18 ms·

The Military-Industrial Stock Buyback Complex

121 points by passwordoops 4y ago

passwordoops 4y ago
As a new DOD report shows, big defense contractors are middlemen whose main purpose is stock buybacks and dividends
- NickC25 4y ago
  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.
  - whitemary 4y ago
    That is an extreme underestimate.
    - NickC25 4y ago
      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.
xrd 4y ago
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.
- euroderf 4y ago
  The ROI on politicians makes them a standout investment.
christophilus 4y ago
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.
- dclowd9901 4y ago
  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.
- michaelrpeskin 4y ago
  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.
  - throwaway202303 4y ago
    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)
    - lotsofpulp 4y ago
      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?
avidphantasm 4y ago
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.
- nradov 4y ago
  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.
- yunohn 4y ago
  > 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.
  - avidphantasm 4y ago
    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.
civilized 4y ago
> 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?
- thoughtstheseus 4y ago
  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…
  - hsjqllzlfkf 4y ago
    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?
    - victorbjorklund 4y ago
      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.
thewildginger 4y ago
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.
- hsjqllzlfkf 4y ago
  [dead]
- Der_Einzige 4y ago
  2nd most popular. The most popular was Eisenhower.
paganel 4y ago
> 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).
- kasey_junk 4y ago
  Naval aviation was a huge part of the pacific conflict and strategic bombers did win the war against Japan.
  - paganel 4y ago
    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.
  - jcranmer 4y ago
    > 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).
cm2187 4y ago
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_States#/media/File:U.S_-_China_-_Russia,_Military_Spending.svg https://en.wikipedia.org/wiki/Military_budget_of_the_United_...
NickC25 4y ago
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.
- nradov 4y ago
  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.
  - NickC25 4y ago
    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.
    - 0zemp1c 4y ago
      you voted for the people who enable them
      - earthling8118 4y ago
        You can say that, but I very much did not.
mschuster91 4y ago
> 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.
- thriftwy 4y ago
  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.
solatic 4y ago
> 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.
lumb63 4y ago
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.
matthewdgreen 4y ago
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.
MilStdJunkie 4y ago
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.

121 points by passwordoops 4y ago

passwordoops 4y ago

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

NickC25 4y ago
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.
- whitemary 4y ago
  That is an extreme underestimate.
  - NickC25 4y ago
    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.

xrd 4y ago

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.

euroderf 4y ago
The ROI on politicians makes them a standout investment.

christophilus 4y ago

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.

dclowd9901 4y ago
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.
michaelrpeskin 4y ago
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.
- throwaway202303 4y ago
  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)
  - lotsofpulp 4y ago
    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?

avidphantasm 4y ago

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.

nradov 4y ago
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.
yunohn 4y ago
> 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.
- avidphantasm 4y ago
  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.

civilized 4y ago

> 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?

thoughtstheseus 4y ago
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…
- hsjqllzlfkf 4y ago
  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?
  - victorbjorklund 4y ago
    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.

thewildginger 4y ago

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.

hsjqllzlfkf 4y ago
[dead]
Der_Einzige 4y ago
2nd most popular. The most popular was Eisenhower.

paganel 4y ago

> 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).

kasey_junk 4y ago
Naval aviation was a huge part of the pacific conflict and strategic bombers did win the war against Japan.
- paganel 4y ago
  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.
- jcranmer 4y ago
  > 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).

cm2187 4y ago

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_States#/media/File:U.S_-_China_-_Russia,_Military_Spending.svg https://en.wikipedia.org/wiki/Military_budget_of_the_United_...

NickC25 4y ago

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.

nradov 4y ago
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.
- NickC25 4y ago
  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.
  - 0zemp1c 4y ago
    you voted for the people who enable them
    - earthling8118 4y ago
      You can say that, but I very much did not.

mschuster91 4y ago

> 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.

thriftwy 4y ago
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.

solatic 4y ago

> 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.

lumb63 4y ago

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.

matthewdgreen 4y ago

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.

MilStdJunkie 4y ago

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.