The Military-Industrial Stock Buyback Complex | Hacker News Reader

The Military-Industrial Stock Buyback Complex

mattstoller.substack.com

121 pointspasswordoops130 comments

I think the deeper question here is - why are military contractors, especially the ones that have no public-facing products, even allowed to be stock-issuing public corporations in the first place?

If a corporation's main goal is to increase revenue, but their only customer is the military, why is it that we would force the rules of stock markets on them? Military R&D isn't something you can sum up in a quarterly report, nor is it something you can tack KPIs onto on a regular basis - some of that R&D is classified.

Plus, thorough lobbying, it basically forces our military to be in wartime 100% of the time, because contractors cannot have a bad quarter, so they need to constantly have new theaters to sell into, which in turn forces the DoD's hand (and don't get me wrong, all the DoD employees probably own Lockheed stock).

Why contractors are allowed to lobby is beyond my comprehension.

Most defense contractors also sell to multiple foreign countries, and many have civilian product lines. No one is forcing the rules of the stock market on them; some major defense contractors are privately held.

AFAIK, the biggest of the biggest such as Lockheed, do not have public products.

Actually, they do have a public product - it's called "corruption". They take taxpayer money intended for R&D, and instead use it to lobby the government to funnel more and more taxpayer money into their pockets each year. The public gets screwed and the large contractors get to walk away and buy more politicians.

you voted for the people who enable them

You can say that, but I very much did not.

Lockheed Martin sells many products in the civilian commercial market.

https://www.lockheedmartin.com/en-us/products.html

You might want to actually look at the "products" on that page, and then re-read the paragraph on the top of that page.

Nothing about weapons systems, fighter jets, missiles, etc.. is intended for the civilian commercial market.

You might want to actually look at the products on that page, and then re-read my comment. Lockheed Martin sells a variety of products into the civilian commercial market including train controls, utility aircraft, satellite software, AUVs, and flight simulators. Those bring in less revenue than the military business but they are significant. It's like you guys are so eager to push your political narratives that you don't even do basic fact checking.

Stock is about owning a piece of a company and enjoying both the up and downsides of it. I don't think there's anything intrinsic to it that the business must be public facing.

Selling stock on public markets of a company is fine. A company whose business model is inherently linked to the continuation of physical warfare having the ability to sell stock is fine. When that company has the ability to use that capital to purchase the government, then it becomes a problem.

It's how empires fail. When your military suppliers and contractors become large enough to buy the government, they grow like a malignancy, bleed the productivity and resources of the empire into building things that explode, and kill the host.

What is an example of an empire that failed liked this?

Sparta is the closest example i think of. all the men were soldiers and all the hard labor/farming were done by slaves/healots. eventually led to technological stagnation & societal collapse

Did Sparta actually fall because Thebes out innovated them on the battlefield? If so, perhaps an argument _for_ the military industrial complex as a nation’s savior. Perhaps you are thinking of classical Athens, and its loss to the Greek city-state of Syracuse in Sicily?

Arguably, Rome and the Praetorian Guard.

https://en.m.wikipedia.org/wiki/Praetorian_Guard

Rome fell because of the Praetorian Guard?

Not because of unsustainable conquest, a massive influx of slaves taking all the work, flawed institutional structures with only norm-based barriers to generals from seizing control of the government, and massive Germanic migrations due to reasons unknown (probably steppe people)?

The Praetorian Guard appointed Claudius as emperor, and had assassinated several others, all of which could be considered, arguably, a major step in the downfall of the Roman Empire.

Remember, this was a response to illustrate: ”When your military suppliers and contractors become large enough to buy the government, they grow like a malignancy, bleed the productivity and resources of the empire into building things that explode, and kill the host."

Not just Claudius, they were involved in a few imperial transitions.

But it's debatable if that's a military-industrial complex functioning in conditions of economic hazard. Like, advisors and royal courts plotting against the ruler is fairly common and historically never involved stock buyback schemes.

The more general phenomenon of what the parent is describing is rent-seeking becoming an outsized portion of society. When the rent-seeking class becomes too powerful they drain an unsustainable amount of productivity from the rest of society that eventually causes it to become weak/unstable and fall to internal or external forces. The Ottoman Empire is a good example of this.

> Why contractors are allowed to lobby is beyond my comprehension

As Karl Marx illustrated 150 years ago, a state under capitalism is a capitalist state.

It’s definitely a recipe for corruption. The same can be said for health insurance, hospitals or private prisons. From a business point of view they want to increase revenue. But as a society it’s often very undesirable for them to grow their businesses and profits.

The idea is that the companies most efficient at delivering contracts (missiles, planes, bombs) stay in business and the less efficient go out of business. This does require corruption remain out of the bid process...

I mean, I get it. There's a national security risk in letting major defense contractors go out of business.

