"Defense" expenditures by the U.S. federal government, adjusted for inflation, have almost doubled since 1998, Ken Silverstein noted in the April 2010 number of Harpers's Magazine. -- What's more, "[o]ver the next eight years, the 'realists' of the Obama Administration plan to increase outlays by five percent over the already bountiful sums provided by George W. Bush." -- The focus of Silverstein's "annotation" was the Lexington Institute, a corporate-funded think tank that pretends to live up to the patriotic heritage of its name by seeking to "inform, educate, and shape the public debate of national priorities in those areas that are of surpassing importance to the future success of democracy," but that really, Silverstein wrote, dispenses "free-market pabulum . . . underwritten by an industry [i.e. "defense"] that is beholden to government planning, direction, and money, and that operates entirely outside the constraints of supply and demand." -- Silverstein also scrutinized the work of Loren Thompson, the Lexington Institute's chief operating officer, 58, explained his attitude to his work to Silverstein in these terms: "I'm not going to work on a project unless somebody, somewhere, is willing to pay. This is a business. My bottom line is that if what I write and say is true, it doesn't really matter what my motives are." ...
By Ken Silverstein
** Introducing the defense industry's pay-to-play ad agency **
For companies whose livelihood depends on military spending, the United States would seem to have entered a golden age. Annual defense expenditures have reached $650 billion, almost double (adjusting for inflation) the post-Cold War low in 1998. Over the next eight years, the "realists" of the Obama Administration plan to increase outlays by five percent over the already bountiful sums provided by George W. Bush. Yet if one were to read this "issue brief" [#2 below] prepared by the Lexington Institute, a Virginia-based think tank, one might conclude otherwise. According to this document, defense firms face a clear and present danger: money "migrating" away from "technology" (read: weapons programs) and into "people accounts", compounded by the "inexorable rise of military benefits." How will the large military companies cope? Lexington, for its part, will do all it can. Despite casting itself as an intellectual clearinghouse, it is in fact an advertising firm on retainer for the defense industry.
Lexington claims to "shape the public debate" on a wide array of policies (including "the unnecessary intrusion of the federal government into the commerce and culture of the nation"), but its priority is clearly defense. "By promoting America's ability to project power around the globe," reads its mission statement, "we not only defend the homeland of democracy, but also sustain the international stability in which other free-market democracies can thrive." Lexington does not publicly disclose its donors, but much of its funding -- about $2.5 million in 2008 -- comes from defense giants, including at least three whose prospects are evaluated in this brief. Lexington's free-market pabulum, then, is underwritten by an industry that is beholden to government planning, direction, and money, and that operates entirely outside the constraints of supply and demand.
Loren Thompson, Lexington's chief operating officer and the author of this report, played a supporting role in a 2003 scandal involving Boeing's attempt to secure a lease-to-buy agreement with the Air Force for one hundred aerial-refueling tankers. The contract -- which at $24 billion would have cost the Air Force significantly more than simply buying a new fleet outright -- was canceled when Senator John McCain discovered that an Air Force procurement official had fixed the deal for Boeing while negotiating a job for herself with the company. McCain also unearthed emails showing that the Air Force had used Thompson to help sell the deal to the press. As a senior aide to Air Force Secretary James Roche put it in one of the messages: "We've got Loren doing the Lord's work again. '3rd Party' support at its best."
Thompson also runs a defense consultancy called Source Associates, whose clients include Lockheed Martin. No surprise, then, that Lexington's "analysts" so ardently endorse Lockheed weapons systems. The F-35 Lightning II fighter program, for example, has been plagued by delays, poor testing performance, and major cost overruns. Yet one of Thompson's issue briefs ("Four Reasons for Confidence in the F-35") insists that the program "isn't really all that troubled" and that, in any case, there is "no alternative" to the F-35. Then there is Lockheed's $500 million-per-craft Littoral Combat Ship (LCS), designed for use in submarine, mine, and "asymmetric" warfare. A Pentagon study found that the LCS might not "be survivable in a hostile combat environment" and could "sink sooner than expected." Lexington's draft report on the vessel, however, was markedly more upbeat, stating only that the "future of U.S. mine warfare" was dependent on the continued "evolution" of the ship.
