I've excerpted two small passages from this week's Defense Science Board report on the defense industrial base (here and here), and now I will try to summarize.
The report is likely the most radical and comprehensive call for reform by a DOD advisory panel of the industrial base since the 1993 "last supper" prompted the frenzy of consolidation that continues even today.
The report, prepared by a DSB task force chaired by former President Bill Clinton's top weapons buyer Jacques Gansler, is also an alarming indictment of both the industry's increasingly anti-competitive practices and the Pentagon's inability or unwillingness to stop it.
Given the report's description of the problem, the Gansler task force's recommendations seem perhaps timid. The reports calls for halting mergers and acquisitions activity and re-injecting competition by embracing foreign and commercial firms offering relevant technology (erm, tankers perhaps?).
To be sure, these are not uncontroversial ideas. Embracing foreign and commercial firms means re-writing the rulebook for trading and sharing sensitive technology with overseas suppliers, not to mention tossing out the entirety of the government's arcane and sometimes frivolous cost accounting standards. Does anyone believe that kind of change is possible in the current political/social/economic environment?
But, if the Gansler task force has chosen to go that far, may I ask: Why stop there?
Why accept the current structure of five super primes -- namely, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon? The often unhelpful market power wielded by these uber-contractors upon the taxpayer is the result of Pentagon policy.
So, if such power now causes more harm than good, the same policy instruments used to create this clout can be called upon to strip it away and de-consolidate the industry.
The report is likely the most radical and comprehensive call for reform by a DOD advisory panel of the industrial base since the 1993 "last supper" prompted the frenzy of consolidation that continues even today.
The report, prepared by a DSB task force chaired by former President Bill Clinton's top weapons buyer Jacques Gansler, is also an alarming indictment of both the industry's increasingly anti-competitive practices and the Pentagon's inability or unwillingness to stop it.
Given the report's description of the problem, the Gansler task force's recommendations seem perhaps timid. The reports calls for halting mergers and acquisitions activity and re-injecting competition by embracing foreign and commercial firms offering relevant technology (erm, tankers perhaps?).
To be sure, these are not uncontroversial ideas. Embracing foreign and commercial firms means re-writing the rulebook for trading and sharing sensitive technology with overseas suppliers, not to mention tossing out the entirety of the government's arcane and sometimes frivolous cost accounting standards. Does anyone believe that kind of change is possible in the current political/social/economic environment?
But, if the Gansler task force has chosen to go that far, may I ask: Why stop there?
Why accept the current structure of five super primes -- namely, Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon? The often unhelpful market power wielded by these uber-contractors upon the taxpayer is the result of Pentagon policy.
So, if such power now causes more harm than good, the same policy instruments used to create this clout can be called upon to strip it away and de-consolidate the industry.
on August 8, 2008 1:35 PM | Reply
It took a court decision to shatter AT&T's monopoly. I think it would take similar (and be just as messy) to split up any (let alone all) of the super-primes.
And as the government, in this case, encouraged it, what possible legal leg would they have to stand on in ordering a reversal?
Not that I don't like the idea - I just think it may be impossible.
on August 8, 2008 2:31 PM | Reply
Take a look at how onerous it has become to qualify a new spare part.
For example, the Air Force wants three test items built, one of which will be destroyed. That is just to qualify to bid.
How many small companies can afford to build say, three pitch trim actuators just to be able to put in a bid?
If you are not OEM forget it.
Then of course there are the companies that use congressional earmarks to get their gear onboard DoD aircraft.
This is not a complaint letter. I could find no evidence of the DSB addressing this other then recommendation 5. The realities of being a small business are tough when playing with the big fish.
on August 8, 2008 10:08 PM | Reply
I don't agree with the notion of sharing technology or doling out work to foreign contractors. This is American taxpayer money, and it should be spent here at home to boost our R&D and our industrial base. The Europeans can whine all they want, but they don't spend enough on their end, so they want a piece of the US defense pie. When they do buy American weapons, there are always huge offsets and some degree of technology transfer and in many cases setting up some domestic production. A lot of the time US exports are simply blocked in favor of European products, so why should we be any different? The case of the engine for the A400 comes to mind.The only way I'd ever agree to having foreign companies working US defense contracts is the technology is developed here and there were firewalls preventing technology transfer back to their home country. We should not be subsidizing foreign R&D. Additionally, If a system is bought of the shelf from a foreign company, we should be demanding the same sort of offsets that they demand from us.