So, naturally, as taxpayers, we should be kept in the loop on how much it costs, why we're paying it, and complete transparency with regards to how such entities are spending their (read: our taxpayer) money. That's not the case today.

It was actually a really successful model during WWII. A tank (or something) would be designed by one group and then 5-6 different manufacturers got a contract to manufacture it. We made tons of tanks at very competitive prices.

As the article points out, modern procurement is a different story.

As far as I can tell, the defence companies we’re talking about were not public back then?

They were - they were just general manufacturers. You even had companies like Chrysler and IBM taking gun manufacturing contracts.

Yes, they were. Back in WWII, pretty much every companies were in the war effort. IBM made rifles and Ford made bombers (B-24s).

Those were "public" as in state-controlled. These are "public" as in publicly traded. Very big difference.

WW2: 1939-1945

IPO years per my research -

Raytheon: 1952

Boeing: 1962

Lockheed Martin: 1994

Northrop Grumman (pre merger): 1939

Hard to find clear sources on this, but doesn’t seem like the major defense contractors we’re talking about were public during WW2.

Ah, I tho OP means back then, the defense manufacturers weren't public. I didn't realize they meant today's defense contractors.

I don't get it. Lockheed and Martin were different companies in WW II.

What does that have to do with issuing stock?

Cuz if you can fool the govt into getting funding, you can fool the market too. Both are dumb in different ways.

> but their only customer is the military

Not true. Their only customers may be militaries, plural, but that's not the same as the military, singular. Defense contractors routinely sell to allied countries, with complex financing arrangements whereby the costs are distributed between the foreign customer and the US (which agrees to pay partial costs for strategic reasons).

The distinction is important because US financing is done by a civilian, not military, branch of the American government. Production is not a pure function of physical capability; it still requires financing. If the military is capable of producing its own weapons, lacks civilian financing to do so, but can sell excess production to foreign allies, then you've handed the military the keys to self-financing. This undermines civilian control of the military.

> If the military is capable of producing its own weapons, lacks civilian financing to do so, but can sell excess production to foreign allies, then you've handed the military the keys to self-financing. This undermines civilian control of the military.

Interesting point. I would say that handing production to profit-maximizing corporations also undermines civilian control of the military through corporate capture of decision making.

Of course. The author points to a real problem whereby civilian control of the military is undermined because the underlying capabilities have eroded. But this is due to the DoD procurement moat that the Big Five persist; if it were easier to procure DoD contracts, then we'd see more smaller contractors pop up to compete for them. That those smaller contractors are still profit-maximizing civilian corporations wouldn't matter; having a large, diverse industrial base was key to 20th century military victories, as the author concedes. But said industrial base does need to be both large and diverse.

The last paragraph sums it up nicely. Incentives are completely screwed in this system. I spent a month working at a contractor. (Two weeks in, I presented my two-week notice.) It was just so breathtakingly wasteful.

The project I was working on had a team of maybe 100 engineers, but could easily have been done by a team of 5 in a tiny fraction of the time. The problem was purely one of incentives. The bigger the team and slower the progress, the more money the company raked in. It’s as simple as that.

Seems almost like the government should be technocratic so that companies can’t get away with stuff like this when there’s audits of their contracts.

I used to think this way. I worked at one of the top 10 government contractors and was disgusted with the waste. But rather than think of it as using a team that's too big to poorly and slowly develop a product that's not needed, think of it as a continuous training and readiness program for developers. When the priorities change and we NEED something, you'll have a team of people ready to go. I've actually seen that happen.

We do the same thing in manufacturing - I saw a comment about javelins below, but why do we keep ordering tanks even though we don't need them? To keep the production lines active and the workers trained. It's a waste if you look at it first-order, but if you think of it as readiness and training, it's a lot less wasteful.

America had very little in the way of military industry at the start of WW2 yet ramped up at an incredible rate. Industrial efforts can be repurposed in a matter of months. (One problem here is that the US depends on other countries for much of its manufacturing)

Is it possible that ramp up times have increased or become more complicated in the last 100 years due to changes in technology and capabilities of adversaries?

The world is smaller nowadays. And our allies are not so warlike anymore, if there were a big war we’d probably be in more of a rush to get to them.

Nonsense. Military equipment is orders of magnitude more complex now. It was possible to take a car factory and repurpose it to make P-51 Mustangs. It is not possible to do that for F-35 Lightning IIs. The materials and technology are just too different.

And even the domestic components have lead times measured in years. In an emergency, production could only be marginally accelerated no matter how much funding and manpower we put into it. That is the reality.

I think that your claim of nonsense is mistaken. For example, one of your points isn't, in general, true. You wrote "It was possible to take a car factory and repurpose it to make P-51 Mustangs. It is not possible to do that for F-35 Lightning IIs."

