Profits of War: The Fruits of the Permanent Military-Industrial Complex

by William Hartung

U.S. weapons contractors have had their ups and downs over the past 25 years, but they have done far better than they should have. They have cashed in by pursuing a few simple strategies: 1) exaggerating the threats faced by the United States; 2) marketing their weapons systems as the answer to national security problems, regardless of their actual relevance to the needs of the moment; and 3) exploiting well-cultivated relationships with Pentagon officials, members of Congress, White House decision makers and opinion shapers in the media and think tanks.

The Reagan revolution

In the mid-1970s, the industry and its allies in the Pentagon, on Capitol Hill, and in organizations like the right-wing Committee on the Present Danger (CPD), were looking for ways to reverse the decline in military spending in the wake of the Vietnam War.

The 1976 election of Jimmy Carter, who campaigned on a platform of promoting human rights and curbing the arms trade, got the industry’s back up, prompting the creation of a specific industry lobbying group, the American League for Exports and Security Assistance (ALESA). ALESA was explicitly designed to thwart Carter’s efforts on this front.

The overthrow of the Shah of Iran by internal opponents in late 1978 coupled with the Soviet invasion of Afghanistan in 1979 gave political ammunition to hardliners within the Carter administration, moving it to the right as it called for the development of a Rapid Deployment Force capable of intervening militarily in the Persian Gulf on short notice. Simultaneously, the CPD was winning a propaganda war that claimed that the CIA had badly underestimated Soviet military strength.

The arms industry was the direct beneficiary of these developments, as it backed the CPD’s preferred candidate, Ronald Reagan, in his 1980 bid to oust Carter from the White House.

The industry as a whole cashed in, as Reagan pursued the largest peacetime military buildup in U.S. history, while specific companies got special favors. Rockwell International was able to restore funding for the B-1 bomber, combining White House support with a pork barrel campaign that placed subcontracts for work on the plane in nearly every Congressional district. Boeing benefited from the administration’s all-out support for a multi-billion sale of AWACS radar planes to Saudi Arabia, while General Dynamics reaped the rewards from a relaxation of the Carter administration’s limits on sales of combat aircraft to Latin America to squeeze in a sale of F-16 fighters to Venezuela.

The weapons manufacturers ultimately over-reached during the Reagan years, leading to several high-profile scandals. These included the so-called “spare parts” scandal that revealed charges of $600 for toilet seats and $3,000 for coffee pots, which were in fact just the symbols of an entire procurement system run amok.

There was also Operation Ill Wind, a massive bid-rigging scheme in which former Pentagon officials conspired with their colleagues inside the building to steer contracts and subcontracts to favored companies while skimming off illegal fees for themselves. Major firms implicated in Ill Wind included Boeing, Hughes, General Dynamics and General Electric. Meanwhile, Lockheed was caught rigging a major test for Reagan’s beloved Star Wars program.

And, in the most dangerous scandal of all, a National Security Council staffer named Oliver North was caught running an illegal gun-running operation out of the basement of the Executive Office Building, using a network of front companies and unsavory characters to override the will of Congress and subvert the Constitution while arming the government of Iran and the anti-government contra “rebels” in Nicaragua.

Even during the industry-friendly Reagan era, the military-industrial complex was far from all-powerful. A grassroots anti-nuclear movement campaign transformed Reagan from the president who joked that “the bombing will start in five minutes” to the first president to agree to deep cuts in the U.S. nuclear arsenal. Reagan’s pet project, the Star Wars missile defense system, was unceremoniously thrown onto the back burner in the face of a highly effective public campaign waged by technical experts from groups like the Union of Concerned Scientists that indicated that the system would be both destabilizing and unworkable. The Ill Wind scandal led to reforms in weapons procurement processes, while the exposure of the Iran/Contra scandal at least briefly curbed the Executive Branch’s appetite for covert foreign adventures.

The threat of peace

The greatest threat to the revenues of the arms industry came with the end of the Cold War and the collapse of the Soviet empire.

General Colin Powell, who served as chair of the Joint Chiefs of Staff in the administrations of George Bush the elder and Bill Clinton, was perhaps a bit too forthcoming when he noted that the U.S. was “running out of enemies.”

The Pentagon and the Joint Chiefs eventually settled on a strategy of selling the need for a capability to wage two “major regional conflicts” against “rogue states” like Iraq or North Korea simultaneously, and promptly overstated the strength of these new priority adversaries. This strategy helped limit cuts in military spending to levels far less than would have otherwise obtained, stabilizing at Cold War levels despite the lack of a superpower adversary.

In parallel with the Pentagon’s efforts at creating new threats, the arms industry was doing its part to keep spending as high as possible, in part by funding right-wing think tanks like Frank Gaffney’s Center for Security Policy, a full-time media megaphone for reviving Star Wars and restoring Reagan-era military budgets.

