Suppose you were asked to approve a plan to expand your business that:
* was based on 20-year-old assessments of need
* called for pursuing dozens of redundant options simultaneously
* offered your suppliers no incentives to reduce their prices to you
* lacked a clear management strategy. Sounds like an invitation to fiscal disaster, doesn't it?
Suppose you were also asked to approve a set of government policies that, according to substantial evidence, would hurt investment, slow the growth of jobs, increase the pressure for higher taxes, and cost more than any government program in history? Would it help if you learned that many informed observers thought the policies wouldn't work anyway?
Unfortunately, you are already being asked to endorse such a plan and to endorse government policies that will probably produce those disastrous effects.
It is all part of the biggest spending spree in history, undertaken by the Pentagon. Present plans call for military outlays of more than $1.6 trillion over the next five years. Much of it will be spent on dubious projects or wasted altogether, unless businesspeople speak out soon.
For too long, the business attitude toward military spending has been one of unquestioning support. Many of us are veterans; we have seen our country's way of life threatened before, and we are apprehensive of the current Soviet threat. We want to be patriotic Americans. Besides, many executives believe that military spending, needed or not, is probably good for business If, however, we applied our basic business instincts, and our experience, to the issue, we would probably change our minds. A number of us have begun to look at defense with a business eye, and what we see is shocking.
Believe it or not, there hasn't been a top-to-bottom assessment of our military spending as it relates to national security needs in more than 20 years. That means that every time a new crisis arises, a new mission is added to our military establishment, with little sense of how each mission fits into our overall priorities. This unchecked growth of defense programs has reached a point that now calls for us to be capable of fighting, simultaneously, several big wars on several continents and oceans -- a strategy so demanding that the Defense Resources Board told the Joint Chiefs of Staff last year that its budget was $750 billion too small for all the missions it proposed to accomplish.
Even within each defense mission, there is a lack of discipline in developing and procuring weapons. Take, for example, the need for a weapon to defend Western Europe against a new generation of Soviet tanks. A recent analysis in The Washington Post described nearly 20 different weapons now planned, under development, or being stockpiled to meet just that one threat. Some, like the neutron bomb, are highly controversial. Others, like the Copperhead artillery shell and the Maverick missile, have failed to meet their performance goals. Still others have escalated dramatically in cost.
Altogether, we are pouring billions into this mission. Any seasoned business executive would choose one or a few of the most promising options. The Pentagon simply plows ahead with every weapon system the defense-contracting community can dream up. The Army alone has more than 300 weapons projects under development. How can we expect the average soldier to be trained in, or even be familiar with, so much high-tech weaponry? Everyone is now aware of the saga of the MX missile, for which no less than 30 different basing modes have been rejected at some point, including the well-publicized "dense pack" scheme.
Part of the reason there are so many redundant and even incompatible weapons under development is the Pentagon's preference for "cost-plus" contracts. These guaranteed-profit deals are an almost irresistible lure to military contractors. Under a cost-plus contract, the Air Force reportedly bought aluminum ladders that cost $1,676 each through a "sole source" contract, while almost identical ladders, competitively bid, cost $576, and similar civilian "off-the-shelf" models cost $160. Under cost-plus contracts, according to other reports, two aircraft parts rose in price from $16 and $77 to $3,034 and $1,017, respectively, in one year. Meanwhile, over at the helicopter division of a major defense contractor, two production teams work in separate buildings on similar helicopters -- one military and one civilian. The duplication is necessary, say company officials, in order that the two design teams not "contaminate each other."
Small wonder that The Wall Street Journal labeled the Pentagon an "enormously inefficient nationalized industry." As Business Week noted, the Pentagon has had a blank check and a murky set of priorities for so long that it has begun to develop its own industrial base.
The problem with unnecessarily transferring large sectors of industry out of the civilian economy and into the Pentagon's industrial base is that it wastes so many resources. Take investment. One reason for our stagnating productivity (output per man-hour) has been the lack of modern plant and equipment. As Simon Ramo, a science adviser to President Reagan and a founder of TRW Inc., notes in America's Technology Slip, more than half of all federal research and development funds are devoted to military uses, and more than half of all our scientists and engineers are engaged in defense-related research.
Indeed, the areas in which the United States competes well with other nations are increasingly those concerned with "military tech." Yet even those areas may not serve us well in the future, as the military pursues state-of-the-art advances that are less useful for civilian applications than advances that improve economy and reliability. While the Japanese develop cheaper, more reliable computer chips with greater storage capacity, the U.S. military seeks the development of much higher speed, much costlier chips. More than 70% of the latest generation of computer chips sold in the United States were built in Japan. Once, we dominated the market.
It is in fields like this -- information processing and civilian aerospace -- that military demands are most likely to push up costs by straining capacity. That could ignite not only a new round of inflation, but it could also choke off the worldwide competitive viability of the very industries that many economists look to for the growth stimulus for the '80s. According to an analysis that appeared recently in The New York Times, the currently projected levels of military acquisitions will create inflation, production bottlenecks, and excess capacity in a number of industries, notably microcomputers, industrial plating, machine tools, aerospace, glass, and industrial ceramics.
Unprecedented levels of military spending also distort job creation. A recent study by Employment Research Associates (using the Bureau of Labor Statistics Input-Output Model of the U.S. economy) found that spending for weapons actually costs more jobs than it creates. Retailing and basic industries such as steel and automobiles tend to be especially hard hit.
It isn't just a matter of cleaning up what David Stockman called the $30 billion "swamp" of waste in military procurement, although that certainly needs to be done. It is more a matter of addressing the main goal of all military spending -- ensuring our national security.
What, exactly, is national security? The more we think about it, the more we realize that it must be based on factors like the strength of our economy and the morale of our people, just as much as it is based on the quantity of our arms. Some years ago Dwight D. Eisenhower expressed this thought well: "No matter how much we spend for arms, there is no safety in arms alone. Our security is the total product of our economic, intellectual, moral, and military strengths."
Has the heavy defense spending of the last 10 years made us more secure? Has it actually been good for business?
How much is our security enhanced by the last $1 billion or $10 billion spent on weapons in any given year? The difference between an increase of more than 9% a year in spending, as President Reagan has called for, and 3%, as Sen. Ernest Hollings (D-S.C.) and others have called for, amounts to more than $250 billion by 1987. How much of a federal budget deficit is too much? And how much crowding out of private investment can we tolerate? Congress is weighing these options now.
Business executives could be a great help in resolving this debate by developing practical alternatives to economically destructive policies and by articulating a business perspective on military spending practices. This is the reason that a number of us have formed an association we call Business Executives for National Security Inc.
We want to contribute our business experience in assessing risks, in weighing costs and benefits, and in identifying commonsense plans of action. The dividend on our investment will be a return to general business prosperity.
Eisenhower's remarks on military spending, quoted above, continued for a few more lines. Now is a good time for us to heed his further wisdom:
Let me elaborate on this one great truth. It happens that defense is a field in which I have had varied experiences over a lifetime, and if I have learned one thing, it is that there is no way in which a country can satisfy the craving for absolute security -- but it can easily bankrupt itself, morally and economically, in attempting to reach that goal through arms alone. The Military Establishment, not productive in itself, must necessarily feed on the energy, productivity, and brainpower of the country, and if it takes too much, our total strength declines.