The Politics of Defense Contracting

The Iron Triangle

Gordon Adams

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781000678697
• Topic: Politics & International Relations
• Subtopic: Constitutions
• Index: Politics & International Relations

This is the first systematic study of the relationship between government and defense contractors, examining in detail the political impact of the eight most powerful defense contractors. It details ways in which Boeing, General Dynamics, Grumman, McDonnell Douglas, Northrop, Rockwell International, and United Technologies influence government, from their basic contract activity, corporate structure, and research efforts, to their Washington offices, Political Action Committee campaign contributions, hiring of government personnel, and membership on federal advisory committees. Adams concludes with specific recommendations for changes in disclosure requirements that would curb some of the political power corporations can wield. It also suggests specific ways in which the Iron Triangle can be made subject to wider congressional and public scrutiny.

PART I

THE IRON TRIANGLE: CONGRESS,
THE PENTAGON,
AND THE DEFENSE
CONTRACTORS

1
The Business of Defense

The defense budget of the United States, which now accounts for roughly one quarter of all Federal spending, will rise rapidly in the 1980s. Many justifications are offered for its dramatic increase: inflation, the high price of increasingly sophisticated weapons, the rivalry between the military services, and the need for an arms build-up to protect United States interests in an unstable world.¹ Rarely mentioned, however, are the pressures that the defense contracting industry exert on the Government, their chief “customer.”

In approaching the Government, contractors take advantage of both their opportunities as members of the “big business” community and their unique role and special access as manufacturers of weapons that guarantee “national security.” The benefits to the industry of aggressive “Government relations” practices are great. The cost to the country, however, in an inflated budget and a narrowing of the debate on strategic and foreign policy, is high.

Business as Usual

For over a century, private industry has asserted its power in American politics. “Big business” has both sought Government favors and battled Government efforts to control it.² Business leaders constantly warn that Government has become too large and exercises too much influence in the private sector. They castigate regulatory agencies as costly, restricive, and inefficient. But alongside this apparent antagonism another, more cooperative set of relations has developed. During World War I business leaders were brought into the Federal Govern-ment as wartime production planners for virtually all sectors of U.S. industry. In the 1920s Secretary of Commerce Herbert Hoover organized permanent advisory commissions to the Department composed of business representatives from different sectors of the economy. President Roosevelt attracted a number of businessmen into Government positions first to combat the Depression and later, in World War II, to plan wartime production. As the war ended, many Government commissions and the new Council on Economic Advisors turned to business for staffing and ideas about post-war economic, foreign and military policy.

Members of regulatory commissions are often drawn from the regulated industry; personnel move steadily between the agency, the industry being regulated and its legal support community.³ In certain areas, regulation—far from being the whipping boy of the business community—is welcomed. Much is gained by industry through regular Federal involvement in price-setting and entry and exit from the markets.

Since 1946, and especially in the sixties and seventies, America’s corporations expanded and developed practices and structures to influence Congressional and Executive policy-makers. A growing number of major companies now have a corporate office responsible for “Government relations.” Most^.of the Fortune 500 companies have offices in Washington whose purpose is to gather information and exert political pressure. Government relations is the art of making connections: between the company’s needs, its potential support at the grass roots (workers, communities, stockholders), its campaign spending, the key staff and members of Congress, and officials in agencies in the Executive branch.

At a stunningly rapid pace, companies have taken advantage of the Federal Election Reform Act of 1971, as amended in 1974 and 1976, to establish Political Action Committees to channel their campaign contributions. Increasingly, PACs are being used as the corporate forum for determining a company’s Government relations strategy. Corporations in America today are more sophisticated, more thorough and more coherent in developing political strategies than ever before. As Fortune noted:

The business community has become the most effective special interest lobby in the city. Suddenly business seems to possess all the primary instruments of power—the leadership, the strategy, the support troops, the campaign money—and a new will to use them.⁴

According to Philip Shabecoff of The New York Times Magazine, “These are the days of wine and roses—of champagne, even, and orchids—for business interests in Washington…. Quietly, cautiously, but with growing success, the business community has been moving to influence legislation, administrative decision-making and the regulatory process.“⁵

A Special Kind of Business

While the defense industry holds many characteristics in common with other members of the “big business” community, contractors play a unique role in American society. As manufacturers of strategic weapons, they are widely identified as guardians of “national security.” The Federal Government not only regulates their activities but serves as one of their best customers. The weapons they manufacture follow the specifications of their Federal client; the procurement process is initiated and sustained by members of both the industry and the Government. This close interdependence has made them pacesetters in developing Government relations practices that safeguard their interests.