Individual companies also engaged in efforts to re-position existing programs for the new era. For example, Lockheed produced a brochure for its F-22 fighter plane, which had originally been designed to do battle with a next-generation Soviet combat aircraft that no longer existed, arguing that its new rationale was to fight the “blue-gray threat.” By this, the company meant the growing proliferation of advanced U.S. or European-origin fighter planes and anti-aircraft systems sold to countries that were currently either neutral towards the United States or active U.S. allies. The argument went that if any of these nations turned against the United States, the country needed to have better fighter planes than they had. And since the United States had already sold them its best aircraft, it followed that it was imperative to build the next generation fighter jet, the F-22. In short, as the cartoon character Pogo used to say, “we have met the enemy, and it is us!”

The arms lobby also sought to bolster its profitability in the immediate post-Cold War years by boosting foreign sales, such as the $6 billion sale of 150 F-16s to Taiwan and the $9 billion sale of 72 McDonnell Douglas F-15s to Saudi Arabia that were brokered during the stretch run of the 1992 presidential election. George H.W. Bush appeared to announce the F-16 deal at the General Dynamics plant in Fort Worth, Texas in front of a crowd of cheering workers with signs that said “Thank you President Bush for saving our jobs.” He held a similar rally in St. Louis, Missouri at the F-15 factory. The F-15 sale was helped along by a heavy industry lobbying campaign that included distribution of a video entitled “F-15s for Saudi Arabia — Made in America” which made it look like the entire industrial Midwest would go down the tubes if the deal wasn’t allowed to go through.

Other major industry victories during the Clinton years included a revival of spending and serious testing of the missile defense program, which grew to be a $5 billion per year enterprise with the support of members such as Representative Curt Weldon, R-Pennsylvania, a member of the advisory board of the Center for Security Policy with a Boeing plant in his district. The progress of “Star Wars II” was helped along by the findings of the Rumsfeld Commission, another classic exercise in threat exaggeration headed up by former Ford (and future George W. Bush) Secretary of Defense Donald Rumsfeld.

Perhaps the industry’s slickest move of all was the “payoffs for layoffs” plan, in which then-Martin Marietta chief Norman Augustine persuaded Pentagon officials William Perry and John Deutsch to get the government to pick up part of the tab for arms industry mergers. The idea was for taxpayers to pay to promote consolidation in the industry, in the wake of post-Cold War reductions in military spending. This approach helped spur mergers of Lockheed and Martin Marietta, Northrop and Grumman, Boeing and McDonnell Douglas, and numerous other combinations large and small. Eyebrows were raised by the fact that both Perry and Deutsch had worked as paid consultants for Augustine’s firm before joining the Pentagon.

The Bush II years

Having weathered the post-Cold War period with their profitability intact, the major weapons contractors hit the jackpot with the presidency of George W. Bush. Well before September 11 cleared the way for major increases in military and homeland security spending, the industry had already placed its bets on Bush, giving him five times as much in donations in the 2000 presidential race as it gave to his opponent Al Gore. Military spending proper has risen from just over $300 billion per year when Bush took office to over $439 billion per year in the proposed fiscal year 2006 budget, not to mention the $200 billion and counting in emergency appropriations approved for the wars in Iraq and Afghanistan. The emphasis on homeland security has created a whole new pot of money for the companies to pursue, which has more than doubled to over $40 billion per year in the Bush years.

The Big Three contractors — Lockheed Martin, Boeing and Northrop Grumman — combined to split nearly $50 billion in Pentagon contracts in fiscal year 2004, or nearly one out of every four dollars the Pentagon handed out for everything from rifles to rockets. By comparison, the top three contractors in the late 1970s accounted for roughly 13 percent of Pentagon contracts, roughly half the share of the current Big Three.

A new breed of contractors — private military firms like Halliburton, Dyncorp, Blackwater and CACI — has emerged with a vengeance to supply everything from meals to base and vehicle maintenance, from security services to training in overseas combat zones. Brookings Institution expert Peter W. Singer notes that reliance on these firms has mushroomed in the last decade. In the 1990/1991 Iraq war, one in 100 personnel in theater worked for a private firm, while in the current Iraq war that figure is one in 10.

The Bush buildup has spawned its own scandals, including a corrupt deal to lease Boeing 767s and convert them to aerial refueling tankers that has so far led to the resignation of the company’s CEO and left another official in jail; a slew of billing scandals, cost overruns and allegations of fraud by Vice President Cheney’s former firm, Halliburton, in Iraq; and even the involvement of two private firms, Titan and CACI, in the Abu Ghraib torture scandal in Iraq. These high profile scandals don’t represent a few bad apples, but a whole barrel that has become rotten from lack of public oversight and accountability.

Nongovernmental organizations in the anti-war and government accountability movements are beginning to work with members of Congress on everything from tightening the “revolving door” that allows arms industry officials to move effortlessly between corporate posts and policymaking jobs in government, to the creation of a new Truman-style commission on war profiteering.

As President Eisenhower noted in his military-industrial-complex speech over four decades ago, only an “alert and knowledgeable citizenry” can keep the arms lobby under control. We are overdue for a new wave of reform. Our security is too important to be left to the whims of special interests.

William Hartung is the Director of the Arms Trade Resources Center at the World Policy Institute, at the New School for Research in New York City.