But any car factory isn't expected to produce fully formed F-35s. But they can produce many components for a F-35. And many factorys together can produce, for eg, a F-35.

You also wrote: "And even the domestic components have lead times measured in years. In an emergency, production could only be marginally accelerated no matter how much funding and manpower we put into it. That is the reality." That's exactly the problem that the report and blog post address. It is the reality now, because of the defense industry being more about financial engineering than actual engineering. And that is a big problem for the US. It doesn't have to be that way.

yeah no, you aren't churning nuclear subs out of a rowboat factory in 2023

even if you were to start a new company to build nuclear subs (for example) today, you are probably looking at a decade or more until you can produce something

The problem is that of financial opportunity cost: the money keeping the "tank line" active by ordering excess tanks would likely be much better spent on other programs (or even merely not further ballooning the debt). Spending the same amount of dollars on funding the IRS, GAO, SEC, FDA, EPA, or even the USGS or NOAA would likely see much more direct benefits to US residents. Even direct assistance like food stamps or section 8 rent subsidies has a much higher multiplier than spending oodles of cash ensuring the US is ready to defend its hegemony.

Tank production lines may be somewhat of a weak example because the US military is reducing their tank inventory anyway. Some tanks (and other armored vehicles) might be needed for a future conflict in the Middle East, Europe, or Africa but would be largely useless in the Pacific Theater.

The real need is to maintain production lines for ships and aircraft. Once they industrial base disappears there it's gone for good; there just wouldn't be any way to spin it back to again in a reasonable time frame. Of course we could adopt an isolationist stance and cut back military spending to the minimum for homeland defense only, but we might not like the results when China dominates the entire Asia-Pacific region.

There is enormous civilian demand for software development so we don't need government make-work programs. Contractors having endless meetings and failing to complete unnecessary projects are not learning anything useful anyway.

The tank lines are a wonderful example!

The military asked to cancel it multiple times.

It keeps getting funded because of jobs in Lima, Ohio - basically it is congressional make-work that spends our money AND weakens our defense (because those funds could have gone to other things the military actually wanted):

https://www.military.com/daily-news/2014/12/18/congress-agai...

Funny, countries still want to buy M1 Abrams (made in Lima). Especially after the invasion of Ukraine. It's not make work, it's keeping a production facility viable.

I think that argument makes sense for manufacturing (maybe) since that has mostly left our shores, so it makes sense to subsidize somewhat for security purposes. But software engineering (which it may not have been clear my original comment was referring to) has no such need for subsidy in the US.

> Somewhere between 2019 and 2022, military thinkers began to understand that we are in trouble. The realization that China has a military that could potentially defeat the U.S. prompted significant concern. China’s ability to build things is a big reason why. “In purchasing power parity, [China] spends about one dollar to our 20 dollars to get to the same capability,” said Maj. Gen. Cameron Holt from the US Air Force acquisition, technology, and logistics office.

We spend $20 to match China spending $1?

We only spend a bit more than twice China on defense. If our spending is 20x less efficient than China's, then they're outstripping us in substantial capacity built by 10x.

Do we need to talk about this? Like, urgently?

The U.S. military is principally an expeditionary force. It’s designed to travel far distances. Not homeland defense. The PRC is concentrated instead on its own borders. Only recently have they sought more expeditionary capabilities. The PRC is significantly safer from kinetic attacks compared to the U.S. Our military commanders recognize this and note that a conflict with the PRC would likely reach the U.S. homeland…

I don't understand your comment. You start by saying that the US military is an expeditionary force while the PRC isn't, but end by saying that a conflict would likely reach US homeland. Don't those two contradict each other?

No, they dont (no idea if the statements are true). I suppose what he means is that the territorial defense of China is much stronger than US which makes it less likely that US would send boots on the ground in china (because that would be suicide) while US defense is weaker making it more likely for China to try and succeed in putting boots on the ground in US.

Why would China even want to put boots on US grounds in the first place? There's nothing to gain for them there - in contrast to other, much more lucrative places that are way easier to gain control of:

- Taiwan to follow the long-held goal of reunification (and getting rid of a live example of Chinese-descent people in democracy and freedom, similar to why Putin decided to invade Ukraine)

- half their neighborhood in a fight for resources such as fishing grounds or to use as a stronghold for blockades

- Africa, Afghanistan and Southern America for natural resources

Ukraine could have gone an "democracy and freedom" route before 2014, but decided to go along with overthrowing elected governments, restricting language usage for half of its population and having private torture prisons run by far-right groups.

I'm not sure why Taiwan would want to be long-term sundered from China. A hundred years from now, what would be the reasons for a separate Taiwan?

In my opinion, the only advantage of having a separate Taiwan is so China can't do force projection into the Pacific. Everything else is just political rhetoric.

But why is it in the long-term interest of Taiwan Chinese?

If you value the ability to elect your leaders and choose the direction of your society, this question answers itself.

