. Hartung, Welfare for Weapons Dealers 1998: The Hidden Costs of NATO Expansion (New York: World Policy Institute, 1998), pp. 27–30. 6. Jeff Erlich, ‘‘Cohen: Procurement Spending Is at Risk,’’ Defense News, September 15–21, 1997. 7. Precise data on the number and costs of bases between 1986 and 1996 was not available, hence the approach of using payroll figures as a proxy for base activity. Also, since some of the contracting data that was discussed in section II includes supplies for military bases and military construction contracts, the focus on payrolls avoids doublecounting in the assessment of the economic distribution of Pentagon revenues. While spending on personnel and bases is not a perfect match (in the sense that significant military infrastructure could be maintained in areas where there are relatively few personnel stationed), the payroll data provides a good first approximation of which states are still heavily reliant on military bases and personnel. 8. Background on the BRAC process is from Business Executives for National Security (BENS), ‘‘Base Closure and Realignment,’’ in The Revolution in Military Business Affairs: A Briefing Book (Washington, DC: BENS, October 1997); BENS, ‘‘Short History of the Base Closure Process,’’ backgrounder, January 28, 1998; and discussions with Erik Pages of BENS. 9. The debate and vote on the Dellums-Kasich amendment to cap the B-2 bomber program at 21 aircraft is in the Congressional Record, June 23, 1997; the roll-call vote is on page H4189. 10. For further discussion of the politics of the B-2 budget battle, see William D. Hartung, ‘‘Notes from the Underground: An Outsider’s Guide to the Defense Budget Debate,’’ World Policy Journal, Vol. 12, No. 3 (Fall 1995), pp. 17–21. 11. William Kristol and Robert Kagan, ‘‘Towards a Neo-Reaganite Foreign Policy,’’ Foreign Affairs Vol. 75, No. 3 (July/August 1996), pp. 18–36. 12. On Senator Dodd’s role in export financing, see William D. Hartung, Welfare for Weapons Dealers: The Hidden Costs of the Arms Trade (New York: World Policy Institute, 1996), pp. 55–56; for the House debate and vote on the Code of Conduct bill see the Congressional Record, May 24, 1998, pp. H5502–H5528; and for the Senate debate and vote on the Code of Conduct see the Congressional Record, July 25, 1996, pp. S8781–S8788. 13. Rep. Chris Smith, ‘‘Stop the Payoffs for Layoffs,’’ Daily News (New York), August 6, 1996.

Appendix 3.1 Pentagon Contracts by Region, FY 1986 vs. FY 1996 (in thousands of dollars, with percent change)

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Notes: *District totals may not add up to the state total due to the fact that some contracting activity could not be identified by congressional district. **Districts in italics did not exist in one of the two base years (1986 or 1996), but were either added or eliminated due to redistricting. ***Percentage change is not applicable because the denominator is zero. Source: Pentagon contracting tapes, processed by Eagle Eye Publishers Fairfax, VA, and analyzed by the author.

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Appendix 3.2 Pentagon Prime-Contract Awards by Congressional District, FY 1996 (in descending order, in thousands of 1996 dollars)

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Source: Department of Defense data tables, processed by Eagle Eye Publishers of Fairfax, VA.

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Appendix 3.3 Pentagon Contracts by State, FY 1986 to FY 1996 (alphabetical, in thousands of 1996 dollars)

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Notes: In Districts marked ‘‘DNI*’’ contracting activity could not be identified by congressional district. ‘‘% Change’’ columns marked ‘‘N/A**’’ indicate that the percentage change is not applicable because the denominator is zero. ***The increase for Montana District 1 is due to the fact that the state went from two districts down to one from 1986 to 1996. Source: Pentagon contracting tapes, processed by Eagle Eye Publishers of Fairfax, VA, and analyzed by the author.

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Appendix 3.4 Changes in Military-Related Payrolls by State, FY 1986 to FY 1996 (in descending order by percentage change, in thousands of dollars)

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*Figures adjusted for inflation in constant 1996 dollars. Source: Pentagon contracting tapes, processed by Eagle Eye Publishers of Fairfax, VA, and analyzed by the author.

Chapter 4

Playing the Add-on Game in Congress: The Increasing Importance of Constituent Interests and Budget Constraints in Determining Defense Policy MORTON H. HALPERIN and KRISTEN LOMASNEY

In the aftermath of the collapse of the Soviet Union, it has become increasingly difficult to evaluate proposals for how to spend the hundreds of billions of dollars that the U.S. political system annually provides to the Department of Defense. New weapons systems are especially difficult to analyze in the absence of any specific threats or a country with the resources—financial or technological—to challenge U.S. military systems, and today’s participant in the defensespending process must draw on other interests in determining his or her position on specific weapon systems. In this post–Cold War context, therefore, it should come as no surprise that members of Congress feel freer to challenge the decisions of the president and the military services, and to advocate defense spending that assists their districts or states through add-ons to the defense budget. In fact, a survey of how Congress has addressed defense budgets over the past three administrations reveals that the biggest change since the end of the Cold War (and its consensus on defense spending) is the emphasis that congressional members with defense-related industries in or adjacent to their districts now place on preserving constituent jobs. Concerned with preserving defense spending, such members are attracted to the defense authorizing and appropriating committees and subcommittees, from which they are better able to have an impact on specific weapons choices within U.S. defense policy. In an era of balanced budgets, this parochial factor is heavily influencing the positions of key congressional members and their willingness to substitute their own judgment for that of the administration and the Joint Chiefs, regardless of party. Changes in the rules and procedures of Congress, specifically those resulting from the passage of the Congressional Budget and Impoundment Act of 1974, facilitated this development. Whereas debate over the size and scope of the

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defense budget had taken place in defense-related committees prior to 1974, the act shifted responsibility for evaluating and determining the national defense on the macro level to the budget committees, which set annual spending targets in conjunction with the president and congressional leadership. As a result, members of the authorizing and appropriating committees are now limited to allocating fixed defense resources—when possible, to the benefit of their districts— rather than determining an appropriate overall national defense. The effects of this procedural change were less obvious during the Cold War, when defense spending was high and growing, permitting the Pentagon to purchase almost any system for which a case could be made. In the face of such a serious perceived challenge as the Soviet Union, Congress felt obliged on the whole to comply with the requests of the executive branch. Thus, during much of the Reagan administration, members with major defense production installations in their districts or states were not under great pressure to challenge the priorities of the administration, since spending was high enough to satisfy their constituent needs. The rules of the game in Congress began to change as the Cold War dissipated, starting in the later years of the Reagan administration. Drastically reduced threats and budgetary realities translated into smaller defense budgets, and Congress shifted funding from expensive strategic weapons systems to conventional arms programs in order to save constituent defense-related jobs. Today, while the overseas threat and defense spending have both declined since the Cold War, industrial plants remain in place and seek defense contracts. Congress has thus authorized and appropriated funds above the Clinton administration’s requests in an attempt to preserve these jobs, in some cases refusing to cancel weapons systems in order to keep production lines open. The consequence is that membership on defense-related committees and subcommittees is increasingly seen as a platform from which to play the add-on game, making these slots very desirable. Of course, the ability to add funding in this manner (which crosses party lines) has been affected by the agreement to balance the budget, which has forced Congress to agree to further cuts in defense spending. However, it remains true that the failure of the Quadrennial Defense Review (QDR) to develop a consensus on defense policy will provide more room for members of Congress to develop their own defense policies in order to justify the weapons systems they want to purchase. What follows is an examination of Congress’s treatment of the defense budget as the Cold War winds down, and we enter a period in which defense spending is limited by the balanced budget agreement and in which national security requirements are more and more difficult to specify. PHASE 1: FISCAL 1982–1988 In the context of great tension with the Soviet Union, this phase is marked by congressional support of President Reagan’s defense program both in terms

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of strategy and budget. This pattern begins to shift in fiscal 1986, when Congress challenged President Reagan’s defense strategies—particularly on the issues of arms control and nuclear policy—and reduced the defense budget in real terms. Congress embraced the defense buildup proposed by Ronald Reagan during his 1980 presidential election campaign, funding the president’s defense initiatives with little debate. Initially adding $26 billion to President Carter’s fiscal 1982 defense budget request, which had already been increased in reaction to the Soviet invasion of Afghanistan, Reagan in 1981 launched a program to accelerate the modernization of existing forces. In fiscal 1982, Congress produced the basic defense program that the president requested, and passed a final defense authorization bill that delivered $419.4 million above Reagan’s revised budget; final appropriations fell only $979 million short of the requested amount.1 In fiscal 1983, the prospect of massive budget deficits induced Congress to make a nearly $19 billion cut in budget authority. The final authorization bill reduced the administration’s proposed budget by $5.6 billion, but was passed before the administration and Congress had begun serious negotiations over the defense budget; these discussions, dominated by a concern for reducing the deficit, led to a revised request by Reagan and the passage of an appropriations bill that carved about $17.6 billion from Reagan’s initial defense plans. Although the cut was the biggest since the early 1970s, the bulk of the reduction came from routine congressional efforts to reduce federal spending (for example, through a reduction in the annual pay hike for all federal employees) and did not have a substantial effect on defense programs. In the fiscal 1984 authorization and appropriation bills, Congress left the major outlines of Reagan’s original policies intact, and defense spending increased by 4 percent in real terms. The bill followed the Soviet Union’s shooting down of a South Korean passenger jet, underscoring the important role of events that occur just before congressional votes. While the final authorization bill reduced Reagan’s proposed budget by $10.5 billion, it allowed the Pentagon to allocate nearly 15 percent of the cuts. And though the final appropriations bill was $11.1 billion below Reagan’s revised budget request, it was $17.3 billion above the fiscal 1983 level; in addition, its reductions were distributed across the board without imposing fundamental changes in Reagan’s defense policy.2 Congress continued to support the fundamental shape of Reagan’s defense program for fiscal 1985. While the defense budget was trimmed with hundreds of modest reductions, very few congressional cuts posed a substantial challenge to the administration’s defense policies or major weapons programs. The final authorization fell $2 billion below Reagan’s request, which had been resubmitted under pressure from Congress to reduce the budget deficit, and final appropriations brought the total defense budget to the amount agreed to by the White House and congressional leadership.3 For the first time in a decade, Congress approved a final defense budget for fiscal 1986 that decreased the Pentagon’s purchasing power in real terms. How-

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ever, the original authorization bills produced by the House and Senate Armed Services committees had increased the defense budget in real terms; real growth had to be cut to zero according to the terms of the subsequent budget resolution. In order to accomplish this, Congress made large reductions at the margins of specific programs and avoided killing any major weapons systems or reshaping the basic priorities of Reagan’s budget request. The final authorization bill sliced $19.5 billion—and the final appropriations bill $22.7 billion—from the administration’s proposed budget, a 2 percent real decrease in the Pentagon’s purchasing power.4 Congress approved authorization legislation for fiscal 1987 that cut approximately $26.7 billion from the administration’s proposed budget and made large reductions in Reagan’s request for research on the Strategic Defense Initiative (SDI) or Star Wars program, criticizing the administration’s plan as too expensive and too focused on the perhaps technically infeasible goal of a national defense.5 Congress also challenged Reagan on nuclear policy; for example, extensive arms-control provisions in the House appropriations bill triggered a veto threat from the White House. House conferees dropped most of these provisions on the eve of Reagan’s meeting with Soviet leader Mikhail Gorbachev in Iceland, however, and the final appropriations bill was passed, cutting Reagan’s request by $30 billion and again reducing the overall defense budget in real terms.6 PHASE 2: FISCAL 1988–1993 During this phase, Cold War tensions declined until the Soviet Union collapsed, removing the overriding strategic rationale for defense spending. As a result, in the context of increasing budgetary constraints, Congress began to shift funds from expensive strategic weapons to conventional arms programs in order to save constituent defense-related jobs. The Gulf War and its use of conventional weapons reinforced this pattern. In the context of budgetary restraint, Congress enacted a fiscal 1988 authorization bill that reduced Pentagon spending in real terms for the third consecutive year. Complaining that the administration was concentrating too much on building up strategic weaponry to the detriment of conventional forces, Congress shifted funds to correct that imbalance and placed new limits on Reagan’s strategic-arms buildup. The final overall defense authorization reduced the administration’s request by about $14.9 billion, and the omnibus continuing appropriations resolution cut $20.5 billion, a 4 percent real decrease from fiscal 1987 that was agreed to in a White House–congressional summit.7 Congress’s fiscal 1989 defense authorization bill triggered a presidential veto because of the numerous provisions repudiating some of Reagan’s key policies on arms control and strategic weaponry, but it brought the total defense budget to essentially the amount agreed to in the budget summit; final appropriations

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also matched the agreed sum, trimming only $747 million from Reagan’s request.8 Under the terms of Bush’s budget compromise with congressional leaders, Secretary of Defense Richard Cheney sliced $10 billion from the fiscal 1990 Defense Department budget originally submitted to Congress by President Reagan, canceling several major weapons programs. Provoking the first of what was to become a pattern of fights by congressional members to save production in their districts,9 some of Cheney’s cancellations drew fire in the Democratically controlled House. For example, Cheney decided to end production of the Navy’s F-14 fighter plane, built on Long Island by Grumman. Faced with growing defense-industry unemployment because of other Pentagon contract cancellations, Thomas Downey and George J. Hochbreuckner (both D-NY) and other members representing the region mounted a successful campaign to secure continued funding for F-14 production. Cheney’s decision to cancel production of the V-22 Osprey troop carrier—a joint project of the Fort Worth–based Bell Helicopter Textron and a Philadelphia-based Boeing subsidiary—was also overturned.10 Successful opposition to the closure was organized by many powerful members, including Armed Services Committee members Curt Weldon (R-PA), whose district included a Boeing plant that built Osprey components, and H. Martin Lancaster (D-NC), whose district hosted 20 percent of the Marine Corps at Camp Lejeune.11 In the context of easing U.S.-Soviet relations and open talk of arms reduction, Congress in fiscal 1990 became more willing to view expensive strategic weapons systems such as the B-2 bomber and SDI as potential ‘‘cash cows’’ to pay for shrinking conventional arms programs. In sharp departures from administration requests, the House, led by Republicans, halved the authorization for the MX missile and reduced funding for SDI and the B-2 while authorizing funding for the Osprey and F-14D. The figure approved in the final authorization bill was consistent with that agreed to by the White House and the bipartisan congressional leadership in a budget summit, but it made the first absolute reduction in funding for SDI. In addition, of the ten production lines Cheney wanted to close, conferees agreed to terminate six, delay closure of two for a year, and defer final judgment for a year on two more. In the two most hotly debated cases, conferees approved one last purchase of F-14D planes and put off until 1990 a decision on whether to terminate production of the Osprey.12 The fiscal 1990 appropriations bills produced by the House and Senate committees reflected the priorities in the companion authorization legislation produced by their counterpart committees, with the House shifting funds from strategic to conventional weapons. The final appropriations bill, reducing Pentagon spending in real terms for the fifth straight year, approved the amount agreed to in the budget summit. The legislation also sharply cut funding for SDI and approved funding for some weapons systems that Cheney wanted to cancel; like the defense authorization bill, for example, the appropriations bill continued

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production of the F-14D fighter plane through fiscal 1990.13 Such add-ons were achieved in part by shuffling funds from personnel and operational costs to conventional weapons procurement and military research; this defied the advice of defense specialists, who stressed that since future Pentagon purchasing power would be level at best for years to come, and existing weapons were adequate to meet any foreseeable threat, the amount earmarked for procurement should shrink, not grow.14 In fiscal 1991, facing a budget crunch and revolutionary changes abroad, Congress cut $18 billion from Bush’s request for defense spending, a real decline from the previous year. The federal deficit dominated the debate; at the same time, the warming of U.S.-Soviet relations and the crumbling of Communist regimes in Eastern Europe added a strategic rationale for ending the defense buildup of the Reagan administration. However, before a final authorization bill could be negotiated, Iraq invaded Kuwait, and Bush approved a massive mobilization of U.S. forces to the Persian Gulf. In this context, the Senate Armed Services Committee debated Cheney’s defense budget.15 While the panel agreed in theory that the Pentagon should stop producing weapons designed to stand off Soviet tanks in Central Europe, it also resisted winding down production of the M-1 tank. Two committee members, John Glenn (D-OH) and Carl Levin (D-MI), represented the states where the tank was built and convinced their colleagues that it was important to keep a core of tank-production workers in place for potential future need; the result was that the committee added $60 million in new budget authority and $62 million more left from the fiscal 1990 budget.16 Otherwise, the committee agreed to terminate most of the 13 weapons programs Cheney proposed eliminating; the Senate’s final bill followed suit. The House Armed Services Committee sharply reduced weapons-procurement programs, reporting a defense budget that cut $24 billion from Bush’s request and an additional $6 billion from the Senate’s version. Much of this reduction was accomplished by committee chairman Les Aspin’s withdrawal of support for funding the B-2 bomber beyond the 15 already built or under construction. Aspin said his decision was based on the B-2’s expense in an era of sharply declining defense budgets and the availability of less expensive alternatives for U.S. missions,17 but Republican committee member William Dickinson said, ‘‘When he canceled the B-2, he automatically got $2.7 billion worth of chits. . . . He and his staff have been all over working on my [Republican] guys.’’18 Calling for greater emphasis on flexible forces, the committee followed Aspin’s lead on the B-2 bomber and reduced spending on SDI, on the grounds that the two programs were geared toward the apparently fading U.S.-Soviet conflict.19 In addition, in order to soften the impact of budget cuts, the committee wrote in a $200 million program to help workers and communities adjust to the loss of defense contracts.20 The final authorization bill rejected Cheney’s effort to terminate the Osprey for the second straight year and sidestepped the issue of the B-2 bomber’s future, approving funding for B-2 procurement but remaining

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vague about whether the funds could be spent only to pay cost overruns on the previously authorized bombers or could be used to buy additional B-2s.21 The fiscal 1991 defense appropriations bill brought total spending to the ceiling set by the congressional budget resolution, a 2 percent real decline from the previous year. The vast majority of the legislation’s funding limits echoed those in the companion defense authorization measure.22 Despite the collapse of Communist power in the Soviet Union in the fall of 1991, Congress made no significant reduction in the defense request submitted by Secretary of Defense Cheney for fiscal 1992. In that request, the administration proposed cutting $50 billion over five years from the defense plan submitted the previous year, but the immediate savings was only $10 billion. Congress trimmed the defense appropriations bill by another $7 billion, but for the most part demands for cuts in military spending gave way to election-year pressures to save defense-related jobs. This attempt to protect constituent jobs began with the House Armed Services Committee, which added funds to Bush’s request in order to keep open the weapons-production lines that the Pentagon wanted to shut down. Pending development of new weapons, the committee argued, going for several years with no active production lines for certain types of arms would be unwise; moreover, the Gulf War had demonstrated that thousands of weapons needed extensive upgrading. Each such add-on served to save jobs in the district of one or more House members, broadening the bipartisan coalition behind the bill, and committee members also attempted to force the V-22 Osprey troop carrier on the Pentagon. The committee paid for its conventional additions by stripping funds out of the budget request for strategic weapons; in fact, it denied the entire $3.2 billion request for the B-2. Major cuts from SDI and the B-2 were shifted to three projects in particular: the National Guard and reserve forces, the Osprey, and the rebuilding of F-14 Navy fighter planes as F-14Ds. The House passed the authorization bill despite a threatened veto over its cuts in funding for the B-2 and SDI and its failure to reduce funding for the National Guard and reserves as deeply as the administration wanted. House GOP leader Robert Michel discovered the extent of bipartisan support behind the bill when his amendment to restore the administration’s original budget request was rejected 127–287, with more than one-fifth of voting Republicans going against their leader. The Senate Armed Services Committee’s changes in Bush’s anti-missile program also amounted to a fundamental shift in U.S. policy. Calling for deployment by 1996 of an anti–ballistic missile defense that would comply with the ABM treaty, the panel rejected the administration’s decision to end production of the MX and added funding, claiming that it wanted to prevent the premature dispersal of critical engineering talent. The committee also increased the funding requested for several other production lines. Clearing more than a month before Gorbachev resigned, the final fiscal 1992 authorization bill made no substantial reductions in the administration’s request. However, significant changes were made in major defense programs: the bill

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erected a substantial barrier to further production of the B-2 bomber and eliminated funds for the MX, and members went on record in favor of a limited version of the SDI. The final appropriations legislation echoed the notable changes in the companion authorization bill; many of the appropriations bill’s add-ons also mirrored those previously authorized, including funds to modernize the Army’s M-1 tanks and to continue development of the Osprey.23 In fiscal 1993, the House Armed Services Committee reported a bill that cut only $7 billion from Bush’s request but included $1 billion for a program to cushion the economic impact of a long-term cutback on defense spending. In the context of general spending cuts, the committee also stressed the necessity of upgrading some weapons systems and purchasing others at a slow rate in order to keep key contractors in business.24 Before reporting its bill to the House, the Appropriations Committee cut $8.6 billion from Bush’s proposed budget but also added nearly $3 billion for several major weapons that the administration did not request—and in most cases vigorously opposed. Add-ons included the continued development of the Osprey as well as the construction of two unrequested amphibious landing ships, totaling $1.5 billion, in Mississippi and Louisiana, the districts of Defense Appropriations Subcommittee members Bob Livingston (R-LA) and Jamie Whitten (D-MS).25 The House version of the bill fell $9.4 billion below Bush’s request. PHASE 3: FISCAL 1994–1998 The Clinton administration came into office focused on domestic issues and determined to sharply reduce the federal deficit. With foreign threats in decline, the administration naturally looked to Bush’s final defense budget as a potential source of substantial reductions, but Congress proved reluctant to go along with the deep cuts proposed by the president, and especially with proposals that threatened jobs in key constituencies. Traditionally dovish Democrats joined more hawkish Republicans in pressing for defense spending levels higher than those proposed by the president. President Bill Clinton’s fiscal 1994 request cut $12 billion from the fiscal 1994 program outlined by former president Bush. In formulating his budget, Secretary of Defense Les Aspin argued that the Pentagon had to be oriented to address four post–Cold War threats: regional threats such as Iraq; ‘‘new’’ nuclear threats such as those posed by the former Soviet republics and by terrorists; failures of democracy abroad; and domestic economic challenges, including the need to channel into productive use the people and facilities that had become superfluous to the defense establishment.26 Aspin also stressed the need to put off some tough decisions on the next generation of weapons until the administration could reevaluate the national defense.27 That year, the House Armed Services Committee reported a defense authorization bill that trimmed only $571 million from Clinton’s request. However, the committee, which sliced $1 billion from Clinton’s $3.76 billion SDI request,

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also turned down a proposal to slow efforts to build a dozen large cargo ships to carry heavy equipment and supplies of Army divisions, a $3.1 billion enterprise. When committee member Paul McHale, a Marine veteran, argued that the existing fleet carrying Marine Corps equipment could do the same job, he was overruled; the proposed Army fleet was to be supported by a maintenance facility in Charleston, South Carolina, then reeling from the decision to close down most of the city’s large Navy complex. The committee also added funds to continue building Apache helicopters in order to keep that assembly line operating.28 Conforming to the broad outlines in Clinton’s request, the final fiscal 1994 authorization bill also included funding for two programs based in Fort Worth, Texas, that the House had added, authorizing $400 million for 12 F-16 Air Force fighters and $258 million to continue equipping scout helicopters with sophisticated electronic gear; Senate Armed Services Committee members Kay Bailey Hutchinson (R-TX) and House Armed Services Committee member Pete Geren (D-TX) had lobbied conferees on behalf of the programs. However, to meet spending limits imposed by the congressional budget resolution, conferees trimmed $2 billion from Clinton’s request for operations-and-maintenance funds and $4 billion from the request for research and development.29 The House Appropriations Committee approved a fiscal 1994 defense bill that cut $1.3 billion from Clinton’s request in order to meet the ceiling set in the congressional budget resolution; in general, the bill adopted the administration’s program, but made several major departures in the form of add-ons, including $363 million to provide major overhauls for tanks, ships, and planes; $386 million to buy 24 new Apache helicopters; and $1 billion to accelerate work on a new aircraft carrier slated for inclusion in the fiscal 1995 budget request. Money to pay for these additions derived primarily from hundreds of relatively minor cuts in Clinton’s budget, but also from some major reductions, including the entire amounts requested for developing the A/F-X and a cruise missile designated TSSAM.30 The House approved the bill with few major changes, justifying its add-ons by asserting that the Pentagon’s program would disrupt production lines.31 Although most members of the House Armed Services Committee regarded Clinton’s long-term plans for defense spending as too low, to make the fiscal 1995 authorization bill meet the ceiling in the House-passed version of the budget resolution, the committee made a slight reduction in Clinton’s request; an amendment by Duncan Hunter (R-CA) that would have increased the total authorization by $6.8 billion was proposed for symbolic reasons. Despite the cut there was still room for add-ons, including the purchase of six additional Apache helicopters in order to prevent the temporary shutdown of that production line.32 The committee also provided full funding for a new, $5 billion nuclear-powered aircraft carrier, the largest single project in the fiscal 1995 budget. The vessel was to be built by Virginia’s largest private employer, Newport News Shipbuilding; three Virginians—Herbert Bateman (R), Norman Sis-

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isky (D), and Owen Pickett (D)—sat on the House Armed Services Committee, while both of the state’s senators, John Warner (R) and Charles Robb (D), served on the Senate Armed Services Committee.33 The House’s final defense authorization bill backed most elements of Clinton’s defense budget request and cut the president’s request by only $700 million.34 In fiscal 1996, even within the context of hefty proposed cuts in most domestic programs, the House National Security Committee authorized a defense budget that added $9.5 billion to Clinton’s request, of which more than $6 billion was earmarked to speed up weapons-development programs. Rejecting Clinton’s $1.5 billion request to build a third nuclear-powered submarine of the Seawolf class, the panel chose instead to fund a complex package of related construction and development projects to keep the Navy’s submarine suppliers in business.35 Passed by the House with little change, the bill also authorized the purchase of additional B-2 bombers; not surprisingly, National Security Committee member Jane Harman (D-CA) represented the division of Hughes Electronics that built the B-2’s radar; the district of fellow committee member Ike Skelton (D-MO) included Whiteman Air Force Base, home of the B-2 fleet; and many constituents of Norman Dicks (D-WA)—member of Appropriations’ National Security Subcommittee—worked for Boeing, which built B-2 components.36 The Senate Armed Services Committee approved a defense authorization that added $7 billion, the maximum allowed by the conference agreement on the budget resolution, to Clinton’s request. Like the House, most of the panel’s increases were earmarked for weapons procurement and development programs. The committee authorized not only $2.2 billion for two Aegis destroyers, but also $650 million to cover about half the cost of two additional ships. The destroyers were to be built by Bath Iron Works in Maine, represented by Seapower Subcommittee chair William Cohen (R), as well as in Mississippi, represented by Seapower Subcommittee member Trent Lott (R).37 Another committee add-on included $50 million to prepare to conduct hydro-nuclear test explosions in order to check the reliability of U.S. weapons, funded in part by shifting funds away from weapons labs in New Mexico to facilities located in the home states of several GOP committee members, including chair Strom Thurmond (R-SC).38 The House passed a fiscal 1997 defense authorization bill that added $12.4 billion to Clinton’s request, earmarking most of its add-ons for weapons procurement and development programs. This prompted Ronald Dellums, senior Democrat on the National Security Committee, to argue, ‘‘We are marching cautiously away from the Cold War, buying weapons we don’t need . . . because of employment.’’ House debate was brief, in part because the rule governing debate on the bill disallowed consideration of any amendments that would have reduced the National Security Committee’s overall increase to Clinton’s request.39 The House National Security Appropriations Subcommittee also added to

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Clinton’s request, with most of its $11.8 billion increase designated to speed up production of weapons and other equipment.40 The legislation, however, faced a strong veto threat; the administration objected to the amount the bill would add to Clinton’s Pentagon budget at the expense of domestic programs. ‘‘With the nation facing serious budgetary constraints, the . . . recommended increase for this bill is not affordable,’’ OMB Director Alice Rivlin warned. Nearly $9.5 billion of the Appropriations Committee’s add-ons were earmarked for weapons procurement and development plans, and Rivlin contended that many of these were for items not included in the Pentagon’s long-range purchasing agenda, while other items that ranked high on the services’ wish list were absent.41 During the House debate, those opposed to the appropriations bill warned that protecting the Pentagon from the budget squeeze affecting all other federal programs would undermine Congress’ ability to address the more immediate threat of the deficit. One amendment, which was rejected, would have barred spending on any congressional add-on for which the Pentagon had no officially defined ‘‘requirement’’ and for which the jobs created would cost more than $100,000 apiece. In the end, a bipartisan coalition saved the fiscal 1997 appropriations bill from further cuts on the floor.42 The Senate Appropriations Committee’s version of the fiscal 1997 defense appropriations bill added $10 billion to Clinton’s request, trimming $1.7 billion from the companion defense authorization legislation in order to meet the defense ceiling set by the congressional budget resolution. The panel omitted from the bill several provisions that the administration found particularly objectionable in the House version, including cuts in programs Clinton favored; however, it did include several add-ons. In fact, after several panel members thanked committee chair Ted Stevens for including their pet projects in his draft version, he commented that he hoped their gratitude would induce them to support passage and an override in case of a presidential veto. The added funding was what paid for congressional initiatives, he emphasized: ‘‘I’ve told the women interested in breast cancer research that we could not support that if we were limited to the (overall) amount the president requested.’’43 While they were dissatisfied with Clinton’s fiscal 1998 defense budget request, the House and Senate were restrained by the White House–congressional budget agreement, and in the end added only $2.6 billion to the administration’s original proposal.44 Earlier in the process, the House Appropriations Committee approved a bill that added $4.4 billion to Clinton’s request for basic defense programs, planning to partly offset its add-ons by cutting Clinton’s request for defense-related programming for the Energy Department;45 the Senate committee added $3.2 billion.46 The final appropriations bill appropriated $1.1 billion more for defense spending than Congress and Clinton had agreed as part of the balanced-budget deal, funding nearly 750 unrequested projects.47 A number of these add-ons directly benefited the constituents of defense-related committee members or congressional leadership; for example, the bill added funds to buy C-130 Hercules cargo planes (built close to the district of House Speaker Newt

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Gingrich) and to create a landfill in Fairbanks, Alaska (the district of Senate Appropriations chair Ted Stevens).48 Congress went against the wishes of the administration in other ways. Secretary of Defense Secretary William Cohen had recommended that in 1997 Congress reauthorize for 1999 and 2001 two additional rounds of base closings and eliminate the law requiring that at least 60 percent of ‘‘depot’’ maintenance— major overhauls of ships, planes, engines, and other items—be carried out by Pentagon-owned facilities. However, the defense authorization bill excluded such a provision because of the widespread impression that Clinton manipulated the 1995 round of closures for political gain. That year, Clinton announced that private contractors would take over two large Air Force maintenance depots, located in California and Texas, that were slated for closure, saving thousands of jobs. Members from Utah, Oklahoma, and Georgia, whose three remaining Air Force depots would have picked up the work from the California and Texas sites, bitterly opposed the decision. They were supported by others, who stated that they would approve no further base closures until Clinton agreed to close the two depots.49 In a challenge to the Clinton administration—and at the insistence of members representing the three remaining Air Force depots—the final defense authorization bill included provisions that required private companies using the two closed depots to include in their bids the market cost of the facilities; this would eliminate any price advantage over the government depots, which must ‘‘charge’’ the Air Force a price high enough to cover their own costs. Claiming that this and other provisions directing maintenance work toward government depots could have a ‘‘profound’’ effect on the Pentagon’s budget, the administration initially threatened to veto the legislation unless these problems were resolved,50 but signed the bill anyway.51 ADD-ONS AND DEFENSE-RELATED COMMITTEE MEMBERSHIP In the context of the general efforts to minimize the impact of defense cuts described earlier, members of defense-related committees have a privileged position from which to benefit their districts. Thus the phenomenon of congressional add-ons to defense authorization and appropriations bills has continued to make membership on defense-related committees attractive, despite the fact that decisions about the overall size and scope of the defense budget are now determined in the budget committees in conjunction with congressional leadership and the president. Recognizing this attractiveness, for example, Strom Thurmond—the most senior member of the Senate—asserted his seniority in 1992 and assumed the ranking Republican position on the Senate Armed Services Committee, replacing John Warner and giving up his ranking minority spot on the Judiciary Committee. At the time, Thurmond (now the chair) said his motivations were partly

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parochial: noting the likelihood that South Carolina Rep. Floyd Spence would become ranking Republican on the House Armed Services Committee in 1993, Thurmond said he was confident that the two would ‘‘be able to work closely together to minimize the impact of future defense cuts on our state.’’52 Another example of the benefits of membership on defense-related committees involves Daniel Inouye (D-HI). Then chair of the Senate Defense Appropriations Subcommittee, Inouye successfully sponsored in the fiscal 1994 Senate appropriations bill an amendment to return the island of Kaho’olawe to Hawaii; the armed services had for years used the small island for target practice. The measure also included $400 million to clean up the island and all the surrounding waters to a depth of 120 feet, remove unexploded ammunition and perform environmental restoration; in addition, Hawaii would receive an additional $45 million to plan what to do with the island.53 The military construction bill—and therefore membership on the Appropriations Subcommittee on Military Construction—provides other opportunities for lawmakers to reward their districts with earmarked defense-related spending. In fiscal 1998, for example, Ron Packard (R-CA), chair of the Military Construction Subcommittee in the House, crafted an appropriations bill that contained $107 million (including $27.7 million in unrequested projects) for the Camp Pendleton Marine Corps Base and Air Station in his district, the most funding for any facility in the bill. The bill also provided that the Army’s Fort Bragg— just outside the North Carolina district of ranking subcommittee Democrat W. G. ‘‘Bill’’ Hefner—would receive $39.4 million in the bill, $17.7 million of which was unrequested; nearby Pope Air Force Base would receive $20.7 million, $12.3 million unrequested.54 Also in fiscal 1998, despite a decline of $612 million in allocation for military construction from the previous year,55 the House appropriations bill added nearly $800 million to the White House’s request. In a letter to the committee, OMB Director Franklin Raines took exception to 94 projects in the $9.2 billion bill that had not been sought, and complained that more than $200 million would go toward low-priority items not in the Pentagon’s long-range plans.56 Despite this protest, the military construction bill passed by a wide margin in the House.57 Likewise, the Senate version of the bill added $800 million to the budget request submitted by the administration, which objected to the 103 unrequested projects in the bill. The legislation passed with only two senators objecting: John Kyl (R-AZ) and John McCain (R-AZ), who maintained that the reason these ‘‘low priority’’ items were being funded was to ‘‘provide economic benefit to certain states.’’ Among the items that McCain unsuccessfully protested was $1.4 million for refrigeration at an Army skating rink and $300,000 for a car wash, both in Alaska (home state of Senate Appropriations chair Ted Stevens).58 The conflict between the executive and legislative branches over unrequested military construction items continued even after the president had signed the final bill. Announcing that he would use his line item veto (an option later

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nullified by the Supreme Court) to strike 30 to 50 of these pork-barrel projects of Republicans and Democrats alike,59 the president proceeded to veto 38 military construction items worth $287 million from the $9.2 billion spending bill, the first extensive use of that authority. In reaction—even after the administration promised to restore funding for the half-dozen or so items that had been based on erroneous Department of Defense information—the House voted 352 to 64, and the Senate voted 69 to 30, to override Clinton’s action, well over the two-thirds needed.60 Despite this fact, the president vetoed the legislation restoring funding for the 38 military construction projects,61 prompting the House (347–69) and Senate (78–20) to again vote to override the veto.62 Research supports the claim that slots on defense-related committees afford members opportunities to confer advantages on their districts. In fact, William Hartung’s analysis of the changing distribution of defense spending from fiscal 1986 to 1996 (chapter 3 in this volume) proves that despite a drastic decline in the size and number of Pentagon contracts, districts with representation on the defense-related committees faired far better than the national average. During this period, for example, Hartung found that defense spending actually increased (and substantially) in states represented by senior members of the Senate Armed Services Committee and Defense Appropriations Subcommittee. Specifically, West Virginia (represented by former Senate majority leader Robert Byrd, member of both the Armed Services Committee and Senate Defense Appropriations Subcommittee), South Carolina (represented by Strom Thurmond, chair of the Armed Services Committee, and Ernest Hollings, member of the Senate Defense Appropriations Subcommittee), and Virginia (represented by John Warner and Chuck Robb on the Armed Services Committee) benefited from the biggest gains in defense contracts. In fact, of the 34 members of the Armed Services Committee and Senate Defense Appropriations Subcommittee in 1996, 24 represented states whose reductions in defense spending fell below the fiscal 1986– 1996 national average, while nine came from states whose Pentagon contracts actually increased despite substantial cutbacks. Likewise, in the House, of the 65 members of the National Security Committee and Defense Appropriations Subcommittee, 47 (nearly 75 percent) represented districts whose defense contract losses fell below the fiscal 1986–1996 national average, while 27 (over 40 percent) experienced actual increases in defense spending. Hartung’s research further shows that, as a result, there ‘‘may be an increasingly parochial environment on the key committees where the economic interests of a handful of states play a disproportionate role in defense decision making.’’ In fact, all nine of the states that had net gains in defense contracting from 1986 to 1996—Idaho, West Virginia, South Carolina, Virginia, Nevada, Missouri, Nebraska, Colorado, and Maine—were represented on at least one of the two key Senate defense committees; the biggest recipients—West Virginia, Virginia, and South Carolina—had more than one representative. Hartung found this correlation to be true for military payroll as well: of the 12 states that either gained

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payroll or suffered losses at only one-third of the national average, nine were represented on one of the defense authorizing or appropriating panels.63 This correlation between committee membership and defense-related funding for constituents certainly holds true for the fiscal 1999 military construction bill. The House Appropriations Committee’s $8.2 billion bill added $450 million to Clinton’s request, and although the extra funds were widely distributed, states represented on the defense-related committees or in the House leadership fared particularly well, including: • Texas, which received $41 million (Richard Armey, R-TX, is House Majority Leader); • Virginia, which received $30 million (Norman Sisisky and Owen Pickett, both D-VA, sit on the National Security Committee, and Herbert Bateman, R-VA, is chairman of the committee’s Military Readiness Subcommittee); • Louisiana, which received $25 million (Robert Livingston, R-LA, is chairman of the House Appropriations Committee); • North Carolina, which received $25 million (W. G. ‘‘Bill’’ Hefner, D-NC, is senior Democrat on the House Appropriations’ Military Construction Subcommittee); • California, which received $23 million (Ron Packard, R-CA, is chairman of the House Appropriations Military Construction Subcommittee); • Colorado, which received $23 million (Joel Hefley, R-CO, is chairman of the National Security Committee’s Military Installations Subcommittee); and • Missouri, which received $23 million (Richard Gephardt, D-MO, is House Minority Leader).64

The bill also demonstrated the flexibility that congressional members still have, despite balanced-budget constraints, in allocating funds to benefit their districts. Displeased that Clinton’s request for military construction fell 20 percent from fiscal 1998’s appropriation, Appropriations chairman Robert Livingston shifted money away from the committee’s 12 other subcommittees, including $350 million from the National Security Subcommittee allocation, and added it to military construction.65 Likewise, the Senate’s $8.5 billion military construction bill added $700 million to Clinton’s $7.8 billion request. Add-ons included $63 million ($39 million above Clinton’s request) for projects in Alaska, home state of Appropriations chairman Ted Stevens, and $211 million ($52 million above Clinton’s request) for Hawaii, represented by Daniel Inouye, ranking Democrat on Appropriations’ Defense Subcommittee.66 Of course, the districts represented by the party leadership benefit as well. For example, the fiscal 1999 defense authorization bill added several C-130 cargo planes—built by Lockheed Martin in Marietta, GA, near House Speaker Newt Gingrich’s district—to the president’s request. In its fiscal 1999 budget, the administration had requested $64 million for one C-130 plane; yet the House

