Why is the US military ceding ground to China? As a new DOD report shows, big defense contractors are middlemen whose main purpose is stock buybacks and dividends.
Knew a little bit about this corruption, but this article really puts a fine point on it all. Thanks, Matt. I guess :)
Any idea when WaPo will be copying...I mean doing a follow up?
I do have limited experience with Federal contracting in a few categories, and the way successful subs lock in profits from 10-20% is a nice business model. But what these primes have pulled off is nauseating.
Apr 15, 2023·edited Apr 15, 2023Liked by Matt Stoller, Todd Mentch
One important thing to remember in the Second World War is how spread out industry and manufacturing had to become to meet wartime needs. Models of firearms were being made across many companies other than the ones who owned the patents, some with no background in firearms. Small tractor companies were making parts for tanks. Massive new ammunition plants were built (luckily these were in a better place due to suppling Britain). The war was not won by a couple of massive firms shouldering it all and they often fell short. Well except for General Motors. They actually did a pretty damn good job. The point is the big conglomerates at the time had a hard time meeting demand on their own and often required serious restructuring while smaller firms stepped in to pick up the slack.
There's another way the big primes screw up the subcontractors. When prime submits a bid for a major contract, that bid includes a list of maybe dozens of subcontractors, chosen by the prime to supply various components or activities. Each of those subcontractors is chosen by means known only to the prime, for any reason whatsoever subject only to internal review. The entire package is then presented to the government on a take-it-or-leave-it basis.
Even if there are three primes bidding on a contract (rare), that's only three sets of subcontractors out of the entire broader industry. The effect on the universe of subcontractors is profound, as the DOD's choices are limited to those approved by the primes.
The whole setup is intrinsically corrupt, and corrupting. Break up the primes, and the big contracts they are awarded; let the DOD administer its own contracts instead of paying the primes to do it for them. It's a fallacy that business can do things cheaper than government can -- as long as they're doing equivalent things.
Nobody understands this better than Marine Corps Vet Lucas Kunce who is fighting to replace runnin' Josh Hawley as US Sen. from Missouri. www.lucaskunce.com
For a deep drive, a detailed missive of industrial output during WWII, I highly recommend the book Brute Force, if you can find it. One of the more interesting things in regards to the Germans is that they actually wound down military industrial production after initiating the war. Meanwhile one of the precepts of the Japanese strategy was an overwhelming blow against the United States, because they were aware that ultimately the United States had the capacity if mobilized to out produce Japan on an epic scale. There's also a healthy discussion of logistics in the book, and frequent tables showing outputs of materials, and so forth. Fascinating read.
Using the perspective of ten years in the future when our children are so fed up with their grownies that they're killing themselves at the rate of a million a year rather than 100K a year, people will easily see that war in 2021-? solved nothing and cost immensely in the fight against global warming.
I pay for my BIG subscription and consider Matt a model of knowledge, insight, and reporting.
I can't worry much about the defense industry since it is about as useless as astrology.
I left the defense industry in the 1960s when I knew we were already nationally secure with our nukes.
I could also see Matt looking at the demands Russia made for some amount of buffering between NATO and its surrogate, Ukraine, and agreeing that real war is not an option and theatrical wars which we play more often than Seinfeld reruns will kill our kids through climate destruction even more certainly than Vietnam. Biden likes him his tough image. Time to stop supporting his narcissism.
"In the 1990s post-Cold War era, the White House sought to cut defense spending. Bill Clinton’s administration arranged a deal with defense contractors; they would tolerate lower revenue or stagnant revenue, if they got higher margins."
Thank you for your article. I was aware of much you reported. The military-industrial complex is there for anyone to see. Policies pursued by the United States Government have delivered tremendous amounts of cash flow to the members of the defense industry for decades. It is shocking, the amount of industry consolidation that has been allowed. It’s my hope that the articles you publish will help to push back against the special interests of giant, wealthy, entrenched groups. That’s why I pay your subscription.
I am frustrated by how so many voices frame these issues in terms of dividends and share buybacks.
I pay your subscription to read your insights and support your work. I am satisfied with the value I receive. I simply do not care what you do with the money.
By the time the dividends are paid, and the shares purchased, the deeds are done.