In a hundred years this will likely not be relevant, since the periodic elections will eventually have to go giving way to more flexible and internet-enabled mechanisms, and it's not given that mainland China will be lacking those.

I'm not sure you can call yourself choosing the direction of your society if "reuniting with mainland" is the direction you are not allowed to choose.

Huh? There's no evidence that periodic elections will have to go.

So Taiwan/China can reunite as long as the Taiwanese democratically vote in favor of this. Seems fine to me, as long as that’s the condition. I’m not sure what the Internet has to do with elections, nor how it is going to solve the problem of an autocratic Chinese state, but speculative fiction seems fine on HN.

The "overthrow" of Yanukovych in 2014 was hardly by force. Yanukovych fled because his Parliament expressed no confidence in him, and because he didn't feel like dealing with some protests. It would be like Biden fleeing America because Congress condemned him and some Trump supporters with a few guns camped out in DC. More of an abdication than a coup.

This is not true - the opposition together with three ministers of international affairs has crafted an agreement which would allow him to peacefully transfer presidential power (already violating rights of his voters), and then the protesters has continued overthrowing him regardless.

Even if he just flew for no apparent reason as you say, this does not a stable and peaceful democracy make.

None of that contradicts what I pointed out. He fled because he doesn't care about Ukraine. He now has his dream, pampered and anonymous somewhere in Russia. He never says a word.

What's a country supposed to do when its leader doesn't feel like working anymore? Doesn't sound like a coup to me.

When your (twice) democratically elected president does not care about your country, does that make a democracy?

Certainly does in case of early XXI century USA, where these claims fly around concerning both sides of political spectrum

Whenever I point out the reality of 2014 Ukraine on HN, it always degenerates with the other person making some kind of weak, petty counterclaim like this. Nobody can ever admit a simple point.

Why do you care so much about this coup narrative that falls apart under the slightest scrutiny?

So, Yanukovich ruled as a democratically elected president and then just decided he does not want that anymore and called quits?

Totally unrelated to the street violence in the capital at the time?

I'm not sure how your narrative may even stand on its own.

As I said,

> It would be like Biden fleeing America because Congress condemned him and some Trump supporters with a few guns camped out in DC. More of an abdication than a coup.

No national leader this weak and incompetent can reasonably expect to remain in power. When your people hate your decisions and protest, you have to do something to satisfy them, or they might become ungovernable. That's on you, not on them or on foreigners.

Unsurprisingly, large majorities of Ukrainians regard Yanukovich as the worst leader they've ever had.

> national leader this weak and incompetent

The question is, does having a democratically elected national leader so weak and incompetent a stable democracy make?

An obvious answer is "no", in this sense, Ukraine have always been a failure politically. Some outside parties may benefit from Ukraine's sorry state, but that's it. I wonder if you are able to draw a different picture.

And before you ask, it seems that American democracy is in a bad condition too, but not nearly as bad yet.

Seems to me that Putin thought he could benefit by invading Ukraine at a point of weakness.

The weakness of Russian imperialism will be clear to all before the end.

It is obvious that when you have points of weakness, bad things happen to you (Russia knows it like no other), so the point of a stable democratic countries is to not have significant points of weakness.

But that is not the case with Ukraine.

boots on the ground in the US would be met with extremely fierce resistance.

No that's not what was meant. China has nowhere near enough amphibious lift capacity to stage a ground invasion of the US homeland. It's just impossible.

But they do have a large and growing inventory of long-range conventional missiles which could be used to strike the US homeland if the US were to, let's say, intervene in a conflict over Taiwan. US cities and military facilities in Hawaii, Alaska, and the mainland West Coast would be at risk.

Which is a (apologies for the insult) brain-dead claim.

The US is practically impossible to invade, even if it did not have a massive navy. The only ways into the US are Eastern Ocean, Bigger Western Ocean, Economically dependent southern nation and Economically dependent northern nation.

Then you look at US army bases, and realize that China's nearest feasibly supply-line for such an invasion would have to be in Western Africa [1] or the Solomon Islands [2].

> US defense is weaker

Even if the net-size of the US forces are smaller, the US has a significantly stronger Navy. China doesn't even come close. For all my complaining about highways, they do allow the US to mobilize land-forces to any geographical location on continental USA near instantaneously. Hell, I doubt China's ability get out of the South China Sea with American bases surrounding it in a maritime war, let alone reach another continent.

[1] https://twitter.com/thinking_panda/status/139073240788038042...

[2] https://www.economist.com/sites/default/files/images/print-e...

That’s a red herring.

Why would the PRC invade the USA? That seems ludicrous on its face. Who is claiming this? An attack (likely to be some gray zone situation) is not an invasion.

The panda Twitter account you linked to looks to be straight propaganda.

> Who is claiming this?