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bill authorized $461 million for eight planes and the Senate $382 million for five,67 the conference agreement would later authorize seven.68 The committees did so despite the fact that the Navy had specified adding a full squadron of F18s (or Super Hornets) as its top funding priority for the year; yet Republicans countered attempts to shift funding to the F-18s, noting that they are produced by a Boeing plant in House Minority Leader Richard Gephardt’s district in St. Louis. Thus, in response to David Obey’s (D-WI) complaint that ‘‘pork wins again,’’ Randy Cunningham (R-CA) replied, ‘‘Mr. Obey is saying the C-130s are in there because they’re in Gingrich’s district. Here he is wanting to take the money and put it into Gephardt’s district. The issue shouldn’t be politics. The real motive is national security.’’ But John Murtha (D-PA), the ranking member of the House Appropriations’ National Security Subcommittee, explained another motive for funding the C130. ‘‘Whenever a leadership member asks, we try to take care of them unless it’s a bad program. . . . He doesn’t have extraordinary requests. Some members want the entire Defense Department in their districts.’’69 While he may not have succeeded in 1998, as House Minority Leader, Gephardt has in the past been able to influence defense spending in favor of his district. In 1997, he teamed with James Talent (R-MO), a member of the National Security Committee’s Military Procurement Subcommittee, to restore funding for the F/A-18 fighter, which a House subcommittee had cut from $2.1 billion to $400 million. The fighter was built by the St. Louis–based McDonnell Douglas, which later issued a statement thanking Gephardt for ‘‘marshaling support’’ for its program.70 Finally, in a striking example of how constituent interests affect which defense systems a congressional member will support, in 1996 Gephardt also lobbied for McDonnell as the prime contractor on the Pentagon’s Joint Strike Fighter, a $200 billion project; in a letter to Secretary of Defense William Perry, signed by 13 other members of Congress from Missouri and Illinois, he referred to the program as a potential ‘‘affordable solution to our future strike warfighting needs.’’ Yet, when the Pentagon chose Boeing and Lockheed Martin for contracts to develop the Joint Strike Fighter, eliminating McDonnell, Gephardt withdrew his support the next day. Claiming that the fighter would take needed funds away from social programs and that it would be less expensive to update existing planes like the F/A-18 fighter (built by McDonnell Douglas), Gephardt said, ‘‘Whether McDonnell got the contract or not, I always knew that eight or nine years down the road, we’ve got to look at all the defense projects.’’ Asked about military threats to the country, he said that in a few years, ‘‘the situation may be different.’’71 CONSTRAINING THE ADD-ON GAME In the years to come, the conflict between the president and Congress will increase as the defense budget continues its real decline in the context of concern

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over the federal deficit and the increasing difficulty in defining an overseas threat that justifies defense expenditures. According to the bipartisan balanced-budget plan negotiated in 1997, the defense budget is supposed to decline by 3.3 percent in real terms over the following three years, and then remain flat in fiscal 2001. While the budget would rise slightly in 2002, it would still be about 3 percent below 1997’s level, which was at its lowest comparative level since before World War II. Therefore, in the absence of an overseas threat that parallels the Soviet Union during the Cold War, a defense buildup of the kind that President Reagan initiated is not likely to again emerge. And in the absence of such an overarching consensus on a national defense strategy, the diversion of funds to parochial defense industries is likely to continue. Congress will continue to resist efforts by the administration to argue that its spending plans flow from the congressionally-mandated QDR. It is also true, however, that continuing U.S. military involvement in overseas conflicts such as Bosnia has produced worries about military readiness; in this context, the spending of Pentagon dollars on low-priority congressional add-ons has become more publicized and less acceptable—even to members. For example, on September 15, 1998, House members voted to instruct conferees on the fiscal 1999 defense appropriations bill to ‘‘reduce . . . the maximum amount possible from appropriations for low priority congressionally-directed projects not requested in the FY 1999 defense department budget request and apply those funds to alleviate high priority military readiness needs.’’72 The motion passed, 348 to 61.73 ‘‘It’s an unfortunate commentary of the system,’’ said Senator John McCain, chair of the Senate Armed Services Readiness Subcommittee, ‘‘because we’re hearing less and less talk about national security challenges, and more and more parochial talk about protecting my depot, my base and my weapons system. The greatest obstacle to modernizing our military forces may be the Congress of the United States.’’74 The president’s approach to constraining the add-on game, the line-item veto, has been removed as an option by the Supreme Court, but even when in use it was less than a complete success. For example, Clinton vetoed only 13 minor and obscure programs, totaling $144 million, from the $248 billion fiscal 1998 defense appropriations bill. Projects left intact even though they were not in the president’s budget included $720 million for a fourth Aegis destroyer (to be built in Pascagoula, Mississippi, home town of Senate Majority Leader Trent Lott), $503 million for eight C-130J transport planes (to be built in Marietta, GA, close to the district of former Speaker Gingrich), $250,000 to assist in a pilot project to encourage a Hawaiian firm to build two luxury cruise ships and to grant it an exclusive franchise to operate among the Hawaiian islands (affecting the district of Senate Appropriations Committee member Daniel Inouye), and $100 million as a down payment on construction of an LPD-17 amphibious ship in New Orleans (near House Appropriations chair Robert Livingston’s district), which was not supposed to be financed until 1998.75 The president de-

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clined to withhold funding for the projects of these key congressional members just at the time that the administration was seeking support for its ‘‘fast track’’ authority to negotiate trade legislation.76 Other members of Congress were not so fortunate. When the president vetoed $4 million for breast cancer research in the district of House member Jerry Lewis (R-CA), the congressman suggested that he might withhold his support for the president’s fast-track legislation: ‘‘I don’t like to link things,’’ he said, but ‘‘there is a two-way street here.’’77 In this light, the solution to the add-on game may lie in a renewed presidential ability to quietly refuse to spend unrequested but appropriated funds when the administration can show that they do not add to the Pentagon’s long-range goals. This action would require amending the Congressional Budget and Impoundment Control Act of 1974. Prior to that time, presidents routinely declined to spend money appropriated by the Congress for defense; it was only because President Nixon was viewed as abusing this authority that Congress greatly restricted presidential power not to spend funds.78 Since 1974, however, one could argue that the problem of congressional add-ons has surpassed the dilemma of presidential impoundment, and that impoundment might be a sensible solution to cutting out pork from a shrinking defense budget. More likely, the most effective barrier to congressional add-ons will be the priority given to maintaining the balanced budget agreement, a fact recognized even by the secretary of defense. ‘‘In the past, Congress could simply add several billions of dollars, and we could make things work under that basis,’’ William Cohen said in April 1998. ‘‘We now have the balanced-budget agreement. It would be difficult, if not impossible, to get the kind of additional funding that otherwise might have been available in past years.’’79 While this is true, the balanced-budget agreement is not likely to stop congressional members from trying to increase the defense budget; when in April 1998 it was estimated that there may be a fiscal 1998 surplus of about $50 billion, National Security Committee chairman Floyd Spence and other senior committee members issued a bipartisan call to reopen 1997’s budget law ‘‘in the context of the first federal budget surplus in three decades and today’s strong economy . . . to provide for a sustained period of real growth in defense spending.’’80 CONCLUSION The making of defense policy in Congress has changed in important ways since the end of the Cold War. First, the lack of a post–Cold War consensus on defense spending, compounded by the advent of a new emphasis on balancing the budget, has resulted in a defense budget that is declining in real terms. Second, the Congressional Budget and Impoundment Act of 1974 created budget committees responsible for debating and setting the parameters of an overall budget, in conjunction with the president and the congressional leadership; these processes removed authority for setting overall defense spending levels from the defense-related committees.

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As a result, congressional members (particularly members of defense-related committees) now focus on allocating these funds—preferably to the benefit of their constituents—rather than debate the merits of an overall national defense. It is this interplay of budgetary constraints and constituent interests that motivates members to make add-ons or otherwise shift defense-related spending for parochial gain; and it is this interplay, among other factors, that is today influencing the weapons systems funded by Congress, and thus, from the bottom up, determining U.S. defense policy.

NOTES 1. Congress and the Nation, Volume VI, 1981–1984 (Washington, DC: Congressional Quarterly, 1985), p. 205. 2. Ibid., pp. 225–229. 3. Ibid., pp. 235–245. 4. Congress and the Nation, Volume VII, 1985–1988 (Washington, DC: Congressional Quarterly, 1990), pp. 277–287. 5. Pat Towell, ‘‘Hill Panels Make Cutbacks in Defense Budget,’’ Congressional Quarterly, June 28, 1986, pp. 1449–1450. 6. Congress and the Nation, Volume VII, 1985–1988, pp. 290–298. 7. Ibid., pp. 312–314. 8. Ibid., pp. 328–329. 9. Pat Towell, ‘‘Party Battle Lines are Fuzzy in House Defense Debate,’’ Congressional Quarterly, June 17, 1989, pp. 1483–1486. 10. Pat Towell, ‘‘Bush’s Cuts Would Take Away Some Hometown Bacon,’’ Congressional Quarterly, May 13, 1989, pp. 1136–1141. 11. Pat Towell, ‘‘Saving Some Projects, Panel Bites the Funding Bullet,’’ Congressional Quarterly, July 1, 1989, pp. 1637–1640. 12. Pat Towell, ‘‘Triggering a Process of Triage, Conferees Pare Weapons,’’ Congressional Quarterly, November 11, 1989, pp. 3088–3093. 13. Congress and the Nation, Volume VIII, 1989–1992 (Washington, DC: Congressional Quarterly, 1993), pp. 340–351. 14. Pat Towell, ‘‘Conference over Defense Bill; Test of Political Muscle,’’ Congressional Quarterly, October 7, 1989, p. 2656. 15. Congress and the Nation, Volume VIII, 1989–1992, pp. 355–356. 16. Pat Towell, ‘‘Both Chambers Ready Plans for Long Term Reductions,’’ Congressional Quarterly, July 28, 1990, pp. 2425–2431. 17. Congress and the Nation, Volume VIII, 1989–1992, pp. 356–357. 18. Pat Towell, ‘‘House Panel’s Diet Defense Bill Would Cancel B-2 Production,’’ Congressional Quarterly, August 4, 1990, pp. 2530–2531. 19. Congress and the Nation, Volume VIII, 1989–1992, pp. 355–357. 20. Pat Towell, ‘‘Democrats Will Offer Help to Offset Defense Cuts,’’ Congressional Quarterly, July 21, 1990, p. 2329. 21. Congress and the Nation, Volume VIII, 1989–1992, pp. 355–357. 22. Ibid., p. 355. 23. Ibid., pp. 369–381.

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24. Pat Towell, ‘‘Aspin Urges Shifting $7 Billion from Pentagon to Cities,’’ Congressional Quarterly, May 16, 1992, pp. 1361–1364. 25. Pat Towell, ‘‘Big Ticket Projects Remain Intact as House Passes Spending Bill,’’ Congressional Quarterly, July 4, 1992, pp. 1975–1977. 26. Pat Towell, ‘‘Congress Prods Aspin to Choose Among Costly New Weapons,’’ Congressional Quarterly, April 3, 1993, pp. 843–846. 27. Pat Towell, ‘‘Keeping Options Open,’’ Congressional Quarterly, April 3, 1993, p. 847. 28. Pat Towell, ‘‘Panel Follows Path of Caution in Sending Bill to House,’’ Congressional Quarterly, July 31, 1993, pp. 2071–2073. 29. Pat Towell, ‘‘Conferees Defer Final Action on Controversial Weapons,’’ Congressional Quarterly, November 6, 1993, p. 3058. 30. Pat Towell, ‘‘House Panel Targets Peacekeeping in Pentagon Spending Bill,’’ Congressional Quarterly, September 25, 1993, pp. 2570–2571. 31. Pat Towell, ‘‘House OKs Defense Spending, Minus Curb on Deployments,’’ Congressional Quarterly, October 2, 1993, pp. 2662–2663. 32. Pat Towell, ‘‘Panel Makes Few Big Changes But Raps Clinton’s Plans,’’ Congressional Quarterly, May 7, 1994, pp. 1132–1133. 33. Bob Benenson, ‘‘Supporters of Aircraft Carrier Cutting Through Choppy Sea,’’ Congressional Quarterly, May 21, 1994, pp. 1315–1319. 34. Carroll Doherty, ‘‘House Votes to Force Clinton to End Bosnia Arms Ban,’’ Congressional Quarterly, June 11, 1994, pp. 1535–1536; Towell, ‘‘Panel Makes Few Big Changes But Raps Clinton’s Plans,’’ pp. 1132–1133. 35. Pat Towell, ‘‘House Panel’s Bill Spurns Clinton’s Priorities,’’ Congressional Quarterly, May 27, 1995, pp. 1519–1523. 36. Pat Towell, ‘‘Secret Weapon; Old Time Arm Twisting,’’ Congressional Quarterly, June 17, 1995, p. 1756. 37. Pat Towell, ‘‘Senate Faces Floor Battles Over Arms, ABM Policy,’’ Congressional Quarterly, July 1, 1995, p. 1942. 38. Pat Towell, ‘‘Senate Panel Earmarks Money for Nuclear Weapons Tests,’’ Congressional Quarterly, July 15, 1995, p. 2087. 39. Pat Towell, ‘‘House Boosts Pentagon Budget Despite Threat of Veto,’’ Congressional Quarterly, May 18, 1996, pp. 1396–1397. 40. Pat Towell, ‘‘House Panel Votes to Boost Weapons Production,’’ Congressional Quarterly, May 25, 1996, p. 1473. 41. Pat Towell, ‘‘Defense Hawks Win a Round in Pentagon Budget Fight,’’ Congressional Quarterly, June 8, 1996, pp. 1606–1609. 42. Pat Towell, ‘‘House Fends Off Defense Cuts as White House Signals Veto,’’ Congressional Quarterly, June 15, 1996, pp. 1695–1696. 43. Pat Towell, ‘‘Showdown Likely over Defense as Panel Approves Increase,’’ Congressional Quarterly, June 22, 1996, p. 1776. 44. Pat Towell, ‘‘Pentagon Backers in House Settle for Modest Budget Increase,’’ Congressional Quarterly, June 28, 1997, pp. 1533–1535; Pat Towell, ‘‘Senate Rebuffs Clinton Plan for Further Base Cutbacks,’’ Congressional Quarterly, July 12, 1997, pp. 1639–1641. 45. Pat Towell, ‘‘House Panel Approves Defense Bill in Face of a Veto Threat,’’ Congressional Quarterly, July 26, 1997, pp. 1802–1804.

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46. Pat Towell, ‘‘Senate Panel OKs Defense Spending,’’ Congressional Quarterly, July 12, 1997, p. 1640. 47. Eric Pianin and Bradley Graham, ‘‘Clinton Tempers Line-Item Approach,’’ Washington Post, October 15, 1997. 48. Pat Towell, ‘‘Congress Gives Clinton Leeway to Extend Bosnia Mission,’’ Congressional Quarterly, September 27, 1997, pp. 2321–2324. 49. Pat Towell, ‘‘Panels Reject Further Base Closing, Differ Sharply on Arms Programs,’’ Congressional Quarterly, June 14, 1997, pp. 1386–1389. 50. Pat Towell, ‘‘Defense Bill Poised to Clear Despite Threat of Veto,’’ Congressional Quarterly, November 1, 1997, p. 2692. 51. Congressional Record, December 15, 1997, p. H10961. 52. Pamela Fessler, ‘‘Thurmond Nudging Out Warner for Top Armed Services Spot,’’ Congressional Quarterly, May 2, 1992, p. 1175. 53. Elizabeth Palmer and Pat Towell, ‘‘After Much Debate, Little Change, Senate Approves Defense Bill,’’ Congressional Quarterly, October 23, 1993, p. 2902. 54. Alan Greenblatt, ‘‘Military Construction Bill Rolls Toward Passage,’’ Congressional Quarterly, June 28, 1997, p. 1540. 55. Andrew Taylor, ‘‘Committees Race Against Time to Parcel Out the Money,’’ Congressional Quarterly, June 14, 1997, p. 1364. 56. Greenblatt, ‘‘Military Construction Bill Rolls Toward Passage,’’ p. 1540. 57. Alan Greenblatt, ‘‘Military Construction Measure Passes Easily in House,’’ Congressional Quarterly, July 12, 1997, p. 1643. 58. Alan Greenblatt, ‘‘Senate Passes Bill with Focus on Military ‘Quality of Life,’ ’’ Congressional Quarterly, July 26, 1997, p. 1806. 59. Eric Pianin, ‘‘Clinton Will Use Line-Item Veto on Military Bill,’’ Washington Post, October 6, 1997. 60. Eric Pianin and Helen Dewar, ‘‘House Vote Seals Override of Military Line-Item Veto,’’ Washington Post, November 9, 1997. 61. Alan Greenblatt and Jonathan Weisman, ‘‘Clinton Veto Halts Attempt at LineItem Override,’’ Congressional Quarterly, November 15, 1997, p. 2831. 62. Pat Towell, ‘‘$287 Million in Projects Restored to 1998 Bill,’’ Congressional Quarterly, February 28, 1998, p. 506. 63. William D. Hartung, ‘‘The Shrinking Military Pork Barrel: The Changing Distribution of Pentagon Spending, 1986–1996’’ (Chapter 3 in this volume). 64. Pat Towell, ‘‘Leaders’ States Fare Best as House Panel Doles Out Military Construction Money,’’ Congressional Quarterly, June 20, 1998, p. 1716. 65. ‘‘House Panel Takes Up Military Construction Spending Issues,’’ CQ Daily Monitor, June 10, 1998, p. 15. 66. Chuck McCutcheon, ‘‘Military Construction Bill Advances,’’ Congressional Quarterly, June 13, 1998, p. 1630. 67. Pat Towell, ‘‘Defense Debate Will Focus on Bosnia, Basic Training,’’ Congressional Quarterly, June 13, 1998, pp. 1624–1627. 68. Pat Towell, ‘‘Conferees OK Reduced Force Size, Trim Anti-Missile Defense Spending,’’ Congressional Quarterly, September 26, 1998, p. 2599. 69. Juliet Eilperin, ‘‘Aircraft Spending Priorities Draw Rebukes,’’ Washington Post, June 25, 1998. 70. Ken Silverstein, ‘‘Gephardt at the Trough; House Minority Leader Richard Gephardt,’’ The Progressive, June 1998.

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71. Philip Dine, ‘‘Boeing Blasts Gephardt Statement on Fighter,’’ St. Louis PostDispatch, November 19, 1996. 72. Congressional Record, September 15, 1998, p. H7708. 73. Bob Gavely and Richard Sammon, ‘‘Subtle GOP Discord as Spending and Tax Endgames Emerge,’’ CQ Daily Monitor, September 16, 1998, p. 3. 74. James Kitfield, ‘‘Collision Course,’’ National Journal, June 21, 1997, pp. 1270– 1273. 75. Kevin Sack, ‘‘For the South, G.O.P. Secures Defense Bounty,’’ New York Times, November 18, 1997. 76. Eric Pianin and Bradley Graham, ‘‘Clinton Tempers Line-Item Approach,’’ Washington Post, October 15, 1997. 77. Guy Gugliotta and Eric Pianin, ‘‘Line-Item Veto Tips Traditional Balance of Power,’’ Washington Post, October 24, 1997. 78. Allen Schick, The Federal Budget: Politics, Policy, Process (Washington, DC: Brookings Institution, 1995), p. 173. 79. Chuck McCutcheon, ‘‘Pentagon Enlists New Statistics in Push to Close More Bases,’’ Congressional Quarterly, April 4, 1998, p. 898. 80. Andrew Taylor, ‘‘As Others Celebrate Deficit’s Demise, Kasich Tilts at Budget Dragon,’’ Congressional Quarterly, April 25, 1998, pp. 1055–1056.

Chapter 5

News Media Coverage of the Defense Budget ELLIOTT NEGIN

Critics who decry the ‘‘tabloidization’’ of the mainstream media have good reason to despair. A detailed look at how a serious policy issue such as the defense budget is marginalized to make room for more ‘‘reader friendly’’ fare indicates just how despondent those critics should be. When it comes to covering the military, the news media appears to be mainly interested in sex scandals and crises like Bosnia. In 1997, for example, the Los Angeles Times, New York Times, and Washington Post altogether published only 15 news stories on the Pentagon’s Quadrennial Defense Review, which determined the amount and distribution of military spending for the following four years. Meanwhile, the three newspapers ran 117 news stories that same year on the sexual harassment case against Army Sgt. Maj. Gene McKinney. The lack of media attention in 1997 on defense spending, which stands at about 85 percent of the 1976–1990 Cold War average, is not an anomaly. A study of defense budget stories, editorials, and op-eds appearing in 1994 and 1996 in six leading newspapers (the Chicago Tribune, Los Angeles Times, New York Times, Wall Street Journal, Washington Post, and Washington Times) and three weekly newsmagazines (U.S. News & World Report, Time, and Newsweek) found only 98 stories in 1994 and 91 in 1996 that specifically focused on the military budget. Defense reporters and analysts say military budget stories are a hard sell for a number of reasons: the lack of high-profile debate on Capitol Hill, a president who will not challenge the Pentagon, a booming economy, a complacent public, the disappearance of the disarmament movement of the 1980s, and shrinking news holes for military stories in general. ‘‘My editors are more interested in people stories than hardware or budget stories,’’ one veteran defense writer says. ‘‘There is a self-selection process. You have to write what will get published.’’

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The limited quantity of coverage makes even more troubling the way that the news media generally frame the question of defense spending: as a partisan issue pitting a Democratic administration, which is trying to hold the line on defense spending, against a Republican-controlled Congress that wants to spend more. The news media largely ignore the dissenting voices in Congress who favor cutting the defense budget: deficit hawks in the GOP who oppose party leaders and liberal Democrats who take issue with President Clinton. Their voices are muted in news media coverage because they do not fit the frame of defense as a partisan issue. Critics outside the government who have been calling for a reassessment of Pentagon strategy or cuts in the budget get even less notice. Polls indicate the public supports cutting the defense budget if the money were used to cut the federal deficit, fight crime, and improve education. According to an October 1997 study by the Center for International and Security Studies at the University of Maryland, Most Americans support a strong defense and polls that simply ask for feelings about the current level of defense spending show majority comfort. However, polls that probe more deeply show support for substantial cuts. . . . If the president and Congress were to agree to cut defense spending 10 percent to 20 percent, strong majorities say they would be supportive. If these funds were to be explicitly redirected into popular domestic programs, overwhelming majorities say they would approve.1

Politicians, however, have not picked up on this sentiment. Military spending was not a significant issue during the 1996 political campaigns. By offering little space to the topic, the nine elite news organizations largely failed to present the defense budget in a broad, historical, and geopolitical context. In 1994, only the New York Times provided a partial exception. The survey of nearly 200 stories from 1994 and 1996 indicates that readers, had they relied solely on these nine publications, would have been unaware that, for instance: • The defense budgets over the last few years have been about 85 percent of the average 1976–1990 Cold War norm of $270 billion in constant dollars. This represents about 50 percent of federal discretionary spending. • The United States spends nearly four times more than the second largest spender, Russia, which had an estimated $70 billion annual defense budget in 1997 (and even less in 1998). Of the top 10 spenders, seven are U.S. allies. The U.S. defense budget is more than six times that of Japan, and 10 times that of Germany. • The U.S. military budget is 18 times larger than the combined spending of the seven countries identified by the Pentagon as America’s most likely adversaries: Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria. Moreover, these so-called rogue states have weak economies and restive populations.

Because of the way the news media framed the defense spending debate, the main point of contention was whether the defense budget was big enough to

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allow the armed forces to fight two regional conflicts at nearly the same time, with help only from local allies. Those who argued that the two-war scenario is unlikely, that the threat of the rogue states is overstated, and that Congress can significantly reduce the defense budget and still maintain U.S. superiority, received little attention. Reporters and editorial writers did not question the Pentagon’s assumptions of what the United States needs to maintain its military edge. Some publications occasionally did run op-ed pieces that offered a critical analysis of defense spending levels, but only the New York Times ran toughminded stories and editorials, and only in 1994.2 In both 1994 and 1996 the news organizations surveyed cited sources favoring increases in defense significantly more often than they cited administration spokespeople or those critics who called for spending cuts. In the 58 news stories surveyed for 1994, defense-spending hawks and military officials were cited three and one half times more than administration sources and more than six and one-half times more than those calling for cuts. In 1996, defense hawks and military officials were cited more than four times as often as administration sources and nearly three times more than the defense-cutter critics.3 Finally, reporters did not investigate the claims made by their sources. For example, reporters showed little skepticism about statements made by military officials who are, after all, interested parties looking to protect their budgets. Ultimately, readers received a superficial and stilted picture of a very critical public policy issue. 1994: A HOLLOW MILITARY? President Clinton built his defense policy on the Defense Department’s 1993 Bottom-Up Review of U.S. military needs. The review determined that the U.S. military must be able to fight two major regional wars (presumably in the Persian Gulf and on the Korean Peninsula) on its own, nearly simultaneously, as justification for spending at Cold War levels. It further mandated that U.S. forces must be able to win each of these wars within 100 days. Conversely, the Persian Gulf War, which the United States fought with a broad coalition of allies, took 180 days. In other words, the Pentagon decided that the United States must be capable of winning two wars of the magnitude of the Persian Gulf War in virtually half the time one such conflict actually took, and without help from allies. No news story in the study fully explored these assumptions. Although Clinton had initially pledged to trim $123 billion over five years from the long-term Pentagon spending plan he inherited from the Bush administration, he lost political ground early in the term by leading with the gays-inthe-military issue. He pulled back from cutting any deeper in early 1994. ‘‘The budget I send to Congress draws the line against further defense cuts,’’ he declared in his State of the Union speech on January 25. ‘‘We must not cut defense further.’’

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A database search found 390 news stories, opinion columns, and editorials in 1994 in the nine publications that at least indirectly dealt with the defense budget. Many of these items, however, covered ancillary topics, such as the debates over funding for missile defense and the B-2 bomber, military base closings, defense industry layoffs and mergers, Pentagon cutbacks, and the appointment of William Perry as defense secretary. Three interrelated stories gave journalists the best opportunity to explain the justification—or lack of it—for funding levels: • The twists and turns of military budget bills in the House and Senate; • The running debate over whether the proposed budget allocation would cover the cost of U.S. forces in two wars at the same time; and • The debate over military ‘‘readiness’’ and whether U.S. forces were overburdened by peacekeeping operations and therefore needed more funding.

A review of the 390 stories pared down the pertinent items to 98: 58 news stories, 19 editorials and 21 opinion pieces. A close reading of them indicates that the elite print press largely ignored arguments for cutting defense. Only five of the 58 news stories questioned the assumptions of the Clinton administration or of those who called for increasing the budget. What is even more telling is whom reporters quoted in their stories. In those 58 articles, reporters cited five administration officials 30 times, 34 big-spending critics 72 times, 29 military officials 37 times, and only 11 critics who favored cuts just 16 times. Two other military officials who maintained that there was not a readiness problem were cited four times (see Table 5.1). The database search found that in 1994 only three newspapers provided space on their opinion pages for critics who wanted to cut military spending: the Washington Post (3), the New York Times (2), and the Los Angeles Times (1). Meanwhile, five papers ran 14 op-eds calling for increased spending. Six of these op-eds were in the Washington Times, four were in the Los Angeles Times, and two were in the New York Times. Seven of the 19 editorials called for cutting defense spending; these all appeared in the New York Times, which did not run any editorials supporting the administration or its pro-spending critics. DEFENSE BUDGET Coverage of the defense budget debate in Congress generally got bogged down in the minutiae of the budget and appropriations process without addressing the question, ‘‘How much is enough?’’ Those who did address that question answered it in terms of a debate between the administration and those who wanted to boost spending. The budget request the president presented to Congress on February 7 was the first installment of a five-year, $1.3 trillion defense program. The main prob-

Table 5.1 Defense Budget Sources in 1994

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Table 5.1 (continued)

lem with the proposal, according to critics, was that the force levels necessary to wage two wars at the same time would cost far more than the $260 billion per year budgeted over five years. The administration, for its part, was assuming that a low inflation rate and new Pentagon cost-cutting reforms would free up billions of dollars in savings to pay for new weapons in fiscal year 1998. In the meantime, the armed services would have to make do with the equipment left over from the massive Reagan-era buildup. The day after Clinton announced his budget in February, the Wall Street Journal devoted the most space to providing details, including plans for procurement, base closings, and missile defense. In his 1,280-word story, reporter Thomas E. Ricks said the budget generally insulates the administration from political attacks. Conservative criticism thus far has concentrated on military readiness. The budget addresses that worry by actually boosting spending on operations and maintenance. . . . Some liberals, meanwhile, will likely be assuaged by the continued decline in the Pentagon’s procurement budget, which would drop $1.2 billion to $43.3 billion, about one-third of its level during the Reagan administration’s military buildup in the mid-1980s.

Ricks’ prediction was not borne out, even in his own newspaper. The same day his story ran, the Journal’s editorial page attacked the budget, declaring that it would ‘‘cut defense spending to the bone, then transfer that money to

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other domestic accounts.’’ The Journal would run three more editorials and one op-ed later in the year, all maintaining that defense funding was inadequate. Reporter Tim Weiner of the New York Times was perhaps more on target when he suggested on February 8 that the ‘‘$263.7 billion proposal submitted today has something for almost everyone to dislike.’’ Indeed, the defense budget proposal opened Clinton up to criticism from both big spenders and budget-cutters. Weiner’s story pitted long-time Pentagon supporter Sam Nunn (D-GA), then chairman of the Senate Armed Services Committee, against Ronald V. Dellums (D-CA), then chairman of the House Armed Services Committee, who called for a leaner budget. ‘‘Do we need the forces to fight and win two wars simultaneously on two fronts?’’ Dellums asked. ‘‘Is that more a political statement than a military reality?’’ It was a rare occasion, however. The Weiner story was one of only three news stories of the 54 surveyed that quoted anyone who questioned the premise of the Bottom-Up Review (see also the Washington Post, August 8, and the Los Angeles Times, August 23). The Times’ editorial page was clearly in Dellum’s camp, alone among the editorial pages in this study. On February 9 it chastised the Clinton administration for not cutting back Pentagon programs enough, ‘‘despite the end of the Cold War.’’ It pointed out that current ‘‘force levels differ little from those set by the Bush administration in 1990 before the disintegration of the Soviet Union.’’ The Washington Post’s editorial page stated the converse on August 30: ‘‘The defense budget in recent years has already been cut more in real terms than most people realize and about as much as it ought to be in terms of national security.’’ Later in the year, on December 4, an editorial titled ‘‘A New Defense Debate’’ downgraded that assessment: ‘‘The budget has gone down faster than have the official estimates of the threat to national security and the forces needed to meet those threats.’’ The Chicago Tribune editorial page agreed with the Post. When the Clinton administration bowed to GOP pressure after the November elections and proposed a $25 billion increase in the defense budget over six years, the Tribune applauded the move. On December 4, the editors explained that the evaporation of the Soviet threat did not mean the end of America’s obligations abroad. In the past two years, U.S. forces have been dispatched to the Persian Gulf, Somalia, Rwanda, Macedonia and Haiti. American air power has played a role in the war in Bosnia. All these missions cost money, and lately the dollars have not been enough to keep up with the commitments.

In reality, however, contingency operations, which include peacekeeping, cost the Pentagon less than $3 billion annually. News stories tended to lean the same way. When the newspapers published brief accounts of legislative deliberations on the defense budget bill, they either emphasized the fact that it was the tenth consecutive year the budget had been

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trimmed or devoted space to complaints by big spenders. For example, a oneparagraph story in the Chicago Tribune on July 31, ‘‘Senate Panel OKs ‘Bare’ Defense Plan,’’ reported that Faced with self-imposed budget limitations, the Senate Appropriations Committee put its stamp on a $243.6 billion defense spending plan [excluding the Department of Energy budget] for 1995 that a key lawmaker called a ‘‘bare bones’’ budget. Sen. Daniel Inouye (D-Hawaii), chairman of the defense appropriations subcommittee, said the bill takes care of short-term military needs while risking the future with a lean procurement budget.

Critics calling for a lower defense budget were not quoted. Nor did any of the stories point out that the budget still hovered around 85 percent of 1976–1990 peacetime Cold War levels. BUDGET GAP In the months following Clinton’s February announcement of his budget, critics calling for deeper cuts were overshadowed by big spenders and military officials who charged that Clinton’s five-year military plan was woefully underfunded. Even before the announcement, Art Pine of the Los Angeles Times reported that the administration ‘‘is facing a growing prospect that over the medium-term it simply will not have enough money, even under current plans, to support a military big enough to win two major regional conflicts at once’’ (‘‘Pentagon May Be Budget Battle Casualty,’’ February 27, 1994). Pine added that ‘‘some private analysts have projected that the shortfall could total as much as $120 billion over five years.’’ Other unnamed analysts told Pine they ‘‘expect to see increased efforts on Capitol Hill to transfer money from Pentagon accounts to help ward off cuts in key domestic programs.’’ The Wall Street Journal editorial page also worried that such a transfer was in the offing. On February 8 it insisted that the Clinton budget ‘‘ruse’’ was ‘‘to cut defense spending to the bone, then transfer that money to other domestic accounts. . . . If Mr. Clinton wants to bomb Serbia, he’d better do it soon, while the U.S. military can still afford to.’’ That same day, Barton Gellman of the Washington Post asserted in a brief story, ‘‘FY 1995: Defense Readiness Is Top Priority,’’ Because existing stocks will begin to wear out by decade’s end and procurement budgets are not slated to rise much, many experts agree with an assessment by the private Defense Budget Project [now the Center for Strategic and Budgetary Assessments] that Clinton’s plan ‘‘is unaffordable within projected budgets over the long term.’’

There were two editorials that called for the administration to reconsider the Pentagon’s prescription for U.S. military posture. On January 28, just after President Clinton’s State of the Union address, The New York Times editorial page

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warned that this funding gap would cause major problems: ‘‘The Bottom-Up Review is a time bomb that threatens to blow the lid off the Clinton defense budget.’’ Unlike the big spenders, the Times lamented that Clinton had rejected the idea of reducing the force levels in the review to a ‘‘more reasonable level.’’ Two months later, on March 22, the Washington Post pointed out in ‘‘Defense Spending, Defense Goals’’ that the Pentagon’s two-war strategy requires a large force ‘‘in a high state of readiness’’ and therefore it ‘‘has had to skimp, in its budget plans, on new weapons systems. The result, eventually, would be a military that spends more and more money maintaining older and older weapons while gradually losing its technological edge.’’ The Post suggested that the administration fashion a more realistic strategy. ‘‘Abandoning the current strategy would not be risk-free,’’ the editorial concluded. ‘‘But sticking to a strategy that the country chooses not to fund may, in the long run, be riskier.’’ In general, however, the surveyed publications focused on the debate over whether the funding was adequate and rarely questioned the assumptions underlying the Pentagon’s two-war strategy. The March 22 Post editorial was the only time one of the publications examined the tradeoffs inherent in funding competing needs within the military. There are four main categories in assessing military power, something that none of the surveyed publications explained: • force structure, or size; • the pace of modernization, which includes procurement of new weapons systems and research and development; • readiness, which includes training for troops and maintenance of equipment; and • sustainability, which determines how long units can stay in the field. This depends on the quality of logistic services, such as medical services, construction, and transportation, as well as spare parts and munitions stocks.

The overall size of a military and the size of its equipment holdings are the most obvious indicators of power, but they reflect only potential capability. Readiness refers to the difference between this potential and the actual power available for use at a particular time. Given that any defense budget is finite, there are tradeoffs among the four elements of military power. Thus, spending on one category constrains spending on the others. Likewise, choices in one area often affect requirements in others. For example, choosing a high pace of modernization can increase sustainability demands, while opting for a large force structure increases readiness requirements. Besides the Washington Post March editorial, the critical issue of tradeoffs and how they affect defense budget allocations did not come up in stories and editorials. Reporters and editorial writers tended to examine the problems of

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modernization and readiness, for example, in isolation. This defect in the coverage was compounded by contradictory reports and official statements that confused the issue of what constitutes adequate funding. In mid-March, a Congressional Budget Office report said the Clinton plan would indeed cover the cost of fighting two wars at nearly the same time (Washington Times, March 17). But on August 1, the General Accounting Office issued a report that found the plan had a $150 billion shortfall (Washington Times, July 31). The Pentagon agreed that there was a gap, but insisted it was only $40 billion (Washington Times, August 3). The Washington Post (August 8) reported that Secretary of Defense Perry had conceded in a July interview with the Navy Times that the United States could not carry out the two-war strategy. The Post, however, did not tell its readers that on March 1 Perry told the Senate Appropriations Committee that ‘‘it’s an entirely implausible scenario that we’d fight two wars at once.’’ In these stories, the two-war strategy was not questioned or fully explained. In mid-October, the issue of spending on operations and maintenance readiness, narrowly defined, received more attention when Senate Minority Leader Bob Dole (R-KS) charged that the Clinton administration had ‘‘gutted’’ defense. At a news conference, Dole presented data supporting the assertion that the Clinton administration’s defense cuts were bigger than cuts leading to ‘‘the hollow force in the Carter years.’’ His comments were echoed by retired Marine Lt. Col. Oliver North, then a GOP Senate candidate in Virginia, who claimed that ‘‘the military budget is now at dangerously low levels’’ (Washington Times, October 14). In response, Deputy Defense Secretary John Deutch told the Washington Times (October 14) that weapons modernization and training improvements made since 1990 ensured that U.S. forces could handle the task, although he said there were shortages in sea transport and airlift equipment. ‘‘In sum,’’ Deutch concluded, ‘‘the defense budget in our view is at about the right size.’’ The story did not explain to readers that the shortages in equipment Deutch mentioned were due to the strict assumptions of the Bottom-Up Review’s twowar requirement. That same day Gen. John Shalikashvili, the chairman of the Joint Chiefs of Staff, reassured Los Angeles Times readers that despite recent defense cutbacks, the U.S. military could meet the demands of the bottom-up review. The article went on to quote Deutch and some former State Department officials who disputed Shalikashvili and Deutch. Then the story cited William Perry’s comments from his Navy Times interview. How could journalists best approach this knotty question? Most reporters, trained to present ‘‘both sides’’ of an issue, did just that: Gen. Shalikashvili says there is no problem; Sen. Dole says there is. Without more details on the assumptions underlying the Pentagon’s two-war strategy or the tradeoffs among force structure, weapons procurement, and readiness (operations and mainte-

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nance), however, merely reporting the ‘‘yes there is, no there isn’t’’ argument did not offer readers much insight. A few reporters, such as the Los Angeles Times’ Jim Mann (‘‘U.S. Troop Strength Is Questioned,’’ October 14), did provide some background on the bottom-up review, which was completed in September 1993. Bradley Graham of the Washington Post filed at least three stories on the topic. An August 8 story, which Graham wrote with John Harris, acknowledged that some ‘‘experts criticize the Clinton strategy as short-sighted.’’ The reporters then indirectly quoted Andrew Krepinevich, who heads what was then called the Defense Budget Project (now the Center for Strategic and Budgetary Assessments). The former Army officer said the military should ‘‘invest in new technologies and military doctrines, rather than spending money on the unlikely scenario of two regional wars.’’ They also cited retired Rear Adm. Eugene Carroll, Jr., director of the liberal Center for Defense Information, who criticized the military for spending too much on new exotic, expensive weapons systems. Most of the other sources quoted in the Post story, however, were complaining that there was not enough money to accommodate the two-war strategy. The Post’s Graham revisited the issue on October 16, a week after Iraqi forces threatened Kuwait and negotiations fell apart with North Korea over its nuclear weapons program. Although Deputy Defense Secretary Deutch told Graham that ‘‘the readiness of the forces is as high as it ever has been’’ and that the United States could fulfill the two-war strategy requirements, Graham pointed out that two days earlier President Clinton told the Post that ‘‘the nation cannot do much more cutting and continue to maintain readiness.’’ No critics like Adm. Carroll were quoted in the piece. A third story by Graham on the two-war doctrine ran on November 6. The story was titled ‘‘Defense Dept. in $40 Billion Predicament; Cuts Could Jeopardize Strategy to Win Two Regional Conflicts at Same Time, Officials Say.’’ This time he only quoted military officers and Pentagon officials. Besides Graham’s August 8 article there were three other stories that quoted sources who questioned the assumptions of the Bottom-Up Review. One, reported on August 23 by Art Pine of the Los Angeles Times (‘‘Pentagon’s ‘Bottom-Up Review’ Appears to Be Down and Out’’), made this observation: Liberals complain that the review’s central recommendation that the United States maintain a large enough force to fight two major regional wars ‘‘nearly simultaneously’’ is merely a holdover from Cold War days and is out of sync with the relatively low-intensity conflicts that have broken out in Rwanda, Haiti and elsewhere.

