Big Changes Coming For A&D As Pax Americana Slips Away
The U.S. aerospace and defense sector is on pins and needles. No one can exactly pin-point it, but there is a whiff of big change in the air, the expectations of a pivotal shift in the sector’s fortunes. With all eyes on the revolt in the Middle East, and budget battles in the Midwest, everyone is waiting for the next shoe to drop.
Lockheed Martin’s CEO, Robert Stevens, captured the strange juncture we find ourselves at now: “There is, and will be, sustained pressure on economic resources at a time when the global security challenges are growing and becoming more complicated,” Stevens said in a 2010 interview in Defense News.
In other words, the world is becoming destabilized, while the United States is saddled with heavy public sector debt, and a vigorous political movement, the Tea Party, that wants to reduce that debt by shrinking the role of government. That push, and pull, will probably define the difficult outlook strategic planners in the aerospace and defense sector face in the coming months.
We are probably in the early stages of a reshuffling of the global order, not unlike what we faced in the early 1930s and 1980s. What comes out at the other end of the pipeline in ten or fifteen years is going to look very different from what we are seeing today. We came through the years of what some economists now call the Great Moderation — the 25 year stretch of political and economic stability from 1983 through 2007 — a little spoiled by our success at reaching full employment, price stability, and global military domination. It was inevitable those “good old days” would end, and they did with a hard crash. We will be picking up the pieces for some time. Nothing moves in a straight line forever.
We may well see the future right now in the debate over the Continuing Resolution here in Washington, and the pitched political battles concerning government finances in Wisconsin, Ohio and other big states. Government finances, and sovereign debt, are in play as high unemployment and falling incomes put a hard bite on spending. When operations like the All Volunteer Force, state governments in Wisconsin or Ohio or New Jersey, or the federal energy department were relatively small, and the private sector was clocking quarter after quarter of solid growth, those operations were affordable. They may not be any more.
At the same time, the world’s central banks, including our very own Federal Reserve Board, continue to print money at a dizzying pace, fueling rising energy and food prices. If these easy money policies continue they may touch off even more dangerous economic dislocations should broad-based inflation and short and long term interest rates spike higher.
That is the push Bob Stevens referred to in his interview. The pull is the apparent breakdown of the Pax Americana that dominated the world after the fall of the Berlin Wall. And that breakdown is across the spectrum, in the economic, political and military realms. From imploding pro-American governments in the Middle East to rollouts of high-end fighters in China to the falling U.S. dollar, the old comfortable world we had feels like it is slipping away.
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