I was replying to the grandparent comment that was claiming exactly this.

> panda Twitter account you linked to looks to be straight propaganda

It's a map of US and China's bases. It's publicly known information, I just wanted to pick a pretty infographic. Does it matter if I get the weather in Moscow from Putin, if it is trivially verifiable ?

There is an obvious answer. The military needs to be mainly focused on Homeland defense, as it was intended. Being world police is stupid and wastefull. Its bankrupted us just like every empire that over extends itself (and debases its currency).

Seems non-obvious to me. The world currency is the dollar presently. We protect the trade routes around the world. Remove that protection, those trade routes will no longer be in our favor. Whoever controls them will set up tariffs to massively hurt the US and benefit themselves.

Put another way, how do you think the US would fare long term if China and Russia controlled all international trade?

> We protect the trade routes around the world.

From whom exactly?

I don’t think that a conflict would go farther afield than Okinawa before the US used nuclear weapons. I do not believe the US is willing to lose in a way that matters.

It's not just military procurement, it's pretty much everything.

> Do we need to talk about this? Like, urgently?

That's the question of what your threat model is and what your world view says about interventionism vs isolationism.

China won't attack the US or NATO allies in a direct war any time soon and so will Russia, so if you are following an US-isolationist worldview, there is nothing to worry about. Let China deal with their neighbours on its own, why should the US care about India, Vietnam, Japan or Taiwan?

If you are rather following an interventionist policy, the situation looks different: formal or informal allies get threatened by the day by Chinese aggression. China is literally carbon-copying the OG Nazi framework of running labor and extermination camps. Personal freedoms, or the very few that Chinese people had in the first place, get eroded every day. China has built secret "police" forces in our nations that threaten Chinese dissidents. Chinese hackers hack everywhere they can and steal data to undercut our companies on price, and Tiktok allows them direct access to the minds of our children. Chinese foreign developments are looting half of Africa.

Personally, I am a friend of an interventionist policy - China is the largest threat in decades against the free West, the lessons we learned from 1933-1945 and the values we (at least claim to) hold. So yes, we as Western countries need to urgently talk about this, alone to give our allies security against China.

No, there's no need to talk about it urgently.

He pulls a sleight of hand by talking about purchasing power parity.

But PPP isn't that meaningful for things that priced globally, which an awful lot of high tech stuff is.

China's PPP is about 4:1 according to

https://data.oecd.org/conversion/purchasing-power-parities-p...

China's ZTZ-99 main battle tank apparently costs around $2.6 million. A German Leopard 2 is around $5.7 million.

You can see they don't actually get 4:1 savings, so using PPP is misleading.

Ah, I think that makes sense? Let me guess at the idea here: is it something like, "just because Chinas' domestically produced rice and wheat (for example) are a lot cheaper than the same in Western countries doesn't mean tanks and computers are, because a lot of the materials for the latter are produced by high-income countries and China pays about the same for them as anyone else"

Still, if the analysis is off because it used a 4:1 PPP when it should have used something more like 2:1, that would still suggest a problem? Unless the Chinese goods are inferior.

Rice and wheat are priced somewhat globally too, the canonical examples are service things like haircuts, childcare, etc. that can only be provided locally.

He’s not using the general PPP measure - he’s just using the same concept applied to military tech. He clearly qualified it by saying “to reach the same capability”.

> Do we need to talk about this? Like, urgently?

Yes. Start with talking about why the Pentagon has failed its last five audits, and why so many talking heads are going around trying to convince people it isn't a problem.

Jon Stewart recently did a fantastic interview with the defense secretary where he grilled her on this: https://www.c-span.org/video/?527213-1/comedianjon-stewart-d...

Thanks for the link to the interview. I never seen such a high level official squirm for so long. Kudos to Jon Stewart for pushing this.

Yes, that's the interview I was thinking about in my initial post. This is what journalism is supposed to look like, not the chummy backslapping, glad handing we have today.

There was no expectation that the Pentagon would pass the first few audits. The internal financial systems are so screwed up that everyone knew they would fail. The systems should never have been allowed to deteriorate to that level but now that's water under the bridge. The real point of the audits is to identify the areas that need the most remedial work. Realistically it will take several more years until they can pass.

Part of the multiplier is that they enjoy second-mover benefits.

The US buys a lot of very expensive first-of-its kind defense bric-a-brac. The rest of the world-- both foes and allies-- can ride on this expenditure.

1. They can watch what we buy that doesn't work and skip it. 2. They don't have to lead the way. For the price of one nth-generation tank/plane/missile, they can buy several previous-generation models and zerg rush. 3. When they're ready to make their cherry-picked decisions, it's a few years down the road and overall manufacturing technology-- from semiconductor processes to materials tech-- is a little further along, so building even largely the same unit will be cheaper.