One of the more informative stories on the topic came out earlier in the year in the New York Times. In a March 9 story titled ‘‘Cost-Minded Lawmakers Are Challenging a Two-War Doctrine,’’ Eric Schmitt, not unlike other reporters, quoted both conservative Republicans and liberal Democrats. But he did include

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one key fact that no other reporter mentioned. ‘‘The [Bottom-Up Review] plan assumes the United States would have to fight two wars on its own,’’ he wrote, ‘‘but Washington is increasingly relying on international coalitions to deal with regional conflicts.’’ To Lawrence Korb, an assistant secretary of defense during the Reagan administration and later a senior fellow at the Brookings Institution, the proposition that the United States will be called on to fight two major regional wars at the same time and without help from allies seemed ‘‘somewhat dubious.’’ Even if one accepts that premise, Korb wrote in the November/December 1995 issue of Foreign Affairs, ‘‘the number of U.S. troops said to be necessary to fight them is drastically inflated.’’4 Most journalists reporting on this story did not delve into the details. Given the ongoing battle over whether the Clinton budget covered a two-war contingency, the underlying premises of the Bottom-Up Review were critically important—and not above criticism. In 1994 Korb wrote one op-ed piece for the New York Times and was cited in one news story. In 1996, after his Foreign Affairs essay appeared, he again wrote an op-ed piece for the Times. He was a source in four news stories and a couple of editorials, more than any other critic. READY OR NOT? The administration’s critics also claimed that there was a crisis in military readiness (the ability of units to perform as expected). As mentioned previously, big spenders were quoted six-and-one-half times more often than the budgetcutters, and the lack of balance was striking in these stories. Sen. John McCain (R-AZ), the most outspoken critic on this issue, was cited at least once in 13 news stories, more than any other source. ‘‘Our forces are going hollow,’’ warned McCain, a member of the Senate Armed Services Committee. ‘‘If we are not ready, the men and women we send into combat will pay for our negligence with their lives.’’5 With all the talk about readiness, it is striking that reporters failed to explain what ‘‘readiness’’ means or how it is measured. The branches of the military maintain units at different levels of readiness, and levels of readiness fluctuate over time. If certain units are not ‘‘ready’’ (e.g., if some equipment is being repaired, or their troops just came back from a peacekeeping mission), this does not mean they cannot engage in battle and win. The fact that some military units are at low levels of readiness is meaningless, according to Korb, who was President Reagan’s readiness ‘‘czar,’’ and other analysts. Choosing to keep all units highly ready all the time would be remarkably wasteful and ultimately self-defeating. The real question is whether the military is sufficiently ready to meet its deployment goals. And if it is not, it might be worthwhile to double-check the necessity of those goals before investing billions more in readiness. Not one reporter mentioned that, in constant dollars, the Clinton administration’s spending on operations and maintenance,

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which constitutes readiness, surpassed the Reagan administration’s at the height of its defense buildup in the mid-1980s. Perhaps the most tendentious reporting on readiness was in the Washington Times, which is not surprising given the paper’s openly hawkish perspective. On occasion Times reporters filed stories exclusively quoting only one or two conservative sources, such as McCain, Sen. Strom Thurmond (R-SC), Rep. Floyd Spence (R-SC), or Heritage Foundation analysts. Yet the Times and other news organizations also got some encouragement from Secretary of Defense Perry, who agreed there was a problem. On December 2, the Washington Times’ Rowan Scarborough reported on Clinton’s announcement the previous day that the president was proposing $25 billion in additional defense spending. In the story Scarborough asserted, There has been growing evidence during the past year that the military, a well-financed juggernaut in the 1980s, was headed down the path toward a ‘‘hollow force’’ in the 1990s. . . . Mr. Perry recently acknowledged that three of 12 Army divisions that would be deployed in a crisis overseas were operating at a low level of readiness.

The Washington Times ran three editorials and six op-eds, one a 2,700-word essay by former Secretary of Defense Dick Cheney, charging that the military had been hollowed out on Clinton’s watch. They said that U.S. peacekeeping operations and downsizing had sapped the military of its strength. Reporters at the Washington Times and other newspapers passed along their sources’ pronouncements on readiness without questioning them. Although there were a number of stories in 1994 pointing out that the four military services were vying with one another to boost their funding levels, reporters did not seem to connect that issue to what military officials told them about their readiness problems. (The Los Angeles Times ran at least four stories on interservice rivalries; the New York Times ran two, the Washington Times ran four and one op-ed, and the Chicago Tribune ran one op-ed.) The Washington Post’s reporting on readiness was only slightly more balanced than that of the Washington Times. Eric Pianin, who followed the defense budget debate on Capitol Hill for the Post, quoted members of Congress in two stories making such statements as ‘‘We’ve made cuts scraping the bone already’’ (April 15) and ‘‘The military is at the edge of their [sic] readiness level and if we cut anything out we will not be able to meet national security threats’’ (March 11). Given that the United States spends 18 times what its seven ‘‘rogue’’ adversaries collectively spend, such a statement demands to be challenged. Pianin’s March 11 story did quote Pentagon critic Barney Frank when one of the Massachusetts Democrat’s military-spending reduction amendments went down in flames, only one of two 1994 stories surveyed that quoted Frank. Pianin also quoted Frank-supporter Martin Meehan (D-MA). Yet Pianin never explored the readiness question. He merely reported that one side claimed there was a problem and the other side insisted there was not.

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Later in the year another Post reporter, Bradley Graham, provided a soapbox for McCain and his Senate colleague John Warner (R-VA), who had released a joint letter to President Clinton at a press conference on December 5, ‘‘accusing the administration of poorly managing its military program.’’ Nine of the 10 paragraphs in the story, which was titled ‘‘2 GOP Senators Criticize Military Readiness, Call Funding Inadequate,’’ were devoted to the two senators’ specific charges. In the last paragraph one sentence indirectly quoted a Pentagon spokesman who maintained that there was no funding shortfall. The story was little more than a McCain-Warner press release. It should be noted that the Post ran more opinion columns calling for significant cuts in the military than the other papers. But two of the three, by Post columnist Colman McCarthy (February 22 and March 22), were printed on the comics pages. The third piece, which ran on the op-ed page (February 20), was written by Robert Borosage, then director of the Campaign for New Priorities and a fellow at the Institute for Policy Studies. Borosage also wrote an op-ed for the Los Angeles Times on the topic (June 26), but neither the Post nor the Times, nor any of the other publications surveyed, ever quoted him in a news story. Other top peace activists and arms controllers, such as the Federation of American Scientists’ John Pike, the coordinator of the Military Spending Working Group coalition, also were shut out by reporters. Only Eric Schmitt of the New York Times took the time to go beyond the claims and counter-claims about deteriorating readiness. He interviewed more than two dozen officers and soldiers at Fort Riley in Kansas as well as their superiors. Writing in a story that ran on December 20, Schmitt said he found that ‘‘the commanders of the three [Army] divisions with lowered readiness ratings painted the gloomiest picture possible, helping the Army’s uniformed leadership in Washington argue for more money in a long-running rivalry with the Navy and the Air Force.’’ ‘‘Moreover,’’ Schmitt continued, senior Army officials acknowledge that the low ratings are not as unusual as they first suggested. Initially, they said it was the first time in 12 years that three divisions had been given such low scores. Now Army officials concede that as many as 10 Army divisions have received the same low rating or worse, some during the military buildup under President Ronald Reagan. In addition, officials explain, the Army’s fighting prowess is not necessarily harmed by all this. Since the end of the Cold War, the Army has given less money and fewer troops to divisions like the First Infantry, which are used as reinforcements and so have more time to prepare for combat than first-tier forces.

On December 27, the Times editorial page followed up Schmitt’s news story with a piece titled, ‘‘Are U.S. Forces Ready to Fight?’’ ‘‘By most measures,’’ said the Times, the Pentagon is already spending far more on readiness and the armed forces are readier than they have been in a long time. The operations and maintenance part of the Pentagon

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budget, which pays for readiness, is currently $93 billion, twice what it was in 1980 and one-third more than in 1985, at the height of the Reagan buildup. At the same time the armed forces are roughly 25 percent smaller. With fewer troops to train and fewer weapons to maintain, there is much more readiness money to go around.

No other publication surveyed made this point. The editorial also pointed out that the Army had plans to demobilize two of the three divisions in question, so maintaining them at full readiness would have been a waste of money. One other story that gave space to sources who disputed claims that the military—albeit stretched by peacekeeping duties in Africa, the Middle East, and the Caribbean—had become ‘‘hollow,’’ appeared in the Chicago Tribune on October 12. Reported by Terry Atlas and Christopher Drew, the story was partly in response to charges made a week before by Republican Senate candidate Oliver North. The 1,250-word, front-page story first quoted Gen. Shalikashvili, who disputed North’s assertion that President Clinton had created ‘‘a hollow military.’’ It then quoted a number of defense-spending critics who were rarely, if ever, cited anywhere else in the stories surveyed in this study. Retired Army Col. Dan Smith of the Center for Defense Information said he did not believe the military was ‘‘stressed or strained at the moment.’’ Brooking’s Korb said he did not see a readiness problem and added that the defense cutbacks so far were initiated by the Bush administration. Sen. Dale Bumpers (D-AR) told Atlas and Drew that ‘‘the U.S. is still spending twice as much on defense as our 10 most likely adversaries, including Russia, North Korea, China, Iran and Iraq,’’ a fact that escaped virtually every other reporter in the survey. Finally, after enumerating the costs of operations in Rwanda, Bosnia, Haiti and Kuwait, the reporters closed with an indirect quote from Rep. Frank: ‘‘In a line that is quickly becoming a Capitol Hill classic, Rep. Barney Frank (D-MA) remarked recently that we spend nearly $250 billion a year for the military, but we’ve got to pay extra to use it.’’ Unlike Schmitt’s New York Times story, however, Atlas and Drew did not provide any evidence or analysis to bolster these critics’ claims. Frank was quoted in only one other news story; Bumpers was quoted in two others; Smith’s colleague at CDI, retired Rear Adm. Eugene Carroll, Jr., was a source in one other news story. Korb was not quoted in any other news piece, but he did write an op-ed for the New York Times on February 15. 1996 COVERAGE There was even less coverage of defense budget issues in 1996 than in 1994. The database search for 1994 found 390 news stories, op-eds or columns, and editorials that at least indirectly dealt with the defense budget; a review pared down the pertinent items to 98. The rest of the stories covered layoffs and mergers in the defense industry, base closings, specific Pentagon cuts, and other related issues. Those stories rarely, if ever, addressed larger questions of the overall budget. By comparison, in 1996, the search only found 191 items,

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of which 91 specifically focused on military spending. This 50 percent drop suggests that the subject of the military in general was of less interest to the news media in 1996 (see Table 5.2). Although some major stories of 1994, such as layoffs in the defense industry, were no longer as relevant two years later, many of the same issues were still being debated. Republicans were still fighting the administration over funding for an anti-missile defense system and the B-2 bomber, and they were still trying to boost defense spending. Critics were still arguing whether the Pentagon’s two-war strategy was reasonable or affordable, although that debate was not nearly as prominent as before. The readiness question, meanwhile, had segued into the question of modernization and procurement. Was the military sacrificing its future by not going ahead with purchasing high-tech weaponry? This was the story that got the most attention, even though the proportion of spending on readiness versus modernization, a tradeoff in spending priorities, had not changed. Criticism of the Pentagon in 1996 tended to focus on overall strategy or the lack of it, as opposed to how much money the military was getting. In short, the overall size of the force structure was not an issue. The database search found 61 news stories, 13 editorials, and 17 opinion pieces of relevance in the six newspapers and three newsweeklies in 1996. They indicate there was a slight shift from the way the press covered the military budget story two years earlier. Op-eds and columns calling for significant cutbacks in spending or criticizing Pentagon priorities outnumbered those pieces calling for more defense spending, 10 to 5. Four appeared in the Washington Post, which in 1996 covered the issue more than any other publication in the survey. In 1994, big spenders outnumbered budget-cutters on the op-ed page 14 to 6. Although there were twice as many news stories in 1996 than in 1994 that featured sources who questioned the assumptions of the Pentagon or those advocating bigger defense budgets, they still comprised only 18 percent of the total (in 1994, they made up a mere 8.5 percent). Four of the 11 stories were based on reports by advocacy groups or the General Accounting Office, and there were no stories as thorough as New York Times reporter Eric Schmitt’s 1994 story debunking the conventional wisdom on readiness. The survey only found editorials calling for increasing the defense budget in the Washington Times (5) and the Wall Street Journal (1). But overall, the breakdown between editorials for more spending and those that either called for less or criticized the way money was being spent was roughly the same as in 1994. Of the 13 editorials in 1996, six called for more spending, two were neutral, and five called for either leaving the budget alone or cutting it. Both 1994 and 1996 were election years, but defense issues were only slightly more prominent in 1996, specifically in the presidential race. Defense spending was cited in the Republicans’ ‘‘Contract with America’’ in 1994, but it did not play much of a role in that year’s fall election. Bob Dole tried to make it an issue in his campaign early on, but when it failed to resonate with the public,

Table 5.2 Defense Budget Sources in 1996

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Table 5.2 (continued)

he moved on to other issues. Critics calling for cuts fared slightly better in 1996 than in 1994, but defense-spending hawks still were cited twice as often. In the 61 news stories, reporters cited five administration officials 15 times, 29 big spenders 46 times, 10 military officials 17 times, and 16 budget-cutters 23 times. Reporters also cited seven critics of the Republicans’ successful efforts to add billions to the Clinton administration’s defense budget request in late 1996. A PROCUREMENT GAP? The debate on Capitol Hill in 1996 was on procurement and modernization, a switch from the readiness debate of two years earlier. Big spenders complained that ‘‘chronic underfunding’’ would undercut U.S. fighting capability over the long term. Debates that spilled over from previous years included those over anti-missile defense; the B-2 bomber; homosexuals, abortion, and AIDS policy in the services; and peacekeeping in Bosnia and elsewhere. 1996 started off with some unfinished business. The $265 billion defense authorization package that was supposed to be enacted in the fall of 1995 was not signed until late January 1996. President Clinton had vetoed the first version

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of the bill in December because he objected to three provisions. One called for building an anti-missile defense system by 2003 to protect all 50 states. Another would have required the president to submit reports to Congress when he put U.S. forces under United Nations command. The third would have required the president to send Congress a supplemental appropriations request to pay for any unplanned overseas operations that cost more than $100 million. GOP leadership dropped the provisions. The final bill contained other provisions that Clinton opposed, however, including ones that required HIV-positive service members to leave the military and barred female service members or dependents from getting abortions unless the woman’s life was threatened or the pregnancy resulted from incest or rape. The Republicans also added $7 billion to Clinton’s defense budget request, mostly for weapons development and procurement of more B-2 bombers. Secretary of Defense Perry met with reporters on January 24 and harshly criticized Republicans for risking ‘‘catastrophe’’ by ‘‘front-end loading’’ the defense budget with the extra $7 billion and proposing less in later years, according to the Washington Post (January 25). But Perry expressed concern about ‘‘longterm readiness.’’ If aging weapons systems were not replaced soon, he said, the funds may never be appropriated and modernization would not happen. The Post’s Bradley Graham, who covered the breakfast meeting with Perry, went on to say, ‘‘Haunting the administration’s senior defense planners is the experience of the late 1970s, when troop levels were kept up even as money for military operations dwindled. The result was a large but poorly trained and inadequately equipped force, subsequently revived during the defense buildup of the 1980s.’’ The story was based on one source, William Perry. Graham, who wrote a number of stories on the defense budget in 1994, continued to present the idea that the U.S. military was becoming a ‘‘hollow’’ force. He asked few or no critical questions, and failed to cite any sources who would have suggested cutting force levels as an alternative. The Washington Times editorial page (January 26) chided Perry for his ‘‘catastrophe’’ comment and insisted the extra $7 billion was ‘‘much-needed; the Clinton administration has been underfunding its own defense program woefully, to the detriment of readiness and training, as well as stretching resources thin to accommodate various peacekeeping operations.’’ The editorial writer apparently confused readiness and training with procurement. Adding $7 billion to buy new weapons systems would do nothing immediately for readiness and training. Moreover, the Clinton administration was spending more on readiness than the Reagan administration had during the mid-1980s, when peacetime Cold War defense spending was at its height. A few days later (January 29), the Washington Times ran a news story by Rowan Scarborough titled, ‘‘GOP Defense Bills Halt Funding Slide.’’ As the headline suggests, it was written from the point of view of Republican big spenders. The only sources quoted in the piece were Rep. Curt Weldon (R-PA), chairman of the House National Security Subcommittee on Research and De-

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velopment, and John Hillen, a military analyst at the Heritage Foundation. Weldon said the GOP was trying to ‘‘stop the Clinton policy of taking away basic support for modernization and readiness our military so desperately needs.’’ Both Washington papers tended to cover the defense budget issue as defined by the Clinton administration and its big-spending Republican antagonists. The Times gave more credence to the Republicans, while the Post tended to give more space to the administration. The two papers covered the defense budget story more than the other seven publications in the survey. But rarely, if ever, did a reporter at the Washington papers step back and offer a wider perspective. On January 22, just before Perry broke bread with reporters, New York Times columnist Anthony Lewis did just that in a piece titled, ‘‘The Defense Anomaly.’’ Lewis made several points that his fellow journalists generally missed: that defense accounts for roughly half of discretionary federal spending; that Congress and the president were cutting the other half, leaving defense relatively untouched; and that the United States still spent more on defense in 1995, adjusted for inflation, than it did during the tense Cold War year of 1980. He cited Lawrence Korb’s November/December 1995 essay in Foreign Affairs, which disclosed the Pentagon’s questionable calculations in its bottom-up review of September 1993. Then he briefly mentioned waste and fraud, which the news organizations surveyed rarely, if ever, investigated in either of the two years reviewed. ‘‘Why have both Congress and the White House been so lavish with the Defense Department, and so inattentive to inflated requirements and waste?’’ Lewis asked. First, he said, it is advantageous for politicians to look ‘‘tough’’ on defense. Second, and more important, is their widespread belief, nurtured by defense contractors, that budget cuts will throw people out of work. So the United States continues to build weapons such as the B-2 bomber and the Seawolf submarine, which were designed to combat the Soviet threat. ‘‘Weapons make-work is a highly inefficient way to provide jobs in this country,’’ Lewis concluded. ‘‘But it will go on until we have leadership courageous enough to take on the politics of defense.’’ Lewis’s column had no apparent influence on Times reporters, however. On February 11, the day after Clinton finally signed the authorization bill, the Times ran a news story on page 33 of its front section that focused on the fact that the bill included a provision forcing the Pentagon to discharge troops who are HIVpositive. Ten of the story’s 14 paragraphs were on this controversial provision. The reporter, Philip Shenon, who was relatively new to the beat, did not comment on the amount of the budget or mention any of the issues Lewis covered in his column a couple of weeks earlier. For the most part, stories on the overall federal budget did not deal with defense, even though it comprises 50 percent of discretionary spending. The survey turned up only one news story in early 1996 that indicated there was some discontent on Capitol Hill over the fact that the defense budget was

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‘‘off the table’’ in negotiations to balance the budget. On January 17, the Wall Street Journal ran the article, ‘‘Both Parties Keep Pentagon From Budget Saw, But Some on Capitol Hill Are Growing Restless,’’ by Jackie Calmes. Calmes pointed out that liberal Democrats and even some deficit-hawk Republicans were displeased, notably House Budget Committee Chairman John Kasich (R-OH). Kasich told Calmes that ‘‘there are enormous savings’’ at the Pentagon and that overhauling defense could be ‘‘the single biggest issue’’ in 1996. Calmes then quoted another House member and the head of the conservative National Taxpayers Union, both of whom agreed with Kasich. It was one of the only stories surveyed in 1994 or 1996 in which those calling for defense cuts outnumbered those calling for increased spending. Calmes even quoted John Isaacs, president of the Council for a Livable World, a nonprofit disarmament group. Calmes also explained that President Clinton would not take on the military because of the lingering controversy over his Vietnam-era draft evasion, and that he and Democrats in Congress ‘‘have come to equate the widely salted military-manufacturing funds with local jobs.’’ Yet, when the Clinton administration unveiled its fiscal 1997 defense budget, Calmes’ colleague at the Journal, John Fialka, quoted on March 5 only Senate Armed Services Committee Chairman Strom Thurmond (R-SC), who complained about the ‘‘perilous decline’’ of procurement, and House National Security Committee Chairman Floyd Spence (R-SC), who said the U.S. armed forces are ‘‘dramatically underfunded.’’ The critics quoted in Calmes’ story were not heard from. Nor did Fialka challenge Spence’s comment with the facts. CLINTON PRESENTS THE FY 1996 BUDGET The next budgetary cycle got under way in early March when Secretary of Defense Perry presented Clinton’s 1997 budget to congressional defense committees. Pegged at $243.4 billion, it was $9 billion less than the amount appropriated for fiscal 1996 and included the lowest level of procurement since the end of the Cold War. Republicans immediately attacked the budget as inadequate. The bulk of the press coverage focused on the dispute between the GOP and the administration, especially over the issue of procurement. The larger issues of restructuring the military now that the Cold War was over, or eliminating redundancy among the four service branches, received scant attention in these stories. The Washington Post ran stories by Bradley Graham on March 5 and 10. The first piece was a straight report on the Clinton proposal, emphasizing the procurement issue. Graham quoted Perry, who said he was ‘‘quite comfortable with the . . . military capability that will result from this program.’’ Then Graham wrote that ‘‘leading Republican legislators in both the House and Senate voiced disappointment with the administration’s proposal, calling it inadequate and pledging to bolster procurement without sacrificing funds for current readiness.’’ The piece was typical of about half of the 61 news stories surveyed in 1996.

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They were ‘‘impartial’’ in that they described the partisan debate between the administration and GOP big spenders, but did not delve into the wider debate or discuss what threats face the United States. Graham’s March 10 story devoted more space to the big spenders’ position. Graham did quote Lawrence Korb, who said the government should reassess its military needs now that ‘‘we don’t have a real threat to our national security,’’ but the story was dominated by conservative Republicans, such as Strom Thurmond, and Gen. Shalikashvili, who had suggested that annual spending on procurement should jump to $60 billion by 1998, about a 50 percent increase. The procurement budget for fiscal 1996 was $42 billion; Clinton was proposing to cut it to $39 billion in fiscal 1997, increase it in 1998, and boost it to $60 billion in fiscal 2001, three years after Shalikashvili’s target. The Post’s cross-town rival, the Washington Times, ran a story on March 8 that focused on Joint Chiefs of Staff chairman Shalikashvili’s frustration over the Clinton administration’s cuts in procurement. Reporter Rowan Scarborough had obtained leaked secret documents that indicated that the chairman believed ‘‘we risk future combat readiness of the U.S. military if we fail to fund recapitalization.’’ The paper attacked the Clinton administration a week later (March 14) with an editorial titled, ‘‘Defunding Defense Procurement.’’ On March 3, the Chicago Tribune ran a ‘‘balanced’’ Associated Press story on the Clinton budget. It presented the numbers, and quoted Andrew Krepinevich (director of the Center for Strategic and Budgetary Assessments), Lawrence Korb, and Baker Spring of the Heritage Foundation, all of whom spoke narrowly about the budget. Conversely, two days later the paper ran a story by Tribune reporter Bob Kemper, who, like most of his peers, presented the controversy over the budget as a dispute between the administration and Republican big spenders. The story was very similar to stories that ran the same day in the Wall Street Journal and the Los Angeles Times. They all contrasted comments by Secretary of Defense Perry with those by Rep. Spence and Sen. Thurmond, who said procurement was in ‘‘perilous decline.’’ THE PERCENTAGE-OF-GDP ARGUMENT Art Pine, who wrote the March 5 story for the Los Angeles Times, quoted Perry saying that the downsizing of the military was ‘‘virtually complete,’’ but added that the Clinton budget for 1997 continued ‘‘the dramatic reduction in defense spending of the last 12 years,’’ using the peak of the Reagan buildup in 1985 as the benchmark. Pine then said the administration budget ‘‘would bring the defense budget to 3.2 percent of the overall economy and 15.7 percent of total federal spending in fiscal 1997, down from 6.3 percent and 24 percent, respectively, in the late 1980s.’’ In citing the defense budget’s percentage of the Gross Domestic Product (GDP), Pine was citing a common conservative argument that popped up in opeds and news stories in 1994 and 1996. For example, Michael Boskin, an ec-

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onomic adviser in the Reagan administration, made the same argument in the Los Angeles Times on February 6, 1994, while Jonathan Rauch of the Brookings Institution cited the GDP disparity in a September 25, 1996, op-ed in the New York Times. Lawrence Korb addressed these arguments directly in his essay in Foreign Affairs in late 1995: ‘‘Proponents of a larger defense budget are quick to point out that military spending has declined for a decade and is now about 35 percent lower in real terms than in 1985. Or that the share of GDP consumed by defense (4.0 percent) is at a 70-year low.’’ Such statements ‘‘are meaningless as a guide for policy,’’ Korb argued. Defense spending should be measured against the efforts of potential adversaries and allies, not past U.S. administrations. According to figures from the International Institute for Strategic Studies, the United States will spend on national security this year more than three times what any other country on the face of the earth spends, and more than all its prospective enemies and neutral nations combined.6

Korb then went on to detail just how much more the United States and its allies are spending than Russia, China, and the so-called rogue states. The gross disparity between the U.S. defense budget and those of other countries was mentioned in passing only a few times in the 119 news stories reviewed for both years. MORE SKEPTICISM The review of 61 news stories in 1996 did find 11 stories that included sources criticizing defense spending, or at least questioning assumptions made by the administration or its big-spending critics. In 1994, only five of 58 news stories were in this category. It should be noted, however, that four of the 11 stories from 1996 were on Pentagon waste reports issued by the liberal Council for a Livable World Education Fund and Taxpayers for Common Sense, while another story, in the New York Times, was on a General Accounting Office report that found that the U.S. military lied about the effectiveness of ‘‘smart’’ weapons in the Persian Gulf War to persuade Congress to buy a new generation of high-tech weapons (July 14). Still another story in the Washington Post, on a controversial Navy engine project, was partly based on a GAO report that said the use of the engine was ‘‘inappropriate’’ (June 25). Most of the publications surveyed did not pursue stories on Pentagon waste, fraud, and abuse on their own. One story that did question the military’s request for new, high-tech weapons ran in U.S. News & World Report on October 7. The story, by Richard Newman, poked holes in the military’s argument that it needs to build three new advance fighter planes, one of the motivating factors behind Gen. Shalikashvili’s call for boosting procurement by 50 percent. Most other reporters merely cited Shali-

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kashvili and Republican big spenders, and did not take the initiative to investigate their claims. One of the most comprehensive packages found in the database search was a mid-March, three-part series in the Los Angeles Times on the ‘‘new military.’’ The first story (March 17), titled ‘‘U.S. Military’s Mission Frozen in Cold War Footing,’’ quoted sources who believe the U.S. armed forces need to redefine their role. But the story, by Art Pine, resurrected questionable assertions about troop readiness, stating that peacekeeping missions in Somalia, Haiti, and Bosnia ‘‘quickly siphoned away funds needed to maintain overall military readiness.’’ Pine also provided background on the Clinton administration’s two-war strategy, but the sources he spoke with who challenged the doctrine were either from the conservative Heritage Foundation or the centrist Center for Strategic and Budgetary Assessments. Although these critics suggested that the military should be outfitted with high-tech weapons and downsized, no one in the story suggested that military funding could be cut substantially. The other two stories in the series were on new weapons and the status of U.S. troops. CRITICS GET MORE INK On the whole, the publications surveyed gave more space to defense budget critics than in 1994, but the critics (23 citations) were quoted only about onethird as often as the defense-spending hawks and military officials (63 citations). The fact that reports on Pentagon waste by the Council for a Livable World (CLW) Education Fund were noticed by the Chicago Tribune, Los Angeles Times, and especially the Washington Time’s Insight magazine supplement, which ran two stories (April 29 and September 2), is significant. Groups like CLW were not cited at all in 1994. That said, why did reporters rely on CLW to pull together examples of waste and fraud at the Pentagon and not do it themselves? Washington Post reporter Peter McKay had some fun with a late-June press conference held by Ben and Jerry’s ice cream cofounder Ben Cohen and other members of the Business Leaders for New Priorities. BLNP was protesting the fact that the House had passed a bill on June 14 that would give the Pentagon $10 billion more than the Clinton budget request. McKay, however, paid more attention to what Cohen was wearing and the ‘‘Totally Nuts’’ ice cream he passed out as a prop, than the position BLNP took on the need to cut military spending. The story, which ran on the paper’s Federal Page on June 28, said both the Republicans and Democrats had agreed to shield the Pentagon from cuts to balance the budget, that neither presidential candidate had made a case for cutting defense to increase social spending, and that the public had not called for such a spending shift. ‘‘Yesterday’s event,’’ said McKay, ‘‘marked a rare instance of public protest.’’ The Post showed much more respect for members of Congress who attacked

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their colleagues for allocating $10 billion more than what President Clinton had budgeted for defense. At least two news stories, a front-page piece by Dan Morgan on June 30 and another by Morgan and Walter Pincus on July 19, went into detail on the billions in pork-project add-ons that members of Congress were attaching to the fiscal 1997 bill. One other news story that provided space to Pentagon critics was a threeparagraph brief that appeared on September 16 in U.S. News & World Report, the only newsweekly that occasionally covered defense budget issues. According to reporter Richard Newman, ‘‘a group of liberal Democrats in Congress is hoping to squeeze as much as $60 billion in annual savings from future defense budgets by reining in military commitments abroad.’’ Newman then quoted Rep. Barney Frank, who said the defense budget could be cut by 25 percent over the next few years by, among other things, bringing home the U.S. troops in Europe and requiring U.S. allies to shoulder more of the burden in the Middle East and Asia. The story also mentioned that Frank planned to enlist members of Congress and advocacy groups to work with him after the election. No other publication surveyed reported on Frank’s efforts. The fact that some reporters gave defense budget-cutters more attention does not mean readers were better served, however. Readers may have come away from the stories with the knowledge that some responsible people believe that the United States is spending too much on its armed forces, but those stories still failed to explain the Pentagon’s rationale for its $260-billion-per-year budget. Even when reporters cited critics, they offered no analysis. CAMPAIGN COVERAGE Like 1994, 1996 was an election year. Although the GOP’s ‘‘Contract with America’’ in the fall of 1994 included a section calling for increasing the defense budget and building an anti-missile defense system, among other things, the issue did not play much of a role in federal campaigns that year. Defense issues did come up in the 1996 presidential campaign, however; the database search found 12 relevant news stories. Many of them were generated by Republican candidate Bob Dole’s visits to defense plants in California. Dole’s main point was that President Clinton had starved the armed forces, had sent them on unnecessary foreign operations, and was blocking the funds needed for an antimissile defense system. Reporters usually turned to Clinton campaign press secretary Joe Lockhart for a brief, one-paragraph rebuttal, but otherwise reported Dole’s statements without comment. Throughout the campaign season, reporters pointed out that because the differences between Dole and Clinton on defense were so small, the issue was marginal to the campaign. On March 23, just before a California primary, the Los Angeles Times’ Art Pine reported that Dole, his then-challenger Pat Buchanan, and President Clinton had hardly addressed the issue until that point. The

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Washington Post’s Bradley Graham noted on May 3 that ‘‘defense has not been much of a campaign issue’’ in any race because ‘‘Republicans and Democrats differ little over the broad outlines of U.S. military strategy.’’ Dole returned to California for three days in mid-June and stepped up his attack by charging that the Clinton administration’s opposition to a missile defense system ‘‘encouraged’’ rogue nations to build nuclear weapons. The story was widely reported. No reporter mentioned that the United States spends 18 times what the so-called rogue states spend collectively on their militaries. By the end of the campaign, the Washington Post reported on October 22, Dole dropped the defense issue because President Clinton rarely addressed the subject, and because other issues, such as taxes and drugs, seemed to be of more interest to voters. The subject of military spending came up once during the candidate’s televised debates when Clinton reminded Dole that the differences between the GOP and the Democrats on the defense budget amounted to about 1 percent. CONCLUSION Coverage by the half-dozen leading newspapers and the three newsweekly magazines in this survey suggests that the elite U.S. print media has provided a limited and largely superficial picture of the Pentagon budget and the strategy that drives it. First, they failed to question the assumptions of the Pentagon’s two-war strategy. Will the United States have to fight two wars nearly simultaneously on its own? Does the United States have to spend enough money to be able (in planning terms) to win these wars by itself in 100 days, just over half the time it took to win the Persian Gulf War with a coalition of allies? Who are the United States’ enemies, and how much of a threat do they pose? The huge disparity between what the United States spends on its military and what other countries spend should raise some of these questions, but journalists rarely asked them. The surveyed publications also failed to present adequately the tradeoffs inherent in funding the Pentagon. When the news media cover force size, readiness, or modernization separately, the fact that policymakers must make tradeoffs among them gets lost. For example, high levels of readiness may take funds away from modernization, but the publications covered the 1996 debate over modernization without tying it to the previous debate over readiness. One important story is that the preoccupation over readiness has led to the highest expenditure on operations and management per soldier in the nation’s history, and has beggared modernization. None of the surveyed publications explored this point. The coverage in 1994 and 1996 relied very heavily on administration, congressional, and military spokesmen who either supported the status quo or wanted the government to spend more money on the military. The pronouncements of these spokesmen, especially those in the military, were not treated with

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the skepticism one would expect. Like many bureaucrats, they were at least in part simply trying to protect their budgets. Only Eric Schmitt of the New York Times attempted to go beyond the often self-serving statements of military officials. His stories were among only a few that could be characterized as investigative. Finally, it was telling that although both years surveyed were ones in which elections were held, there was little coverage of the military budget in the context of political races. Nor did the publications adequately deal with the defense budget in their stories on the overall federal budget. Even though candidates or members of Congress may shrink from debating critical public policy questions, the job of the news media is to shine a light on them, not merely react to what politicians choose to talk about. The reactive nature of the press raises a broader question, too. The coverage of the defense budget does not differ greatly from coverage of any other public policy issue. In the case of defense, journalists generally followed the lead of public and military officials, and rarely explored whether their statements were accurate or sensible. Given that the surveyed publications gave precious little space to the critical issue of how the government spends half of its discretionary funds, it is even more important for them to provide balanced, analytic, and contextual information that helps readers grapple with a very complex problem. NOTES The project was done for the Center for War, Peace, and the News Media, under the direction of Robert Leavitt. 1. Steven Kull et al., ‘‘The Foreign Policy Gap: How Policymakers Misread the Public’’ (Center for International and Security Studies, University of Maryland, College Park, MD, October 1997), p. 116. 2. The database search of Nexis, on which this survey was based, was limited to the words ‘‘defense’’ and ‘‘budget,’’ meaning that it was not comprehensive. Even so, it found nearly 400 relevant pieces in 1994 and almost 200 in 1996, which constituted a representative sampling of the coverage. The survey did not review radio or television news broadcasts because of time and financial constraints. The survey focused on 1994 and 1996 for several reasons: both were election years; 1994 was the first full year after the Pentagon’s post–Cold War ‘‘Bottom-Up Review’’ on the military’s mission and structure; and the two years provide a look at coverage before and after the Republicans took control of Congress in January 1995. 3. A citation involves quoting a source at least once in an article. Quoting a source more than once in the same article counts as a single citation. 4. Lawrence J. Korb, ‘‘Our Overstuffed Armed Forces,’’ Foreign Affairs Vol. 74, No. 6 (November/December 1995), p. 24. 5. 1994 Congressional Quarterly Almanac, p. 422. 6. Korb, ‘‘Our Overstuffed Armed Forces,’’ p. 23.

Chapter 6

Jobs, Jobs, Jobs, and the Defense Industrial Base: What Did Seawolf Save? JOAN CAVANAGH

In an effort to rescue its coveted Seawolf submarine construction program in the early 1990s, the General Dynamics Corporation campaigned to convince legislators, workers, and the public that the program would save jobs at the Electric Boat shipyard, based in Groton, Connecticut. When it became increasingly clear that the government would not pay for a large fleet of Seawolfs and was balking at producing even a second and third Seawolf, General Dynamics and its allies mounted a second line of defense, asserting that production of these two boats must go forward in order to preserve an industrial base capable of meeting fleet requirements early in the twenty-first century. In the late 1980s, Electric Boat had already begun facing an uneasy future. The end of the Trident program was in sight, and the Navy was considering reducing the number of 688-class fast-attack submarines as well. In 1988, the shipyard won the competition for the fifteenth and sixteenth Tridents and was awarded 33 of the 61 SSN 688-class submarines authorized. In early 1989, the company won a contract to construct the lead ship of the new Seawolf-class submarine, with an initial authorization of $725 million. The total cost to produce each ship of this class was already projected at close to $1 billion, and the Navy was planning for a fleet of 30.1 The Seawolf program was embattled from the start. Although the House of Representatives on July 31, 1990 approved a $284 billion defense bill that included funding for the second ship, Sen. Edward M. Kennedy (D-MA), chair of the Senate Armed Services Committee’s Subcommittee on Projection Forces, requested a General Accounting Office study of the costs of the program. The GAO recommended postponing procurement of the second Seawolf for one year.2 Electric Boat’s first line of defense to spare Seawolf was jobs, jobs, jobs. Yet,

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according to Neil Ruenzel, director of Electric Boat’s Public Affairs Office, the argument for continued production of the second and third Seawolf submarines was never presented in terms of saving jobs, but always rested on the premise that the work was essential to preserve the submarine industrial base.3 In fact, in the early and mid-1990s, the company repeatedly raised the specter of massive unemployment in southeastern Connecticut if the two boats were not funded. Simultaneously, it pared its work force to demonstrate to a wary Congress and public that submarine construction could be made cost-effective. As layoffs undercut the jobs rationale for Seawolf, Electric Boat increasingly refined and publicized its industrial-base argument. On May 3, 1991 the New Haven Register published a story succinctly framing both arguments that General Dynamics would use to save the embattled program. ‘‘Spell the battle for Seawolf J-O-B-S, tens of thousands of them,’’ it proclaimed. According to the article, the corporation predicted that without at least one Seawolf order per year it would ‘in all probability’ be forced to close its doors by 1997 and mothball facilities that would take $1 billion to replicate. Until then, General Dynamics says its work force of 22,000 in Groton and nearby Quonset Point, Rhode Island, would be cut each year as it finishes work on the seven nuclear missile subs and eight attack subs, including the first of the Seawolfs.4

The second and third Seawolfs were eventually funded at a construction cost of $2.5 billion per boat. Nevertheless, employment throughout the Electric Boat division declined steadily during the decade. Subsidized by Seawolf production, the company slashed construction jobs while putting into place a new, much smaller, workforce with an entirely different skills base. JOBS Although the argument in favor of the preservation of the industrial base ultimately eclipsed the ‘‘jobs’’ argument, it was the latter, with its obvious emotional appeal, which kept the debate passionately alive in the early 1990s. Yet production of the trio of Seawolf submarines did not prevent nearly 8,000 jobs from being eliminated at the Groton shipyard between December 1990 and December 1997. Throughout the Electric Boat division, which included facilities at Quonset Point, RI, Avenel, NJ, and Charleston, SC, the company cut nearly 13,000 jobs in that period. While some of these cuts were accomplished by attrition or early retirement, far more occurred through dismissals.5 Table 6.1 clearly illustrates that not only did employment levels decline steadily throughout the 1990s, but the impact of the Seawolf program on preserving jobs was much less significant than company predictions in the early part of the decade would have led the public to expect. In fact, the numbers in the workforce continued to drop even in 1997 as work on the third boat commenced. With two Seawolfs in production at all times in 1994–1996, numbers employed

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Table 6.1 Yearly Employment at Electric Boat, 1990–1997

Notes: Ruenzel’s employment figures are as of December of each year. In 1994 and 1995, all ships in the backlog were under construction. The New Attack Submarine is currently in design. Sources: (1) Neil Ruenzel, Electric Boat Company, January 28, 1998; (2) General Dynamics Corporation shareholder reports, 1990–1996.

still dropped by over 2,000. With one Seawolf in the pipeline in 1997, the work force at the Groton shipyard was less than half of what it had been in 1990, when construction work on the first Seawolf was at a peak. The brief spike in employment at Groton in 1994 occurred, according to Neil Ruenzel, because of a spate of hiring to augment the design and engineering force for the New Attack Submarine. In addition, about 300 workers were re-

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called briefly to ensure completion of Trident and fast-attack work on time, as well as to maintain the shipyard’s schedule on the first two Seawolfs.6 These considerations would have been important politically, since all funding for the third Seawolf had not yet been secured, and EB could not afford any controversy about cost overruns in the era of the ‘‘affordable’’ submarine. Yet, by the next December, with two Seawolfs still in backlog, employment levels had resumed their steady decline. THE FIRST LAYOFFS On August 2, 1990, the New London (CT) Day reported that Electric Boat, the region’s largest single employer for almost 40 years, now had 17,759 workers in Groton,7 and 4,300 at its hull fabrication plant at Quonset Point, RI. In September, the company announced that it would be giving 60 days’ notice to between 920 and 1,150 of its salaried workers on October 1. The Day underscored EB’s contention that ‘‘if it only gets one Seawolf sub contract a year the size of its work force would be cut by 50 percent by the year 2000,’’ adding that the Navy was ‘‘currently proposing a schedule of [only] three-quarters of a ship per year.’’8 The layoffs totaled about 700 for 1990, with 599, mostly white collar, at Groton and Quonset Point. Electric Boat officials attributed the smaller-thanexpected numbers to attrition and to the fact that a hiring freeze had gone into effect earlier in the year.9 With growing concern in 1991 that the Seawolf program would be dramatically reduced or eliminated, the company emphasized the importance of the program to reduce the number of layoffs which would occur in the next several years. In its year-end report for 1990, company officials claimed, according to the New London Day, that ‘‘in a worst case scenario,’’ half of the division’s 23,000 workers would lose their jobs by 1996. In fact, Table 6.1 shows that the division-wide reduction exceeded that gloomy prediction by over 1,000, with three Seawolfs in the pipeline.10 In March, EB general manager James Turner testified before a congressional subcommittee that should the rival shipyard at Newport News be awarded the contract for the second Seawolf, ‘‘the impact of this production break would result in a severe work force reduction beginning in 1992.’’ On March 20, 1991, the Day reported that Turner told the subcommittee, ‘‘E.B. will begin cutting its work force later this year and eliminate about 2,500 positions in 1992 if the shipyard doesn’t get the contract for the second Seawolf.’’ In April, Turner told a Senate hearing that ‘‘the scenario of Electric Boat’s closure has now become a serious possibility.’’11 In response, the Eastern Connecticut Chamber of Commerce organized a ‘‘Let’s WIN for E.B.!’’ letter-writing campaign, aimed at Secretary of Defense Dick Cheney. It raised several issues of economic import to the region, including

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the proposed decommissioning of the submarine base in Groton, but ‘‘most ominous of all’’ was ‘‘curtailment of work at our largest employer, the Electric Boat division of General Dynamics. The possibility of losing all further submarine building contracts . . . looms on the horizon. That would surely affect our region like being flattened by bombs from B-52s.’’12 On May 3, Electric Boat won a $2 billion contract for the second Seawolf, and Joseph McGee, the State Economic Development Commissioner, told the New London press that the agreement had saved 10,000 jobs at General Dynamics. At the time, according to the New Haven Register, EB employed about 16,000 people in Connecticut and 5,000 in Rhode Island. About half of those worked on Trident, and the other half on the Seawolf and the Los Angeles–class fast-attack submarines.13 Despite the new contract, EB issued 827 pink slips at the end of June 1991, about 500 of the dismissals in the Groton plant. Those affected were predominantly white-collar workers and may have included the first victims of a company initiative to trim middle management. On June 28, the Day reported that another 827 workers, most of them salaried and two-thirds employed at Groton, would lose their jobs later in the year ‘‘as the company cuts its operating costs.’’14 The shipyard lost 1,200 jobs in 1991 through layoffs or attrition. By year’s end, the unemployment rate in the New London–Norwich labor market area had risen to 7 percent from 5.8 percent in 1990 (see Table 6.2). When the government announced in January 1992 that it planned to cancel the Seawolf program entirely, regional reaction was predictably intense. Barbara Nagy, a staff writer for the New London Day, was told by company ‘‘sources’’ that, if the decision were to stand, the company might be forced to eliminate over 17,000 jobs, division-wide. That would mean that the workforce at EB would number as few as 4,000 by 1997, with possibly only the design staff remaining. ‘‘The shipyard could close altogether,’’ she wrote.15 The 1992–1993 federal budget included $400 million in cancellation costs for the program and rescinded the $3.4 billion already appropriated for the second and third Seawolfs. Connecticut’s congressional delegation fought the cancellation, but quickly conceded that the Seawolf program would not exceed three ships, and that winning back the funding for the second and third would, in the words of Senator Christopher Dodd, ‘‘be a complicated and difficult process.’’ Dodd told Secretary of Defense Dick Cheney that layoffs at EB would begin ‘‘immediately’’ if only one Seawolf were under construction at Groton.16 In February 1992, the company announced that it would be cutting between 2,000 and 4,000 jobs division-wide because of the revocation of the Seawolf program, and on the 18th of the month, 184 workers in Groton—94 from the Metal Trades Council, 10 from the Marine Draftsmen’s Association, and 80 salaried employees, in addition to 64 from Quonset Point, RI—received notices. The shipyard’s general manager, Roger Tetrault, told the press that the number

Table 6.2 Labor Force Data for New London–Norwich Labor Market Area, 1988–1997

Notes: (1) ‘‘CT’’ refers to the Connecticut part of the New London–Norwich labor market area only; CT/RI includes the towns of Hopkinton and Westerly, Rhode Island; (2) revised labor force estimates for 1990– 1996 reflect incorporation of 1990 Census population inputs. These estimates are not directly comparable to data starting with January 1994, when a new Current Population survey was implemented by the U.S. Bureau of Labor Statistics. The Department of Labor defines the following ‘‘labor force concepts’’: The civilian labor force comprises all state residents 16 years and older classified as employed or unemployed in accordance with criteria described below. Excluded are members of the military and persons in institutions (correctional and mental health, for example). The employed are persons who did any work as paid employees or in their own businesses during the survey week, or who have worked 15 hours or more as unpaid workers in an enterprise operated by a family member. The unemployed are all persons who did not work but who were available for work during the survey week (except for temporary illness) and made specific efforts to find a job in the prior four weeks. Persons waiting to be recalled from a job from which they had been laid off need not be looking for work to be classified as unemployed. The unemployment rate represents the number unemployed as a percent of the civilian work force. With the exception of those persons temporarily absent from a job or waiting to be recalled to one, persons with no job and who are not actively looking for one are counted as ‘‘not in the labor force.’’ Source: Connecticut Department of Labor, Office of Research.