Capitalism is a system. When this system is operated in a responsible way it is extremely powerful and rewarding to all the participants in the system. When a monopoly is allowed to exist, it creates unchecked economic returns which are used to build political power which is used to protect and grow the monopoly. Unfortunately, government is too often the most powerful participant. Every day elected representatives and operators within government use the power of government to bend the normal system of capital. Representatives want to be reelected and generals want a big payday in the private sector. They are well served by monopolies.
Tax monopoly revenue. Make the tax progressive. The monopolist will raise price which grows the margin opening the door for competition. When competition is enforced (another way of saying monopoly is destroyed), capitalism will bring more supply to industries with abnormally high margins. More supply means more, good paying jobs.
Attacking dividends and share buybacks is a canard, a MacGuffin. Worse, it’s a waste of effort.
Great post, and I like the way this single topic post really provides an update and an alarming further depth to your 2019 post on how we gave China the technology to build missiles and planes. So the “military-industrial complex” Eisenhower warned us about has now become the “military- industrial- financial complex”, but without the R&D that would help improve our security.
I hope the single subject short posts will let you step out of the swimming pool of documents you must wade thru everyday, and dry off (free thoughts time) once in a while!
Has anything been written about how this lack of resilience and innovation in military procurement processes threatens our attempts to stop climate degradation? Knowing full well that this is highly militarized world of Nation-States, I think no one will shut down petroleum/ fossil fuel production until they can convert all that military hardware into killing machines that do NOT run on fossil fuels. In my mind that is the black cloud that will never go away. It must be on Bidens’ mind too, I would hope, apart from his eagerness to please his corporate clients.
Hi Matt, great writing and summary. I would hope bipartisan support for the recommendations. Also, wondering if the Armed Services have eliminated the redundancies with their supply chain?
Great article! I had no idea the extent of corruption but it doesn’t surprise me. I highly doubt we’ll see meaningful changes but this report is a great first step.
Add, how hard is it, "IF" research as to 'New products or idea`s", paid for by the people- gov. OK, you as a private person or company can go produce that. BUT, how in the hell Your able to go patent it?
Plus, and unable to repair a product, you as a person Like a farmer or Gov. OK, maybe break a warrentee, ONLY if You totally change how it works, used it for what it not met to be used for or bypassed a working part- function.
Knew a little bit about this corruption, but this article really puts a fine point on it all. Thanks, Matt. I guess :)
Any idea when WaPo will be copying...I mean doing a follow up?
I do have limited experience with Federal contracting in a few categories, and the way successful subs lock in profits from 10-20% is a nice business model. But what these primes have pulled off is nauseating.
One important thing to remember in the Second World War is how spread out industry and manufacturing had to become to meet wartime needs. Models of firearms were being made across many companies other than the ones who owned the patents, some with no background in firearms. Small tractor companies were making parts for tanks. Massive new ammunition plants were built (luckily these were in a better place due to suppling Britain). The war was not won by a couple of massive firms shouldering it all and they often fell short. Well except for General Motors. They actually did a pretty damn good job. The point is the big conglomerates at the time had a hard time meeting demand on their own and often required serious restructuring while smaller firms stepped in to pick up the slack.
There's another way the big primes screw up the subcontractors. When prime submits a bid for a major contract, that bid includes a list of maybe dozens of subcontractors, chosen by the prime to supply various components or activities. Each of those subcontractors is chosen by means known only to the prime, for any reason whatsoever subject only to internal review. The entire package is then presented to the government on a take-it-or-leave-it basis.
Even if there are three primes bidding on a contract (rare), that's only three sets of subcontractors out of the entire broader industry. The effect on the universe of subcontractors is profound, as the DOD's choices are limited to those approved by the primes.
The whole setup is intrinsically corrupt, and corrupting. Break up the primes, and the big contracts they are awarded; let the DOD administer its own contracts instead of paying the primes to do it for them. It's a fallacy that business can do things cheaper than government can -- as long as they're doing equivalent things.
And this, folks, is why I am proud to be a paying subscriber to this substack. I sent this along to every single one of my military friends.
Nobody understands this better than Marine Corps Vet Lucas Kunce who is fighting to replace runnin' Josh Hawley as US Sen. from Missouri. www.lucaskunce.com
For a deep drive, a detailed missive of industrial output during WWII, I highly recommend the book Brute Force, if you can find it. One of the more interesting things in regards to the Germans is that they actually wound down military industrial production after initiating the war. Meanwhile one of the precepts of the Japanese strategy was an overwhelming blow against the United States, because they were aware that ultimately the United States had the capacity if mobilized to out produce Japan on an epic scale. There's also a healthy discussion of logistics in the book, and frequent tables showing outputs of materials, and so forth. Fascinating read.
