Restructuring the U.S. Defense Industry

Restructuring the U.S. Defense Industry Eugene Gholz and Harvey M. Sapolsky The end of the Cold War produced major changes in the U.S. defense sector. More than 2 million defense workers, military personnel, and civil servants have lost their jobs. Thousands of ªrms have left the industry. More than one hundred military bases have closed, and the production of weapons is down considerably. As signiªcant as these changes are, they do not address the key issues in restructuring the post–Cold War defense sector. The Reagan-era defense buildup led contractors to invest in huge production capacity that no longer is needed. This capacity overhang includes too many open factories, each of which produces a “legacy” system that was designed for the Cold War. Many individual defense plants are also too large to produce efªciently at post–Cold War levels of demand. Until this excess capacity is eliminated, the United States will continue to spend too much on defense. The politics of jobs and congressional districts that many analysts thought governed the Cold War have triumphed in its aftermath. Today, years after the collapse of the Soviet Union, not one Cold War weapon platform line has closed in the United States.1 The same factories still produce the same aircraft, ships, and armored vehicles (or their incremental descendants). During the Cold War, the high level of perceived security threat increased U.S. policymakers’ respect for military advice on weapons procurement and research and development (R&D) decisions. The military services’ expert knowledge checked Congress’s pork barrel instincts, and failed or unneeded weapon systems were often canceled. Today, however, contractors and congresInternational Security, Vol. 24, No. 3 (Winter 1999/2000), pp. 5–51© 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. 5 Eugene Gholz is an Instructor in George Mason University’s Institute of Public Policy and a Research Associate in the Security Studies Program at the Massachusetts Institute of Technology. Harvey M. Sapolsky is Professor of Public Policy and Organization at MIT and Director of the MIT Security Studies Program. The authors would like to thank Steven Ansolabehere, Allen Kaufman, Jennifer Lind, Daryl Press, International Security’s anonymous reviewers, and the participants in the Council on Foreign Relations’ Study Group on Consolidation, Downsizing, and Conversion in the U.S. Military Industrial Base for helpful comments on earlier drafts. 1. A line is a privately held or managed facility that builds a particular weapon platform. Some major defense industry facilities do not meet this deªnition: for example, plants that produce major subassemblies (e.g., wings, turrets, and radars) and plants that produce complete munitions (e.g., bombs and bullets). The political economy of business-government relations for these plants differs from the relationships that affect the weapon system production lines, as is explained below. The primary focus of this article is on the weapon system production lines. sional representatives have cemented the military-industrial ties that critics feared during the Cold War; the military’s power to resist is limited, and in many cases so is its commitment even to try. The drawdown after the Cold War is often portrayed as one of the harshest when compared to the defense cuts after other wars fought by the United States.2 It has actually been the gentlest: more than a decade after the defense budget cuts started, government contracts still support 2.1 million private defense-sector employees—400,000 more than at the budgetary low point of the Cold War.3 Adjusting the size, shape, and goals of the U.S. defense procurement effort to post–Cold War needs has proven a difªcult political challenge. The solution requires a new policy strategy from the military services, the civilian Ofªce of the Secretary of Defense, and the Congress. This new strategy must recognize the post–Cold War political realities in the defense industrial base that currently drive defense procurement. The United States’ bloated, pork barrel defense acquisition budget can be cut—if policymakers buy out the defense industry’s overcapacity. This article proceeds in ªve substantive sections. The ªrst section describes the current state of the defense industrial base...