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of layoffs that would occur in 1992 depended completely on whether funding for the second and third Seawolfs was restored. Currently under construction in the yard were six Tridents, six 688-class fast-attacks, and one Seawolf.17 On April 2, Roger Tetrault testified before a Senate Armed Forces Committee hearing that without new contracts, Electric Boat’s employment levels would fall below 7,500 in 1996. (Here, as in several cases throughout, newspaper accounts are unclear as to whether the numbers refer to the Groton shipyard or to the entire Electric Boat division.) On April 10, a House subcommittee restored funding for the second boat. Yet four days later, EB gave 60 days’ notice to 1,888 workers, nearly 9 percent of its workforce division-wide. Of these, 1,200 layoffs occurred at Groton and 619 at Quonset Point. In early June, the company promised that these would be the year’s last casualties if President Bush signed the bill to reinstate the Seawolf funding. John Welch, EB’s vice president for program management and development, told the press that the construction work on the second Seawolf would ‘‘buy’’ two more years for EB’s hull fabrication plant at Quonset Point.18 About the same time, the General Dynamics Corporation submitted a document to Congressman Samuel Gejdenson’s office in Norwich that included a chart by the Southeastern Connecticut Economic Development Corporation based on company projections of employment at Groton should the Seawolf program be cancelled. The company envisioned completion of the Trident program at the end of 1997, the fast-attack program in 1995, and the one Seawolf currently under contract at an unspecified date. It projected ‘‘continuing activities associated with short-term overhauls; and ongoing engineering and design activities for future programs (e.g. Centurion).’’ Without the continuation of the Seawolf program, it foresaw a work force at or near zero by the year 2000 (see Figure 6.1).19 Even in light of the restored Seawolf program, the workforce at EB declined steadily through 1997. Table 6.3 gives monthly employment figures for the ‘‘other durable goods’’ manufacturing category in the New London–Norwich labor market from January 1991 until November 1997. With few exceptions (March–April 1991; October–November 1991; December 1993–January 1994; September–October 1995; and most dramatically, February–September 1994, when the brief spike in jobs at EB already discussed occurred), the trend was steadily downward. According to Sal DePillo, of the Connecticut State Department of Labor’s Office of Research, Electric Boat made up at least 80 percent of the employment in this category at any given time. John Beauregard of the Private Industry Council thought the figure might have approached 85 percent at times.20 Whatever the variation in the percentage of the ‘‘other durable goods’’ category made up by EB, it is possible, by comparing the employment losses in the category as of December of each year with those of EB, also in December, to see that the decline in employment at the Groton yard accounts for almost all the reductions in the entire category. Between the years 1991 and 1992, 1992

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Figure 6.1 New Business Workload Projection for Electric Boat at Groton, Connecticut

Note: This workload projection assumes construction of one Seawolf submarine and Electric Boat’s best estimates of the significantly altered workload as a result of the cancellation of the Seawolf program in January 1992. Source: General Dynamics, Electric Boat, 1992; A Strategic Plan for Economic Development: A Plan of Action Created by the Southeastern Connecticut Economic Development Commission, 1992. The office of Congressman Samuel Gejdenson (D) made this material available.

and 1993, and 1995 and 1996, the number of workers cut at Groton is almost identical to the number lost in the category overall.21 As a jobs program, then, Seawolf construction was neither efficient or costeffective. The total cost for the third Seawolf will be $3.7 billion: $2.5 billion to build and another $1.2 billion to man, operate, and maintain over its expected life of 30 years.22 Assuming that construction of the third Seawolf spared close to 5,000 jobs at Electric Boat for three years23 then the cost of the boat comes to $240,000 per worker per year. If it spared the jobs of the entire EB workforce of 16,000, the cost per worker would be $77,000 a year. STREAMLINING As it became increasingly clear that at most three Seawolfs would be funded, General Dynamics began shifting the public emphasis of its argument for con-

Table 6.3 Employment in Other Durable Goods Manufacturing in Southeastern Connecticut Compared with Annual Employment at Electric Boat Shipyard in Groton, 1991–1997

*Eleven month average. Sources: Monthly and annual averages of employment in ‘‘other durable goods’’ manufacturing category: Bureau of Labor Statistics Annual Report on Employment, Hours, and Earnings for the New London–Norwich Labor Market Area, 1991–1997 (these figures are rounded off to the nearest hundred); employment at Electric Boat Shipyard, Groton, CT: Neil Ruenzel, director of Public Affairs.

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tinuing the program from preserving jobs to preserving the submarine industrial base. William Anders, chairman of the board and chief executive officer of the General Dynamics Corporation, summed up the emerging ‘‘preservation’’ argument in his 1991 annual report to stockholders: Rapidly eliminating even low-rate production of selected key weapons systems causes massive disruption and increases the risk of destroying our nation’s ability to produce next generation systems in the future. In the real world, mothballed production facilities quickly deteriorate. And workers, uniquely skilled in defense production, cannot be put in mothballs at all.24

In 1992, General Dynamics told its shareholders that it was ‘‘encouraged’’ by the fact that the government had responded favorably to the ‘‘national debate’’ over Seawolf, had restored funds for the second boat, and had allocated $540 million for the specific purpose of preserving the submarine industrial base. These actions were not enough, however. The second boat would be completed by 1997. The company concluded, To help bridge the gap in production that will occur between completion of current backlog and start-up of the next generation attack submarine program (Centurion)— expected in 1998 at the earliest—the division believes the full funding for the third Seawolf submarine . . . would be in the best interests of the nation.25

In early 1993, two important studies were commissioned. Their conclusions upheld those of General Dynamics, and provided a rationale for funding the third Seawolf as well as the New Attack Submarine program. Although members of Congress from both parties would make several attempts to halt the program over the next few years, the results of these two studies helped secure their future. In January, Secretary of Defense Les Aspin initiated a Bottom-Up Review of military programs. It was charged with ‘‘assessing in the post Cold War environment potential threats to national security’’ and with ‘‘determining the military capability needed to address them.’’26 At the same time, RAND Corporation’s National Defense Research Institute was asked by the office of the undersecretary of defense for acquisition ‘‘to compare the practicality and cost of two approaches to future submarine production: 1. allowing production to shut down as currently programmed submarines are finished, then restarting production when more submarines are needed; and 2. continuing low rate production.’’27 Both studies recommended production of the third Seawolf and the New Attack Submarine, and the Bottom-Up Review designated Electric Boat to build them. The General Dynamics shareholder report for 1993 noted with pride that this designation was ‘‘a reflection of the growing support for the division’s unique submarine industrial capabilities and a deeper awareness among national

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decision makers of the wide range of missions these ships can perform to support our nation’s new military strategy.’’28 With the support of the Bottom-Up Review and the RAND study, the future of the third Seawolf was all but assured. As EB President James Turner wrote in the shipyard newsletter: ‘‘There are many people in Washington who would rather spend money on something other than the third Seawolf.’’ Yet the Navy and the Department of Defense had decided that ‘‘the best way to retain the submarine industrial base was to build something.’’29 That ‘‘something’’ was designed to counter an enemy that no longer existed, at a cost to the American taxpayer of some $3.7 billion per Seawolf over its expected 30-year life span. The RAND study also recommended that if EB were not shut down, the ‘‘residual cadre’’ of workers who were retained to keep the industrial base intact should be a small one. It warned that simply proliferating the number of workers on the payroll and the money paid them begs the question of whether skills can be maintained during a gap. What would the cadre do? . . . The larger the cadre, the more difficult it would be to find enough for them to do to retain their mentor qualifications at restart—the skills and know-how to train new employees.30

General Dynamics’ officers had been arguing the need for ‘‘streamlining’’ the workforce for at least two years. They had also been telling shareholders that the makeup of the workforce would have to be restructured to meet the technological demands of the New Attack Submarine. In effect, a new skills base would have to be created, a concept quite different from preserving the existing one. In 1991, Chairman of the Board and Chief Executive Officer William Anders had told stockholders and colleagues that ‘‘the defense industry would have to undergo substantial rationalization.’’ It must ‘‘eliminate the excess capacity which burdens investors, inflates costs for our customer, and reduces the job security of those workers upon whom the smaller Defense Industrial Base of the future must depend.’’ The emphasis was to be placed on achieving ‘‘the proper balance of research, development, and production capacity to assure efficiency, economies of scale, and financial strength given the future business volumes realistically achievable.’’31 Not only would the workforce have to be sharply reduced, but it would also have to be restructured to meet the demands of a new type of production. James Mellor, corporation president, referred to 1993 as ‘‘the year in which the turnaround of General Dynamics initiated in 1991 was completed.’’ Company ‘‘participation’’ in the downsizing and consolidation of the private sector of the nation’s defense industrial base had been accomplished ‘‘well ahead of the rest of the industry.’’ Now, the Electric Boat division’s task would be to ‘‘continue consolidating its facilities [,] . . . resources and work forces—an effort that held 1993 cost increases down to a rate below inflation.’’32

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In 1994, Mellor told shareholders that continued downsizing had indeed paid off: ‘‘We almost doubled our cash balance . . . ending the year with more than $1 billion. With virtually no debt, we have the strongest balance sheet in the defense industry.’’ The Navy had requested funding for the third Seawolf. Mellor reiterated EB’s commitment to ‘‘designing submarines at a price the Navy can afford and Congress will accept.’’ The New Attack Submarine would be just such a ship. EB was ‘‘well on its way to designing and digitally ‘building’ ’’ the submarine on computer, a process which would require a much smaller workforce than its current one.33 THE SECOND WAVE OF LAYOFFS The layoffs that ensued as the company restructured itself were dramatic, and their impact on the workforce—and on the New London–Norwich labor market area—was profound (see Table 6.2 for unemployment statistics in the area from 1988 to 1997). The Day reported that 1,600 people ‘‘departed on schedule’’ in the middle of June 1992, leaving Electric Boat with a total of 19,000 employees: slightly over 13,000 in Groton, and approximately 3,000 at Quonset Point.34 In the fall of 1992, the Electric Boat division announced that it would reduce its total complement from 19,000 to 17,500 people by the end of the year. The first dismissed were 130 hourly workers from Groton in March, along with an ‘‘undisclosed number’’ of salaried employees. In mid-July, the company said that it would lay off 800 people between July 26 and August 9. At the same time, Neil Ruenzel told the press that the number of jobs eliminated in 1993 could reach 2,000—500 more than the previous year’s projection—because the ‘‘work load was even smaller than expected.’’ Currently the shipyard had only six vessels under construction, the press reported: three Tridents, one 688 fast attack, and the two Seawolfs. Between December 1992 and December, 1993, 1,693 jobs were cut (see Table 6.1). The Day reported that most of the year’s projected layoffs would be at Groton, where the final stages of work were being done on the submarines, and EB President James Turner reiterated predictions that EB’s employment would drop to between 7,500 and 8,000 people in 1996– 1997. ‘‘Although actions like this are unfortunate, they’re a continuation of what E.B. must do in the face of declines in our workload,’’ he said.35 On August 10, at about the same time that the RAND study recommended that Congress fund the third Seawolf, so that production could begin in 1996 and the Navy could proceed with plans to begin producing the New Attack Submarine in the late 1990s, EB distributed 760 more layoff notices, over half to Groton employees.36 While the overall unemployment rate for the New London–Norwich labor market area was down to 5.9 percent at the end of 1993 from its high of 7.3 percent in 1992, this sharp reduction was due to an increase in jobs in the service sector of the economy provided by the Foxwoods Casino, owned and operated by the Pequot Indians in Ledyard, Connecticut. Foxwoods had opened in Feb-

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ruary 1992 with 2,300 employees, and their number had reached 6,900 by September of 1993.37 Between April and November 1994, the Day reported 163 layoffs at Groton and nearly 500 at Quonset Point. At the end of January 1995, 230 more Groton employees lost their jobs, 61 percent of them salaried workers. The company’s stated goal was to ‘‘cut away layers of management’’ and to shave the workforce by more than 2,000 people by the end of the year. This would require more than 2,000 departures, because, as Neil Ruenzel said, ‘‘while the company is making deep cuts in some areas, it is still hiring in others’’ (i.e., drafters to work on the New Attack Submarine).38 With the first Seawolf 78 percent complete and the second one nearly 42 percent finished, another 219 hourly workers and 15 salaried employees received notice at the end of April 1995. At this point, the yard had only two Tridents (one nearly complete) and the two Seawolfs under construction. It was the end of the fast-attack program and imminent termination of the Trident program that precipitated the cuts. This brought total employment division-wide to about 15,000, with employment at Groton at just over 12,000. There were many smaller layoffs throughout the year, from as few as one or two employees at a time to as many as 10 or 12. In November, 67 percent of those eligible (1,318 out of 1,962) accepted early retirement inducements. The Day predicted massive cutbacks in the production force at Groton in the next year, when the company would complete and deliver the seventeenth Trident and the first Seawolf. Metal Trades Council President Ken Delacruz said that the MTC was down to 6,400 members and was ‘‘dying on the vine here.’’39 Whatever its impact on EB workers and on the New London–Norwich labor market area, corporation-wide downsizing continued to benefit the company’s officers and stockholders. The General Dynamics annual report for 1996 said that Forbes magazine had ranked the leading companies in the aerospace and defense industry on the basis of return on capital over the previous five years, and had found General Dynamics, with an average return of greater than 38 percent, at the top of the list. The income of the corporation’s executive officers had continued to climb. Chief Executive Officer James Mellor’s income increased from $2.59 million in 1994 to $5.02 million in 1995. James E. Turner, the former president of Electric Boat and now General Dynamics’ executive vice president, made $1.49 million in 1995, compared to $861,156 in 1994.40 For workers on the lower end of the pay scale, however, 1996 was a pivotal year. The company planned to dismiss 2,000 people over the year, about onethird more than its previous projections. Neil Ruenzel told the press, ‘‘It’s not a question of savings; it’s a question of not having enough work.’’41 The year 1997 began with several hundred more terminations in Groton, and there were a number of layoffs during the year throughout the division. The numbers employed in Groton at year’s end were slightly higher than anticipated, however, largely because of design work on the New Attack Submarine. Neil Ruenzel reported in 1998 that there were about 7,800 people employed at Groton

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and 1,180 at Quonset Point. Mel Olsson, president of the Marine Draftsmen’s Association, said that MDA membership had grown from 1,400 to 2,000 in the past couple of years, and hoped that ‘‘the contracts will keep coming’’ so the growth would continue. However, Ruenzel said that hiring in the design world was now leveling off, although engineers were still being recruited.42 Much of the MDA’s growth came in the form of 560 Metal Trades Council members who were retrained to do computer-aided drafting on the New Attack Submarine. In January 1998, Ken Delacruz, president of the Metal Trades Council, said the MTC was composed of 2,300 members at present—down nearly 7,000 from the beginning of the decade. He predicted that ‘‘as many as 400’’ of his people would be dismissed this year, and said, descriptively, ‘‘We’re up to our ass in alligators here.’’ Most of the work on the third Seawolf is still concentrated at Quonset Point, Rhode Island, and full-scale production at Groton is not scheduled to begin until April 1998. It was too soon to know whether the work on the third boat would require the hiring, or recall, of any additional yard employees.43 PRESERVING THE DEFENSE INDUSTRIAL BASE Neil Ruenzel, Electric Boat’s director of Public Affairs, says that the submarine industry was the first to advance the defense industrial base argument, and that other defense industries then followed suit.44 ‘‘Their arguments were fiction,’’ he adds, but, in the case of something as specialized as the production of nuclear-powered submarines, ‘‘ours were true,’’ and they ultimately prevailed.45 But a close reading of the RAND study indeed calls the truth of EB’s claims into question. The Bottom-Up Review projected a future fleet requirement of between 45 and 55 attack submarines. Although the RAND study was presented to the research sponsors and unspecified ‘‘interested parties’’ in the summer of 1993, before the bottom-up review was completed, it took the requirement of 45 to 55 submarines as a given and ‘‘broadened the band by five ships, 10 percent, in either direction to take into account the opinions of knowledgeable observers outside the DoD.’’46 RAND compared two alternatives: closing down Electric Boat and reopening it when the time came to build a new generation attack submarine to replace those scheduled to retire; and bridging the gap in production by building a third Seawolf. The study concluded that it would be preferable to build the third Seawolf even though it would be cheaper to shut down the production lines and reopen them after a hiatus. The reason for the recommendation was that the $700 million saved by shutdown and restart was ‘‘well within the margin of error’’ of RAND’s cost projections and that discontinuation of production ran ‘‘substantial risks,’’ like the need for regulatory recertification.47 That conclusion was omitted from the executive summary, where it was more likely to have been noticed. Moreover, RAND concluded that Electric Boat itself was not part of the

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defense industrial base that needed to be preserved; its workforce could be reconstituted. Tables 4.1 and 5.1 of the RAND report list the key nuclear and non-nuclear suppliers.48 Apart from the vendor of the nuclear cores, which will remain at work supplying Trident submarines and aircraft carriers, all of these suppliers could also be reconstituted. RAND’s calculations are largely driven by two factors: the requirement for 45 to 55 attack submarines (plus or minus five) and the lead time needed to assure delivery of new submarines to replace those that are retiring. By RAND’s calculations, the submarine production line would have to be reconstituted starting in 2001 at the latest, just four years after the second Seawolf was completed; otherwise replacement submarines would not be ready in time and the fleet would fall below 40 submarines. While refuting the bottom-up review is beyond the scope of this chapter, the RAND assumption of a requirement of 40 to 60 attack submarines is open to question. During the Cold War, the sizable submarine requirement was said to be necessary in order to protect convoys carrying forces and supplies to Europe against Soviet submarines in the event of war. Today, the requirement is driven by two much less demanding missions: protecting carrier battle groups (CBGs), and intelligence gathering. The Bottom-Up Review calls for 12 CBGs. Yet analysts like Dov Zakheim, deputy assistant secretary of defense in the Reagan administration, recommend six CBGs as adequate for post–Cold War contingencies. Halving the CBG requirements would halve the requirement for submarines to protect them. For intelligence gathering, the assumption is that a submarine must be kept continuously on station in the Persian Gulf, off the Korean coast, and in two other locations. Relaxing the requirement for continuous monitoring at four locations would reduce the need for submarines. If the requirement for attack submarines were 30, not 40 to 60, and replacement submarines were built at the rate of two per year, the Navy would need a new submarine to be delivered in 2023, not in 2010 as the RAND study concludes.49 The hiatus would be 20 years (1996 to 2015), not the five years (1996 to 2001) that RAND calculated. The longer hiatus would have obviated the need to build the third Seawolf. Reconstituting the workforce after a 20-year hiatus would lengthen the time needed to produce a first replacement submarine from six to 10 years.50 It would also entail additional cost. Yet such costs would pale beside those associated with building an unnecessary Seawolf and starting to build New Attack Submarines in the early twenty-first century. According to RAND’s own estimates, the cost of reconstituting the vendors of nuclear components would run in the ‘‘hundreds of millions of dollars,’’ and of non-nuclear vendors ‘‘half a billion dollars’’—far less than the $3.7 billion needed for the third Seawolf. CONCLUSION The demise of the Soviet Union left U.S. weapons producers, who had prospered for over 40 years under massive Cold War budgets, struggling in the early

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1990s to maintain their profit margins in a rapidly shrinking industry. The General Dynamics Corporation, often referred to as the ‘‘General Motors of the defense industry’’ because it had facilities which produced weapons systems for all three legs of the strategic triad, was a leader in articulating and carrying out a strategy to ensure continued prosperity. Its Electric Boat shipyard (which became a fully owned subsidiary in the fall of 1995) was a key component of the plan. The strategy of the corporation at the Cold War’s end was reminiscent of that of its precursor, the Electric Boat Company, in the years following the end of World War II. In both periods of transition, after years of intense weapons production, the company sharply pared the size of its workforce, maintaining its base of operation on the assumption that a new global crisis would emerge which would once again require an arms buildup. In both instances, it made half-hearted forays into civilian markets, while underscoring that its real work was building warships. In each case, it mounted a two-pronged public-relations campaign: on the one hand, to convince legislators, employees, and the public that jobs would be preserved and/or generated if the company could win funding and contracts for specific weapons systems; on the other, to convince them that even during times of low military output, a much-reduced workforce must be kept intact and occupied, so that the acquired knowledge, expertise, and resources of the industry would not be lost. Saving jobs and preserving an industrial base were neither the goals nor the outcome of General Dynamics’ efforts. The real problem for the corporation was how to turn its Electric Boat facility into a profitable enterprise in the post– Cold War years. To do this, it needed the Seawolf contracts. At the same time, it needed not only to sharply reduce but to dramatically restructure its workforce in order to win contracts for the New Attack Submarine, or NSSN. Pictured as the ‘‘affordable’’ alternative to a fleet of Seawolfs, NSSN was the weapons system on which the shipyard’s future rested. In order to win contracts to build it, the company had not so much to preserve an existing skills base as to create a new one. As with most of the major transitions in the corporation’s history, this one was subsidized by government funding.

NOTES 1. General Dynamics 1988 Annual Report (St. Louis, MO: General Dynamics Corporation, 1989), p. 21; New London (CT) Day, January 12, 1990, p. A1. 2. New London Day, December 24, 1989, p. A12; New Haven Register, July 25, 1990, p. 1; New London Day, October 6, 1990, p. A1. 3. Conversation between Joan Cavanagh and Neil Ruenzel, January 28, 1998. 4. New Haven Register, May 3, 1991. (From the personal files of Joan Cavanagh.) 5. Figures are from the General Dynamics Corporation, provided during a conversation between Joan Cavanagh and Neil Ruenzel, January 27, 1998. 6. Ibid.

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7. Neil Ruenzel gives a much lower figure for December of the same year. See Table 6.1. 8. New London Day, August 2, 1990, p. 1; September 11, 1990, p. 1. 9. New London Day, October 1, 1990, p. 1; October 2, 1990, p. 2; November 17, 1990, p. 1. 10. New London Day, January 1, 1991; January 13, 1991, p. 1; February 13, 1991, p. 1. 11. New London Day, March 20, 1991, p. 1; April 7, 1991, p. 1. 12. Advertisement taken out in New London Day, March 4, 1991. (From New London Day library files.) 13. New Haven Register, May 4, 1991, p. 1. Newspaper accounts of employment figures at Electric Boat are based on company figures. Neil Ruenzel told Joan Cavanagh on January 27, 1998, that the company never kept a breakdown of how many workers were employed on each project, as the numbers were too unstable, often changing from ‘‘minute to minute’’ according to immediate production requirements. 14. New London Day, June 28, 1991, p. 1; see also New Haven Register, June 28, 1991, p. 1. 15. New London Day, January 30, 1992, p. 1. See also Connecticut Labor Force Data for Labor Market Areas and Towns, Annual Averages for the New London–Norwich Labor Market Area, 1990 and 1991 (Wethersfield, CT: Connecticut Department of Labor, Office of Research). The New London–Norwich Labor Market area includes the towns of Hopkinton and Westerly, Rhode Island. Table 6.2 provides a breakdown of yearly unemployment rates from 1988 through November 1997. It shows the rates both for the Connecticut portion only and for the entire labor market area including the two Rhode Island towns. 16. New Haven Register, November 11, 1991, p. A1; New London Day, November 10, 1991, p. A1; January 1, 1992, p. A1; January 5, 1992, p. A1; January 30, 1992, p. A1; February 4, 1992, p. A1. 17. New London Day, February 19, 1992, p. A1. 18. New London Day, April 10, 1992, p. A1; April 14, 1992, p. A1; June 2, 1992, p. A1; June 5, 1992, p. A1. 19. Southeastern Connecticut Economic Development Commission, A Strategic Plan for Economic Development: A Plan of Action (Cambridge, MA: Arthur D. Little, May 1992). 20. Conversations between Joan Cavanagh and Sal DePillo, November 1997 and January 1998; conversation between Joan Cavanagh and John Beauregard, December 1997. 21. 1,525 at EB to 1,500 overall, 1991–1992; 1,243 at EB to 1,300 overall, 1992– 1993; and 1,605 at EB to 2,600 overall, 1995–1996. 22. The data on life-cycle costs come from the RAND Corporation’s own figures on operating and support costs for a 688-class submarine. The cost of a Seawolf would undoubtedly be higher. See The U.S. Submarine Production Base: An Analysis of Cost, Schedule, and Risk for Selected Force Structures (Santa Monica, CA: RAND Corporation, 1994), p. 191. 23. See Table 6.1; 4,506 jobs were cut throughout the division between December 1995 and December 1997. 24. General Dynamics 1991 Shareholder Report (Falls Church, VA: General Dynamics Corporation, 1992), pp. 5–7.

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25. General Dynamics 1992 Shareholder Report (Falls Church, VA: General Dynamics Corporation, 1993), pp. 4–6, 9–10. 26. Les Aspin, Report on the Bottom-Up Review (Washington, DC: Department of Defense, October 1993), p. iii. 27. U.S. Submarine Production Base, p. iii. 28. General Dynamics 1993 Shareholder Report (Falls Church, VA: General Dynamics Corporation, 1994), p. 6. 29. Electric Boat Newsletter, cited in New London Day, August 31, 1993, p. B1. 30. U.S. Submarine Production Base, pp. 26–27. 31. General Dynamics 1991 Shareholder Report, pp. 5–7. Anders also mentioned in this report that the company had made some ‘‘investigation’’ into commercial alternatives to submarine production, but that it had recognized that such an effort would be a losing proposition financially. 32. General Dynamics 1993 Shareholder Report, pp. 3, 13–14. 33. General Dynamics 1994 Annual Report (Falls Church, VA: General Dynamics Corporation, 1995) pp. 2–3; 7–8; 15–16. 34. New London Day, June 13, 1992. 35. New London Day, January 19, 1993, p. B1; January 28, 1993, p. B1; March 13, 1993, p. B1; July 13, 1993, p. A1. 36. New London Day, August 10, 1993, p. C7. 37. Labor Force Data for the New London–Norwich Labor Market Area, 1992 and 1993 (Wethersfield, CT: Connecticut Department of Labor, Office of Research); Edwin L. Caldwell, ‘‘Native Americans to the Rescue,’’ Connecticut Economy, Spring 1997, p. 6. 38. New London Day, April 26, 1994, p. B1; May 11, 1994, p. B1; August 2, 1994, p. B1; January 1, 1995, p. B1. 39. New London Day, October 20, 1995, p. B1. 40. General Dynamics 1996 Annual Report (Falls Church, VA: General Dynamics Corporation, 1997), p. 3; New London Day, March 29, 1996, p. A1. 41. New London Day, May 21, 1996, p. A1. 42. New London Day, February 14, 1997, p. B1; September 30, 1997, p. B1; conversation between Joan Cavanagh and Neil Ruenzel, January 27 and 28, 1998; conversation between Joan Cavanagh and Mel Olsson, January 17, 1998. 43. Conversation between Joan Cavanagh and Ken Delacruz, January 27, 1998. The day of this conversation, Delacruz was expecting notice of 200 more terminations. 44. Leon Sigal contributed substantially to the work in this section. 45. Conversation with Neil Ruenzel, January 28, 1998. To underscore the idea that nuclear submarine production is a highly specialized procedure which requires continual practice if its skills base is not to erode, Mr. Ruenzel drew analogy to a friend who recently needed a bypass operation. Given a choice, he asks, should she have gone to Lawrence and Memorial Hospital in New London, where they perform 20 or more such operations in a week, or to the smaller Catholic hospital in Groton, where they do perhaps one or two? 46. U.S. Submarine Production Base, Executive Summary, p. 3. 47. Ibid., pp. xviii, xxiii. 48. Ibid., pp. 41, 63. 49. Ibid., Figure S3, p. xxii. 50. Ibid., p. xix.

Chapter 7

Restructuring the American Defense Industry EUGENE GHOLZ and HARVEY M. SAPOLSKY

The end of the Cold War has led to major changes in the defense sector. Over 2 million American defense workers, military personnel, and civil servants have lost their jobs. Literally thousands of firms have exited the industry. Hundreds of military bases have closed, and the production of weapons is down considerably. As significant as these changes are, they mask rather than address the sector’s main problem in adjusting to the end of the Cold War. Imbedded in the structure of the defense industry by the Reagan buildup is a production-capacity overhang that distorts defense policy in the United States. Until this excess capacity is eliminated, the U.S. will continue to invest too much in defense, to sacrifice military readiness, and to miss technological opportunities. Ironically, the politics of jobs and congressional districts that many thought governed the Cold War has triumphed in its aftermath. Today, years after the Soviet Union crumbled, hardly any weapons platform line1—aircraft, ship, or armored vehicle—has closed in the United States. The drawdown after the Cold War is the gentlest in American history, not one of the harshest as it is often portrayed. More than a decade after the drawdown started, government contracts still support 2.1 million private defense-sector employees, over 400,000 more than at the budgetary low point of the Cold War. THE BURDEN OF SURPLUS PRODUCTION CAPACITY At the end of wars, America customarily demobilizes. Civilian contractors, brought in to help produce desperately needed military equipment, shift back to commercial production as defense dollars dry up.2 Historically, the nurturing of military-unique technologies, to the extent that it did occur between wars, was

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mostly done in government-owned arsenals and shipyards. The pattern was one of short, sharp spikes in funding for wars followed by long periods of minuscule budgets. That was the case during and after the Civil War and during and after World War I. It also seemed likely during and after the World War II, until the initiation of the Cold War. The Cold War was different. It was long, not short, and it brought with it a flood of defense dollars. To be sure, there were cycles in Cold War budgets for defense, with peaks during the Korean War, the Vietnam War, and the Reagan buildup. Yet the budget range was narrow, roughly no higher than $400 billion a year and no lower than $250 billion (in FY 1998 dollars). Contractors had plenty of business. Hardly any wanted to or were compelled to go back to civilian production. Instead, during the cyclical downturns, the Pentagon closed the arsenals, shifting more business to private-sector contractors, who were politically more influential than were the managers and employees of the public facilities.3 A variety of rationales have been offered for the shift of weapon design and production to the private sector. Private industry was said to be more responsive to the services’ needs than were the government arsenals; industrial workforces were believed to be more flexible than public workforces; contractors paid higher salaries than the civil service to attract the top scientists and engineers to defense work. It is hard to tell which, if any, of these rationales were true, but it is clear that a number of government facilities were closed before the recent rounds of base closures. The Watertown Arsenal near Boston is now the Arsenal Mall and features 50 of America’s favorite retailers. Some of the best views of Boston Harbor are from the apartments and office buildings on the site of the former Boston Naval Shipyard. At stake in the current debate about whether or not to close government facilities, particularly aircraft-repair depots, is the fate of just a few large laboratories, five or six depots, and a handful of public shipyards, all that is left of the government’s arsenal system.4 The Cold War is over, and it is time to cut back. But unlike at the end of previous wars, the Pentagon now has to deal with a network of politically active private contractors who have taken the place of the arsenals. As the late Don K. Price so eloquently stated when he described the Contract State that developed after World War II, there has been a blending of the public and the private in America’s acquisition of weapons. The government has become the entrepreneur, absorbing the risks of technological change normally left to firms in a free-enterprise economy. In turn the government has become dependent upon private contractors for most of the military-technical skills that the nation needs to nurture until a possible next big war.5 The Pentagon has an established acquisition pattern: to keep private contractors willing to maintain the American edge in military technology, it funds large production runs of weapons systems. Defense firms have never made much money on R&D contracts; in fact, they sometimes have lost a great deal—for example, during the 1980s binge of fixed-price development contracts.6 Even

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Table 7.1 U.S. Defense Employment by Sector (in thousands)

Sources: Harlan K. Ullman, In Irons: U.S. Military Might in the New Century (Washington, DC: NDU Press, 1995), pp. 169–170; (1) ‘‘QDR: Shaping the Force of the Future,’’ Defense, No. 4 (1997), p. 21; (2) Paul Kaminski (Undersecretary of Defense), letter, Issues in Science and Technology, Vol. 13, No. 13 (Spring 1997), p. 13.

losing money on those contracts in the 1980s did not hurt the majority of firms, because they were making profits on the booming production side of the business.7 Production expanded greatly during the Reagan buildup. The number of defense-contractor employees doubled between 1976 and 1986, rising to more than 3.2 million from 1.6 million, while the number of military personnel and civil service employees in defense agencies hardly changed (see Table 7.1). During previous Cold War buildups (for the Korean and Vietnamese conflicts) defense production in large part replaced equipment destroyed in the fighting. The Reagan buildup was intended to recapitalize U.S. forces, providing them with weapons systems of the most modern designs. As a result, America’s weapons inventories are currently bulging. Today the Department of Defense owns nearly 7,500 first-line fighter or attack aircraft, but the Air Force, Navy, and Marine Corps field in active or reserve wings less than 4,000 of them. We have 8,000 main battle tanks, including 4,000 M1A1-type or better. The Army has six heavy divisions, each with no more than 300 tanks, and the Marines have another division’s worth, for a total of 2,100 tanks. Without building any new ones, plenty of tanks are left over for wartime attrition, for the National Guard and reserves, and for various prepositioning options. It makes no strategic sense to support American armored-vehicle manufacturers with additional production contracts for existing platforms. Elsewhere, the production capacity overhang is just as huge. Eight lines produce military aircraft, six private yards build large warships, and five helicopter companies depend on military purchases (see Table 7.2). Despite cutbacks, the military’s force structure remains large, but leftover Cold War equipment obviates requirements for new weapons production in the short run. New contracts should not absorb the output of the production capacity currently on hand. Once, the United States relied on arsenals to preserve weapons skills in times of low demand. Their technical workforces were paid no matter the production

Table 7.2 Active Post–Cold War U.S. Weapon Platform Production Line

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rate, which sometimes was zero. Private enterprises, however, will lobby to maintain multi-billion-dollar production contracts—a very expensive way for the government to maintain technology and skills. That is America’s defenseindustry burden. RESTRUCTURING HAS YET TO OCCUR Some argue that the capacity-overhang problem is best remedied by market forces, and that the wave of mergers and acquisitions sweeping the defense industry is already solving it.8 There is no doubt that the face of the industry has changed dramatically. Once noted for the stability of the major firms, with little change in the ranking among leaders for years, the industry has shrunk significantly in terms of the number of major participants active. Nearly all Fortune 500 firms have sold their defense subsidiaries. IBM, General Electric, General Motors, Ford, Chrysler, Honeywell, Texas Instruments, and Westinghouse, among others, have abandoned the industry almost entirely. The firms that are more dependent upon defense have been the buyers, acquiring the larger firms’ subsidiaries and many of their own competitors. Several of the most famous corporate icons in the industry have disappeared through intra-industry mergers—McDonnell Douglas, Rockwell, and Hughes, for example. Three giants are rising to dominate defense production: Boeing, Lockheed Martin, and Raytheon. Corporate nameplates have changed, but the mergers and acquisitions have not led to a true industry restructuring. Production capacity has largely remained in place. A government program to encourage industry consolidation has atrophied. John Deutch, when he was under secretary of defense for technology and acquisition in the early Clinton years, chose to interpret government procurement regulations to allow a sharing of contract savings with the acquiring corporations when they consolidated production facilities to increase efficiency. Only a handful of contractors were able to qualify for this reward for reducing excess capacity before the policy fell victim to labor and congressional complaints. The politically devastating slogan used by opponents was that the Deutch merger policy involved ‘‘Payoffs for Layoffs,’’ when in fact the policy was an incentive to find efficiency benefits for both the government and the firms in industry mergers. Now all the capacity consolidation that occurs is in parts of merged firms that face commercial, not government, customers. In the defense sector, mergers only reduce the number of firms, not the number of active weapons production lines.9 A couple of examples demonstrate the persistence of the capacity-overhang problem. In 1994 Lockheed, which had military aircraft lines operating in California and Georgia, acquired the Fort Worth (Texas) division of General Dynamics, when that firm was divesting defense units. Fort Worth produces F-16s; California produces the F-117 and similar special aircraft; and Georgia primarily produces transports, including the C-130. A year later Lockheed merged with a major defense firm, Martin Marietta, to form Lockheed Martin, which in 1996

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acquired Loral, a defense electronics company. More recently, Lockheed Martin attempted to expand even further by acquiring Northrop Grumman, the fourthlargest defense contractor and the producer of the B-2 bomber in California, the JSTARS reconnaissance aircraft in Louisiana, and the Navy’s E-2C in Florida, but was blocked by the government on anti-trust grounds.10 There was no indication that Lockheed Martin, if it had been successful in absorbing Northrop, intended to close any of these lines. On the contrary, lobbying for the B-2 and JSTARS, Northrop’s vulnerable projects, seemed to increase during the planning for the merger. Only after the merger fell through did Northrop announce plans to close the B-2 line, which had yet to win additional orders beyond 21 aircraft.11 But perhaps the announcement was only intended to generate again the political support that in the past had saved the California facilities from closure as both a contract completion and a presidential election approached. If the B-2 line actually closes, it will be the very first line termination since the end of the Cold War and certainly not the result of a merger-induced rationalization. Another major merger is that between Boeing and McDonnell Douglas. Although a very successful producer of commercial airliners, Boeing does not by itself build entire military aircraft. It is, however, a finalist in a competition with Lockheed Martin for the design of the Joint Strike Fighter, a military aircraft that is slated to begin production early in the new century.12 Boeing is also a partner with Lockheed Martin in the F-22 project, just in the earliest stages of production. McDonnell Douglas, although faltering as a commercial aircraft producer, is a major military aircraft contractor, with several active fighter lines producing the F/A-18E/F, F-15, AV-8B, and T-45 in Missouri, and a military transport line making the C-17 in California. The merger eliminates at most a nascent line, the one that Boeing might have established if it won the Joint Strike Fighter contract, to be awarded in 2007. Left untouched are the two McDonnell Douglas lines, each one at the start of a major production run (the F/A-18E/F and the C-17). A third acquisition offers us insight into the likely rationale behind the defense-industry consolidation. General Dynamics bought Bath Iron Works in Maine, a producer of Arleigh Burke-class destroyers. Neither Bath nor General Dynamics’ Electric Boat division, which makes submarines in Connecticut, is slated to close. The acquisition is totally justifiable on financial grounds: because of the post–Cold War politics of warship production, Bath is essentially guaranteed at least one destroyer contract a year in perpetuity—an assured income stream for General Dynamics.13 The acquisition price for the Bath yard was less than the present value of that income stream, so investment in the Maine yard was a low-risk, financially profitable venture for General Dynamics. Two relatively weak shipyards, each dependent on a political subsidy to stay in business, have joined forces—a clear vision of the post–Cold War defense politics. A consolidation-oriented, capacity-reducing merger would look very different, with a strong company buying a weaker one in order to shutter its competing plant capacity.