China also benefits from the second mover advantage here because they have a state-sponsored program to steal every piece of R&D they can get their hands on. https://www.nytimes.com/2020/01/15/business/china-technology... https://www.bbc.com/news/world-asia-china-64206950

The timing seems to follow US military spending [1]. When you don't buy javelins, the manufacturer will not maintain large production lines and there it doesn't make sense to make large R&D investments. The day you decide to buy a lot more, it takes time to establish those production lines and the associated supply chain.

[1] https://en.wikipedia.org/wiki/Military_budget_of_the_United_...

> This was, in retrospect, insane. Who thinks that having no resiliency is a good strategy for wars?

The same issue that plagued all Western governments after the USSR collapse. So many people thought that with Russia being basically not able to threaten anyone and the Yugoslav/"block free nations" block collapsing just the same, there would not be any one daring to threaten any Western nation any more, so why invest into stockpiling shit that won't ever be used?

And that worked out for the last 30 years: let's be real, Afghanistan and Iraq were not complex wars by any stretch, not for the militaries. That was simply the US bulldozering a bunch of sheep and goat herders. The Yugoslav collapse wars were squabbles and the NATO dropping a couple bombs over Serbia. The Russian invasion into Ukraine however, that is the first time in many decades the world has seen an outright invasion war by a force a hundred thousand men strong.

A lot of countries with a token military forces would now invest, and pay nicely for, the military (equipment but especially men), seeing how Russia struggles to do achieve its objectives with its ~200,000 men while Ukraine struggles to remove them having twice as many. Whereas they look at their own army and only see a handful of capable divisions.

It is possible that in the post-AI, post-employment world, the main way to earn a decent living will be becoming an enlisted military, as it was during Ancient Roman times.

> Because as it turns out, the reason that dumping lots of cash into prime contractors doesn’t result in what the armed forces need is because prime contractors are cash management machines who occasionally delegate grubby work to subcontractors dependent on them.

This isn't entirely fair. The author fails to explain just why there are only five major defense contractors. Sure, there was Clinton pressuring for a "peace dividend" in the 90's after the FSU's collapse, but 25 years have passed. Why don't the subcontractors, working for the major defense contractors, work directly with the Pentagon? If the financing is so easy and risk-free, the contracts are published publicly, and the prime contractors such poor partners (making late payments etc.), then why work with the primes?

The DoD should engage in a lot of navel gazing to make its procurement contracts easier for smaller firms to navigate. The truth of the matter is, the Big Five aren't just cash-management firms; they employ armies of their own: divisions of regulatory experts and legal teams and people with the right certifications that require years of experience at larger firms and people whose job it is to produce the reams and reams of paperwork that the DoD demands. That's the value-add they're bringing. They speak the DoD language when talking to the DoD, engineering language when talking to subcontractors, and banker language when talking to Wall Street.

Northrup Grumman and General Dynamics and their ilk will cry all the way to the Wall Street Journal at any attempt to turn off the spigot. Fair enough. But in an era where production is too slow, how does closing the spigot fix the problem? We should make financing more difficult in an industry where it's too easy? How is that going to fix anything?

Fix the real problem which is the reams and reams of Pentagon red tape that the Big Five depend on for their competitive moat to keep the subcontractors from working with the Pentagon directly.

Smedly Butler's short book War is a Racket is a must read. He was the first popular American icon to criticize the American Defense Industrial base.

2nd most popular. The most popular was Eisenhower.

We need antitrust enforcement on a massive scale across all industrial sectors; many many breakups need to happen. Luckily Lina Khan et al. seem to be up to the challenge. This should be a major issue in the 2024 election.

After the end of the Cold War, the Defense Department cut back spending and specifically encouraged defense contractors to merge with each other in order to survive. It would be rather ironic for the government to now complain about the results of their own policy.

> We need antitrust enforcement on a massive scale across all industrial sectors

The problem is that capitalism directly leads to centralisation for efficiency. Honestly not sure how that is solvable without massive changes to society.

No Capitalism doesn’t centralize for efficiency. Sometimes it centralizes and efficiency is a side effect. But what Capitalism is actually doing is concentrating wealth into fewer hands.

The only missing chart for me is the one that shows how much money the defense companies have spent on lobbying the politicians to keep things as is. That would be fascinating but probably not very surprising.

The ROI on politicians makes them a standout investment.

I spent some time doing an SBIR/STTR a few years ago. This is a program where the US government funds you to develop basic technology. Once we reached a certain stage, then you realize that the entire purpose of the program is for the US government to fund R&D that the “prime” contractors are unwilling to invest in, because their own R&D budgets are so pathetic. Even if you make something like software that the DoD could purchase directly, they will still drive you towards a relationship with the primes, so those contractors will get a big slice of the profits from the technology the government directly paid for you to develop. The entire process was sickening: it felt like a terrible abuse of taxpayer funds.

