Plan for Defense Spending

Article Published in The Washington Post

By Loren Thompson, Ph.D. David Ignatius really hit the nail on the head in his February 13 analysis of the defense industry’s decline. The industry’s problems can be succinctly summarized as depressed demand, uneven management and an unpredictable customer.

Profit pressures are forcing the industry to weed out mediocre managers. But even companies with excellent track records like Falls Church-based General Dynamics have seen a meltdown in their stock prices. Something needs to be done about the dearth of demand and the capricious way in which Congress appropriates defense dollars.

The answer is simple: the next administration needs to adequately fund military modernization plans, and Congress needs to stop treating Pentagon procurement like a form of campaign financing. The Congressional Budget Office says the procurement level should be $90 billion a year — 50% more than requested for fiscal 2001, but still only 5% of a $1.8 trillion federal budget.

The more of this money that is provided in multiyear commitments, the better it will be for industry and the nation. Long-term commitments enable companies to plan efficiently, which reduces weapons costs. Investors also can have some confidence that companies’ earnings projections will come true.

If we continue with the current underfunded, unpredictable system, investors and engineers alike will steer clear of the sector.