Northrop Grumman likewise has benefited from Thompson's PR efforts. In the 1990s he was a leading advocate for the company's B-2 bomber, the most expensive weapon in history. More recently, Lexington mobilized on behalf of Northrop's unmanned aerial vehicle the Global Hawk, claiming it would reduce the cost of "broad area surveillance to just pennies per square mile" and that every day it was delayed pushed "transformation that much farther into the future." Soon after Congress cut the development budget of Northrop's E-2D Advanced Hawkeye early-warning aircraft in 2008, Lexington released a brief speculating that if Iran fired cruise missiles at the U.S. Navy, the Hawkeye would provide the fleet with "a good plan to offset" such an attack. Reductions to the program, the report noted, meant our national security was "drifting."
The Pentagon deployed retired generals to the cable-news networks to sell America on the Iraq war, and more recently, industry-backed think tanks peddled the surge in Afghanistan. Similarly, outfits like Lexington produce the press conferences, position papers, and op-eds that keep military money flowing to defense contractors. Thompson has no qualms about this. "I'm not going to work on a project unless somebody, somewhere, is willing to pay. This is a business", he told me. "My bottom line is that if what I write and say is true, it doesn't really matter what my motives are." In December, Lexington held a Capitol Hill seminar on defense acquisition, stating that despite President Obama's pledge to "restrain the excesses of wayward contractors," it was unclear whether such rhetoric will lead to budget cuts. Lexington's patrons will no doubt pay to guarantee that the president's words remain empty ones.
--Ken Silverstein is the Washington Editor of Harper's Magazine.
EACH BIG DEFENSE COMPANY FACES A KEY CHALLENGE IN 2010
By Loren B. Thompson, Ph.D.
January 4, 2010
The Obama Administration's fiscal 2011 defense request will exceed $700 billion. With $547 billion likely to be sought for regular defense spending and another $163 billion for overseas contingencies, 2011 looks like yet another year in which the long-predicted end of the post-9/11 military buildup fails to materialize. But that doesn't mean the nation's biggest defense contractors will have an easy go of it. Money is migrating out of technology and into people accounts in response to the labor-intensive nature of current combat and seemingly inexorable increases in military benefits. Previously outsourced services are being pulled back into the government. Against that backdrop, each big company faces one key challenge in the year ahead that will have a major impact on how it fares in the marketplace.
The biggest defense contractor, Lockheed Martin, seems to have more control over its fate than rivals. Over the last several years, the company has consolidated its lead as the top provider of aircraft, satellites, and information services to the military. Also, newly appointed chief operating officer Chris Kubasik fixed problems in the company's sprawling electronics and missile unit. But the big question is whether the company's $300 billion F-35 joint strike fighter program will stay on track. The program seems to be progressing reasonably well. But it is such a big chunk of future revenues that analysts monitor it the way they follow Boeing's Dreamliner, and any mis-steps will be magnified on Wall Street.
Lockheed Martin's rival for sector leadership, Boeing, has not fared as well. It lost an opportunity to displace Lockheed as the top provider of spy satellites, and its bid to be the Army's top contractor is faltering in the wake of the Future Combat Systems cancellation. But the key challenge its defense unit faces is that Boeing is gradually being squeezed out of the military aircraft business. It lost a lucrative third of the F-22 fighter when that program was canceled, the Pentagon wants to kill its C-17 transport, and the F/A-18 carrier-based fighter will have to exit the budget to make way for F-35. So it has to win the Air Force tanker competition to remain a first-tier player in its core military market.
Boeing's competitor for the tanker contract, Northrop Grumman, began the year under an aggressive new CEO named Wes Bush. Bush is just as brainy as predecessor Ron Sugar, but less patient with under-performing operations. That means his big challenge will be figuring out how to make the company's naval shipbuilding unit function at the same level of proficiency as its electronics, aerospace and information services businesses. Perennial electronics rival Raytheon has a different problem: it is performing better than ever before, but the Pentagon keeps rebuffing company efforts to show what it can do as a big-time system integrator. Insiders say it is beating the pants off of competitors in cyber security, but the key challenge is finding that breakthrough opportunity into the first tier of integrators.
Northrop's partner and competitor in the shipbuilding space, General Dynamics, is functioning so well under CEO Jay Johnson that you have to look hard to find problems. Its Gulfstream bizjet unit has disproved the notion that military contractors can't succeed in commercial markets. Shipbuilding and information systems both look like growth stories going forward, but the looming issue for GD is how to maintain the impressive performance of its combat systems unit as the Army scales back vehicle purchases in the years ahead. That problem has already hit armored vehicle rival BAE Systems, which may be one reason why BAE's board picked GD alumna Linda Hudson to run the company's North American unit. She needs to balance hardware offerings with a broader mix of technical services.