As a new DOD report shows, big defense contractors are middlemen whose main purpose is stock buybacks and dividends

And lobbying, don't forget. I'd bet the likes of General Dynamics, Lockheed, etc... collectively spend over a billion dollars every year lobbying the government.

That is an extreme underestimate.

Honestly it probably is - but I have no idea how much they collectively spend each year buying our government, so I figured a few billion would be a good number.

The real number is probably in the double-digit billions across the entire defense sector.

I've worked in this sector for . . oh lordy . . twenty years now, and in that entire time the number of projects that could be called unequivocal successes amount to . . five. The remainder, an average of ten programs per year for twenty years, went absolutely nowhere, each a black hole sucking your tax dollars. Some of them were worse than nowhere, as they were projects that were intended to optimize other programs, but then ruined them in the process. Sometimes it would take down the whole org, and then it would get gobbled up by LockBoNorthRay, which, looking back on it, might have been the intention all along.

As a laborer in the trenches, I don't have any big ideas of how to fix this. I just have small ideas, but the most important one is this: don't let contracting officers get jobs in industry, for N or however many years. Every single place I have ever been or heard of has business development absolutely packed with worthless VPs who were chucked a title and a salary because as a KO/CO they bought whatever horseshit the company was selling, having signed waivers for this requirement or that requirement ("Built In Test code review? Naw, I know BigDefCorp's good for it"). And, zoom presto, then they have a salary and a pension, the lazy and uncreative man's road to being a millionaire.

Unfortunately , I think we're going to need to see the US military machine positively humiliated before effective changes can be made. This nonsense is all far too entrenched to be taken down by anything but a vast national shame. My great fear is that we won't be able to suffer humiliation without hawking a nuke at someone.

> The next war would be fought at the cutting edge of technology, which is to say, with airplanes.

That's still an open question at this point. For sure the West's dreadful aerial campaign against Germany's industrial and civilian assets didn't win the war for the Allies, and as far as I know aviation was not that important on the Eastern Front, where the war was actually won (by the Allies) and lost (by the Germans).

It's a good thing though that Hitler and the German military high command had made the same mistake in treating aviation as make or break when it came to the war, and as such they diverted lots of resources to the Luftwaffe, resources that could have been better (from the Germans' pov) spent on artillery. Not that Hitler hadn't already invested a lot in artillery and in making shells, but when you fight a land-war on the steppes of Eurasia you cannot ever have enough artillery shells (as the current war in Ukraine is proving).

Naval aviation was a huge part of the pacific conflict and strategic bombers did win the war against Japan.

I honestly don’t see how the US could have conquered both Japan and Japan-controlled Manchuria (or Taiwan, for that matter) with aviation and the navy alone, that’s where the Manhattan Project came along well.

Which gets us back to the article itself, as I don’t see the current US MIC being able to replicate a project like the one that gave the Americans the atomic bomb anytime soon, if ever.

> strategic bombers did win the war against Japan.

Only after the Japanese navy had been almost completely sunk, the Japanese merchant marine even more thoroughly sunk. And even then, it's not clear if the atomic bombs or the Soviet entry into the war against Japan (threatening to roll up the Japanese position in China as completely as the above) played the bigger role in compelling Japanese surrender. (And this is the best example anyone can give of strategic airpower achieving victory).

The Japanese navy was largely sunk via air power though.

No, submarines sank 200 IJN warships and aircraft and surface ships claimed another 134. While aircraft sank some of the more important ships (carriers), subs were really responsible for the defeat of the IJN.

Also, mines were responsible for a huge percentage of shipping losses.

Many of those mines were laid by strategic bombers. Subs played the largest role but aircraft were also important.

https://www.usni.org/magazines/proceedings/1959/november/jap...

Depends if you include drones and missiles in aviation. I am not sure what you can infer from ww2 when the only way to hit a factory was a risky and imprecise carpet bombing raid when today it takes a single missile. Warships have basically become floating missile launching platforms. And in a US-China war I don't think any of the two parties is contemplating a land invasion anyway. So it will be all air force and navy.

You need feet on the ground to try and win a war for good, and even then, chances are you won’t be able to win it in the long run anyway.

I get it though, more than two thirds of the US’s defense money goes into its Navy and its Airforce, so I guess that, ideologically, most of the US military strategy is focused on using those assets instead of using “mere” infantry and artillery.

Let’s hope we won’t get to see that opinion tested in real life anytime soon.

I am not sure what "winning the war for good" means between two nuclear powers. Certainly not nazi-germany style full capitulation. I think the definition of victory or defeat will be whether Taiwan remains independent or not.

>as far as I know aviation was not that important on the Eastern Front, where the war was actually won (by the Allies) and lost (by the Germans).