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The mergers show that James Kurth’s well-known theory of the ‘‘follow-on imperative’’ was inaccurately applied by Kurth to the Cold War. Kurth argued that contractor lobbyists combined with a Pentagon interest in maintaining a reliable stable of weapons suppliers to form a procurement system in which new contracts were allocated to firms just in time to replace old contracts whose production runs were winding down. According to Kurth, the comfortable business-government relationship prevented any military production lines from closing down. The result was that the same firms ranked on the list of the 10 biggest defense contractors through most years of the Cold War (see Table 7.3).14 During the Cold War, however, a genuine concern with a military threat limited the political ability to allocate contracts; while many firms did receive follow-on contracts, as enumerated by Kurth, many others in fact did not.15 Companies that produced inferior designs or otherwise failed the military had problems. It is the post–Cold War era, where politics are not constrained by threat, that is dominated by the follow-on contract. Many production lines closed during the Cold War. None have since its end. Such aircraft producers as Fairchild, Republic, Rockwell, Vought, Martin, and Curtiss-Wright, and shipbuilders such as New York Shipyard; General Dynamics’ Quincy, Massachusetts yard; and Todd Shipyards on the West Coast have folded (see Table 7.4). They all died during the Cold War. In general, the strategic constraint on pork-barrel politics in defense contracting threatened individual weapons system contracts, not entire companies. A few companies were eliminated as prime contractors when their single major product was overwhelmed by the political and technological uncertainties that plagued Cold War weapons development; Republic Aviation is an example. Meanwhile, the biggest companies stayed on Kurth’s top-10 list of defense contractors not because the defense business was ‘‘safe,’’ but because they had multiple projects going. Only an extremely severe disagreement with the military services could kill all the projects at once. This is what happened to the Curtiss-Wright Corporation. Curtiss, for example, was the second-biggest manufacturing firm in the United States in 1945. It made fighter and transport aircraft, aircraft engines, and propellers. Today it has a few hundred million dollars in sales and makes a limited line of aircraft components. The key to its demise, which occurred during the very busy 1950s, when business was booming for every other weapons producer, was that the firm annoyed its principal—essentially only—customers, the U.S. Air Force and the U.S. Navy. Ironically, it is only in the post–Cold War era that there has been large-scale turnover in the top-10 list of defense contractors (see Table 7.3). That turnover is the result of Wall Street mergers, not of changes at the manufacturing level or of an increase in the riskiness of the weapons-production business. Politically supported overcapacity dominates the industrial organization of the post–Cold War defense sector.

Table 7.3 Top 10 U.S. Defense Contractors by Total Contract Value

Note: Rockwell International is the successor company to North American Aviation. Source: Aerospace Industries Association, Aerospace Facts and Figures, various years. Fiscal Year 1997 list from Government Executive, September 1998.

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Table 7.4 Partial List of Closed Prime Contractor Production Lines

*Termination of the F-14 upgrade project was inevitable with the Navy’s decision to build the A12, a joint effort of McDonnell Douglas and General Dynamics Fort Worth. The A-12 itself was canceled by the secretary of defense in 1991 on the contention that there was inadequate contractor performance.

No matter how it is described, the defense business is not private-enterprise activity, even when direct ownership of the productive capacity is in private hands. The government, specifically the military and Congress, is the market for the defense industries. When the military is politically strong, as when the nation feels a threat to national security, it has the ability to choose which prime contractors it likes, to reward them, and to eliminate others. Now, however, after the collapse of the Soviet Union, the political balance within the government customer has shifted to favor Congress, which is concerned with district-level employment economics. Congress buys weapons in response to defense firms’ lobbying. Unnecessary production facilities receive support in order to prop up district employment.16 Defense has become a jobs program. The change that the collapse of the Soviet threat wrought in the politics of defense contracting is borne out in measures of the riskiness of investing in the defense industry. Stock-market investors can choose any of a wide range of investment vehicles, each of which has particular risk and return characteristics. On average, investors will demand a premium in the expected returns on stocks relative to the return of the market as a whole, commensurate with their estimate of the riskiness of the stock’s return; otherwise, they would simply invest in index funds (for example, tied to the performance of the S&P 500 market index) and garner higher long-run earnings. The Capital Asset Pricing Model (CAPM)

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Table 7.5 Measured Values of Beta for Major Defense Contractors

Notes: (1) Truncating the Lockheed dataset at the date of the Martin Marietta merger yields a beta of 0.71; (2) truncating the Northrop dataset at the data of the Grumman merger yields a beta of 0.89.

is a simple model of investor behavior that statistically estimates stocks’ risk premiums by regressing rates of return for individual stocks (or portfolios of stocks) on the rate of return of the entire stock market.17 Investors will only invest in stocks that yield lower returns if they are less risky; stocks with an unusually high rate of return, on the other hand, are risky stocks. The CAPM model yields estimates of ‘‘beta,’’ which is high for risky stocks and low for ‘‘safe havens.’’ Table 7.5 reports regression results estimating the betas of leading defense stocks during the Cold War and in the post–Cold War period.18 Across the board, the riskiness of investing in the defense industry dropped after the end of the Cold War. The betas for the firms with high-profile, non-defense markets (Boeing, General Electric, McDonnell Douglas, and United Technologies) dropped by the least, while the betas of heavily defense-dependent companies like FMC and General Dynamics fell the furthest—corroborating evidence for the unique behavior of the defense sector. Furthermore, the highest post–Cold War betas are observed in the commercially diversified aircraft and engine companies. The politics of defense contracting seems to be an important factor in reducing firms’ perceived risk. Despite the rhetoric about the uncertain and

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costly defense-industry downsizing, investors understand that major weapons contracts are now allocated on a more political basis than they used to be. The post–Cold War jobs program in the defense sector is a relatively secure opportunity for Wall Street investors.19 THE CONSEQUENCES OF OVERCAPACITY Keeping the weapons-production capacity of the Reagan buildup alive exacts defense, foreign policy, and domestic costs. The defense budget today is at roughly the same level that it was in the 1970s, when there was a Warsaw Pact, a Soviet Union, and a robust Red Army. To support the Reagan buildup and a tax cut, we greatly increased the federal budget deficit and knotted domestic politics for over a decade. The legacy of the buildup today is a reductionresistant defense budget. Because production lines have high fixed costs, keeping them operating, if only slowly, is an expensive proposition. Each line includes its own engineering design team, a set of very specialized production equipment, and many skilled technicians and assemblers. In the weapons-acquisition system that evolved during the Cold War, the lines became prime contractors for the government, managing a network of subcontractor suppliers and holding responsibility for integrating the many components into a weapon system which they would assemble and for which they would provide long-term support. Given the complexity of modern weapons, weapons projects are invariably multi-billion-dollar propositions. The search for support for the lines has become the central task of defense policy. The major defense-policy reviews conducted since the end of the Cold War—the Base Force, the bottom-up review, and the Quadrennial Defense Review—have had a constant theme: cut government-owned defense infrastructure and active military forces to maintain modernization (meaning the production of new weapons).20 There have also been several waves of base closures, all on the promise of long-term budget savings that can be reallocated to weapons acquisition.21 Seven hundred thousand active-duty military personnel and over 200,000 defense civil servants have been let go. Even so, the inability to turn off production of existing weapons has made it very difficult to find sufficient budget resources to begin the introduction of the next generation of weapons. Programs for a New Attack Submarine (NSSN), a new scout helicopter for the Army (Comanche), a new interceptor for the Air Force (F-22), and a new amphibious assault vehicle for the Marines (AAAV) hover in uncertainty, handicapped by their multi-billion-dollar program costs and the need to keep other weapon lines open. At the same time, the commitment to preserve projects like the Comanche and F-22, whose designs were begun during the Cold War to meet the no-longer-extant Soviet threat, jeopardizes development funding for other, more experimental programs. These Cold War holdovers are nearly ready for their production runs. Much of the sunk costs have already been paid, and

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the American political system is particularly responsive to arguments that without continuing a project, the sunk costs would be ‘‘wasted.’’ When the U.S. is in for a penny, it is almost always in for a pound.22 So contractors are now anticipating the richest phase of the final Cold War projects. Even relatively large and visible post–Cold War development programs, like the Crusader artillery system for the Army and AAAV for the Marine Corps, are threatened, because they are less entrenched organizationally and profits from their production runs will take years to realize. Not surprisingly, interest has increased in using foreign sales as a way to help support the lines. The Gulf War demonstrated the superior capabilities of U.S. weapons, relative to both European and Russian weapons.23 The end of the Cold War removed many of the fears about releasing first-line U.S. weapons for export to nations other than our closest allies, even through some problems with technology transfers and regional arms races persist. Pressure to keep production lines going has led both to the collapse of a well-enforced (although selective) weapon-export ban to Latin America and to the linkage of weapons sales to eligibility for membership of Eastern European states in an expanded NATO. The best salesmen for American weapons have been defense officials worried about ways to satisfy the demands for orders from U.S. aircraft and armoredvehicle manufacturers.24 Never the most efficient of undertakings, weapons projects have become even more convoluted. Typical now are joint ventures among contractors and the sharing of production, with sections of weapons produced in plants scattered in many congressional districts. With the end of the Cold War, weapons production in the United States is beginning to resemble weapons production in Europe during the Cold War. Having the United States as a military shield, the Europeans quickly came to view the Cold War as a jobs program. Their armed forces had little influence in the selection of weapon types, as they often preferred the more combat-oriented U.S. systems. Instead, European government concerns focused on keeping weapons plants open and satisfying regional employment needs.25 Now even in the U.S., without a pressing military threat to point to, the armed services’ voice in weapons acquisition is fading, while that of politicians is growing. When General Dynamics’ Land Systems division recently tried to buy United Defense, the deal fell through because of the objections of Senator Arlen Spector, who thought the potential efficiency improvements in American armored vehicle production would be too harmful for Pennsylvania. Land Systems makes and remanufactures M-1 tanks. United Defense, itself a 60–40 joint venture between FMC Corporation and Harsco BMY, makes armored personnel carriers, mobile artillery, and other armored vehicles. At the time it was formed, United Defense consolidated most of its manufacturing in BMY’s facilities in Pennsylvania—the beneficiary of the early Clinton administration’s pro-consolidation merger policy. United Defense recently won the competition against Land Systems and others for the Crusader. With a cash-rich parent, Land Systems

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then sought to buy its rival. United Defense refused the offer, choosing instead a lower bid from a Wall Street buyout firm that promised to leave everything in place. United Defense apparently feared that the Pennsylvania congressional delegation, whose members are influential in defense appropriations, would force the government to block the merger on antitrust grounds.26 As a result, two underused plants will stay in the armored-vehicles business, and American taxpayers and other defense-budget accounts will pay the price. HAPPY SOLUTIONS The Clinton administration has mostly avoided confronting the overcapacity problem. Defense production and military matters in general are, after all, painful topics for Democrats. With the presidential election looming, the administration sought to bolster defense spending in key states. California received special treatment—including the largest defense contract ever awarded, to build 80 additional C-17s at the McDonnell Douglas facility in Long Beach. At times, the administration subverted the effort to rationalize the defense industry. The plan to close two Air Force depots, one in Sacramento, California, and the other in San Antonio, Texas, was scrapped by the Clinton administration as the election approached. Instead, the depots will be ‘‘privatized in place,’’ the worst of all possible outcomes, because it will create new, lobbying-savvy companies to feed with future defense contracts.27 This ‘‘solution’’ assures the most jobs at the old government sites. Since the hamstringing of the Deutch merger policy, the administration has offered two optimistic answers when forced to address the excess capacity of the defense industry: conversion, and acquisition reform. Conversion may indeed be possible for subsystem contractors, especially small ones. Many had commercial customers and are used to shifting from one market to another as economic conditions dictate.28 Many large diversified firms, particularly the biggest, chose to exit defense as the Cold War ended. The rules of modern business management—concentrate on markets that are growing, where margins are high, or where you hold a commanding position—tend to dominate in firms like General Electric and Ford. The prime contractors in defense, on the other hand, followed a different set of business rules, which led them to a different response to reduced international tension. They specialize in dealing directly with the federal government on the society’s biggest projects, projects that are long-lived and very visible politically. Their influence is enhanced by the concentration of employment in final assembly operations, often with 10,000 or more workers in a single facility. Because of their political visibility, prime contractors have an attractive alternative to conversion to commercial production: lobbying.29 Today, the commercial market potential for the largest defense companies looks bleak. To take one sector as an example, it was once the case that conversion opportunities were considered relatively good in the shipbuilding in-

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dustry.30 In the military market that defense firms are used to, unit prices are extremely high. Nearly every new combatant costs a billion dollars. Many are more expensive. American yards did not build large commercial ships after subsidies for those ships were withdrawn in the early 1980s. Instead they constructed the 600-ship Navy.31 Today there is indeed a worldwide market for commercial ships, but not of the billion-dollar variety. The oil companies need product tankers that sell for only $40 million each; Newport News attempted to make some with a government-provided loan subsidy for purchases, but discovered that the return from their own investment in the project was not nearly enough to replace that generated by the two $4-billion-plus aircraft carriers that the firm now has in the yard.32 Not surprisingly, then, Newport News continues to lobby hard for new aircraft carrier contracts—and has recently been blessed by Congress, over the Navy’s objections, with a contract to share with Electric Boat the building of a new class of nuclear attack submarines. Worse still, the federal government is subsidizing the reopening of yards in Boston and Philadelphia that will compete against the military-dependent yards for the commercial ship business. Acquisition reform is the Clinton administration’s other favorite alternative to restructuring the defense sector.33 Yet such reform will not help, and in fact it is likely to hurt. Some acquisition changes, of course, are desirable. During the 1980s, the Democrat-controlled Congress could not confront President Reagan directly over his popular defense buildup. Instead, it attempted to hobble the buildup through regulation. Democrats argued that they were not opposed to defense spending per se, but they did oppose waste, fraud, and abuse in defense contracting. Even some Republicans joined in this stance so that they could point out that they did not vote blindly for defense. Protection against waste, fraud, and abuse became the justification for dozens of laws requiring contract reviews, rewards for whistle-blowing, social engineering through contracting, audits, and more audits.34 It is appropriate for a Democratic administration and a Republican Congress to recognize the burden that these laws place on the government and seek their repeal, at least selectively. Yet there is another side to acquisition reform. The administration strongly promotes dual-use technology and advocates eliminating unique production standards that make defense purchases costly. It wants to speed up the development cycle so as to make the acquisition process efficient.35 This defense policy ‘‘answer’’ is wrong. Cutting cost at the margin is not going to change the overall defense budget situation much, if at all. Implicitly or explicitly, support for acquisition reform from the military services and from defense contractors is premised on the expectation that lower unit weapons costs will lead not to a reduction in the budget, but to an expansion of demand for weapons—or at the very least, procurement supporters hope that the budget-cutters will split the windfall with them. Yet, if a new destroyer were to cost 10 percent less, say $850 million instead of $950 million, would Congress buy more of them? If the savings did not go to buy more destroyers, would the money stay in the

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Navy’s shipbuilding account, go to other Navy purchases, pay for peacekeeping operations, or even remain in the defense budget? With only slim chances to capture the savings, no defense-policy actor will be the long-term political advocate for the reforms. In the shorter term, acquisition-reform rhetoric allows politicians to give voters the illusion that they are making a cost-effective investment in America’s future national security. The participation of the F-22 program office in the Air Force’s ‘‘Lean Aircraft Initiative,’’ which claims that acquisition reform and new manufacturing techniques will substantially reduce unit costs, is a leading example of the political cover which acquisition reform provides to some very expensive programs. America’s F-15s, F-16s, and F-18s are already better than anyone else’s fighters, and with the end of the Cold War, the doubts about the added value of new systems like the F-22 and the proposed Joint Strike Fighter are growing. Unfortunately for acquisition reform, a standard congressional reaction to political uncertainty is to slow down production rates, which limits real savings from new efficiencies.36 Meanwhile, the risk is that the proefficiency advocates of acquisition reform will give defense contractors and procurement bureaucrats the political capital, and Congress the political cover, to purchase unneeded, expensive weapons systems—at those uneconomically slow rates. The illusion of a bargain can be a powerful incentive to buying. The other purported benefit of acquisition reform, speeding up the development cycle, makes even less sense. The hope is that if the procurement process moves fast, it can overcome the political uncertainty that besets weapons projects.37 Some think that, once politicians show an interest in a new aircraft, it should be built before they change their minds. Unfortunately there is no way to beat the political decision cycle. It is physically impossible to build weapons systems faster than politicians can manipulate budget priorities. Worse, accelerating projects increases technological uncertainty. Compressing development times, trimming test schedules, and so on is a formula for guaranteeing performance shortfalls and cost overruns.38 The frequently voiced fear that if we do not do a better job of plugging the latest commercial ‘‘off-the-shelf’’ electronics into our weapons, we will field obsolete systems is hollow, because no other country implements the upgrades any faster than the United States. American weapons-system computers do not need to compete in benchmark tests with the latest commercially available models; they compete in combat with an adversary’s military computer systems. In fact, a bigger risk than falling behind technologically is that an unexplored incompatibility or another technological difficulty with mid-production or post-deployment tinkering with weapons designs will generate unexpected, dangerous performance failures. Instead of accelerating development cycles, the Pentagon needs to slow them down. That it can afford to go slow is one of the benefits of the end of the Cold War. Instead of moving faster, the United States needs to do more experimentation and stretch the work, reducing technological risks.

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FROM PORK TO SPAM If mergers are not helping, if conversion offers little hope, and if acquisition reform will only make matters worse, what are we to do? To begin with, we can recognize that contractors are doing what they do quite well: they are lobbying to keep the lines running, if only slowly. Extended production runs of mature systems are the cash cows of the defense industry, with great profit potential for the companies. Politically, their lobbying efforts resonate, because the lines represent large numbers of jobs.39 Congress has responded by adding money for a few more F-15s and C-130s (not to mention certain ship types) to the defense budget.40 With the Cold War over, it is easier and easier for congressmen, Republican and Democrat, to ignore service preferences and Pentagon plans. Lines slated to be closed are being kept open. Ships scheduled to be built later are being moved up. With these quite understandable political maneuvers, the opportunity to innovate in order to prepare for the wars of the future and to keep America’s technological edge disappears. Production funding threatens to crowd R&D out of the defense budget. Adding up the already promised spending on major systems production in the next decade leaves little room under the DoD’s projected budget ceiling for R&D. Lobbying no doubt buttresses what should be a sharply declining defense budget given the end of the Cold War.41 Although Congress and the president recently debated what social programs needed to be cut to help balance the federal budget, no one in Washington found the courage to point to discretionary defense spending as a potentially significant contributor to the budget-balancing effort. Instead, politicians are debating how soon to fund ‘‘modernization needs.’’ The Pentagon needs a plan. Contractor capacity has to shrink. If the production lines continue to be fed with production contracts, there will be no room in the budget to fund force structure and, even more vulnerable, the readiness and research budgets. All that protects readiness today is a religion born of the ‘‘hollow military’’ of the late 1970s, when the United States was still directly threatened by the Soviet Union. Prominent columnists are already starting to join industry leaders in questioning readiness funding in the face of a ‘‘need’’ for equipment modernization.42 As much as the services desire to be prepared, their readiness religion will not be enough to give them the necessary resources unless they advocate an explicit policy to close lines, to pay off workers and communities, and to do away with the fiction that the market will take care of excess capacity. Gary Weir’s history of submarine construction after World War I describes how a set of officers once met the challenge.43 The U.S. submariners built no new boats for eight years but they kept the technology developing. They forced the closure of the Lake Boat Company in order to keep Electric Boat alive, because Electric Boat had the better facility, if not the better reputation. In order

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to keep Electric Boat focused, they gradually developed submarine construction capacity at Portsmouth, a public yard. During the 1920s and early 1930s, submariners brought in foreign component technology and worked on their offensive doctrine and new submarine designs. What came out of this work was the effective boat fleet of World War II and the strategy that helped defeat Japan.44 Of course, times are different now. The legal and political obstacles for officers acting to protect the national interest are many. Moreover, in the absence of a strong overseas threat, political incentives work against such initiatives by the services. Yet the armed services have the responsibility for maintaining national security. The new missions being offered the military are not likely to generate support sufficient to sustain vital technologies. The services have to decide what is important for the long haul and work to protect it. Their political capital is substantial. They have to forge the coalition that will protect vital technical and production resources. Cutting defense infrastructure is not likely to be enough. What was left of the DoD arsenal infrastructure at the end of the Cold War has already been cut substantially, and the remainder is simply not big enough for further cuts to turn the tide in the battle for defense budget resources.45 The services have to decide upon the private and public skills necessary to keep America’s military edge, and fight to keep them healthy. This means getting rid of unneeded production capacity and protecting vital design teams and facilities.46 We offer a three-step proposal. First, pay the bill. It is time to buy out excess capacity and get on with the task of preparing for the future. The existing promerger policy of the Department of Defense has only been partially effective: it has encouraged corporate mergers without plant-level restructuring or capacity consolidation. The truly bad news is that the merger policy is increasingly hobbled by political opposition.47 Congress narrowly rejected language attached to the FY 1997 appropriations bill that would have ended the DoD’s ability to pay restructuring costs for merged companies closing plants; the political environment would certainly block a major government restructuring payment. Defense policy is back to the Bush administration mantra, verbally encouraging mergers but ‘‘letting the market decide’’ the ultimate shape of the industry. The trouble with this policy is that the defense industry is not governed by normal, competitive market forces: plants that would otherwise be forced to close, either via bankruptcy or a post-merger consolidation, can be kept open by aggressive lobbying, circumventing the market mechanism. Lobbyists who advocate keeping plants open have recently been joined by a new ally, antitrust regulators, who have begun to discourage further merger activity and to require the successor companies in those mergers they do condone to spin off rather than consolidate ‘‘competing’’ excess production lines.48 Lockheed Martin’s proposed merger with Northrop Grumman was blocked because officials feared a drop in competition, when the merger in fact was likely to close no lines and would not reduce the power of the weapons buyers.49 A simple, properly designed subsidy to plant-level restructuring would pro-

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vide a ready solution to this market failure. Somehow, though, the idea of paying an exit subsidy to defense contractors has been politically branded as a cash handout to influential companies—a form of corporate welfare. The real welfare going on, however, is the continuing production contracts, which are much more expensive than an exit subsidy in the long run, because production requires the purchase of material inputs and the support of high overhead on substantial overcapacity. The flaw in the Clinton administration’s merger policy that explains its political demise is its failure to do enough for workers and communities. Payments for restructuring charges mostly went to company coffers, leaving workers and local officials with an incentive to lobby against plant closings and against the merger policy.50 Congressional hearings were called in the summer of 1994 by Representative Lynn Schenk of San Diego, where the merger policy helped close the General Dynamics missile plant. It was exactly this issue, protection of the defense workers, that she raised—an issue which could be better addressed by an expansion of the restructuring policy than by its termination. The government already pays both military personnel and civilian DoD workers to leave the federal payroll. It is time also to compensate the civilian defense workers and their communities for leaving the very same payroll.51 Fortunately, recent experience with the size of the bonus payments required to encourage civilian defense workers to leave their government jobs suggests that the bill for paying off the contractors’ workers need not be too large.52 The Pentagon itself has negotiated the value of defense-related property through the BRAC process. Private companies offer incentives to encourage ‘‘voluntary separation’’ of redundant employees in place of mass firings, at affordable costs.53 Furthermore, even if workers from plants closed by the proposed merger policy are paid their full salaries for a long or indefinite period of time (a true worstcase scenario), savings would accrue to the defense budget due to reductions in materials, manufacturing, and overhead costs, as well as the life-cycle costs of keeping nonessential weapons systems in the inventory. During the Cold War, procurement spending was habitually front-loaded based on claims about longterm savings. That habit seems to have survived unmodified into post–Cold War defense programming,54 but a minor modification would allow us to front-load real savings by paying exit subsidies to close excess capacity. Our second major recommendation is to try to build the equivalent of a public arsenal system even while defense firms remain nominally private. Instead of forcing the system to develop big projects, the defense budget should arrange for technological experimentation that is financially worthwhile for private firms. Continuous re-outfitting of the entire American military is unnecessary, but there is a need for continuous research and prototyping. The Pentagon’s present acquisition policies reward long production runs; historically, production contracts have been the only profitable phase of the defense business for private contractors. A new institutional design, appropriate for a ‘‘private arsenal system’’ in the post–Cold War world, would award contracts with fair rates of return on

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R&D alone. Follow-on, large-scale production contracts would be the exception rather than the rule. Third, stop worrying about false antitrust arguments. Some claim that the United States needs to maintain excess defense production capacity in order to preserve competition in various military product lines, for example, fighter aircraft, artillery, and destroyers.55 But defense is not a normal market. The government is a monopsonist or near monopsonist in every case, and the current political imperative to keep production lines in operation means there is little or no competition among prime contractors. If only the Air Force, or a Joint Project Office, buys fighter aircraft, then its whims govern the market. The suppliers left in the defense market understand the mantra ‘‘know thy customer,’’ and they will all design essentially the same product if their sole customer announces a single specification. With monopsony, there will only be false competition. It is the competition among the services, to the extent that it is encouraged or tolerated, that stimulates innovation in defense, not the number of suppliers seeking their favor.56 Effective price competition is extremely difficult to achieve in these circumstances. Weapons projects are typically one-of-a-kind development efforts. Contractors can and often do ‘‘buy in’’ with low bids, on the expectation that the government will be forced to increase the price later in order to gain vital national security equipment. The complex roles of government and industry in the procurement makes it almost impossible to assess accurately responsibility for delays or cost overruns. With relatively few copies of any weapon being purchased, economies of scale in production are elusive. The most reasonable approach is to recognize that weapons procurement is at best a negotiated, collaborative, heavily regulated process. Hire good lawyers and auditors, but do not expect that confrontation will get us very far. In summary, the Cold War is over. Budgets are being absorbed in producing wasteful political benefits for congressmen. R&D, force structure, and readiness accounts will all suffer as pressure mounts to cut the overall defense budget, because procurement spending remains at Cold War levels due to political influences. The services have the responsibility, if not the authority, to shape a reasonable long-term industrial policy for defense. A well-designed, broadly inclusive, pro-consolidation merger policy would help generate political support for the elimination of defense-industry overcapacity, thereby reducing budgetary rigidities. It is time to begin the serious planning for an uncertain future. NOTES 1. A line is a privately held or managed final assembly facility building a particular weapon platform. 2. Merritt Roe Smith, ‘‘Military Arsenals and Industry Before World War I,’’ in Benjamin Franklin Cooling, ed., War Business and American Society: Historical Perspectives on the Military-Industrial Complex (Port Washington, NY: Kennikat Press, 1977), pp. 36–37.

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3. William B. Burnett and Frederic M. Scherer, ‘‘The Weapons Industry,’’ in Walter Adams, ed., The Structure of American Industry (New York: Macmillan, 1990). 4. ‘‘Perry Touts Kelly Privatization,’’ San Antonio Express-News, January 30, 1996, p. 1; Adjusting to the Drawdown, report of the Defense Conversion Commission (Washington, DC, December 31, 1992); ‘‘Perry Supports End to 60–40 Split for Depot Work,’’ Defense Daily, April 28, 1995, p. 137; Congressional Budget Office, Public and Private Roles in Maintaining Military Equipment at the Depot Level (Washington, DC, July 1995); ‘‘Secretary of Defense Issues Quadrennial Defense Review,’’ news release, Office of the Assistant Secretary of Defense (Public Affairs), May 19, 1997, p. 2; Loren B. Thompson, ‘‘Private-Public Competition—Bad Proposition That Refuses to Die,’’ National Defense, October 1997, pp. 22–23. 5. Don K. Price, Government and Science (New York: New York University Press, 1954). See also Price, The Scientific Estate (Cambridge, MA: Harvard University Press, 1965). 6. Karen W. Tyson et al., Acquiring Major Systems: Cost and Schedule Trends and Acquisition Initiative Effectiveness (Alexandria, VA: IDA, March 1989). 7. Ellen M. Pint and Rachel Schmidt, Financial Condition of U.S. Military Aircraft Prime Contractors (Santa Monica, CA: RAND Project Air Force, 1994). 8. This is certainly the view of the European governments, several of which now seek the same consolidation in the European industry. See Bernard Gray, ‘‘Hesitancy Under Attack,’’ Financial Times, June 12, 1997, p. xii; Giovanni de Briganti and Jack Hoschouer, ‘‘Consolidation Obstacles Remain,’’ Defense News, December 15–21, 1997, p. 1. 9. For a chart illustrating mergers in the industry, with five out of 51 separate companies surviving, see John A. Tirpak, ‘‘The Distillation of the Defense Industry,’’ Air Force Magazine, July 1998, pp. 54–59. 10. Joseph C. Anselmo, ‘‘Mega-Merger Battle Marks End of an Era,’’ Aviation Week and Space Technology, March 30, 1998, pp. 29–30; Tim Smart, ‘‘U.S. Details Claims about Lockheed Northrop,’’ Washington Post, April 15, 1998, p. C9. 11. ‘‘The Best Defense Is a Good Offense,’’ Business Week, September 7, 1998, p. 42. 12. Bernard Gray, ‘‘A World Standard Fighter Takes Shape,’’ Financial Times, June 12, 1997, p. xiv; ‘‘Coming Next: A Supersonic STOVL Strike Fighter,’’ Sea Power, June 1997, pp. 9–13. 13. Robert George, ‘‘Maine Shipyard Faces Uncertainty,’’ Boston Globe, January 21, 1996. The uncertainty stems from the announced retirement of Maine’s senior senator, Bill Cohen, a member of the Armed Services Committee. See also Byron Callan, ‘‘General Dynamics: What Acquisition Risk? BIW Deal a Plus,’’ Merrill Lynch Report, August 28, 1995; and Stan Crock, ‘‘General Dynamics Sounds the Charge,’’ Business Week, May 19, 1997, pp. 136–137. 14. Two recent but still unsatisfactory versions of the ‘‘follow-on imperative’’ thesis have appeared: James R. Kurth, ‘‘The Military-Industrial Complex Revisited,’’ in J. Krusel, ed., American Defense Annual, 1989–1990 (Lexington, MA: Lexington Books, 1989), pp. 195–226; and Kurth, ‘‘The Follow-on Imperative in American Weapons Procurement, 1960–90,’’ in Jurgen Brauer and Manas Chatterji, eds., Economic Issues of Disarmament (New York: New York University Press, 1993), pp. 304–321. 15. Eugene Gholz, ‘‘The Pattern of Cold War Defense Procurement: Theory Testing Using the Case of the Curtiss-Wright Corporation,’’ in review. 16. Congressional attention to American defense-industry employment has recently

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been apparent in attempts to legislate restrictions on ‘‘offset’’ agreements, by which prime contractors promise to arrange for purchases by American firms (often but not always the primes themselves) from foreign companies as part of arms-export sales agreements. Allan Gerson, ‘‘Congress Scrutinizes Offsets,’’ Defense News, April 8–14, 1996, p. 20. 17. G. W. Schwert, ‘‘Using Financial Data to Measure the Effects of Regulation,’’ Journal of Law and Economics, Vol. 21 (1981), pp. 121–159; Ernst Berndt, The Practice of Econometrics: Classic and Contemporary (Reading, MA: Addison-Wesley, 1991), chapter 1. 18. The regressions use daily stock closing prices to compute the rates of return and a volume-weighted average of all U.S. stocks for the market reference. Data was taken from CRSP tapes. The Cold War period included all trades between 1976 and the fall of the Berlin Wall in 1989—basically a full cycle of defense procurement; the post–Cold War regressions begin in January 1992, after the final collapse of the Soviet Union, and end December 29, 1995. All reported betas were statistically significant well beyond the .01 confidence level. As might be expected, during the uncertain transition period in 1990 and 1991, defense-stock rates of return show substantial instability, and generally a temporary increase in betas. 19. We would like to thank Steve Ansolabehere of the MIT Department of Political Science for suggesting the idea of using stock betas as a measure of the effects of the end of the Cold War on the defense industry. 20. John A. Tirpak, ‘‘Projections from the QDR,’’ Air Force Magazine, August 1997, pp. 42–49; James Kitfield, ‘‘Baseless Concerns,’’ National Journal, April 12, 1997, pp. 703–705. 21. Otto Krisker, ‘‘The Base Closure Flap,’’ Air Force Magazine, July 1998, pp. 60– 64. 22. Harvey M. Sapolsky, ‘‘Equipping the Armed Forces,’’ Armed Forces & Society, Vol. 14, No. 1 (Fall 1987), pp. 113–128. 23. Daryl G. Press, ‘‘Lessons from Ground Combat in the Gulf,’’ International Security, Vol. 22, No. 2 (Fall 1997), pp. 137–146. 24. See William W. Keller, Arm-In-Arm: The Political Economy of the Global Arms Trade (New York: Basic Books, 1995); and Keller and Janne E. Nolan, ‘‘The Arms Trade: Business as Usual,’’ Foreign Policy, Winter 1997–1998, pp. 113–125. See also Richard R. Burgess, ‘‘New Life for an Old Sprite,’’ Sea Power, December 1997, pp. 37– 40; ‘‘State Department Grants U.S. Group Export License to Build Diesel Subs for Egypt,’’ Inside the Navy, March 24, 1997, p. 1; ‘‘Pentagon Pledges to Cut Red Tape in Foreign Military Sales Procedure,’’ National Defense, July/August 1998, p. 40. 25. Eugene Gholz and Harvey M. Sapolsky, ‘‘Arms and the European,’’ Financial Times, May 20, 1998. 26. Andy Pastor, ‘‘Carlyle Beats Out Dynamics for United Defense,’’ Wall Street Journal, August 27, 1997, p. A3; Kenneth N. Gilpin, ‘‘Military Contractor Sold to Buyout Firm,’’ New York Times, August 27, 1997, p. D2; Philip Finegan, ‘‘Antitrust Issue Poses FMC with Dilemma on Unit Sale,’’ Defense News, August 18–24, 1997, p. 11. 27. Thompson, ‘‘Private-Public Competition—Bad Proposition That Refuses to Die,’’ pp. 22–24; James Kitfield, ‘‘The Battle of the Depots,’’ National Journal, April 4, 1998, pp. 746–750. 28. Maryellen R. Kelly and Todd A. Watkins, ‘‘In from the Cold: Prospects for Con-

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version of the Defense Industrial Base,’’ Science, Vol. 268, No. 5210 (April 28, 1995), pp. 525–533. 29. Alex Berenson, ‘‘Firms Protected in Defense Cuts,’’ Denver Post, September 31, 1994, p. A17. 30. Conversion was never predicted to be easy, but similarities to the large-scale construction industry were believed to offer hope. See William R. Park and Robert E. Roberts, Industrial Conversion Potential in the Shipbuilding Industry (Washington, DC: U.S. Arms Control and Disarmament Agency, March 1966). See also Greg Bischak, US Conversion after the Cold War, 1990–1997 (Bonn: Bonn International Center for Conversion, July 1997). 31. Vincent P. Grimes, ‘‘Navy Budget Woes May Force Wave of Industry Downsizing,’’ National Defense, December 1996, pp. 20–23. 32. Lisa Huber, ‘‘Newport News Shipyard to Start first Commercial Contract Since ’79,’’ Journal of Commerce, September 14, 1995, p. 1B; and Christopher Dinsmore, ‘‘Newport News Shipyard: Building for the Future,’’ The Virginian-Pilot & The LedgerStar, August 28, 1994, p. D1. 33. Bob Brewin, ‘‘Acquisition Reform Key to Defense, Cohen Says,’’ Federal Computer Week, May 11, 1998, p. 10; William Perry, ‘‘Blueprint for Change’’ (Washington, DC: National Technical Information Service, 1994). 34. See Daniel Wirls, Buildup: The Politics of Defense in the Reagan Era (Ithaca, NY: Cornell University Press, 1992). 35. Secretary of Defense William Perry, Blueprint for Change (Washington, DC: NTIS, 1994). Part of the intellectual base for this action can be found in John A. Alic et al., Beyond Spinoff: Military and Commercial Technologies in a Changing World (Boston, MA: Harvard Business School Press, 1992). 36. Harvey M. Sapolsky, Eugene Gholz, and Ethan McKinney, ‘‘The Quest for Weapons Acquisition Reform,’’ in preparation. 37. Interviews. See also Bill Lewandowski, ‘‘Acquisition Reform: Picking the Low Hanging Fruit,’’ pp. 1ff.; Aerospace Industries Association Newsletter, Vol. 7, No. 7 (January/February 1995). 38. Michael Brown, Flying Blind: Politics of the U.S. Strategic Bomber Program (Ithaca, NY: Cornell University Press, 1992). 39. Retired Army general Robert Gard, Jr., explained, ‘‘We’re not buying some of these major weapons systems because we need them. We’re buying them to keep up employment in states with influential members of Congress.’’ Quoted in Katherine Barrett and Richard Greene, ‘‘Procurement: ‘Once You’re Burned, You Shouldn’t Be Burned for Life,’ ’’ Financial World, October 24, 1995, p. 49. 40. James Kitfield, ‘‘Ships Galore!’’ National Journal, February 10, 1996, pp. 298– 302. John Glashow, ‘‘Extra Funds to Boost Black Hawk, F-22, Arsenal Ship,’’ Defense News, February 26–March 3, 1996, p. 10; Philip Finnegan, ‘‘U.S. Defense Budget Defers Tough Choices,’’ Defense News, February 17–23, 1997, p. 10; C. McCatcheon, ‘‘Despite Leaner Pentagon Budgets, a Vulnerable Plane Still Flies High,’’ Congressional Quarterly, August 22, 1998, pp. 2296–2298; Sidney J. Freedberg, Jr., ‘‘In the Shipyard, Everyone’s a Winner,’’ National Journal, July 4, 1998, pp. 1576–1577. 41. Dwight R. Lee, ‘‘Public Goods, Politics, and Two Cheers for the MilitaryIndustrial Complex,’’ in R. Higgs, ed., Arms Politics and the Economy (New York: Holmes & Meir, 1990), pp. 22–36. 42. George Melloan, ‘‘Military Readiness Borrows from the Future,’’ Wall Street

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Journal, April 1, 1996, p. A15; Don Fuqua, ‘‘Once Again, It’s Wait ’Til Next Year,’’ Aerospace Industry Association Newsletter, Vol. 8, No. 8 (March 1996), p. 3; Pat Towell, ‘‘Modest Drop in Defense Spending Feeds Concerns about Readiness,’’ Congressional Quarterly, August 22, 1998, pp. 2291–2295. 43. Gary E. Weir, Building American Submarines, 1914–1940 (Washington, DC: Naval Historical Center, 1991). See also, regarding the torpedo business, ‘‘U.S. Torpedo Base Confronts No Navy Order for 25 Years,’’ National Defense, November 1995, pp. 18–19. 44. On the World War II success, see Carl Boyd and Akihiko Yoshida, The Japanese Submarine Force and World War II (Annapolis, MD: Naval Institute Press, 1995). See also Mark P. Parillo, The Japanese Merchant Marine in World War II (Annapolis, MD: Naval Institute Press, 1993). 45. U.S. General Accounting Office, ‘‘Future Years Defense Program: DoD’s 1998 Plan Has Substantial Risk in Execution,’’ report to Congress, Washington, DC, December 1996. 46. For an early recognition of this problem see Kenneth R. Mayer, ‘‘Combat Aircraft Production in the United States 1950–2000: Maintaining Industry Capability in an Era of Shrinking Budgets,’’ Defense Analysis, Vol. 9, No. 2 (1993), pp. 159–169. 47. The policy is briefly described in Thomas E. Ricks and Joe Danson, ‘‘DefenseIndustry Mergers Will Get Pentagon Support,’’ Wall Street Journal, September 1, 1993, p. A16. Political opposition is apparent from U.S. General Accounting Office, ‘‘Defense Restructuring Costs, Payment Regulations are Inconsistent with Legislation,’’ Washington, DC, August 1995. 48. Jon G. Auerbach and John R. Wilke, ‘‘Raytheon’s Hughes Acquisition Gets Conditional U.S. Approval,’’ Wall Street Journal, October 3, 1997, p. B4. 49. Harvey M. Sapolsky and Eugene Gholz, ‘‘How About an Anti-Trust Probe of the Pentagon,’’ Wall Street Journal, May 21, 1998, p. A16. 50. John Mintz, ‘‘Union Hits Martin-Lockheed Merger,’’ Washington Post, December 7, 1994, p. F3. 51. Suzanne Chapman, ‘‘Civilian Drawdown Hard and Fast,’’ Air Force Magazine, January 1996, pp. 28–31. 52. Stephen Barr, ‘‘Government Trims Downsizing Tool,’’ Washington Post, December 30, 1997, p. 11. 53. Nynex is reported to have paid at the high end of severance-bonus requirements, at $119,000 per worker. See Leslie Cauley, ‘‘Technology: Nynex, Bowing to Union, Slates Charge of $1.3 Billion for Severance Sweetener,’’ Wall Street Journal, March 25, 1994, p. B2. More than 14,000 NYC employees left the payroll for just over $14,000 each in incentives; see Vivian S. Toy, ‘‘For $125 Million in Case City Cedes Budget Control,’’ New York Times, March 30, 1996, p. 27. Civilian DoD personnel are given $25,000; and some officer reductions were achieved with $30,000 bonuses for early separation, according to Suzanne Chapman, ‘‘Civilian Drawdown.’’ 54. A recent example is the proposed V-22 buy; see Robert Holzer, ‘‘US Marines: Buy V-22s Now, Save Billions Later,’’ Defense News, April 8–14, 1996, p. 12. See also Holzer, ‘‘U.S. Navy Pushes for Speedier Buy of Carrier,’’ Defense News, April 29–May 4, 1996, p. 26. 55. See David A. Fulghum, ‘‘Defense Planners Wary of Mergers,’’ Aviation Week & Space Technology, September 29, 1997, p. 31; and ‘‘Gansler Suggests Merger Mania Needs A Breather,’’ Defense Daily, October 2, 1997, p. 2; contrast with Anthony L.