This intimacy developed early. Dependence on Government procurement began during World War I; many firms disappeared between the wars when procurement declined. In response, defense industry leaders, the financial community, and Government officials made vigorous efforts in the 1920s to establish national policies—air mail subsidies, Federal regulation, and consistent defense procurement—that would help the industry survive. After World War II, industry pressure and Government decisions led to Federal support for a private defense capacity, in effect subsidizing industry to keep critical personnel in working teams and production facilities open.

The decision to maintain a large, privately-owned defense manufacturing capacity has led to a bewildering variety of Federal procurement policies, many of which foster a high degree of intimacy between the Pentagon and its contractors and inhibit cost control.⁶ Contractors expect that the Federal Government will not force them to do business at a loss; they assume that their productive capacity will be maintained and that profit margins will be ensured as their costs are reimbursed. DoD practices perpetuate these expectations: most defense contracts are negotiated rather than competitive. There are, in fact, 17 exceptions to the procurement requirement for competitive bidding and they cover important areas:

—Public exigency

—Supplies or services for which it is impractical to secure competition by formal advertising

—Experimental, developmental, or research work

—Technical equipment requiring standardization and interchange-ability of parts

—Technical or specialized supplies requiring substantial initial investment or extended period of preparation for manufacture

—Negotiation after advertising

—Purchases in the interest of national defense or industrial mobilization.⁷

Through frequent contract changes initiated by both sides of the relationship, most DoD contracts turn into cost-plus. In addition to a visible profit, the contractors are the recipients of indirect benefits. Federal procurement policies provide defense contractors with a large amount of rent-free procuction space and equipment,⁸ offer interest-free loans for “progress” on work completed by contractors, and rotate contracts among firms to ensure that no major contractor is without a contract for too long a period of time.⁹

Some see this interdependence as a form of Government control. The Department of Defense now maintains a bureaucracy of three million people, one million of whom are civilians, to design, produce, use, and repair weapons. Some critics of the DoD such as Seymour Melman and John Galbraith describe this “military-industrial complex” as a corporation that is dominated by a Government that saddles it with the frustrating task of producing non-commercial goods at high prices, using inefficient methods that reduce profits, sap management capabilities, hinder their commercial effectiveness and drain the productivity of the American economy as a whole.¹⁰

Analysts of defense spending also note bureaucratic pressures to expand military programs. Like all bureaucracies, the DoD and the services need to justify and perpetuate their existence. Defense budget-making is riddled with tales of bureaucratic policies in which the military have redefined the policy to fit a particular program. The Strategic Air Command (SAC) fought hard to keep manned bombers alive, despite Secretary of Defense Robert MacNamara’s effort to kill them in the early 1960s. Without the B-1, SAC had no airborne role, a function that they wanted to maintain. The Navy argued for submarine-based weapons partly because they wished to keep a strategic function under their control.

The interdependence of supplier and purchaser in this highly political market creates special problems. Richard Kaufman, counsel to the Congressional Joint Economic Committee, lists some of them:

padded costs, the use of government-owned equipment for commercial activities, the cash flow advantages of progress payments, the privilege of making late delivery of products that do not meet original specifications, bail-outs and get-well devices for contractors with cost overruns, executive salarie’s and fringe benefits and the personal career opportunities for those who oscillate between the Pentagon and the defense industry and who operate within those two powerful publicly-supported institutions.¹¹

In spite of—and often because of—inefficiency and red tape, weapons manufacturers have received steady income from doing business with DoD. There is evidence that, contrary to the denial of contractors, profits for defense firms have run higher than the general manufacturing average, when one measures income as a proportion of capital investment rather than of sales.¹² For some aerospace companies a significant proportion of profits, for others corporate survival itself, depends on Federal contracts. Between 1972 and 1976, 36 firms on the DoD top contractors’ list received contract awards that totalled over 10 percent of company sales.¹³

Their dependency on Federal procurement places the contractors and their constituents in a special position. As contractors are quick to point out, more than company profits are at stake. The net of defense spreads outwards from the contractor to the labor force and the community. In the absence of alt...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgements
• Part I The Iron Triangle: Congress, the Pentagon, and the Defense Contractors
• Part II The Weapons Business—Institutions, Roles and People
• Part III The Influence Business—Politics and Power
• Part IV Conclusions and Recommendations
• Part V Profiles
• Appendix A
• Appendix B
• Bibliography