I recently heard a historian say that the shortages caused by the bombing of Germany were probably decisive in allowing the Red Army to prevail on the Eastern Front. Most of the US and Britain capacity to gather intelligence for example was directed at learning what choice of bombing targets (in Germany) would most effectively cripple German war-making capacity.

The problem with this theory is that... German industrial production increased throughout the war, only really collapsing when the advancing land forces overran German territory containing those factories. That is to say, at best, strategic aerial bombing was slowing the rate of increase of German capacity. The Allied attempts to make pinpoint disruptions to German warmaking through aerial bombing were mostly abject failures, at best crippling German production for a month or two before the Germans got it restarted.

AFAIR the most significant part of crippling Germany MIC was denying the resources for production. I wouldn't agree with the parent theory, but I definetly remember how the quality deteriorated in the last two years of war. Same applies for USSR, there was a significant decrease in quality (especially in things like the tank armour) till the supply lines were re-established after evacuating the manufactories to Ural.

One side effect of the Allied bombing campaign was wiping out the Luftwaffe as a force. Luftwaffe pilots flew until they died, that's why they had aces with high kill counts, and pilots like Rudel decimating Russian tanks. In contrast, the US rotated pilots home and they helped train the next batch of fliers.

The hard question is, what would have been the effect of using the bombing campaign for tactical missions? Would that have sped up Operation Cobra? Would it have helped in the Sicily campaign?

I also think that Germany might have been a unique case; strategic bombing against Japan seems to have done a better job affecting their economy; alongside the submarine campaign against their shipping.

Please reread your history if you think aviation wasn't important on the eastern front.

My god, Hitler tried to do an airlift to save the besieged defender of Stalingrad!

I'm reading a nice book on Zhukov [1] just now, I stand by my opinion, it wasn't with aviation that the Soviets defeated the Germans.

I live in Bucharest, there used to be a (civilian) building just close to where I now live that got raised to the ground by aerial bombings, but it wasn't the Russians who had bombed it, even though by then, April of 1944, they were really close, it was the Americans. It wasn't those bombings, nor the US bombings on nearby Ploiesti [2], that got us defeated, it was Soviet tanks, artillery and men. For example the photos from this article [3] of the Soviets on the streets of Bucharest in late August 1944 were taken in the intersection that I can now see from my apartment's building.

[1] https://www.fnac.com/a10827162/Jean-Lopez-Joukov

[2] https://en.wikipedia.org/wiki/Operation_Tidal_Wave

[3] https://ziaruluniversul.ro/intrarea-rusilor-in-bucuresti-aug...

I worked at Raytheon for five years as a software engineer, and this article understates how corrupt and backwards the industry’s contracting dynamics are. There are some aspects that are directly opposed to efficiency. A few examples stand out to me.

One is how labor charges work. When contractors bid on a project, they estimate how many hours of labor it will take to complete (worth mentioning they often underestimate, since there are no consequences for doing so). Then, as they work those hours, they get paid. For instance, if a contractor is awarded a contract with a million dollars worth of labor (there is a fixed dollar amount per head used to compute this) that will take 1,000 hours to complete, each hour will earn them $1,000. There are numerous ways that this causes the government to get a bad deal.

First, workers are not fungible. The productivity of any two workers is not the same. Even over large averages, the productivity is not the same. Some contracts are staffed by all-stars, and others by slouches. The government pays the same dollar amount per hour for both contracts.

Even if workers were fungible, their progress is not uniform. There are periods of time where they will complete huge amounts of work, and there are less productive times, owing to human nature, impediments, etc. Again, the government pays the same amount.

I should also mention that there is a profit margin built into the amount that contractors get paid for labor. In other words, they make money by having employees “working” on contracts. This creates a corrupt incentive where each contractor wants to be as inefficient as possible, since they make money per inefficiency, so long as they can charge less than the other bids.

The end result is often that when a contract reaches “100% complete” in terms of billable hours, the project is not complete. Yet the government has often sunk tens or hundreds of millions, or billions, into this project. They will not pull the plug on it, since they need it. They cannot switch contractors, due to the IP involved, the expertise built up, etc. So, they keep writing checks to the contractor until the project is finished.

A solution nobody seems to talk about: nationalize national defense. I know, I hate bureaucracy as much as the next guy. The government is certainly inefficient. Government contractors are capable of every bit of inefficiency the government is capable of, and more. It truly makes no sense to me, that the government stands for being gouged via profit margins every time it purchases military equipment.

The flip side of this is, defense contracting is political these days, and in my opinion, in all the wrong ways. One side argues for increased defense spending, the other argued for decreased defense spending. Neither argue for improved defense outcomes. Politicians want to protect their constituents’ jobs; a lot of folks work for these contractors. If defense spending were nationalized, the duplications of effort, and the corresponding jobs, go poof. Inefficiency is great for a lot of the parties involved, and so the taxpayers get a bad deal.

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