I think Lenin said, "The Capitalist will sell you the rope you hang him with."
Great article. I've been asking what we got for our $700 billion a year and this is the first time I've seen an answer.
Using the perspective of ten years in the future when our children are so fed up with their grownies that they're killing themselves at the rate of a million a year rather than 100K a year, people will easily see that war in 2021-? solved nothing and cost immensely in the fight against global warming.
I pay for my BIG subscription and consider Matt a model of knowledge, insight, and reporting.
I can't worry much about the defense industry since it is about as useless as astrology.
I left the defense industry in the 1960s when I knew we were already nationally secure with our nukes.
I could also see Matt looking at the demands Russia made for some amount of buffering between NATO and its surrogate, Ukraine, and agreeing that real war is not an option and theatrical wars which we play more often than Seinfeld reruns will kill our kids through climate destruction even more certainly than Vietnam. Biden likes him his tough image. Time to stop supporting his narcissism.
"In the 1990s post-Cold War era, the White House sought to cut defense spending. Bill Clinton’s administration arranged a deal with defense contractors; they would tolerate lower revenue or stagnant revenue, if they got higher margins."
In a nutshell: https://youtu.be/UYYgUwLaWw8
Thank you for your article. I was aware of much you reported. The military-industrial complex is there for anyone to see. Policies pursued by the United States Government have delivered tremendous amounts of cash flow to the members of the defense industry for decades. It is shocking, the amount of industry consolidation that has been allowed. It’s my hope that the articles you publish will help to push back against the special interests of giant, wealthy, entrenched groups. That’s why I pay your subscription.
I am frustrated by how so many voices frame these issues in terms of dividends and share buybacks.
I pay your subscription to read your insights and support your work. I am satisfied with the value I receive. I simply do not care what you do with the money.
By the time the dividends are paid, and the shares purchased, the deeds are done.
Capitalism is a system. When this system is operated in a responsible way it is extremely powerful and rewarding to all the participants in the system. When a monopoly is allowed to exist, it creates unchecked economic returns which are used to build political power which is used to protect and grow the monopoly. Unfortunately, government is too often the most powerful participant. Every day elected representatives and operators within government use the power of government to bend the normal system of capital. Representatives want to be reelected and generals want a big payday in the private sector. They are well served by monopolies.
Tax monopoly revenue. Make the tax progressive. The monopolist will raise price which grows the margin opening the door for competition. When competition is enforced (another way of saying monopoly is destroyed), capitalism will bring more supply to industries with abnormally high margins. More supply means more, good paying jobs.
Attacking dividends and share buybacks is a canard, a MacGuffin. Worse, it’s a waste of effort.
Great post, and I like the way this single topic post really provides an update and an alarming further depth to your 2019 post on how we gave China the technology to build missiles and planes. So the “military-industrial complex” Eisenhower warned us about has now become the “military- industrial- financial complex”, but without the R&D that would help improve our security.
I hope the single subject short posts will let you step out of the swimming pool of documents you must wade thru everyday, and dry off (free thoughts time) once in a while!
Has anything been written about how this lack of resilience and innovation in military procurement processes threatens our attempts to stop climate degradation? Knowing full well that this is highly militarized world of Nation-States, I think no one will shut down petroleum/ fossil fuel production until they can convert all that military hardware into killing machines that do NOT run on fossil fuels. In my mind that is the black cloud that will never go away. It must be on Bidens’ mind too, I would hope, apart from his eagerness to please his corporate clients.
Hi Matt, great writing and summary. I would hope bipartisan support for the recommendations. Also, wondering if the Armed Services have eliminated the redundancies with their supply chain?
Great article! I had no idea the extent of corruption but it doesn’t surprise me. I highly doubt we’ll see meaningful changes but this report is a great first step.
Great article. Very illuminating!
Add, how hard is it, "IF" research as to 'New products or idea`s", paid for by the people- gov. OK, you as a private person or company can go produce that. BUT, how in the hell Your able to go patent it?
Plus, and unable to repair a product, you as a person Like a farmer or Gov. OK, maybe break a warrentee, ONLY if You totally change how it works, used it for what it not met to be used for or bypassed a working part- function.