The Pentagon’s Invisible Hand In The Machinist Strike At The F-35 Fighter Plant

A widely-read defense blog recently opined that the Lexington Institute is dreaming of a Romney election victory. Well, guess again: I voted for Obama in 2008 and probably will again if Republicans can’t learn to do honest arithmetic about the government’s fiscal options. However, I confess that like some of my colleagues, I’m not real pleased with the way the Pentagon has been run during the Obama years. The problem for me isn’t the level of funding, but a succession of dumb business decisions that seem to confirm Republican charges the administration doesn’t understand the way markets work.

A good example of that problem will being playing out today in Fort Worth, when striking machinists at Lockheed Martin’s F-35 fighter plant sit down with management under the aegis of the federal mediation service to discuss their differences. The strike is approaching its tenth week with little sign of a resolution over the core issue of pensions. Lockheed is pressing the machinist union to accept a change in retirement benefits already adopted by the rest of the company and much of corporate America. It basically requires that future new hires receive a defined-contribution rather than defined-benefit package.

The company says the change is necessary to remain competitive. What it hasn’t said is that part of the reason the change is necessary now is pressure from its Pentagon customer, which is pushing the whole defense industry to drastically reduce labor and overhead costs. Reuters reported on June 14 that pension costs have become a focus of disagreement in negotiations between Lockheed and the government over the next production lot of F-35s. In fact, the Reuters story indicated that the government is seeking more savings in labor costs — including pensions — than in any other facet of the fighter’s production costs.

The rationale for this behind-the-scenes pressure from the Pentagon is a concept called “should cost,” which is the government’s theoretical calculation of how weapons would be priced if they were being built efficiently. The concept sounds reasonable, but isn’t it sort of obvious that if the government customer pressures contractors to reduce labor costs, then contractors in turn will have to put pressure on their workers? The end result is a strike at the F-35 plant about employee benefits.

Maybe the political appointees who run the Obama Pentagon aren’t as naive about markets as the Republicans charge. Maybe they’re just being cynical, knowing that machinists will blame the company for the concessions they are being asked to make on future pensions. However, this is one time when organized labor shouldn’t being pointing fingers just at the plutocrats. The “pro-labor” Obama Administration gets some of the blame for the standoff in Fort Worth, because its demand for cuts in weapons costs explain why the old approach to compensating labor in the defense industry can’t continue.