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Velocci, Jr., ‘‘Innovation Least in Danger as U.S. Majors Consolidate,’’ Aviation Week & Space Technology, December 22–29, 1997, p. 99. 56. Harvey M. Sapolsky, ‘‘Interservice Competition: The Solution, Not the Problem,’’ Joint Forces Quarterly, No. 15 (Spring 1997), pp. 50–54.

Chapter 8

False Expectations: Can Arms Exports Make Up for Cuts in Pentagon Procurement? WILLIAM D. HARTUNG

I. IN THE BEGINNING: THE POST–GULF WAR BOOM MENTALITY After the Persian Gulf War of 1990–1991, there were high hopes that a few blockbuster arms deals could mark the beginning of a sharp upswing in weapons exports to Asia and the Middle East, and that this would ease the pain caused by Pentagon procurement cutbacks. In September of 1990, shortly after the first U.S. troops had been deployed to Saudi Arabia in response to Iraq’s invasion of Kuwait, the Bush administration announced a record $20 billion arms package for Saudi Arabia that included everything from F-15 fighter planes and Patriot missiles to M-1 tanks and thousands of military trucks. The deal was described by one congressional aide as ‘‘the defense industry relief act of 1990.’’1 Then, during the last eight weeks of the 1992 presidential campaign, President Bush announced a $6 billion sale of 150 F-16s to Taiwan, a $9 billion sale of 72 F-15s to Saudi Arabia, and a $3 billion sale of M-1 tanks to Kuwait. To underscore their economic benefits, the two fighter-plane deals were announced at campaign rallies in Fort Worth, Texas and St. Louis, Missouri, the production sites for the F-16 and F-15, respectively. Greeted by defense-industry workers who held aloft banners reading ‘‘Jobs for America—Thanks Mr. President,’’ Bush, in the home stretch of his campaign for a second term, cited the sales as his way of showing that ‘‘I care about American jobs.’’2 In the short term, this renewed quest for overseas markets yielded impressive results. As one arms-industry lobbyist put it, the marketing theme for U.S. companies during this period was ‘‘how our weapons won the Gulf War.’’ The Bush administration reinforced this theme by sending the U.S. aircraft that had been featured in the Gulf conflict to the 1991 Paris Air Show, accompanied by the

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pilots who had flown the planes in the war. At the State Department, a new policy was implemented in which U.S. embassy personnel were graded for promotion based in part on how helpful they were to U.S. companies trying to promote their wares to foreign buyers. New orders for U.S. arms in the Persian Gulf region alone ran at $1 billion per month from 1991 through 1993, culminating in a record $36 billion in U.S. arms sales under the Foreign Military Sales (FMS) and Commercial Sales programs in 1993. Companies like Lockheed, Martin Marietta, and Raytheon all announced plans to double their defense-related exports over a three- to fiveyear period.3 The combination of this frenetic marketing activity and the upward spike in U.S. arms sales from 1991 to 1993 left the impression that foreign sales might indeed provide a substantial economic cushion for weapons manufacturers who were still struggling to make up the business they had lost in the postReagan military ‘‘build-down.’’ The Clinton administration embraced the economic and defense industrial base benefits of arms sales in its Congressional Presentation for Security Assistance Programs for Fiscal Year 1994: Security assistance programs have a direct and positive impact upon our economy. . . . These sales result in economies of scale (e.g., longer production runs) which reduce the costs of weapons systems of continued interest to our armed forces. In fact, the continuation of a number of DoD production lines depends on foreign sales. These production lines constitute part of DoD’s mobilization base in the event the U.S. must respond quickly to a military conflict. As the lines close, our ability to mount or sustain a rapid response will decrease.4

Current realities dashed the optimistic post–Gulf War expectations regarding the ability of arms sales to bolster the U.S. defense industry and enhance U.S. economic performance. After its brief upsurge in 1993, the international arms market has resumed the steady downward trend that began in 1987; new orders for U.S. arms in 1996 were $13 billion, roughly one-third of 1993 levels.5 Formerly cash-rich customers like Saudi Arabia have had to moderate their arms purchases as the downturn in oil prices, the accumulated costs of the Gulf War, and the post-Gulf arms buying spree have generated significant budget deficits.6 Increased competition from other major suppliers like Russia, France, and the United Kingdom, who have been desperately seeking foreign markets to offset substantial cuts in their own military budgets, have created a buyer’s market that may put an upper limit on what share of the world arms market U.S. firms can capture. And the Asian financial crisis has forced major U.S. clients like Japan, South Korea, Taiwan, and Thailand to postpone or cancel major arms purchases. Now that the post–Gulf War boomlet has run its course, it is time to take a fresh look at the question of how important arms exports are for the U.S. economy in general, for the defense industry in particular, and for key companies

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and sectors within the defense industry. This chapter argues that as an economic concern, the value of U.S. arms sales is simply too small to compensate for cuts in Pentagon procurement, much less impact the overall position of the U.S. economy. Although a handful of companies and industrial sectors have reaped benefits from arms sales in recent years, these modest gains are not likely to endure now that the impacts of the post–Gulf War arms boomlet are starting to fade. Arms sales have had a short-term impact in keeping a handful of production lines for aircraft, tanks, and helicopters up and running for a few years, but there remain serious questions about the strategic risks and economic inefficiencies involved in using arms sales as a major tool for sustaining the defense industrial base. A section-by-section review of the chapter’s major findings follows. Section II demonstrates that both military spending and the value of the international arms trade are down dramatically from their late-1980s peak; furthermore, global arms sales have been decreasing more rapidly than global military spending, hardly a good omen for those who are looking to arms exports to compensate for cuts in Pentagon spending. It also shows that the U.S. share of this diminished arms market has dropped from 50–60 percent in 1991–1992 to 30–40 percent for 1994–1996, suggesting that there are limits to the degree to which U.S. firms can dominate the trade. Section III presents data on the sharp drops in arms sales as a share of total U.S. exports and total U.S. economic activity over the past decade, another factor that bodes ill for the potential compensating effects of weapons exports. Section IV shows that arms exports have increased significantly as a share of total weapons procurement from U.S. industry, from 16–17 percent in 1991–1992 to 22–23 percent in 1995–1996, which helps explain why U.S. firms have been pursuing export opportunities so aggressively in recent years. Section V demonstrates that while the vast majority of industrial sectors in the U.S. economy are marginally affected by changes in arms exports, there are five key military-producing sectors—military aircraft, missiles, military helicopters, combat vehicles, and artillery—which may generate greater revenue from exports over the next three to five years than they do from contracts with the Pentagon. Section VI provides data on the extreme concentration of contracts under the Foreign Military Sales program (the largest channel for U.S. arms exports), in which just two companies—Lockheed Martin and McDonnell Douglas (now part of Boeing)—account for over 60 percent of total sales over the past two years. It also indicates that only a half-dozen major companies have been able to make good on their plans to substantially increase exports in the wake of the Persian Gulf War, and that even a number of these firms have had greater returns from civilian markets than they have had from arms sales. Section VII shows that the concentration of the benefits of arms sales in the hands of a few companies is mirrored by a narrow geographic concentration of arms sales revenues, with just 10 of the nation’s 435 congressional districts receiving over 69 percent of Foreign Military Sales contracts during 1996. Section VIII documents the hidden economic costs of U.S. arms

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sales, ranging from the $7.5 billion in annual U.S. government subsidies of arms sales to the $6 billion to $9 billion in offsetting investments made by U.S. exporting firms in client nations, factors which combine to bring the net benefits of arms exports to the U.S. economy to somewhere between zero and a few billion dollars per year. Section IX reviews the hidden strategic costs of U.S. arms sales, and questions whether the risks of arming adversaries and fueling regional conflicts through aggressive arms-sales promotion are greater than the alleged economic and strategic benefits of U.S. weapons exports. Finally, section X suggests a number of alternative paths for sustaining the U.S. defense industrial base without relying on weapons exports as a prop for key companies and weapons production lines. II. DIMINISHING RETURNS: TRENDS IN GLOBAL MILITARY SPENDING AND WEAPONS TRADE The first stark reality that must be addressed by those who advocate utilizing arms exports to temper the effects of reductions in military spending is that both military spending and international arms sales have been steadily declining around the globe for nearly a decade, and total arms sales have been declining more rapidly than total military spending. Total arms-sales deliveries (the best measure of the economic impact of arms sales) have dropped by 61 percent from their peak period of 1984–1987, when they averaged $75.7 billion per year, to 1991–1994, when they averaged just $29.7 billion per year. At the same time, global military outlays have decreased by 35 percent from their 1987 peak of $1.3 trillion to $840 billion in 1994. As Table 8.1 demonstrates, total arms trade as a proportion of global military outlays has declined dramatically as a result, from 6.1 percent in 1987 to 2.6 percent in 1994. This suggests that a higher share of military outlays is being spent on non-weapons purchases or on domestically produced weaponry than on imported equipment. That partly reflects the collapse of the Soviet arms ‘‘market,’’ which consisted largely of free or heavily subsidized transfers of equipment to the Soviet Union’s key allies in the developing world. These trends in military spending suggest that most, if not all, of the countries and companies that are rushing to promote international arms sales to cushion domestic military spending cuts are destined to be sorely disappointed. Despite widely publicized breakthroughs by France (in 1994) and Russia (in 1995), the United States remains the most important player in the post–Cold War arms market, accounting for roughly half of all new arms sales during the period from 1991 through 1996 (see Table 8.2). A few mitigating factors need to be considered before concluding that no nation or firm can build a meaningful export business in the current international environment. First, it should be noted that the ACDA delivery data used in Table 8.1 is routinely revised upward in subsequent years as additional information allows for a more complete picture of global weapons exports. However,

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Table 8.1 Trends in Global Military Spending and Weapons Trade, 1984–1994 (in billions of 1994 dollars)

Source: U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1995 (Washington, DC: Government Printing Office, 1996), tables I and II.

even upward revisions of 20 percent on the current 1994 figure would only add $4 billion in additional exports, not enough to change the trend depicted in Table 8.1. Second, the large orders of 1990–1993 are still being translated into contracts and production runs, so that the next few years may see an increase in export-related business for particular countries and companies (see section VI). Finally, to the extent that one nation can dominate an admittedly smaller international arms market, firms in that country may receive significant economic returns from arms sales even in the midst of a global downturn. Could the United States corner the shrinking arms market? While still the top supplier, the U.S. share dropped from well over 50 percent of a $40 billion-peryear market in 1992–1993 to one-third of a $30 billion market in 1995–1996. In a buyer’s market, it may be difficult for one supplier to capture 50–60 percent of the market year after year. A country like France, which is trying to sustain an independent defense industry capable of producing a full range of modern systems while working with a much smaller internal market for defense products, has a strong economic incentive to secure export deals as a way to achieve economies of scale. This is true for Russia as well, where cuts in military procurement of up to 80 percent since the dissolution of the Soviet Union have spurred Russian industry into a desperate drive for exports to earn hard currency and meet payrolls. Given this perceived need to export, secondary suppliers like Russia and France will be inclined to offer top-of-the-line systems, production

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Table 8.2 Arms Transfer Agreements Worldwide, by Supplier, 1991–1995 (in millions of 1995 dollars and as percentage of global total)

Source: Richard F. Grimmett, Conventional Arms Transfers to Developing Nations, 1988–1995 (Washington, DC: Congressional Research Service, 1996), table 8A.

technology, and generous financing and repayment terms as a way to obtain a few of the increasingly rare export deals of significant size. But economics alone does not always drive sales; politics does as well. This is a major impediment to market dominance by one supplier. Major purchasers like Saudi Arabia, South Korea, and Taiwan have an interest in diversifying their sources of arms, both as a way to drive harder bargains and as a means to build political, economic, and security ties with more than one major power. Politics goes a long way toward explaining the relative success of France and Russia in 1994 and 1995. In 1994, nearly half of France’s export sales were the result of just two deals: a $1.4 billion fighter-aircraft sale to Qatar, which has had a ‘‘special relationship’’ with the French military since gaining independence from the United Kingdom in 1971 (purchasing roughly 70 percent of its arsenal from French firms over that period); and a $4 billion sale of La Fayette– class combat frigates to Saudi Arabia, a deal that was part of a ‘‘supplier diversification’’ strategy by the Saudis. Russia’s emergence as the top exporter in 1995 was also influenced by politics, particularly its rapprochement with onetime enemy China, which opened the way for a sale of Su-27 fighters and related production technology to Beijing.7 This recent history suggests that there are upper limits on American market share.

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III. HOW IMPORTANT ARE ARMS SALES TO THE U.S. ECONOMY? George Bush and Bill Clinton have tried to make the case for arms sales as a source of jobs. Yet, while an occasional multi-billion-dollar deal can be impressive, arms exports represent a tiny and diminishing share of overall U.S. economic activity. Figures on arms exports as a proportion of gross national product (GNP) show the limited weight of foreign military sales in the overall U.S. economy. In 1987, when arms sales were at their peak, they represented only .36 percent of GNP. In 1994, arms sales dropped to just .18 percent of GNP, representing barely a ripple in the normal ebb and flow of the national economy.8 Military spending has also declined dramatically as a share of total national economic activity. In Fiscal Year 1996 military spending was $265.8 billion— only 3.6 percent of gross domestic product, down from 6.2 percent in 1986– 1987, at the height of the Reagan buildup. Even under a dramatic scenario in which current military spending were cut in half over the next five years, the average annual impact on the national economy would be only .3 percent to .4 percent per year, well within the range of normal fluctuations in a $7 trillion economy.9 So even in a worst-case scenario that involved cutting military spending in half and eliminating arms exports entirely, the negative impacts on the overall economy would be marginal. And this worst-case scenario is extremely unlikely to occur. Nor do arms sales much affect the balance of trade. As a share of total U.S. exports, arms sales have dropped every year since the mid-1980s, down from 6.5 percent of the $320 billion in total U.S. exports in 1987 to 2.4 percent of the $513 billion in total U.S. exports in 1994 (the latest year for which full statistics are available).10 As the mega-deals of the early post–Gulf War period work their way through the system, turning into contracts, production items, and deliveries over a sixto eight-year time span, this figure could stabilize or even rise slightly. Yet whether arms exports increase or decrease from their current levels, the possibility of relying upon arms exports to fill the gap left by cuts in Pentagon spending or to spark a surge in overall U.S. exports is negligible. IV. HOW IMPORTANT ARE ARMS SALES TO THE U.S. DEFENSE INDUSTRY? If fluctuations in arms sales are of little moment for the overall state of the U.S. economy, what about their potential role in sustaining the defense industry? Although U.S. arms exports have declined dramatically since the mid-1980s, it is still possible that arms sales may have become more important as a source of procurement contracts for the U.S. defense industry. We can test this thesis by comparing the value of Pentagon outlays and total U.S. arms deliveries from

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FY 1987 to FY 1996 (see Appendix 8.1). While arms exports are modest relative to larger measures such as total U.S. exports or total Pentagon spending, they have become considerably more important as a source of weapons procurement for U.S. arms manufacturers. Starting in 1991, the steady decline in new budget authority for weapons that started in the mid-1980s began to be felt in the form of substantial decreases in weapons outlays. Coincidentally, 1991 was also the year that the Gulf War arms-export boomlet began in earnest, helping to keep U.S. arms deliveries steady from 1991 to 1995. From 1990–1991 to 1995–1996, arms exports as a percentage of total weapons procurement rose, from 16–17 percent to 22–23 percent, a proportional increase of more than one-third. Arms sales have clearly not offset declines in Pentagon spending, but their gain in relative importance helps explain why the industry has been increasingly exportminded. V. HOW IMPORTANT ARE ARMS SALES TO SPECIFIC INDUSTRIAL SECTORS? The next step in determining the economic impact of arms sales is to determine which industrial sectors are most likely to be affected by the ups and downs of U.S. weapons exports. There has been very little work done on the importance of arms sales to specific industrial sectors, but a first approximation can be reached by looking at the sectors that are most involved in supplying equipment and services to the Pentagon. Even before the defense cuts of the late 1980s and early 1990s took effect, there were only a handful of U.S. industrial sectors that depended on weapons spending for a substantial share of their output. A 1992 study by the Congressional Budget Office found that if there were cuts of $20 billion per year in U.S. defense purchases, only six out of 420 major U.S. industrial sectors would suffer reductions in output of 5 percent or more.11 Significantly, the $20 billion annual cut in defense purchases analyzed by CBO is greater than the total annual average for overseas arms sales for U.S. firms, which has been running between $13 and $16 billion per year. Thus, the CBO analysis indicates that a reduction in military-related business equivalent in value to the total elimination of U.S. weapons exports would have significant impacts in less than 2 percent of the industrial sectors that make up the U.S. economy. Of the 14 most defense-dependent industrial sectors, the CBO suggests that only three—tanks and tank components, shipbuilding and repair, and other ordnance and accessories—are sufficiently vulnerable to cuts in military business to be at significant risk from cuts in arms sales. Their vulnerability is grounded in the fact that these sectors would suffer losses of output of 6 to 17 percent as a result of a $20 billion cut in military outlays (see Appendix 8.2 for further details). By contrast, 9 of the top 14 defense-oriented industrial sectors were expected to break even or increase their total output despite cuts in their defense-related

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orders. Four of the sectors—Aircraft (10 percent), Nonferrous Forgings (20 percent), Aircraft and Missile Equipment (13 percent), and Engineering and Scientific Instruments (21 percent)—were projected to achieve fairly impressive growth rates despite cutbacks in defense purchases.12 A 1994 Pentagon forecast of the worldwide trade in armaments—the first of its kind to be released to the public—provides a more detailed insight into which defense industrial sectors are most involved in export markets. The Pentagon study identified seven defense-oriented sectors—aircraft, shipbuilding, armored vehicles, missiles, helicopters, artillery, and command, control, and communications (C3I)—that accounted for 90 percent of all arms deliveries on the international market during 1991–1993. The study projected the requirements for systems produced by these seven sectors from 37 countries that have accounted for the vast majority (86 percent) of world arms imports in recent years. The Pentagon predicted worldwide arms sales in the 1990s at only about one-half of what they were in the 1980s—$29 to $33 billion in constant 1991 dollars, compared with $62.5 billion per year during the 1980s. The U.S. share of this smaller market was expected to come in at 53 to 59 percent through the end of the decade ($15 to $19 billion per year). Figures for the first half of the 1990s suggest that even these relatively low projections are too optimistic. Measured in the same 1991 dollars as the Pentagon forecast, U.S. arms deliveries from 1991 through 1996 averaged $13.6 billion per year, or 9 percent less than the low end of the Pentagon’s average annual projection for U.S. sales. Worldwide arms deliveries averaged $26.6 billion per year in 1991 dollars for the five years from 1991 through 1995, or 8 percent less than the low end of the Pentagon forecast for average worldwide arms sales for the 1990s.13 There are no big purchases on the horizon to suggest that these trends will change significantly in the near future. Taking the Pentagon’s optimistic forecast as a point of departure, the defenseoriented sectors with the most to gain from exports in the 1994–2000 time frame are military aircraft, at $7 to $10 billion per year in foreign sales; missiles, helicopters, and armored vehicles, each of which will average between $1 billion and $2.5 billion annually; and shipbuilding, artillery, and C3I (command, control, and communications), all at less than $1 billion in foreign sales per year (see Appendix 8.3). While the annual figures for export business by sector presented in Appendix 8.3 are modest by Cold War standards, a comparison of these export projections with average procurement spending on the same categories by the Pentagon for 1991 through 1997 suggests that for five major military producing sectors— military aircraft, missiles, military helicopters, combat vehicles, and artillery— exports may be a greater source of revenue over the next three to five years than contracts with the Pentagon. This has more to do with the drop in Pentagon spending for these categories of equipment than it does with growth in exports, which have plummeted sharply on a worldwide basis and at best held steady for U.S. firms. The drop in orders for equipment in these sectors has also been

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driven by a ‘‘pause’’ in procurement, as systems purchased during the late 1970s through late 1980s have been integrated into U.S. forces, and the Pentagon has been directing its resources towards research and development of nextgeneration systems such as the F-22 and the Joint Strike fighter. The growing sophistication of military equipment from one generation to the next has also increased the amount invested in research and development and electronics, driving up unit costs and leading to production of small numbers of increasingly complex systems. This change in the number of units per dollar generated by Pentagon spending—and the impact of this change on the military aircraft, combat vehicle, missile, and artillery sectors—can best be described by comparing spending in FY 1976 and FY 1996. The comparison between 1996 and 1976 is instructive because the overall military budget (in constant 1998 dollars) was virtually the same in those two years, at $267 billion in 1996 versus $264 billion in 1976. The two ‘‘weapons investment accounts’’—procurement and research and development—added up to roughly $80 billion in each of the two years, but the money was divided up differently. In 1976, procurement of weapons systems outpaced R&D by a margin of more than two-to-one, $56 billion to $24 billion; in 1996, procurement was less than 25 percent higher than R&D spending, at $44 billion to $36 billion. This underscores the point that for the moment the Pentagon is investing more in R&D for new systems than in production of current ones.14 Even allowing for the exaggerated performance assessments of the immediate post–Gulf War period, U.S. forces still appear to enjoy a greater conventional military advantage over their most likely adversaries than at any time in the post–World War II era. But with unit costs on major items of equipment at anywhere from two to 16 times what they were 20 years ago, the ability of the Pentagon to fund procurement of current-generation systems (to keep production lines running) and support R&D for new systems is being strained. The question is whether this dilemma is best addressed by maintining production lines through the promotion of arms exports—a strategy that puts the United States in the position of running an arms race with itself by pouring increasingly capable weaponry into regions of potential conflict—or by rethinking the way the U.S. defense industrial base is organized. In an era of low-volume, high-tech procurement when the U.S. has no adversary that can field technology comparable to current-generation U.S. weaponry, the notion that production lines for every category of weaponry must be kept up and running while next-generation systems are being developed may be obsolete. VI. HOW IMPORTANT ARE ARMS SALES TO SPECIFIC COMPANIES? How has the increase in the importance of arms sales as a source of business for the U.S. defense industry translated into revenues for specific companies?

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The best indicator of the impacts of arms sales on individual firms comes from data on contracts awarded under the Pentagon’s Foreign Military Sales (FMS) program. The FMS program accounts on average for 75 percent of all U.S. arms sales over the past decade. Under FMS procedures, the Pentagon serves as a middleman, negotiating the terms of major arms offers with the foreign purchaser, collecting the funds, and issuing them to the supplying company in the form of a defense contract. Trends in FMS contracts underscore the delayed impact of the major deals concluded during and immediately after the Persian Gulf War of 1991. Total FMS contracts averaged around $7 billion per year for fiscal years 1993 through 1995 before jumping dramatically to $13.2 billion in FY 1996 (see Appendix 8.4). As detailed below, the bulk of the increase in FY 1996 resulted from jumps in contracts awarded in 1992–1993, such as the sale of 72 F-15s to Saudi Arabia and 150 F-16s to Taiwan. FMS contracts benefit a handful of major contractors involved in the sale of advanced combat platforms such as fighter planes and main battle tanks. In fiscal year 1996, 1204 separate companies received contracts under the Pentagon’s FMS program, but nearly half of those firms—557 in all—received awards of $100,000 or less. More than 82 percent of the firms—997 companies—received FMS contracts of $1 million or less. Only 12 companies received FMS contracts worth $100 million or more.15 This pattern of extreme concentration of the benefits of arms sales was not unique to FY 1996. Appendix 8.5 presents data on the percentage of total FMS awards received by the top 2, top 5, top 10, and top 25 FMS contractors for fiscal years 1993 through 1996. The companies best positioned to benefit from arms exports are the Pentagon’s top 10 FMS contractors, listed in Appendix 8.6: McDonnell Douglas, Lockheed Martin, GM/Hughes, United Technologies, Raytheon, Boeing, FMC, General Electric, Northrop Grumman, and General Dynamics. Since Boeing’s acquisition of McDonnell Douglas did not occur until after the period covered by the data in this chapter, they are treated as separate entities for purposes of this analysis. Now that they have merged, the FMS market is likely to be even more concentrated. The data in Appendix 8.6 underscores the dominant position of the two major U.S. manufacturers of combat aircraft, McDonnell Douglas and Lockheed Martin, as the principal beneficiaries of U.S. arms exports. These two firms alone accounted for $19.3 billion in FMS contracts from FY 1993 through FY 1996, or 56.5 percent of all FMS awards during that four-year period. The dominance of these firms is directly linked to the role of fighter aircraft sales as the biggest revenue generators in the arms-sales market. In FY 1996, 78 percent of McDonnell Douglas’s $5.5 billion in FMS revenues were tied to just two deals: the sale of 72 F-15s to Saudi Arabia in September of 1992 and a counterbalancing sale to Israel of 25 F-15s. Similarly, a full 68 percent of Lockheed Martin’s $2.4 billion in FMS revenues for FY 1996 came from exports of F16s; the biggest deal driving this revenue stream was the sale of 150 F-16s

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to Taiwan, announced in September of 1992—but there have also been deals concluded during this decade to provide 120 of the planes to South Korea, 80 to the United Arab Emirates, 46 to Egypt, 18 to Thailand, 11 to Singapore, and 80 to Turkey, along with the supply of upgrade kits to Belgium, Denmark, the Netherlands, and Norway.16 Another way of expressing the importance of fighter aircraft sales to major U.S. arms-exporting firms is to look at how much of the revenue of the top 10 exporters comes from fighter-related sales, including not only the jets themselves but fighter plane engines (which are contracted for separately) and air-to-air missiles that are sold as part of the package when a major fighter deal is put together. All told, sales of F-15, F-16, and F-18 fighters; the F-100 and F-110 engines that power these planes; and the Advanced Medium Range Air-to-Air Missile (AMRAAM) that is deployed on fighter aircraft accounted for $6.9 billion of the $7.9 billion in FMS contracts awarded to the top 10 arms-exporting firms in FY 1996. Other significant export items are armored vehicles like the M-1 tank, which accounted for 91 percent of General Dynamics’ $133 million in FMS awards for FY 1996, and the M-2 infantry fighting vehicle and M-113 armored personnel carrier, which together accounted for 82 percent of the FMC Corporation’s $192.9 million in FMS contracts; surveillance aircraft like the E-3A AWACS, which generated 34 percent of Boeing’s $401 million in FMS awards, and the E-2C radar plane, which provided nearly 30 percent of Northrop Grumman’s $141.8 million in FMS revenue for the year; and anti-aircraft missiles like the Patriot and MIM-23 Hawk systems, which accounted for 57 percent of Raytheon’s $444.8 million in FMS income for FY 1996. The most telling fact to emerge from Appendices 8.5 and 8.6 is that for both 1995 and 1996, the top two FMS contractors accounted for over 60 percent of total awards under the program. This is a substantially higher rate of concentration than for Pentagon contracting as a whole: in FY 1995, the top 2 Pentagon contractors received 15.7 percent of all DoD awards, the top 5 received 23.9 percent, the top 10 received 32.8 percent, and the top 25 received 43.7 percent. The concentration of FMS helps explain why Lockheed Martin and McDonnell Douglas have been so aggressive in pushing the U.S. government to open up new foreign markets and to increase subsidies for U.S. exports. Major prime contracts can be usefully viewed as providing business for the lead firm and its supplier network. But even on this score, it is important to remember that with the growth of coproduction and offsets in arms sales—the steering of business to contractors in the purchasing nation to help offset the cost of buying U.S. weaponry—a significant share of the work that used to go to local subcontractors may now be placed with overseas firms. The redistribution of some of these funds to subcontractors does not do much to mitigate the concentration of FMS awards. While there is no systematic data on subcontracting patterns, the most detailed survey ever done by the Pentagon indicated that the subcontracting process does not appear to substantially ‘‘spread the

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wealth’’ from military contracting. A big firm like McDonnell Douglas in St. Louis or Lockheed Martin in Fort Worth will receive subcontracts from other defense companies, and it will also place a considerable proportion of its own subcontracts with local firms. In addition, a late-1980s study by the Center for Strategic and International Studies estimated that the number of military subcontracting firms had already been slashed dramatically even before the sharp cuts in procurement of the post–Cold War era started to bite, with total suppliers going down from 138,000 in 1982 to 40,000 in 1987.17 Another avenue through which arms-sales revenues might be more widely dispersed is through commercial sales, which as noted above account for about 25 percent of all U.S. arms sales in a given year. Unfortunately, the information that would be needed to rigorously test this claim is not available. The last time such data was released, in 1988, the General Accounting Office provided four years of information on the value of arms-export licenses granted to U.S. firms. For the four years covered in the GAO report, the list of top 25 companies by value of commercial arms export licenses granted was nearly identical to the list of top 25 arms exporters under the Pentagon’s FMS program.18 This suggests that if data on commercial sales were available, it would probably indicate that the big players like Lockheed Martin and McDonnell Douglas were dominating the commercial arms sales channel just as they dominate the FMS channel. The only exception may be suppliers of so-called light weaponry like rifles, hand grenades, and crowd-control equipment; these companies may be more likely to sell their goods via commercial rather than FMS channels. Light weapons suppliers represent a separate sector requiring additional analysis. Now that we have identified the major U.S. corporations involved in the armsexport business, the next logical question is, How important have these exports become to these firms? Have any of them met their ambitious goals of doubling weapons exports that were announced with such enthusiasm after the Gulf War? Have arms exports become a more important source of revenue for any of the companies compared with either Pentagon spending or civilian business? Appendix 8.7 provides a perspective on this question for the period from FY 1993 to FY 1996, providing data on FMS awards as a percentage of total company sales and Pentagon contracts. Appendix 8.7 provides the most concrete assessment available of the extent to which foreign arms sales have helped specific U.S. weapons manufacturing firms to compensate for declines in Pentagon procurement spending. The first point that should be made is that for the majority of firms, even for FY 1996, which was a banner year for Foreign Military Sales contracts, arms exports represented a relatively small percentage of sales for the nation’s largest weapons trading companies. FMS contracts represented 39.9 percent and 9.1 percent of total sales for McDonnell Douglas and Lockheed Martin, respectively, but the remaining eight companies received less than 5 percent of their total sales from arms exports. For the relatively short time period covered by the table, two firms did ac-

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complish the oft-stated goal of doubling revenues from arms exports: McDonnell Douglas’s FMS sales were up 509 percent from FY 1993 to FY 1996, while the FMC Corporation’s weapons exports jumped by 470 percent over the same time period. Yet other firms experienced substantial declines: Raytheon’s foreign weapons contracts dropped by 57 percent from 1993 to 1996. General Dynamics’ exports were down by 79 percent. Arms exports are an extremely cyclical business, both because big deals are few and far between and because it takes a long time for a given deal to translate into major cash flow that actually has an impact on a company’s bottom line. This reality is reflected in the fact that only two of the top 10 companies—McDonnell Douglas and FMC—posted increases in FMS sales for each of the four years from FY 1993 through FY 1996. General Dynamics’ foreign sales declined for each of the four years, and all the other firms had sharp ups and downs throughout the period. For some companies, FMS contracts played a significant role in offsetting declines in revenue from the Pentagon. For four firms—McDonnell Douglas, GM/Hughes, FMC, and Northrop Grumman—FMS sales more than doubled as a share of Pentagon contracts from FY 1993 to FY 1996. For six companies—McDonnell Douglas, Lockheed Martin, GM/Hughes, United Technologies, Boeing, and FMC—FMS contracts accounted for at least one out of every five dollars in arms procurements for that firm in 1996. This ‘‘compensation effect’’ needs to be put in perspective. First of all, FY 1996 was a relative high point for FMS awards, which were up 80 percent from the prior year. This performance reflects the impact of big post–Gulf War contracts like the sales of F-15s to Saudi Arabia and Israel finally starting to kick in. These high levels are unlikely to be sustained for long. Second, even in 1996—the best year for foreign military sales contracts in recent memory—only six major companies showed a demonstrable gain in export revenues relative to Pentagon contracts. This is hardly a broad-based sustaining force for defense-dependent firms. The limits of arms sales as an engine of sales growth can be seen in the case of General Dynamics, which is often cited as a model of the export-dependent firm. From 1991 through 1996, the M-1 tank production line was heavily dependent on exports, with 50 percent of the 300 tanks per year coming off the line going to foreign customers. In 1993 and 1994, when there was a gap in Pentagon production, all of the tanks coming off the M-1 line were for Saudi Arabia and Kuwait, countries which together ordered a total of 534 tanks in the aftermath of the 1991 Persian Gulf War. This export bonanza was short-lived. Foreign Military Sales contracts peaked at 20 percent of total company sales in 1993 and then dropped steadily to only 3.7 percent of total company sales in 1996. The M-1 line is now operating solely for domestic production, upgrading 120 tanks per year for the U.S. Army. This rate is expected to continue through at least 2001. Company spokesperson Pete Keating indicates that doing upgrades involves only about ‘‘10 percent of the work’’ required to produce new tanks

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from scratch, but he acknowledges that at least in the short term ‘‘we can build up from that line relatively easily’’ in the event that the Army decides to resume tank production.19 Thus, even from the perspective of the nation’s only tank manufacturer, the argument that exports have become an essential precondition for sustaining the defense industrial base appears to be overstated. While General Dynamics is a heavily militarily-dependent firm whose arms exports have not met expectations, General Electric is a major conglomerate whose total military activities average well below 5 percent of its total sales. Yet military production is a central aspect of the business of one division of the firm, GE Aircraft Engines. In 1987, about $2 billion of the division’s $3 billion in total sales were for military projects, and roughly $450 million of that $2 billion in military business was generated by foreign arms sales. Ten years later, in 1997, GE Aircraft Engines had $7 billion in sales, of which just $1.6 billion were military; of that $1.6 billion, 46 percent, or $736 million, was generated by military exports. The most important trend in the company’s business over the 10-year period was not its increase in foreign military sales, but the increase in aircraft engine sales by 76 percent, despite the fact that the firm’s military contract revenues were cut in half over that same time period. The boom in orders for commercial airliners has helped GE increase its non-defense revenues from $1 billion per year in 1987 to $5.4 billion in 1997. As a bottom-line issue, it is not arms exports that have helped GE compensate for declines in Pentagon spending but the tremendous growth in sales to civilian markets.20 McDonnell Douglas is by far the most export-dependent of the major U.S. defense contractors, with nearly 40 percent of its 1996 sales accounted for by FMS contracts. On a cash-flow basis, its $5.5 billion in FMS contracts for the government’s fiscal year of 1996 may be spread out over several fiscal years, resulting in an average export dependency figure of less than 40 percent—still an impressive ratio. The most important revenue earner among the firm’s export programs is the F-15 fighter plane, which generated $4.2 billion of McDonnell Douglas’s $5.5 billion in arms-sales contracts in 1996. With 72 F-15s on order by Saudi Arabia and 25 on order by Israel, exports are expected to keep the F15’s St. Louis–based production line operating through at least 1999. The F-15 is one of the few cases in which exports have been the sole support for a U.S. weapons production line for a significant period of time. However, once the orders for Saudi Arabia and Israel are completed, there are no prospects on the horizon for additional exports of the F-15, which at $40 to $50 million per plane is beyond the budgets of the vast majority of the world’s armed forces. So, as in the case of the M-1 tank, orders from the Middle East have extended the F-15 production line for a number of years, but they have not provided a long-term answer to the question of how to keep it up and running, which raises the underlying question of whether it is indeed necessary to do so.21 McDonnell Douglas’s other major export-dependent programs are the F/A-18 fighter and the Apache helicopter. The 114 foreign orders for F/A-18s since 1991 have been more than matched by 216 new orders for F/A-18C/Ds from

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the Navy over the same time span. The Navy is now gearing up for production of a new E/F version of the F-18; this could involve the purchase of up to 785 new aircraft.22 In the case of the Apache, exports will play a significant role in keeping production going in the latter half of the 1990s. This has implications for maintaining a skilled workforce and a group of qualified suppliers—the issue of the defense industrial base. Under current Pentagon procurement plans McDonnell Douglas is in a position to sustain a viable combat-aircraft production line for F/A-18s for at least 10 to 15 years whether or not the company exports any more fighter planes. It is not clear why it is useful or necessary for one firm to maintain two separate fighter-plane production lines for purposes of maintaining the defense industrial base, so the fact that the F-15 line has been kept going via exports for several years may not be as important on national security grounds as some in industry and the Pentagon have been suggesting. During the period covered by this analysis, McDonnell Douglas was unique in that exports of military aircraft appear to have had a bearing on the financial health of the firm as a whole. Prior to its merger with Boeing, sales of military aircraft to the Pentagon and foreign buyers accounted for 57 percent of the company’s total revenues in 1996, and a full 73 percent of the company’s operating profits. While precise breakdowns on total foreign versus domestic sales are not available in company financial filings, the evidence from Appendix 8.7 suggests that half or more of McDonnell Douglas’s military sales in 1996 were to foreign customers. Since profits on arms sales are often substantially higher than profits on sales to the Pentagon, it is possible that 50 percent or more of McDonnell Douglas’s profits for 1996 came from arms exports.23 The profitability issue bears further discussion, since it may provide a partial explanation for the incredible energy major U.S. firms have put into capturing a larger share of an admittedly shrinking international market for arms. In its 1991 study, Global Arms Trade: Commerce in Advanced Military Technology and Weapons, the Office of Technology Assessment cited three separate firms for which arms exports were twice as profitable as other elements of the company’s business.24 William Keller makes the point well in his 1995 book Arm in Arm: Indeed, foreign sales are more profitable than domestic ones. The costs of developing weapons and building initial production facilities for major U.S. weapons were long ago passed back to the government. Weapon systems are, in fact, often taken through research, development, testing, and evaluation under one set of contracts, and then recompeted when they go into production. As one company executive explained, ‘‘when foreign orders are added to an existing run for the Air Force, they are pure gravy.’’ In most cases, R&D costs are absorbed by the U.S. government with little or no funds from the company, and in cases where the company does finance R&D, it can often be reimbursed by the Pentagon under the Independent Research and Development (IRAD) program. For these reasons, a 25 percent share of foreign sales can translate into 35 or 50 percent of profits.25

