Arms industry’s price gouging shows how greed trumps national interest

 ANALYSIS | PENTAGON BUDGET

Weapons firms will likely rip off the US taxpayer once again when the military replenishes supplies sent to Ukraine.

MAY 23, 2023

Written by
William Hartung

On Sunday night, CBS 60 Minutes aired an episode on price gouging by weapons contractors. Chronic overcharging by arms companies not only wastes money, but it also puts our security at risk by increasing the chances that weapons systems funded by the Pentagon will be overpriced, underperforming, and never fully ready for combat.

As the 60 Minutes episode notes, a major contributor to price gouging is the fact that the arms industry is far more concentrated than it has ever been, due to a merger boom that started in the 1990s and has stepped up again in recent years, most notably with blockbuster deals like the 2020 Raytheon-United Technologies merger.

In the 1990s there were 51 major defense contractors. Now there are five. Those top five weapons contractors – Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman — split over $118 billion in Pentagon contracts in Fiscal Year 2022, or nearly one-third of all contracts issued by the Pentagon that year. These companies make most of the bombs, missiles, combat aircraft, helicopters, tanks, and other major weapons systems purchased by the U.S. government, which gives the Pentagon limited leverage when it tries to negotiate reasonable prices or hold contractors to account for shoddy work.

In addition to the problems posed by the industry’s near monopoly on weapons production, the Pentagon has made matters worse through lax oversight practices, including failing to gather adequate background information for price negotiations; using too many sole-source and cost-plus contracts; and failing to hold contractors accountable for cost overruns and poor performance.

In some cases, as when the Pentagon pays Lockheed Martin to go back and fix defects in planes that have already been deployed, companies may actually profit from their own mistakes. So far, efforts to ameliorate some of these problems, advocated by reformers like Sen. Elizabeth Warren (D-Mass.), have faced an uphill battle in a Congress that is too often in thrall to the money and lobbying power of the arms industry.

The lack of serious oversight will be exacerbated by the push to rapidly expand production to deal with supplying Ukraine and stockpiling systems relevant to a potential conflict with China. Proposals to push weapons out the door more quickly with less scrutiny, coupled with the sheer volume of systems being produced, will open the way to additional price gouging.

As spending rises and vetting decreases, the prospects for fraud, waste and abuse will grow. And the arms industry and its allies in Congress and the Pentagon are intent on making any changes made to deal with the Ukraine emergency permanent, which could supersize the weapons industry while reducing oversight and accountability — a recipe for relentless, unnecessary price increases that could continue well beyond the end of the Ukraine war.

Meanwhile, even as they cry out for more funding, the big contractors are diverting the billions they already receive to pad their bottom lines. Rather than using their increased revenues to produce better weapons or research new ones, the major contractors have been putting the bulk of their windfall into tens of billions in buybacks of their own shares to boost their prices, along with hundreds of millions in compensation for top executives. This does nothing to enhance our defense and everything to enrich military corporations.

Another driver of Pentagon waste and contractor malfeasance is the continued U.S. quest for global military dominance. The Biden administration’s National Defense Strategy, released late last year, is an exercise in military overreach that increases the pressure for military-industrial complex to pump out weapons as rapidly as possible, oversight be damned. The strategy calls for the U.S. to be prepared to go almost everywhere and do almost everything, from winning a war with Russia or China, to attacking Iran or North Korea, to continuing a global “war on terror” that involves military activities in at least 85 nations. 

A more restrained strategy that elevates diplomacy and reduces America’s penchant for military intervention could be carried out for far less money and would require fewer costly weapons systems. This would buy time to restructure the arms industry, reduce it in size, increase competition, and focus on simpler, cheaper, more reliable weapons systems that can be produced in greater quantities as needed, with shorter production times and fewer performance problems. This approach would reduce profits to the major contractors, but it would also make it easier to respond promptly in a crisis like the current Ukraine war.

Ideally, the 60 Minutes piece should spark a thorough debate about how the United States purchases weapons systems, and for what purpose. Otherwise, we could be stuck with an overreaching military strategy supported by an increasingly dysfunctional weapons industry — a recipe for disaster for our economy and our security alike.

https://responsiblestatecraft.org/2023/05/23/arms-industrys-price-gauging-shows-how-greed-trumps-national-interest/