Pentagon Incompetence Hastens U.S. Industrial Decline

Issue Brief

If you think the controversy over who should run America’s ports is just about terrorism, then you haven’t seen U.S. trade statistics recently. The “arsenal of democracy” — that vast manufacturing complex that made America unstoppable in World War Two — appears to be going out of business. Last year, the U.S. ran a trade deficit of $726 billion (over $2,000 per capita), driven mainly by the inability of its manufacturers to compete in global markets. In the 30 years since the nation’s bicentennial, manufacturing has shrunk from 22% of gross domestic product to 11%. As a result, industrial decline is becoming a political issue.

There are a lot of homegrown reasons why America’s carmakers, shipbuilders and equipment producers can’t seem to compete. High healthcare costs, which now total 16% of GDP (more than any other industrial country). Burdensome environmental rules, which make investment in new domestic plants unattractive. One factor seldom considered is incompetence at the Pentagon, the largest purchaser of U.S. manufactured goods. But a brief tour of Donald Rumsfeld’s tenure reveals how bad management of military acquisition hurts U.S. manufacturers.

Aircraft. Most countries with aerospace industries work hard to protect them, but in America policymakers seem determined to destroy theirs. Current Pentagon plans call for closing every major line that produces fixed-wing planes except one by early in the next decade. Both airlift programs would be terminated (even though policymakers say global mobility is vital), plans for next-generation electronic aircraft are in disarray, and efforts to replace Eisenhower-era aerial refueling tankers have become a bureaucratic nightmare.

Space. Aside from one or two programs like the Space Tracking and Surveillance System, the Pentagon has managed to foul up all of its next-generation satellite programs. It did this by awarding contracts to unqualified bidders, in the process destroying expertise accumulated over decades by incumbents, and then assigning inexperienced managers to monitor performance. Not content to destroy the satellite sector, policymakers are now doing their best to unravel the only viable plan for preserving two families of launch vehicles.

Ships. When the world’s biggest trading nation doesn’t produce any oceangoing commercial vessels, something is definitely wrong. Part of what’s wrong is a military customer that buys ships no one can afford, undermining any potential for commercial synergies, and then constantly changes its plans in a way that precludes rational planning. For example, 2007 was the year the Navy was supposed to start buying two submarines per year, thereby sustaining two yards in the business. Now it says 2012 is the earliest it can afford more than one a year.

Networks. Marx said religion is the opiate of the masses. Under Rumsfeld, networks are the opiate of the elites. The Pentagon is pouring tens of billions of dollars into vast networking initiatives. Good for industry, right? Wrong. The networks are so complex that they’ll never come to fruition, and so costly that they lack commercial relevance. Military transformation has become the biggest market distortion in the infotech sector, enticing competitive companies into dead-end projects that they can’t sell abroad.