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Keller’s sources for the quotes on the greater profitability of arms exports are executives of the McDonnell Douglas Corporation. Profits are a likely reason why McDonnell Douglas may have been driven to pursue exports as a matter of corporate survival; it will be interesting to see whether the Boeing merger moderates this export focus. Along with Lockheed Martin, McDonnell Douglas was among the most active U.S. companies in pressing for changes in U.S. arms-export policies. The company’s 1992 push to persuade Congress and the Bush administration to reverse a decades-old policy of capping F-15 sales to Saudi Arabia at 60 was among the most successful campaigns in the history of arms-export lobbying efforts. The firm even prevailed upon President Clinton to make a personal pitch for its Apache helicopter in a February 1995 meeting with the Dutch prime minister (the Netherlands purchased the Apache a month later).26 But lobbying can only go so far if there is a limited export market for the company’s products. In the short term the company achieved its goal of rapidly increasing exports to pick up some of the slack from Pentagon cutbacks, but that success was largely linked to a handful of big sales concluded immediately after the Gulf War. There is no deal on the horizon on the same scale as the $9 billion sale of F-15s to Saudi Arabia. At some point the company will have to face the reality of diminished arms markets. The McDonnell Douglas–Boeing merger could provide an opportunity for McDonnell Douglas to wean itself from its export dependency. Thanks to the boom in airliner purchases, the new conglomerate will have two-thirds of its business in civilian markets. A consolidated statement of the merged firm for 1996 would show military exports at 16 percent of total sales, rather than the nearly 40 percent arms-export dependency that McDonnell Douglas had prior to the merger. Under the right set of policies, it is conceivable that McDonnell Douglas’s fierce drive to expand arms export markets could be moderated now that it is part of a more diversified company. While McDonnell Douglas was the most export-dependent of the major U.S. weapons manufacturing firms, Lockheed Martin is the most export-driven company.27 Lockheed Martin has had steady growth in its exports, which are up 40 percent from 1993 to 1996 and have totaled in excess of $8 billion over that time period. The mainstay of Lockheed Martin’s export business is the F-16 fighter, which is among the most popular export items in the recent history of U.S. arms sales. Since 1991, there have been 420 foreign orders for the F-16, and Lockheed Martin is the finalist in what may be one of the last big fighter deals of the decade, a sale of 80 combat aircraft to the United Arab Emirates. These export orders compare favorably with 244 orders from the U.S. Air Force over that same time period.28 And as Air Force orders have dropped steadily, from 144 in 1991 to six in 1997, the F-16 is becoming an export-only item. Interestingly enough, despite its aggressive emphasis on exports, Lockheed Martin’s strongest growth has come in other business lines. From 1994 to 1996,

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the company’s total sales to foreign governments dropped from $3.4 billion to $3.3 billion; sales to commercial customers increased by 65 percent, from $2.9 billion to $4.8 billion; and sales to the U.S. government increased by 13.3 percent, from $16.5 billion to $18.7 billion.29 VII. WHICH STATES AND CONGRESSIONAL DISTRICTS DEPEND ON ARMS SALES? Just as a handful of big companies benefit disproportionately from arms sales, so do a small number of states and congressional districts. In fiscal year 1996, the top five recipient states received $9.7 billion in FMS awards, representing 73 percent of all foreign military sales contracts awarded in that year. The top two states alone received 55 percent of all FMS contracts awarded in 1996. The top five states were as follows: Missouri, $5.2 billion; Texas, $2.0 billion; Florida, $944 million; Arizona, $802 million; and California, $747 million. The only other state to receive more than $500 million in FMS awards was Massachusetts, with $517 million in awards for 1996. Even more telling than the analysis by state is a look at the distribution of arms-sales contracts by congressional district. Given that major arms deals are often sold to Congress on the basis of their widespread economic benefits, it is instructive to learn that for 1996, just 10 congressional districts together received $9.1 billion in FMS awards, or 69.6 percent of the total for the year. The top two districts—the St. Louis, Missouri–area district where McDonnell Douglas builds the F-15 and F-18 fighters, and the Fort Worth, Texas–area district where Lockheed Martin produces the F-16—together accounted for $6.4 billion in FMS contracts, or 49 percent of the total. In all only 28 of the nation’s 435 congressional districts received $50 million or more in foreign military sales contracts in 1996; 33 districts received awards in the $10 million to $50 million range; and 96 districts received contracts in the $1 million to $10 million range. More than half of the districts (278 to be precise) received FMS awards of $1 million or less in 1996. Of these 278 districts, 67 of them had no arms exports at all. Table 8.3 presents data on the top 10 congressional districts involved in production of arms for export, with details on the major contractors and weapons systems involved. See Chapter 3 for a more detailed discussion of these issues. VIII. THE HIDDEN ECONOMIC COSTS OF U.S. ARMS SALES The economic and industrial base benefits of U.S. arms sales must be balanced against the costs to U.S. taxpayers and the U.S. economy of aggressively marketing U.S. armaments overseas. A 1996 report by the Arms Trade Resource Center at the World Policy Institute identified $7.6 billion in U.S. government subsidies for arms sales in 1995. The major categories of subsidies—which

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Table 8.3 Foreign Military Sales Contracts by Congressional District: Top 10 Recipients, FY 1996 (dollars in billions or millions, as indicated)

Source: Department of Defense contract data tapes, analyzed by Eagle Eye Publishers of Fairfax, VA.

include nine separate programs in five separate federal agencies—include the Pentagon’s Foreign Military Financing (FMF) program, which involves grants and subsidized loans to pay for exports of U.S. military equipment; the cost of Pentagon weapons giveaways under the Excess Defense Articles program; the portion of the Agency for International Development’s Economic Support Funds program involving direct cash payments that are in effect used to ‘‘pay down’’ the cost of military loans made to major U.S. arms clients like Israel, Egypt, and Turkey; the annualized cost of past military loans that have either been forgiven or gone bad, such as the $7 billion in military loans to Egypt that were forgiven after the 1991 Persian Gulf War; the cost of repealing recoupment fees,

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Table 8.4 U.S. Government Subsidies for Arms Exports, FY 1995 (in millions of dollars)

Source: William D. Hartung, Welfare for Weapons Dealers: The Hidden Costs of the Arms Trade 1996 (New York: World Policy Institute, 1996).

the royalties that had been routinely paid by foreign arms clients to help reimburse the U.S. Treasury for the cost of researching and developing major U.S. weapons systems that are later offered for export; the subsidy costs involved in special programs such as the Export-Import Bank’s one-time loans for special military sales, and its ongoing program of lending for ‘‘dual use’’ items with military applications; and the costs of personnel and equipment involved in promoting, brokering, and supporting U.S. arms sales at the Pentagon and the State and Commerce Departments. Table 8.4 provides a full listing of these subsidies for FY 1995. The majority of the subsidies referenced in Table 8.4 redound directly to the benefit of U.S. weapons-exporting firms: grants and loans that end up in the coffers of McDonnell Douglas or Lockheed Martin to pay for weaponry purchased by U.S. allies; promotional activities carried out by U.S. government personnel that would cost U.S. firms millions of dollars if they conducted them using their own funds; and reductions in fees formerly charged on U.S. arms sales that can translate into higher profit margins on foreign sales.

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During 1995, the $7.6 billion that the U.S. government spent to help promote and finance U.S. arms transfers facilitated only $12.5 billion in new orders for U.S. weaponry: in other words, more than half of the cost of U.S. arms exports in 1995 was borne by U.S. taxpayers, not foreign arms clients. Even if all or most of these subsidies were to be continued on security and foreign-policy grounds, as an economic matter the key point remains: the net inflow of funds to the United States from cash-paying customers for armaments has dropped dramatically since the end of the post–Gulf War arms boomlet. The notion that large infusions of foreign cash are available to bail out the U.S. defense industry does not square with current realities.30 There are two new programs which could add considerable costs to the armsexport ‘‘subsidy budget’’ down the road: the start-up of the Defense Export Loan Guarantee fund (DELG), a $15 billion taxpayer-backed initiative that is available to support weapons exports to 37 countries in Europe and Asia; and the creation of a new Central European Defense Loan fund, for which there will be appropriations of $40 million in FY 1997 and 1998 to support loans totaling $644.5 million to ‘‘creditworthy Central European and Baltic States for acquisition of NATO-compatible equipment.’’ In addition, eight former Soviet republics became eligible for Foreign Military Financing from the Pentagon in 1997, and roughly $70 million per year has been made available in FYs 1997 and 1998 to allow those nations to ‘‘purchase equipment, services and training to improve interoperability with NATO.’’31 Romania was the first customer for the Pentagon’s $15 billion loan fund, tapping into it to support a $23 million purchase of unmanned reconnaissance planes, and a large portion of the fund’s tentative offers of support to date, totaling $1.4 billion, have been for possible sales of U.S. equipment to nations in Eastern and Central Europe. If grant aid for Eastern and Central European nations and the former Soviet republics is increased as the push for NATO expansion proceeds, or if any of the loans made under the $15 billion Defense Export Loan Guarantee fund go bad, the current level of $7.6 billion in annual arms-export subsidies could increase substantially by the end of this decade.32 Subsidies are not the only way that the economic benefits of U.S. arms sales are diminished. Another is the increasingly routine practice of offering offsets to foreign military sales customers. An offset arrangement involves steering business to an arms customer as a way of offsetting the cost of the equipment being purchased. Offsets can be direct, in the form of coproduction or manufacture of components of the system in question in the purchasing country; or they can be indirect, involving investments in nondefense industries in the purchasing nation, assistance to that nation in marketing its products in the United States, or other mechanisms for providing economic benefits to U.S. arms customers. In effect, offsets are a way of internationalizing the same kind of porkbarrel politics that is involved in securing congressional approval for weapons systems procured by the Pentagon; but instead of spreading the work to key congressional districts in Texas or California, U.S. companies have to share

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technology with (and export jobs to) Taiwan, South Korea, Turkey, Switzerland, Finland, the United Kingdom, and Israel (among others). The inevitable result is that there are fewer jobs (and less production) left in the United States as a result of major arms sales. From a defense industrial base standpoint, offsets end up expanding the industrial bases of potential U.S. competitors in Europe and Asia. Most arms deals now involve offset commitments ranging from 30 percent for Persian Gulf clients like Saudi Arabia and the United Arab Emirates to 100 percent or more for sales to Europe and Asia. The United States has been particularly active in providing direct offsets. According to the 1991 Office of Technology Assessment report on the global arms trade, the United States provided at least 140 licenses for the production of U.S.-designed weaponry overseas between 1960 and 1988, a figure four times greater than that of the next most active nation, France, which supplied 35 licenses for production of its systems over the same time period.33 Offsets raise two basic questions. First, what is the net economic drain on the United States that results from these arrangements? Second, do transfers of military production technology under offset agreements result in the proliferation of advanced weapons manufacturing capabilities that may redound to the detriment of U.S. interests? On the economic question, the first issue to be dealt with is the actual value of offset arrangements entered into by U.S. firms in a given year. Periodically, the U.S. government does surveys of offset activity which give a rough sense of the size of offset business. A 1988 Office of Management and Budget study of $34.7 billion in U.S. arms-export contracts entered into between 1980 and 1987 found that these deals yielded $19.9 billion in offset obligations, or 57.2 percent of the value of the original sales. Since the survey only tracked offsets on $4.2 billion in U.S. military exports per year—a figure far less than half of total annual U.S. arms sales over that period—the $2.5 billion in average offset obligations referenced in the report was probably a comparable fraction of total offset activity. More recently, Aerospace Industries Association vice president Joel Johnson has suggested that offset commitments by U.S. firms are running at roughly $3 billion per year in the 1990s. A new Commerce Department survey released in May 1996 identified $6.8 billion in offset obligations for 1993 and 1994 on foreign arms sales contracts worth a total of $18.7 billion, for an offset ratio of 37 percent (this lower figure runs contrary to frequent reports regarding the imposition of more onerous offset requirements by a growing number of arms-purchasing nations, and may reflect incomplete reporting by companies involved in offset activities). The Commerce report itself suggests that a more likely average offset amount is 54 percent (arrived at by excluding two exceptionally large deals from the 1993–1994 total). At a minimum, this recent data suggests that with U.S. arms sales expected to run at $12 to $16 billion per year through the end of this decade, annual offsets on those sales could run anywhere

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from $6 to $9 billion per year (assuming offset activity in the range of 54% to 57%).34 With subsidies averaging $7 to 7.5 billion per year and offsets averaging somewhere between $6 and $9 billion, it is conceivable that every single dollar of the $12 to $16 billion in annual U.S. arms sales expected through the rest of this decade will be either paid for by U.S. taxpayer subsidies or offset by business steered to the purchasing nation by U.S. arms manufacturers as part of an offset arrangement. This worst-case scenario should be tempered by noting that not all offset obligations involve steering business from U.S. firms to foreign purchasers. For example, if McDonnell Douglas helps Hungary sell light bulbs to Finland as part of a prospective offset arrangement, that is not necessarily business that would have otherwise gone to a U.S. firm, but it could still count towards meeting McDonnell Douglas’s offset commitment to Hungary. Yet the overall point holds: when the annual round of stories come out indicating that the U.S. is dominating the world arms trade with $10 or $12 or $16 billion in weapons sales, it should be kept in mind that the net gain on those sales to the U.S. economy, after subsidies and offsets are considered, is somewhere between zero and a few billion dollars per year. The main winners in the offset game are major U.S. defense exporters like Lockheed Martin and McDonnell Douglas (who use offsets as tools to win lucrative foreign deals that contribute disproportionately to their profit margins), and the foreign partners of these U.S. firms (who through these arrangements develop military and aerospace know-how that can be put to work developing new products for export on the world market). The biggest losers in the offset game are workers at U.S. defense and aerospace plants, who may see part of every new order—whether the order originates with the Pentagon or a foreign buyer—shared out with overseas production lines; small and medium-sized U.S. defense supplying firms, who are often displaced so that foreign offset partners can get their cut of the action; and non-defense firms in the United States, who may lose business to foreign companies as a result of efforts undertaken by companies like McDonnell Douglas or Northrop Grumman to help other nations market their goods as part of an offset deal. As for the impact on defense suppliers, the 1996 Commerce Department survey on offsets provided concrete testimony on the negative impacts of offsets on subcontracting firms in the United States. Of 204 small and mid-sized companies that indicated that their business had been affected by offsets, 83 percent reported that the impact was negative.35 The companies least likely to realize that their business is being impacted by offsets are non-defense firms who lose sales to foreign companies as a result of marketing efforts undertaken on behalf of those foreign firms by U.S. armsexporting companies. Sen. Russell Feingold (D-WI) uncovered one such example in 1992, when a Wisconsin papermaking company, the Beloit Corporation, was put in jeopardy of losing a $50 million sale of papermaking

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equipment after Northrop offered the American firm seeking the equipment a cash payment of $1.5 million if they bought the machinery from the Finnishowned Valmet Corporation instead of from Beloit. When Feingold contacted Northrop on the Wisconsin company’s behalf, Northrop’s general counsel admitted making the $1.5 million offer, and he explained that it was part of his company’s effort to fulfil an offset agreement with Finland as part of a sale of 64 F/A-18s to that nation (Northrop is the junior partner to McDonnell Douglas on the plane, producing roughly 40 percent of the aircraft).36 There is one new technique in the offset business which could significantly increase the outflow of resources from the United States and other supplier nations to purchasing countries: the pre-offset. A few years ago, McDonnell Douglas announced an $18 million investment in a petrochemical plant in the United Arab Emirates as part of a potential offset package for its bid on the UAE’s next fighter purchase; as of mid-1997, that purchase had yet to be made, and it was widely believed that McDonnell Douglas was out of the running. More recently, Hungary has been requiring foreign companies to develop offset plans (and steer business to Hungarian firms) as a condition for bidding on sales of fighter aircraft and other military equipment to that nation. If this becomes standard practice, the number of offset transactions is likely to grow, as armspurchasing nations receive business from both the winners and the losers in major weapons export competitions. IX. THE HIDDEN STRATEGIC COSTS OF U.S. ARMS EXPORTS The discussion of offsets provides a logical bridge from the economics of U.S. arms sales to the security risks posed by these exports. Offsets have contributed to what analyst Lora Lumpe has described as the ‘‘proliferation of military industrial complexes.’’ Aided by coproduction and offsets, the number of countries able to produce major military equipment has increased sevenfold, from five in the mid-1950s to thirty-six by the mid-1980s. In all, 54 nations now have some kind of arms-production capability. Licenses and coproduction of U.S. technology helped create the advanced arms industries of Europe and Japan in the decades after World War II. European suppliers are now the major competitors of U.S. industry, and some European powers like France have been willing to provide finished weapons systems to regimes such as Saddam Hussein’s in Iraq. If the Japanese defense industry succeeds in its current drive to eliminate the ban on weapons exports embedded in the Japanese constitution, U.S. firms could find themselves facing another capable competitor that they helped to create. Major mid-level suppliers such as Brazil, Israel, Singapore, South Korea, and Taiwan have also benefited greatly from military technology transfers associated with purchases of weaponry from U.S. companies. Even Iran’s military complex, a subject of somewhat exaggerated concern in Washington these days, has been built up on a foundation of factories and equipment

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that were transferred to the Shah of Iran’s regime in the freewheeling days of the Nixon Doctrine in the 1970s. China, which is barred from receiving finished weapons systems from U.S. companies under a ban implemented in response to the massacre at Tiananmen Square, has also attempted to use offsets to bolster its military industry. The most celebrated recent case was China’s diversion of some state-of-the-art U.S. machine tools to a factory engaged in the production of fighter aircraft and cruise missiles for the People’s Liberation Army. The tools, which had been used to produce parts for the B-1 bomber, MX missile, and C-17 transport plane in the United States, were transferred to China by McDonnell Douglas as part of an offset deal tied to the sale of MD airliners to Beijing. McDonnell Douglas officials, who assert that they were not aware of the military diversion until it was well under way, claim that the tools have since been removed from the military factory, but this incident hardly inspires confidence regarding what other U.S. technology may be finding its way into Chinese military factories.37 In addition to the prospect that arms-production technologies transferred under offset deals could end up strengthening potential U.S. adversaries such as Iran or China (or some current ally that becomes an adversary down the road due to a change in regime), these deals greatly complicate the ability of the international community to limit the flow of weaponry to regions of conflict. The Iran-Iraq war dragged on from 1980 to 1988 in significant part due to the willingness of no less than 52 nations to supply arms to the combatants; research by the Stockholm International Peace Research Institute indicates that 29 nations armed both sides of that war.38 With so many arms suppliers chasing so few paying customers, the prospect of supplying two oil-producing states in the midst of an actual armed conflict was just too good to pass up for the military industrial complexes of the world. The costs to security and human life were substantial, however; not only were there one million casualties in the Iran-Iraq conflict, but Saddam Hussein’s decision to invade Kuwait in 1991 was influenced by his need to recover financially and politically from the war with Iran. To this day the U.S. military strategy of spending in excess of $270 billion per year to maintain ‘‘global reach’’ and the ability to fight two major regional conflicts in close temporal proximity is closely tied to the perceived need to contain both Iran and Iraq. If the Iran-Iraq war and the subsequent Gulf conflict provide cautionary tales about the dangers of proliferating arms production technologies, the end of those conflicts also provided sobering lessons in the cyclical nature of the arms trade. Countries like Brazil and China, whose defense industries made a good living supplying the Iran-Iraq war in the 1980s, saw their sales prospects plummet in the 1990s. Ambitious plans by nations such as Brazil, Argentina, Egypt, and South Korea to build advanced ballistic missiles and their own fighter aircraft were either canceled or postponed. Yet the proliferation of arms production creates the possibility of niche suppliers emerging, suppliers who can frustrate the efforts of the major powers to stem the proliferation of advanced arms tech-

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nologies. For example, parts of the Lockheed Martin F-16 are now built in 16 different countries. Lora Lumpe reports that when the U.S. cut off F-16 deliveries to Pakistan in 1993, that nation’s Air Force had no difficulty keeping those planes up and running using substitute spare parts provided by non-U.S. suppliers. In another example of the proliferation of support functions, Israel is now specializing in performing upgrades on older-generation U.S. and Russian aircraft such as F-5s and MIG-21s, providing new avionics, targeting, and weapons systems. This kind of capability obviously limits the long-touted influence of the United States and Russia over their major arms clients, an influence based on the possibility of cutting off spare parts and maintenance if weapons supplied were being used in ways contrary to the supplier nations’ interests.39 The two most lucrative deals referenced in this chapter—a $9 billion sale of 72 F-15s to Saudi Arabia and a $6 billion sale of 150 F-16s to Taiwan, both announced at the height of the 1992 election campaign—involved major policy changes that the manufacturers lobbied for. In the case of the F-15s to Saudi Arabia, McDonnell Douglas leaned heavily on the argument that the sale would create 40,000 high-paying jobs in America to persuade the Bush administration and most members of Congress to break through the ceiling of 60 F-15s for Saudi Arabia (agreed upon in the Carter administration as a condition for selling an initial batch of these advanced combat aircraft to Riyadh). The deal was linked to a new military aid package for Israel that involved 25 F-15s. From the perspective of pursuing arms control in the Middle East in the wake of the Persian Gulf War, the timing of the sale could not have been worse. As former representative Mel Levine said at the time of the sale, Wouldn’t it make sense, when we are engaged in potentially pathbreaking arms control talks in the region, to put those two items [the Saudi F-15 sale and the new Israeli military aid package] on the shelf until we see whether progress can be made with regard to arms control rather than injecting a new spiraling round of an arms race into the region?40

The circumstances underlying the F-16 sale to Taiwan were even more troubling. General Dynamics (which at that time owned the F-16 production line, prior to selling it to Lockheed) prevailed upon their local Republican congressman, Joe Barton, to press the Bush White House to reconsider the long-standing U.S. policy of not selling advanced combat aircraft to Taiwan, a policy that had been enshrined in a 1982 communique´ on the normalization of U.S. relations with China. Over a six-week period in the summer of 1992, the National Security Council cast aside the prohibition, and President Bush headed off to Fort Worth to announce the F-16 sale at a campaign-style rally. Upon learning of the sale, China walked out of the five power talks (involving the U.S., the United Kingdom, France, Russia, and China) on limiting arms sales that had commenced after the Persian Gulf conflict, arguing that if the United States could not adhere to its long-standing commitment to China on limiting arms to Taiwan,

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China could not expect the U.S. to live up to any agreement reached by the five powers. Morton Abramowitz, then president of the Carnegie Endowment for International Peace, was quick to point out the negative implications of the Taiwan deal, both for U.S. credibility and for future arms-control efforts: ‘‘For a President who was establishing a new world order to massively violate a written agreement is hardly conducive to world order.’’41 A new forum for discussing arms export limitations, the Wassenaar Arrangement, has been formed, but so far China has refused to join in this effort. The pattern set by the Saudi and Taiwan deals, where the economic needs of key contractors became a central factor in changing long-standing elements of U.S. arms-transfer control policy, has become almost standard practice in the last few years. Lockheed Martin, working with like-minded contractors and the Aerospace Industries Association, led the charge to overturn a 20-year-old ban on sales of advanced U.S. fighter aircraft to Latin America, a change which the Clinton administration appears to have endorsed by allowing Lockheed Martin and McDonnell Douglas to supply technical marketing data to Chile as part of the competition to sell that nation 24 new fighter aircraft at a potential cost of $600 to $700 million.42 McDonnell Douglas and Raytheon have pushed hard to get the State Department to release the top-of-the-line AMRAAM air-to-air missile as part of a package involving the sale of F-18s to Thailand. As of this writing, the State Department had taken a half-step towards meeting this industry demand by indicating that if any other country in the area receives a similar level of technology, the U.S. will release the AMRAAMs, which have so far not been sold to any nation outside of NATO. As this book was going to press in mid-1998, the United Arab Emirates received the go-ahead to receive the AMRAAM as part of its purchase of 80 Lockheed Martin F-16s.43 Lockheed Martin even injected itself into the delicate issue of NATO expansion, aggressively marketing its weapons systems throughout the region and pressing for the ‘‘widest possible’’ expansion of NATO. Outgoing company CEO Norman Augustine toured the region in April of 1997 in search of new arms deals. Lockheed Martin’s vice president for strategic planning, Bruce Jackson, has been moonlighting as the president of the U.S. Committee to Expand NATO, an informal lobbying organization that brings together defense executives, top Clinton-administration officials, and key senators whose votes will be needed to ratify NATO expansion for private, off-the-record briefings at Washington-area hotels. While the idea of expanding NATO did not originate with the arms industry, the likelihood of ratification, the scope of expansion, and the level of arms transfers involved have all been influenced by company lobbying efforts that are premised on the industry’s perceived need to open up a new regional market for sales of combat aircraft and other expensive U.S. weaponry. Other policy issues driven by industry include the pending decision over how soon to begin exporting the Air Force’s F-22 stealth fighter plane (Lockheed Martin has already been weighing in in favor of early exports to

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close allies like Japan and NATO members); and a drive by Ingalls Shipbuilding of Pascagoula, Mississippi (a shipyard close to the heart of Senate Majority Leader Trent Lott) to overturn a long-standing Navy prohibition on production and export of diesel submarines by the United States.44 From which countries are eligible to get advanced U.S. weaponry, to what levels of technology to release for sale, to how much the U.S. government should spend subsidizing overseas arms sales, the U.S. arms industry has been actively shaping U.S. arms-export policy. Have these industry pressures distorted U.S. policy in a direction that threatens long-term U.S. security? The May 1996 final report of the Presidential Advisory Board on Arms Proliferation Policy, chaired by Janne Nolan of the Brookings Institution, was sharply critical of the notion of promoting arms exports to support domestic defense industrial capabilities, suggesting that continuing down this road could pose serious threats to the future security of the U.S. and its allies: The erosion of restraint driven by this sort of economic competition could have severe consequences. The United States and its allies have been fortunate in that their soldiers, sailors, and airmen have seldom had to face in combat advanced conventional weapons of their own manufacture. The few examples, however, are troubling. The Board is concerned that domestic political pressures already strong in major supplier countries could increase significantly the number of risky sales in the name of jobs or the economy. A disturbing image is forming: ever more transfers driven by shrinking defense industries placing ever more capable weapons in troubled regions. The exporting states in turn feel compelled to develop and produce even more advanced weapons to counter this proliferation. This increasingly vicious circle is indeed worthy of prevention or early treatment.45

Unfortunately, the worst-case scenario sketched out by the Presidential Advisory Board is uncomfortably close to a description of current U.S. policy. The last five times the U.S. has sent troops into conflict situations in significant numbers—in Panama, Iraq, Somalia, Haiti, and to a much lesser extent in Bosnia—they faced forces on the other side that had gained access to U.S. weapons or military technology in the period leading up to the conflict. In some cases the weapons involved were relatively unsophisticated: rifles, grenades, land mines, technical vehicles, and armored cars. But in Iraq, U.S. technology was put to work in the production of ballistic missiles, cluster bombs, and weapons of mass destruction. The Presidential Advisory Board is correct to stress that the U.S. and its allies have been ‘‘fortunate’’ that they have yet to face more sophisticated arms of their own making. But an industry-driven armsexport policy will increase the likelihood of this happening in the future. Pressure from the United States to make payment for multi-billion-dollar weapons deals at the expense of social expenditures threatens to generate the very instability that could cause a hostile government to come to power. A financial adviser to the Saudi government made this point:

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People think we have a wonderful gold mine in Saudi Arabia that we can sell a lot of military equipment to create jobs, to help the defense industry’s transition out of the Cold War, to improve our balance of payments and to make Saudi Arabia safer. . . . I don’t think the U.S. government realizes what it is doing by shoving weapons down the Saudis’ throats. They’re forgetting that what they are doing is creating instability in Saudi Arabia. That could be the greatest risk to Saudi security.46

ALTERNATIVE PATHS FOR ADDRESSING THE ECONOMIC PRESSURES TO EXPORT ARMS In sum, far from compensating for losses in business resulting from the decline in Pentagon spending, U.S. arms exports since the end of the Persian Gulf War have primarily benefited a handful of firms involved in the export of fighter aircraft, and to a lesser extent tanks, surveillance aircraft, and missile systems. For the national economy, regional economies, and even the defense and aerospace industries as a whole, the contribution of arms exports to revenues and profits ranges from negligible to marginal. The companies that have been the greatest beneficiaries of arms sales, particularly Lockheed Martin and McDonnell Douglas, have also been in the forefront in pushing for changes in U.S. arms-export policies that will make more advanced systems available to a wider range of countries on more favorable financial terms. There is a danger that pressures from these firms, along with concerns about sustaining key production lines, could foster a counterproductive cycle in which exports of ever-morecapable systems to a wider range of countries force the United States to spend more on its own military forces in preparation for future regional contingencies, even as U.S. forces are exposed to the risk of facing more heavily armed adversaries in future conflicts. Four alternative paths for defense industrial base/arms-export policies would better meet the economic need while satisfying U.S. security interests. Scenario 1: The U.S. and Its Allies as Purchasers of Last Resort As the RAND Corporation has suggested in a companion report to that of the Presidential Advisory Committee on Arms Proliferation, if sustaining key defense production lines is a major rationale for exports of high-tech combat aircraft, an alternative strategy would be to simply have the Pentagon pick up the costs of maintaining these lines. RAND estimates the cost at $4 to $7 billion per year, which would involve an increase of 8 to 14 percent over current levels of procurement funding. Some of these funds could be taken from savings yielded by reductions in the $7 to $7.5 billion the U.S. government currently spends financing and promoting arms exports. Some sort of hybrid solution might be devised in which the lines would be supported by a combination of Pentagon procurement and non-controversial arms sales to an ‘‘inner ring’’ of

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close allies; but the idea would be to bear the cost of sustaining the defense industrial base directly rather than bearing the costs and risks associated with sustaining it via exports. The risks of arms proliferation would be reduced under this approach, but the costs of sustaining production lines for systems that the Pentagon no longer needs for defense purposes might be a hard sell politically.47

Scenario 2: Shutdown An alternative approach would be to take a second look at whether it is truly necessary to sustain significant numbers of current-generation production lines for U.S. weaponry while the next generation of systems is in research and development. Even under the worst case put forward by industry, the consequences of having to restart a tank or aircraft line after a break in procurement orders appear to involve at most a year or so of training and start-up costs. Given that the life cycle of a modern weapons system from conception to initial production can be a decade or more, and that there is ample equipment in the U.S. arsenal to deal with any conceivable short- or medium-term contingency, the costs of starting and stopping production lines may be well worth paying compared to the current alternatives: paying for weapons the Pentagon doesn’t need to keep the lines up, or pushing exports which may redound against U.S. security interests to keep them running. Further work could be done on the most efficient techniques for keeping certain lines on ‘‘standby’’ status, such as keeping a cadre of engineers and skilled workers engaged in R&D and upgrade work.

Scenario 3: A Dual-Use Industrial Base Linked to Cooperative Arms Export Policies Inspired by suggestions made by Kenneth Flamm of the Brookings Institution in his ongoing work on restructuring the U.S. defense industrial base, this approach would involve greater reliance on dual-use technologies in the production of U.S. defense equipment, thereby reducing the need to maintain defensespecific production lines and technologies. In addition, this scenario would involve collaborative production efforts with U.S. allies in Europe and Asia, so that production of new systems could be more cost-effective (due to longer production runs) and pressures to export widely would be correspondingly reduced. Collaborative production would be linked to common standards on exports, limiting the levels of technologies and the types of regimes that would be allowed to receive advanced systems. This approach would face significant political obstacles, but if implemented it could dramatically reduce economic pressures to export, while offering security and efficiency benefits to supplier nations participating in such an effort.48

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Scenario 4: A Moratorium on Production and Sale of Advanced Combat Systems Building on her work on the world combat-aircraft production network, Randall Forsberg of the Institute for Defense and Disarmament Studies (IDDS) has suggested that the three nations with the greatest concentration of front-line arms-production capability—the United States, France, and Britain—negotiate with Russia and some key regional powers to implement a moratorium on production of front-line weapons systems (including combat aircraft, main battle tanks, and advanced missile systems) for export, linked to regional reductions in military forces along the lines of the Conventional Forces in Europe treaty. This step would be followed by agreements to stop production of front-line systems for their own armed forces and to mothball arms industries for a 20to 30-year period. During this period attention would be focused on more effective methods of multilateral peacekeeping and peacemaking, and on the development of new standards for the deployment of stabilizing, defensively oriented military forces. This is an ambitious agenda, but it is built on the notion that the end of the Cold War provides an historic opportunity to rethink fundamental security concepts, an opportunity that has thus far lain dormant. It has the virtue of taking on the possibilities of a new era in international relations directly, rather than trying to relentlessly apply old methods to a radically new situation, as the arms industry has been doing in pressing exports as a multipurpose economic and security tool.49

NOTES The author would like to thank the Ford Foundation and the John D. and Catherine T. MacArthur Foundation for supporting this chapter as part of the World Policy Institute’s project on the changing dynamics of arms production and trade. 1. Eric Schmitt, ‘‘U.S. to Sell Saudis $20 Billion in Arms; Weapons Deal Is Largest in History,’’ New York Times, September 15, 1990, p. A.3. For background on the $20billion Saudi arms package and the industry lobbying effort that helped push through each of its major elements, see William D. Hartung, And Weapons for All (New York: HarperCollins, 1994), pp. 163–174. 2. Michael Wines, ‘‘$8 Billion Directed to Wheat Farmers and Arms Workers,’’ New York Times, September 3, 1992; Martin Kasindorf, ‘‘Let’s Make a (Jet) Deal,’’ Newsday, September 12, 1992. 3. Hartung, And Weapons for All, pp. 5–10, 148–151; Sarah Walkling, ACA Register of U.S. Arms Sales (Washington, DC: Arms Control Association, May 1997). 4. Congressional Presentation for Security Assistance Programs for Fiscal Year 1994 (Washington, DC: Department of State, 1993), pp. 7–8. 5. Department of Defense, Defense Security Assistance Agency, Foreign Military Sales, Foreign Military Construction Sales, and Military Assistance Facts as of September 30, 1996 (Washington, DC: Department of Defense, 1997), pp. 15, 57.

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6. Stephen Engelberg, Jeff Gerth, and Tim Weiner, ‘‘U.S.-Saudi Deals in ’90’s Shifting Away from Cash Deals Toward Credit,’’ New York Times, August 23, 1993, p. A1. For an excellent review of trends in the arms trade, see David Gold, ‘‘The Changing Economics of the Arms Trade,’’ and Ann Markusen, Arming the Future: A Defense Industry for the twenty-first Century (Council on Foreign Relations Press, forthcoming 1999). 7. On French arms sales, see William D. Hartung, ‘‘Keeping Up with the French,’’ Middle East Report, November/December 1995, p. 18; on recent increases in Russian sales, see Richard F. Grimmett, Conventional Arms Transfers to Developing Nations, 1988–1995 (Washington, DC: CRS, August 15, 1996), pp. 8–9. 8. U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1995 (Washington, DC: Government Printing Office, 1996), p. 149. 9. Ibid., p. 10. 10. Ibid., p. 149. 11. Congressional Budget Office, The Economic Effects of Reduced Defense Spending (Washington, DC: Congressional Budget Office, February 1992), pp. 22–23. 12. Ibid., p. 23. 13. Grimmett, Conventional Arms Transfers, p. 81; Table 8.3 and Appendix 8.3, adjusted with deflators on defense procurement contained in Office of the Undersecretary of Defense (comptroller), National Defense Budget Estimates (Washington DC: Department of Defense, 1997), pp. 55–56; and Office of the Undersecretary of Defense (Acquisition and Technology), Worldwide Conventional Arms Trade (1994–2000): A Forecast and Analysis (Washington, DC: Department of Defense, December 1994), p. v. 14. The difference in the number of units purchased in each major weapons category is even more stark. In 1976, the Pentagon purchased 435 fixed-wing military aircraft at a cost of $11.1 billion (in constant 1996 dollars); in 1996, the Pentagon was scheduled to buy 74 military aircraft at a cost of $5.2 billion. So, in 1996, for a little less than onehalf the cost, the Pentagon received fewer than one-sixth as many units of fixed-wing aircraft as in 1976. For helicopters, the change was less dramatic: in 1976 the Pentagon bought 81 military helicopters for $369 million, as compared with a projected purchase of 60 helicopters for $592 million in 1996. A 60 percent increase in spending on helicopters yielded about 25 percent fewer aircraft. For tanks and other combat vehicles, the trends are harder to discern, since the Pentagon purchased no tanks in 1996. But in 1976 the Pentagon purchased 850 tanks for $1.2 billion, while in 1995 (the last year it placed a major order), it bought 34 tanks for $312 million. This works out to 4 percent as many tanks for 25 percent of the cost. As for tactical missiles, the Pentagon bought 61,678 in 1976 for $3.7 billion, while in 1996 it purchased 1,987 for $1.8 billion—3 percent as many missiles for half the price. Data on changes in the unit costs and volumes of weaponry purchased in major categories of equipment is drawn from Congressional Budget Office, ‘‘Tables of Actual and Projected Weapons Purchases,’’ Washington, DC: Congressional Budget Office, March 1995 (hereafter ‘‘Tables’’). 15. It should be noted that commercial sales (in which companies deal directly with foreign buyers once they have received a license from the State Department) have become increasingly popular, accounting on average for 25 percent of annual U.S. arms transfers. Unfortunately, there is no reliable source of data on commercial arms exports broken down by company. The analysis of the concentration of FMS awards is based on calculations by the author, utilizing data on FMS awards for FY 1996 drawn from Pentagon contracting data tapes analyzed by Eagle Eye Publishers of Fairfax, VA.

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16. Data on F-16 orders during the 1990s is from Walkling, ACA Register. 17. The CSIS study is cited in Ann Markusen and Joel Yudken, Dismantling the Cold War Economy (New York: Basic Books, 1992), p. 87. 18. Data on commercial sales is closely held by the State Department on the grounds of company ‘‘confidentiality,’’ on the questionable theory that revealing information on what weapons a company is licensed to market to a given country might provide an opportunity for competing firms to undercut the U.S. firm in that market, and in effect ‘‘steal their business.’’ Since most major arms companies are already keenly aware of where the international opportunities exist for selling their equipment, it seems unlikely that releasing data on commercial arms export licenses granted to U.S. firms would hurt their competitive position in any way. This would be particularly true if data on commercial sales were released after a sale has been concluded rather than during the marketing phase. Whether or not the confidentiality argument makes sense, the reality is that there is very limited data available on commercial arms sales broken down by company. See United States General Accounting Office, Security Assistance: Update of Programs and Related Activities (Washington, DC: General Accounting Office, December 1988), pp. 88–93. 19. Interview with Pete Keating, Director of Communications, General Dynamics Land Systems, July 8, 1997. 20. Interview with Rick Kennedy, Director of Communications, General Electric Engine Division, plus background memos and fact sheets on GE engine programs supplied at the time of the interview, July 8, 1997. 21. Air Force orders for the plane dropped from 36 per year in the late 1980s and early 1990s to just three aircraft in FY 1992 and none for fiscal years 1993–1995. Token production runs of six per year were authorized in the FY 1996 and FY 1997 budgets, but for the rest of the 1990s the F-15 line will be running almost entirely for the purpose of filling orders for Saudi Arabia and Israel. 22. Data on McDonnell Douglas’s financial position and the status of key arms-export programs is drawn from the company’s 1996 annual report. 23. Data drawn from the company’s annual report; Walkling, ACA Register; and Congressional Budget Office, ‘‘Tables.’’ 24. Office of Technology Assessment, Global Arms Trade: Commerce in Advanced Technology and Weapons (Washington, DC: Government Printing Office, 1991), pp. 52– 53. 25. William D. Keller, Arm in Arm: The Political Economy of the Global Arms Trade (New York: Basic Books, 1995), pp. 120–121. 26. William D. Hartung, ‘‘Nixon’s Children: Bill Clinton and the Permanent Arms Bazaar,’’ World Policy Journal Vol. 12, No. 2, Summer 1995, pp. 25–35. 27. Lockheed Martin chairman of the board Norman Augustine has taken a close personal interest in promoting international sales and ensuring that they are subsidized by the U.S. government. Among the issues on which Augustine and his firm have played a central role are the creation of the $15 billion Defense Export Loan Guarantee fund (DELG) and the rollback of recoupment fees, which are essentially royalties paid by foreign purchasers of U.S.-developed weapons systems to reimburse the U.S. Treasury for the original taxpayer funding that went into designing and procuring these weapons. 28. Data on procurement and exports of major Lockheed Martin systems is drawn from the company’s annual report for 1996; Congressional Budget Office, ‘‘Tables’’ and the FY 1996 and FY 1997 editions of Paul J. Graney, ‘‘Defense Authorization and

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Appropriations: Major Weapons and Other Defense Programs’’ (Washington, DC: Congressional Research Service, February 20, 1996 and November 20, 1996, respectively). 29. Data from Lockheed’s 1996 annual report. 30. A preliminary analysis of the FY 1997 budget and the FY 1998 proposal for foreign operations spending suggests that arms export subsidies have stabilized in the $7 billion to $7.5 billion range. Grants and loan subsidies under the Foreign Military Financing program are at $3.3 billion for each of the two years, roughly a $100 million increase over FY 1995 levels; the portion of Economic Support Funds utilized to offset arms purchases from the U.S. is down by about $100 million from FY 1995 to $2 billion, as more of the program is now being allocated for specific economic and ‘‘democracy building’’ projects, including a contribution to a new Middle East Economic Development Bank; spending on personnel involved in administering and promoting arms sales is down by about $50 million, and revenues foregone as a result of the repeal of recoupment fees are down by perhaps $100 million per year, reflecting lower levels of overall sales; the cost of Excess Defense Articles transfers was up to $270 million in 1996 from $200 million in 1995; annualized write-offs of bad arms-sales loans are holding steady at $1 billion per year; and there have been no big new military-related loans by the Export-Import Bank to rival the $2.7 billion in loans for military helicopters to Turkey and a dual-use radar system for Brazil that were concluded in the 1995 period. Taking all of these figures into account, arms-export-related subsidies come in at about $7.4 billion for 1997 and 1998, years during which total U.S. arms sales are estimated to have been in the range of $12 to $16 billion. This will maintain the ratio of spending roughly half as much taxpayer money promoting U.S. arms sales as the total arms export business generated by U.S.-based firms that existed in 1995. Updates on the costs of arms-export subsidies are drawn from data supplied by James Breglio of the Defense Security Assistance Agency and information gleaned from U.S. Department of State, Congressional Presentation for Foreign Operations, FY 1998. 31. U.S. Department of State, Congressional Presentation, pp. 486, 494. 32. Jeff Gerth and Tim Weiner, ‘‘Arms Makers See Bonanza,’’ New York Times, June 29, 1997, p. A-1. 33. Office of Technology Assessment, Global Arms Trade, p. 4. 34. U.S. Department of Commerce, Bureau of Export Administration, Offsets in Defense Trade: A Study Conducted Under Section 309 of the Defense Production Act of 1950, as Amended (Washington, DC: Department of Commerce, May 1996). 35. Ibid., p. 64. Labor unions in the defense sector are acutely aware of the offset problem: over the past several years, there have been protests at the Lockheed Martin F-16 plant in Fort Worth over plans to train South Korean workers to build F-16 components in Seoul, and the issue of ‘‘outsourcing’’ components of military aircraft and airliners figured in major strikes at McDonnell Douglas and Boeing. 36. ‘‘UAE Raises Basing Doubts,’’ Jane’s Defence Weekly, November 25, 1995, p. 19; and Christine Spolar, ‘‘Aging War Machines Grapple with Costly Overhaul,’’ Washington Post, June 19, 1997, p. 1. 37. Lora Lumpe, ‘‘Offsets and Their Negative Impact—A Call for Government Action,’’ in Kate Breslin, ed., Offsets and the U.S. National Interest (Arlington, VA: George Mason University, 1996), pp. 12–16; and ‘‘Chinese Modernization Efforts Breach U.S. Law,’’ Jane’s Defence Weekly, December 11, 1996, p. 11. 38. Stockholm International Peace Research Institute, SIPRI Yearbook 1989: World Armaments and Disarmament (New York: Oxford University Press, 1989), pp. 196–198.

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39. Lumpe, ‘‘Offsets,’’ p. 15. 40. Qtd. in Hartung, And Weapons for All, p. 254. 41. Qtd. in Don Oberdorfer, ‘‘1982 Arms Policy with China Victim of Bush Campaign, Texas Lobbying,’’ Washington Post, September 4, 1992, p. 3. 42. Douglas Waller, ‘‘How Washington Works—Arms Deals,’’ Time, April 14, 1997. 43. Mike Shuster, ‘‘Global Arms Trade—Part I,’’ National Public Radio, April 28, 1997 (transcript). 44. Gerth and Weiner, ‘‘Arms Makers See Bonanza’’; and Barbara Opall, ‘‘U.S. Air Force Will Push for Export of F-22,’’ Defense News, January 27–February 2, 1997. 45. Janne E. Nolan, Chair, Report of the Presidential Advisory Board on Arms Proliferation Policy (Washington, DC: Presidential Advisory Committee, May 1996), p. 16. 46. Engelberg, Gerth, and Weiner, ‘‘U.S.-Saudi Deals in ’90’s.’’ 47. Congressional Budget Office, Limiting Conventional Arms Exports to the Middle East (Washington, DC: CBO, September 1992), p. 72. 48. Kenneth Flamm, ‘‘Redesigning the Defense Industrial Base,’’ preliminary draft, May 1996 (based on an ongoing Brookings Institution project on this issue). 49. Randall Forsberg, ‘‘The Contraction of the World Military Aircraft Industry,’’ unpublished draft, July 25, 1996, pp. 38–40; and Janne Nolan, ed., Global Engagement (Washington, DC: Brookings Institution, 1994).

Appendix 8.1 U.S. Arms Sales as a Percentage of Pentagon Procurement Outlays, FY 1987 to FY 1996 (figures in billions of constant 1998 dollars)

Note: Data on arms deliveries includes figures on the Pentagon-administered Foreign Military Sales (FMS) program as well as commercial arms exports (which are licensed by the State Department). Sources: Office of the Undersecretary of Defense (Comptroller), National Defense Budget Estimates for FY 1998 (Washington, DC: Department of Defense, 1997), tables 5–8 and 6–11; Defense Security Assistance Agency, Foreign Military Sales, Foreign Military Construction Sales, and Military Assistance Facts as of September 30, 1996 (Washington, DC: Department of Defense, 1997), pp. 16–23, 68–72.

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Appendix 8.2 Effects of a $20-Billion Cut in Defense Spending on Top Defense-Oriented Industrial Sectors

Notes: Figures on share of output are as of 1990, and the figures on percentage change represent the relative impact of a $20-billion-per-year reduction in Pentagon spending phased in over several years’ time. Sectors marked in bold face are those most vulnerable to cuts in militaryrelated business. *n.e.c. ⫽ not elsewhere classified. Source: Adapted from Congressional Budget Office, The Economic Effects of Reduced Defense Spending (Washington, DC: Congressional Budget Office, February 1992), table 6.

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Appendix 8.3 Projected Arms Export Business by Sector, 1994–2000 (in billions of 1991 dollars, unless otherwise noted)

Sources: For projected exports, Office of the Undersecretary of Defense (Acquisition and Technology), World-Wide Conventional Arms Trade (1994–2000): A Forecast and Analysis (Washington, DC: Department of Defense, 1994), pp. 31–43; for average annual sales to the Pentagon by sector, Congressional Budget Office, ‘‘Tables of Actual and Projected Weapons Purchases 1974 through 1997,’’ March 20, 1995.

Appendix 8.4 Total Prime-Contract Awards under the Pentagon’s Foreign Military Sales Program, FYs 1993–1996 (in millions of dollars, not adjusted for inflation)

Source: Pentagon data tapes on prime-contract awards, analyzed by Eagle Eye Publishers, Fairfax, VA.

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Appendix 8.5 Patterns of Concentration of FMS Contracts, FY 1993 to FY 1996

Source: Pentagon data tapes on prime-contract awards, analyzed by Eagle Eye Publishers of Fairfax, VA, with additional analysis by the author.

Appendix 8.6 Top 10 Foreign Military Sales Contractors, FY 1996 (in millions of current dollars)

Source: Pentagon contract tapes, analyzed by Eagle Eye Publishers, Fairfax, VA.

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Appendix 8.7 Arms-Export Dependency of Major Defense Contractors, FY 1993 to FY 1996

Notes: (1) For companies that merged during 1993 through 1996, such as Northrop Grumman and Lockheed Martin, the figures presented here represent the merged figures for the firms throughout the period covered by the table; for mergers announced more recently, including Boeing/McDonnell Douglas, Raytheon/Texas Instruments/Hughes, and Lockheed Martin/Northrop Grumman, the figures for each firm are listed separately; (2) Northrop Grumman was not among the top 25 FMS contractors in FY 1994, but it is known that the companies FMS revenues for that year were less than $16.3 million (the amount received by the twenty-fifth largest recipient); (3) Statistical note: since company fiscal years do not always coincide with government fiscal years, figures for a given year may seem skewed relative to statistics on foreign sales listed in company annual reports; however, these differences should even out over the four-year period covered by the table. For example, the large FMS percentages logged by McDonnell Douglas in 1996 are likely to be spread out over several years in terms of actual cash flow to the company. Sources: Pentagon contracting data tapes, analyzed by Eagle Eye Publishers of Fairfax, VA; Office of the Secretary of Defense, Directorate of Information, Operations, and Reports, U.S. Department of Defense, Directorate of Information Operations and Report, ‘‘100 Companies Receiving the Largest Dollar Volume of Prime Contract Awards,’’ 1997.

For Further Reading

Adams, Gordon. The Iron Triangle: The Politics of Defense Contracting. New York: Council on Economic Priorities, 1981. Alic, John. Beyond Spinoff: Military and Commercial Technologies in a Changing World. Boston: Harvard Business School Press, 1992. Andersen, David, Sandra Ionno, and Jennifer Seltzer. Report on Academia and the Defense Budget. Washington, DC: Student Pugwash USA, 1998. Armstrong, David A. Bullets and Bureaucrats: The Machine Gun and the United States Army, 1861–1916. Westport, CT: Greenwood Press, 1982. Aspin, Les. An Approach to Sizing American Conventional Forces for the Post Soviet Era. U.S. House of Representatives, Committee on Armed Services, February 25, 1992. ———. ‘‘The Defense Budget and Foreign Policy: The Role of Congress.’’ In Franklin A. Long and George Rathjens, eds., Arms, Defense, and Arms Control (New York: W. W. Norton, 1976), pp. 70–79. ———. Report on the Bottom-Up Review. Washington, DC: Department of Defense, October 1993. Brown, Michael E. Flying Blind: The Politics of the U.S. Strategic Bomber Program. Ithaca, NY: Cornell University Press, 1991. Burnett, William B., and Frederic M. Scherer, ‘‘The Weapons Industry.’’ In Walter Adams, ed., The Structure of American Industry (New York: Macmillan, 1990), pp. 289–317. Cohen, William S. Annual Report to the President and the Congress. Washington, DC: Department of Defense, April 1997. ———. Report of the Quadrennial Defense Review. Washington, DC: Department of Defense, May 1997. Coulam, Robert A. ‘‘The F-111.’’ In Commission on the Organization of the Government for the Conduct of Foreign Policy, Appendix, vol. 4, pp. 118–136. Washington, DC: Government Printing Office, 1975.

218

For Further Reading

Crecine, J. P. ‘‘The Defense Budget in Fiscal Policy and Management.’’ In Commission on the Organization of the Government for the Conduct of Foreign Policy, Appendix, vol. 4, pp. 70–79 (Washington, DC: Government Printing Office, 1975). Daggett, Stephen, and Keith Berner. ‘‘Items in the Department of Defense Budget That May Not Be Directly Related to Traditional Military Activities.’’ Congressional Research Service Memorandum, March 21, 1994. Demchak, Chris C. Military Organizations, Complex Machines: Modernization in the U.S. Armed Services. Ithaca, NY: Cornell University Press, 1991. Drewes, Robert W. The Air Force and the Great Engine War. Washington, DC: National Defense University Press, 1987. Ferrari, Paul F. U.S. Arms Exports: Policies and Contractors. Washington, DC: IRRC, 1987. Forsberg, Randall, ed. The Arms Production Dilemma: Contraction and Restraint in the World Combat Aircraft Industry. Cambridge, MA: MIT Press, 1994. Fox, J. Ronald The Defense Management Challenge. Boston: Harvard Business School Press, 1988. Friedberg, Aaron. ‘‘Why Didn’t the United States Become a Garrison State?’’ International Security (Spring 1992), pp. 109–142. Gansler, Jacques. Affording Defense. Cambridge, MA: MIT Press, 1989. Glass, Wayne. Closing Military Bases: An Interim Assessment. Washington, DC: Congressional Budget Office, December 1996. Gottlieb, Sanford. Defense Addiction: Can America Kick the Habit? Boulder, CO: Westview Press, 1997. Hartung, William D. And Weapons for All. New York: HarperCollins, 1995. International Institute for Strategic Studies. The Military Balance 1998/99. Oxford: Oxford University Press, 1998. Kanter, Arnold. Defense Politics: A Budgetary Perspective. Chicago: University of Chicago Press, 1979. Kapstein, Ethan B., ed. Arms Production: Policy Dilemmas for the 1990s. New York: University Press of America, 1992. Kapstein, Ethan B., ed. Downsizing Defense. Washington, DC: Congressional Quarterly, 1993. Keller, William D. Arm in Arm: The Political Economy of the Global Arms Trade. New York: Basic Books, 1995. Klare, Michael T. The American Arms Supermarket. Austin: University of Texas Press, 1984. Kovacic, William E. ‘‘Blue Ribbon Defense Commissions: The Acquisition of Major Weapons Systems.’’ In R. Higgs, ed., Arms, Politics, and the Economy (New York: Holmes & Meier, 1990). ———. ‘‘The Sorcerer’s Apprentice: Public Regulation of the Weapons Acquisition Process.’’ In R. Higgs, ed., Arms, Politics, and the Economy (New York: Holmes & Meier, 1990). Kurth, James R. ‘‘The Military-Industrial Complex Revisited.’’ In Joseph Kruzel, ed., American Defense Annual, 1989–1990 (Lexington, MA: Lexington Books, 1989), pp. 195–215. Laurance, Edward J. The International Arms Trade. New York: Lexington Books, 1992. Lee, Dwight R. ‘‘Public Goods, Politics, and Two Cheers for the Military-Industrial

For Further Reading

219

Complex.’’ In R. Higgs, ed., Arms, Politics, and the Economy (New York: Holmes & Meier, 1990), pp. 22–36. Lehman, John F., Jr. Command of the Seas: Building the 600-Ship Navy. New York: Scribner, 1988. Lumpe, Lora, and Jeff Donarski. The Arms Trade Revealed: A Guide for Investigators and Activists. Washington, DC: Federation of American Scientists, 1998. Markusen, Ann, and Joel Yudken. Dismantling the Cold War Economy. New York: Basic Books, 1992. Markusen, Ann, Peter Hall, Scott Campbell, and Sabina Deitrick. The Rise of the Gunbelt: The Military Remapping of Industrial America. New York: Oxford University Press, 1991. Mayer, Kenneth. The Political Economy of Defense Contracting. New Haven: Yale University Press, 1991. McNaugher, Thomas. ‘‘Weapons Procurement: Futility of Reform.’’ In M. Mandelbaum, ed., America’s Defense (New York: Holmes & Meier, 1989), pp. 68–112. Melman, Seymour. The Permanent War Economy: American Capitalism in Decline. New York: Simon and Schuster, 1974. Neufeld, Jacob Ballistic Missiles in the United States Air Force, 1945–1960. Washington, DC: Office of Air Force History, 1990. Office of the Undersecretary of Defense (Comptroller), National Defense Budget Estimates for FY 1998. Washington, DC: Department of Defense, 1997. O’Hanlon, Michael. How to Be a Cheap Hawk: The 1999 and 2000 Defense Budgets. Washington, DC: Brookings Institution, 1998. Owens, Macubin T. ‘‘Expand the Military-Industrial Complex: Yes—Preparedness Requires It.’’ Orbis (Fall 1989). Pierre, Andrew J. Cascade of Arms: Managing Conventional Weapons Proliferation. Washington, DC: Brookings Institution, 1997. ———. The Global Politics of Arms Sales. Princeton, NJ: Princeton University Press, 1982. Pierre, Andrew J., and Dmitri V. Trenin, eds. Russia in the World Arms Trade. Washington, DC: Carnegie Endowment for International Peace, 1997. Polmar, Norman, and Thomas B. Allen. Rickover. New York: Simon and Schuster, 1982. Powell, Colin. My American Journey. New York: Random House, 1995, ch. 17. Reingold, Nathan. Science, American Style. New Brunswick, NJ: Rutgers University Press, 1991. Roland, Alex. ‘‘Technology, Ground Warfare, and Strategy: The Paradox of American Experience.’’ Journal of Military History (October 1991). Ross, Andrew R. The Political Economy of Defense: Issues and Perspectives. Westport, CT: Greenwood Press, 1991. Sampson, Anthony. The Arms Bazaar: From Lockheed to Lebanon. New York: Viking Press, 1977. Sapolsky, Harvey M. ‘‘Myth and Reality in Project Planning and Control.’’ In F. Davidson and C. Lawrence Meador, eds., Macro-Engineering and the Future (Boulder, CO: Westview Press, 1982), pp. 121–135. ———. The Polaris System Development. Cambridge, MA: Harvard University Press, 1972. ———. Science and the Navy. Princeton, NJ: Princeton University Press, 1990.

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For Further Reading

Schwartz, Stephen I., ed. Atomic Audit: The Costs and Consequences of U.S. Nuclear Weapons Since 1940. Washington, DC: Brookings Institution, 1998. Sigal, Leon V. Reporters and Officials: The Organization and Politics of Newsmaking. Lexington, MA: Lexington Books/D.C. Heath, 1973. Smith, Bruce L. R. American Science Policy Since World War II. Washington, DC: Brookings Institution, 1990. Stockman, David. The Triumph of Politics. New York: Avon, 1987. Tirman, John Spoils of War: The Human Cost of America’s Arms Trade. New York: Free Press, 1997. U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers, 1990. Washington, DC: Government Printing Office, 1991. Vander Meulen, Jacob. The Politics of Aircraft: Building an American Military Industry. Manhattan: University of Kansas Press, 1991. Wirls, Daniel. Buildup: The Politics of Defense in the Reagan Era. Ithaca, NY: Cornell University Press, 1992. Wulf, Herbert, ed. Arms Industry Limited. New York: Oxford University Press, 1993.

Index

ABM Treaty, 91 Abramowitz, Morton, 203 Ackerman, Gary, 44 Addabbo, Joseph, 36 Add-ons, 3, 44–45, 85–103, 131 Advanced Medium Range Air-to-Air Missile (AMRAAM), 188, 203 Aegis cruiser, 94 Aerospace Industries Association, 198, 203 A/F-X, 93 Aircraft carrier, 93, 166 Allies, defense spending of, 7, 11–13, 23– 24 Anders, William, 145 Andersen, David, vii Apache helicopter, 93, 191–92, 193 Argentina, 201 Armed forces (U.S.): force structure, 15– 16, 24, 115, 122; overseas deployments, 17–18; personnel, 15, 21; size, 15–16 Armey, Richard, 99 Arms sales: by congressional district, 5, 194–95; concentration of, 5, 179, 184– 95, 215–16; costs of, 5, 180, 186, 194– 204; economic benefits of, 177–79, 183– 86, 212–13; global trends, 178–82;

proliferation, 198–204; U.S. share of, 179–82, 185, 214 Aspin, Les, 23, 90, 92, 144 Associated Press, 128 Atlas, Terry, 121 Augustine, Norman, 203 Australia, 11–13 AV-8B, 158 B-1 bomber, 15, 29, 30, 45, 201 B-2 bomber, 15, 30, 34, 35, 44–45, 89, 90, 91, 92, 94, 110, 122, 124, 125, 126, 158 B-52 bomber, 15 Barton, Joe, 202 Base realignment and closure (BRAC), 165, 170; and influence of congressional committees, 2, 41, 43, 96, 97 Bateman, Herbert, 93, 99 Bath Iron Works, 45, 94, 158 Beauregard, John, 141 Belgium, 13, 188 Bell Helicopter Textron, 89 Beloit Corporation, 199–200 Ben and Jerry’s, 130 Berman, Howard, 45 Blackhawk helicopter, 46

222

Index

Boeing, 89, 94, 100, 157, 158, 162, 187, 188, 192, 193 Borosage, Robert, 120 Boskin, Michael, 128–29 Bosnia, 17–18, 24, 101, 107, 113, 121, 124, 130, 204 Boston Naval Shipyard, 154 Bottom-Up Review, 109, 113, 115, 116, 117, 118, 144, 145, 148, 149 Brazil, 200, 201 Brookings Institution, 118, 121, 129, 204, 206 Buchanan, Patrick, 131 Bumpers, Dale, 121 Bush, George, 141, 177, 183, 202 Business Executives for National Security, 43 Business Leaders for New Priorities, 130 Byrd, Robert, 31, 36, 41, 98 C-17, 158, 165, 201 C-130 Hercules, 95, 168 Calmes, Jackie, 127 Camp Lejeune, 89 Camp Pendleton, 97 Campaign for New Priorities, 120 Canada, 12–13 Capital Asset Pricing Model, 161–62 Carnegie Endowment for International Peace, 203 Carroll, Eugene, 117, 121 Center for Defense Information, 117, 121 Center for Strategic and Budgetary Assessments, 114, 117, 128, 130 Center for Strategic and International Studies, 189 Centurion submarine, 141, 144 Cheney, Richard, 89, 90, 119, 138, 139 Chicago Tribune, 3, 107, 113, 114, 119, 121, 128, 130 Chile, 203 China, 11–15, 129, 182, 201, 202–3 Chrysler, 157 Clinton, William, 17, 31, 46, 101, 109, 121, 124, 127, 131, 183 Code of Conduct bill, 46 Cohen, Ben, 130 Cohen, William, 40, 45, 94, 96, 102

Comanche helicopter, 163 Congress: base realignment and consolidation, 2; and defense contracts, 36– 39, 161; defense dependency of, 2, 30, 36, 194–95; procedural changes in, 3, 86; role of budget committees, 3, 86; role of defense committees, 3, 86, 96– 97, 98–99 Congressional Budget and Impoundment Control Act (1974), 102 Congressional Budget Office, 116, 184 Connecticut State Department of Labor, 141 Conventional Forces in Europe (CFE), 207 Coproduction, 34 Council for a Livable World, 127, 129, 130 Crusader artillery system, 164 Cuba, 11–12, 108 Cunningham, Randy, 100 Curtis-Wright Corporation, 159, 161 Dahlman, Carl, 21 Daschle, Tom, 43 Defense budget: alternative models, 22– 24; budget authority, 2; budget outlays, 2; compared to other countries’ defense spending, 11–13; personnel, 15, 21; President Bush’s, 89–92; President Clinton’s, 17, 92–96, 110, 112–14; President Reagan’s, 87–88; readiness, 19, 115, 118–21; as share of U.S. budget, 8, 10; as share of U.S. GDP, 9; size, 1, 2, 7, 17; trends, 8–11, 17, 24, 154; weapons procurement, 19, 22, 30. See also Quadrennial Defense Review Defense Budget Project, 114, 117 Defense budgeting, politics of, 1, 2, 29– 31, 33, 36–39, 43–46, 85–100, 135–36, 138–39 Defense Commissary Agency, 21 Defense employment, 155. See also Seawolf submarine Defense Finance and Accounting Agency, 21 Defense industrial base: acquisition reform and, 166–67; antitrust policy

Index and, 171; arsenals and, 154, 170–71; conversion of, 165–66; excess capacity, 4, 155, 157, 162, 163–65, 168; mergers and acquisitions, 4, 153, 157–63; new programs, 4; politics of, 164–65; production lines, 1, 4, 89, 91, 92, 93, 153, 155–56, 159–61; Seawolf and, 135–36, 143–45, 148–49 Defense Information Systems Agency, 21 Defense procurement: ‘‘commuter effect,’’ 34; distribution of prime contracts, 2, 30–33, 36–39; by district, 33, 35–36, 38–39, 46, 49–82; by region, 30–32, 35, 46; by state, 31–32, 35–37, 39, 83–84; subcontracting, 33– 34 Defense Science Board, 21 Defense spending. See Defense budget Delacruz, Ken, 147, 148 Dellums, Ronald, 44–45, 94, 113 Denmark, 13, 188 DePillo, Sal, 141 Deutch, John, 116, 117, 157, 165 Dickinson, William, 90 Dicks, Norman, 44, 94 Dodd, Christopher, 46, 139 Dole, Robert, 45, 116, 122, 131–32 Domestic spending (discretionary), 1–2, 10–11, 18, 24–25 Dornan, Robert, 45, 46 Downey, Thomas, 89 Drew, Christopher, 121 E Systems, 162 Eastern Connecticut Chamber of Commerce, 138–39 Egypt, 188, 195, 201 Eidetics, 46 Entitlements, 10, 19, 24–25 F-5, 46, 202 F-14, 89, 90, 91 F-15, 158, 167, 168, 177, 187, 188, 190, 191, 193, 202 F-16, 34, 93, 167, 177, 187–88, 193, 202 F-18, 34, 100, 158, 167, 188, 191–92, 200, 203 F-22, 22, 29, 34, 45, 163, 167, 203

223

F-100, 188 F-110, 188 Fairchild, 159, 161 Federation of Atomic Scientists, 120 Feingold, Russell, 199 Feinstein, Dianne, 46 Fialka, John, 127 Finland, 198, 199, 200 Flamm, Kenneth, 206 FMC, 162, 164, 187, 188, 190 Follow-on imperative, 159 Forbes, 147 Forbes, Michael, 44 Ford, 157, 165 Ford Foundation, vii Foreign Affairs, 45, 118, 126 Foreign military sales. See Arms sales Forsberg, Randall, 207 Fort Bragg, 97 Fort Riley, 120 Foxwoods Casino, 146 France, 12–13, 178, 180, 181, 182, 198, 200, 202 Frank, Barney, 3, 119, 121, 131 Gejdenson, Samuel, 141 Gellman, Barton, 114 General Accounting Office, 116, 122, 129, 135, 189 General Dynamics, 157, 162, 170, 187, 188, 190, 191, 202; Electric Boat Division, 4, 135–50, 158, 168–69; Land Systems, 164–65 General Electric, 157, 162, 165, 187, 191 General Motors, 157, 187, 190 Gephardt, Richard, 99, 100 Geren, Pete, 93 Germany, 12–13, 17–18, 182 Gingrich, Newt, 34, 45, 46, 95–96, 99, 101 Glenn, John, 90 Gorbachev, Mikhail, 88 Graham, Bradley, 117, 125, 127–28, 132 Greece, 13 Great Britain. See United Kingdom Guam, 17 Haiti, 113, 121, 130, 204 Harman, Jane, 94

224

Index

Harris, John, 117 Harsco, 164 Hatfield, Mark, 46 Hefley, Joel, 43, 99 Hefner, W. G. (‘‘Bill’’), 97, 99 Heritage Foundation, 126, 128, 130 Hillen, John, 126 Hockbrueckner, George, 89 Hollings, Ernest, 36, 98 Honeywell, 157, 162 Hughes Electronics, 94, 157, 187, 190 Hungary, 17–18, 199, 200 Hunter, Duncan, 93 Hutchinson, Kay Bailey, 93 Iceland, 13, 88 India, 15 Indonesia, 46 Ingalls Shipbuilding, 204 Inouye, Daniel, 97, 99, 101, 114 Institute for Defense and Disarmament Studies, 207 Institute for Policy Studies, 120 International Business Machines Corporation (IBM), 157 International Institute for Strategic Studies (IISS), 12–14 Ionno, Sandra, vii Iran, 11–12, 108, 121, 201 Iraq, 11–12, 22, 90, 121, 200, 201, 204 Isaacs, John, 127 Israel, 15, 23, 187, 190, 191, 195, 198, 200, 202 Italy, 12–13, 17 Jackson, Bruce, 203 Japan, 11–13, 17–18, 178, 200 Johnson, Joel, 198 Joint Strike Fighter, 100, 158, 167 JSTARS surveillance and targeting aircraft, 15, 158 Kaho’olawe, 97 Kasich, John, 3, 44, 127 Keating, Pete, 190 Keller, William, 192–93 Kemper, Robert, 128 Kennedy, Edward, 135

King, Peter, 44 Korb, Lawrence, 118, 121, 126, 128 Korea, Democratic Republic of, 11–13, 15, 22–23, 108, 121 Korea, Republic of, 11–12, 15, 17–18, 23, 178, 182, 188, 198, 200, 201 Korean War, 9, 154 Krepinevich, Andrew, 117, 128 Kristol, William, 45 Kurth, James, 159 Kuwait, 121, 177, 190 Kyl, John, 97 Lancaster, H. Martin, 89 Levin, Carl, 90 Levine, Mel, 202 Lewis, Anthony, 126 Lewis, Jerry, 102 Libya, 11–12, 108 Line-item veto, 43–44 Litton Industries, 45, 162 Livingston, Robert, 92, 99, 101 Lockhart, Joe, 131 Lockheed Martin, 34, 35, 46, 99, 100, 157, 158, 159, 162, 169, 178, 187, 188, 189, 193–94, 196, 199, 202, 203, 205 Loral, 162 Los Angeles Times, 3, 107, 110, 113, 114, 116, 117, 119, 120, 128, 129, 130, 131 Lott, Trent, 43, 45, 94, 101, 204 Lumpe, Lora, 200, 202 Luxembourg, 13 M-1 tank, 90, 92, 164, 177, 188, 190 M-2 tank, 188 M-113 armored personnel carrier, 188 Macedonia, 113 Mann, Jim, 117 Marine Draftsmen’s Association, 148 Markusen, Ann, 33 Martin Marietta. See Lockheed-Martin McCain, John, 97, 101, 118, 119, 120 McCarthy, Carolyn, 44, 47 McCarthy, Colman, 120 McDonnell Douglas, 100, 157, 158, 162,

Index 165, 187–93, 194, 196, 199, 200, 201, 202, 203, 205 McGee, Joseph, 129 McHale, Paul, 93 McKay, Peter, 130 McKinney, Gene, 3, 107 Mediterranean Sea, 17, 23 Meehan, Martin, 119 Mellor, James, 145–46, 147 Metal Trades Council, 147, 148 Michel, Robert, 91 Military bases, 2, 16–17; and distribution of military payroll, 40; by district, 30– 39; by region, 41; by state, 40–43. See also Base realignment and closure Military Spending Working Group, 120 Minuteman missile, 15 Morgan, Dan, 131 Murtha, John, 100 MX missile, 15, 30, 89, 91, 92, 201

Nagy, Barbara, 139 National Taxpayers Union, 127 NATO: defense budgets, 11–13, 14; expansion and arms sales, 34, 197, 203– 4 Navy Times, 116 Netherlands, 12–13, 188, 193 New Haven Register, 136, 139 New London Day, 138, 139, 146, 147 New York Shipyard, 159, 161 New York Times, vii, 3, 107, 108, 109, 110, 113, 114–15, 117, 118, 119, 120– 21, 122, 126, 129, 133 Newman, Richard, 129, 131 Newport News Shipbuilding, 93, 166 News media: coverage of defense budgeting, 3, 107–33; framing as partisan conflict, 3, 108; sources, 110– 12, 122–24, 132–33 Newsweek, 3, 107 Nolan, Janne, 204 North, Oliver, 116, 121 North Korea. See Korea, Democratic Republic of Northrup Grumman, 34, 35–36, 44, 45,

225

89, 158, 162, 169, 187, 188, 190, 199, 200 Norway, 13, 188 Nuclear forces (U.S.), 15 Nunn, Sam, 113 Obey, David, 100 Office of Management and Budget, 198 Office of Technology Assessment, 192, 198 Offsets, 34–35, 197–200 Olsson, Mel, 148 O’Neill, Thomas P. (‘‘Tip’’), 30 Packard, Ron, 97, 99 Pakistan, 15, 202 Panama, 204 Paris Air Show, 177 Patriot missile, 177 Pequot Indians, 146 Perry, William, 100, 110, 116, 119, 125, 126, 127, 128 Pianin, Eric, 119 Pickett, Owen, 94, 99 Pike, John, 120 Pincus, Walter, 131 Pine, Art, 114, 117, 128, 130, 131 Pope Air Force Base, 97 Portugal, 13 Prewitt, Kenneth, vii Price, Don, 154 Private Industry Council, 141 Privatization, 21 Qatar, 182 Quadrennial Defense Review (QDR), 1, 2, 15–16, 19, 21, 22, 25, 29, 86, 101, 163 Raines, Franklin, 97 RAND Corporation, 4, 14, 21, 144, 145, 146, 148–49, 205 Rauch, Jonathan, 129 Raytheon, 157, 162, 178, 187, 188, 190, 203 Reagan, Ronald, 87–88, 120 Red Army, 1, 163 Reischauer, Robert, 17 Republic Aviation, 159

226

Index

Revolution in military affairs (RMA), 20– 21 Ricks, Thomas, 112 Rivlin, Alice, 95 Robb, Chuck, 31, 36, 94, 98 Rockwell, 157, 159, 161, 162 Rohrabacher, Dana, 46 Roll, C. Robert, 21 Romania, 197 Ruenzel, Neil, 136, 146, 147, 148 Russia, 11–15, 121, 129, 178, 180, 181, 182, 202 Rwanda, 113, 121 Sanchez, Loretta, 45 Sanders, Bernard, 46 Saudi Arabia, 177, 182, 187, 190, 191, 193, 198, 202–3, 205 Scarborough, Rowan, 119, 125, 128 Schenk, Lynn, 170 Schmitt, Eric, 117–18, 120, 122, 133 Seawolf submarine: and defense industrial base, 135, 143–45, 148–49; employment, 4, 136–44; layoffs, 4, 136–44, 146–48; Navy requirement, 4; politics of, 29, 94, 126, 135–36, 138–39 Seltzer, Jennifer, vii Shalikashvili, John, 116, 121, 128, 129– 30 Shenon, Philip, 126 Singapore, 188, 200 Sisisky, Norman, 93–94, 99 Skelton, Ike, 94 Smith, Christopher, 46, 47 Smith, Dan, 121 Social Science Research Council, vii Somalia, 113, 130, 204 South Korea. See Korea, Republic of Southeastern Connecticut Economic Development Corporation, 141 Soviet Union, 1, 11, 86, 153, 163, 168, 180 Spain, 12–13, 17 Spector, Arlen, 164 Spence, Floyd, 31, 36, 97, 102, 119, 127, 128 Spring, Baker, 128 Stevens, Ted, 95, 96, 97, 99

Stockholm International Peace Research Institute (SIPRI), 201 Strategic Defense Initiative (SDI), 30, 88, 89, 90, 92 Sudan, 108 Switzerland, 198 Syria, 108 Taiwan, 177, 178, 182, 187, 188, 198, 200, 202–3 Talent, James, 100 Taxpayers for Common Sense, 129 Tetrault, Roger, 139, 140 Texas Instruments, 157 Thailand, 178, 188, 203 Thurmond, Strom, 31, 36, 94, 96, 98, 119, 127, 128 Time, 3, 107 Todd Shipyards, 159, 161 Trident submarine, 15, 135, 139, 146, 147 TRW, 162 TSSAM, 93 Turkey, 13, 15, 23, 188, 195, 198 Turner, James, 138, 145, 146, 147 United Arab Emirates, 187, 193, 198, 200, 203 United Defense, 164 United Kingdom, 12–13, 15, 17, 178, 182, 198, 202 United Technologies, 35, 46, 162, 187 U.S. Air Force, 15–16 U.S. Army, 15–16, 24 U.S. Committee to Expand NATO, 203 U.S. Marine Corps, 16, 24, 89, 93 U.S. Navy, 15–16, 22–23 U.S. News & World Report, 3, 107, 129 V-22 Osprey, 22, 89, 90, 91, 92 Valmet Corporation, 200 Vietnam War, 9 Vought, 159, 161 Wall Street Journal, 3, 107, 112, 114, 122, 127, 128 Warner, John, 31, 36, 94, 96, 98, 120

Index Warsaw Pact, 11 Washington Post, 3, 107, 110, 113, 114, 115, 116, 117, 119, 120, 122, 125, 126, 127, 130–31, 132 Washington Times, 3, 107, 116, 119, 122, 125, 126, 128, 130 Wassenaar Arrangement, 203 Waters, Maxine, 45

Watertown Arsenal, 154 Weldon, Curt, 89, 125–26 Weapons procurement, 19, 22 Weiner, Tim, 113 Weir, Gary, 168 Westinghouse, 157, 161 Whitten, Jamie, 92 Wing, Christine, vii

227

About the Contributors

JOAN CAVANAGH is a lifelong anti-war and social-justice activist. She received her Ph.D. in U.S. social and diplomatic history from Yale University in 1996. EUGENE GHOLZ recently joined the faculty of the Institute of Public Policy at George Mason University. He was a National Security Fellow at Harvard University’s Institute for Strategic Studies in 1997–1998 and is completing his doctorate in political science at MIT. MORTON H. HALPERIN is Senior Vice President of the Century Foundation (formerly the Twentieth Century Fund) and a senior fellow of the Council on Foreign Relations. His government experience includes serving as deputy assistant secretary of defense (International Security Affairs) during the Johnson administration, and as a senior staff member at the National Security Council during the Nixon and Clinton administrations. Dr. Halperin is the author, coauthor, and editor of more than a dozen books, including Bureaucratic Politics and Foreign Policy (1974), Freedom vs. National Security (1977), Nuclear Fallacy (1987), and Self-Determination in the New World Order (1992). WILLIAM D. HARTUNG is Director of the Arms Trade Resource Center of the World Policy Institute at the New School in New York City. He is the author of numerous books and studies on the arms trade and on military spending, including And Weapons for All, Star Wars: The Economic Fallout, and The Economic Consequences of a Nuclear Freeze. His articles on military issues have appeared in Newsday, the New York Times, the Washington Post, Harper’s, The Bulletin of the Atomic Scientists, The Nation, and World Policy Journal.

230

About the Contributors

Amy Frumin assisted him in statistical analysis and preparing the tables for chapters 3 and 8. KRISTEN LOMASNEY is a research fellow at the Century Foundation. ELLIOTT NEGIN, an award-winning writer and media critic based in Washington, has been covering military and foreign-policy issues for more than a decade. He was the editor of Nuclear Times in the late 1980s and an editor at American Journalism Review from 1991 to 1995. He is now an editorial consultant to a number of organizations, including the Center for War, Peace, and the News Media. MICHAEL O’HANLON is a Fellow in the Foreign Policy Studies Program at the Brookings Institution, specializing in U.S. defense policy issues. O’Hanlon’s most recent book, How to Be a Cheap Hawk: The 1999 and 2000 Defense Budgets, evaluates the Clinton administration’s Quadrennial Defense Review as well as the subsequent report of the congressionally mandated National Defense Panel. His article on the Korean military balance, ‘‘Stopping a North Korean Invasion: Why Defending South Korea Is Easier Than the Pentagon Thinks,’’ appeared in the Spring 1998 issue of International Security, and his essay ‘‘Can High Technology Bring U.S. Troops Home?’’ was published in the Winter 1999 edition of Foreign Policy magazine. O’Hanlon is also Adjunct Professor at Columbia University’s School of Public and International Affairs and at Georgetown University’s School of Foreign Service. HARVEY M. SAPOLSKY is Professor of Public Policy and Organization in the Department of Political Science at the Massachusetts Institute of Technology, Director of the MIT Security Studies Program, and Co-Director of the MIT Program on Regulation and the Environment. He has worked in a number of public policy areas, notably science, health, and defense, examining the effects of technological changes, institutional structures, and bureaucratic politics on policy outcomes. He has served as a consultant to the Commission on Government Procurement, the Office of the Secretary of Defense, the Naval War College, the Office of Naval Research, the RAND Corporation, and the Applied Physics Laboratory at Johns Hopkins University. His research on defense currently focuses on restructuring the weapons industries, and on civil-military relations. LEON V. SIGAL is a consultant at the Social Science Research Council in New York and an adjunct professor at Columbia University’s School of International and Public Affairs. He was a member of the editorial board of the New York Times from 1989 until 1995. From 1974 to 1989 he was Professor of Government at Wesleyan University. He served as International Affairs Fellow in the Bureau of Politico-Military Affairs at the Department of State in 1979, and as

About the Contributors

231

Special Assistant to the Director in 1980. He was a Rockefeller Younger Scholar in Foreign Policy Studies at the Brookings Institution in 1972–1974 and a guest scholar there in 1981–1984. His latest book is Disarming Strangers: Nuclear Diplomacy with North Korea. He is also the author of Reporters and Officials: The Organization and Politics of Newsmaking; Alliance Security: NATO and the No-First-Use Question (with John Steinbruner); Nuclear Forces in Europe: Enduring Dilemmas, Present Prospects; and Fighting to a Finish: The Politics of War Termination in the United States and Japan, 1945.