Military Waste & Fraud:
excerpted from the book
Take the Rich Off Welfare
by Mark Zepezauer and Arthur
Odonian Press, 1996
Military Waste and Fraud
- $172 billion a year
When it comes to wasting money, the Pentagon
has no peer. For one thing, there's the single question of scale.
For fiscal year 1996, the Pentagon budget was $265 billion ($7
billion more than it requested). That's 5% of our gross national
product, a larger percentage than in virtually any other industrialized
In absolute dollars (not as a percentage
of GNP), the Pentagon shells out 3 1/2 times more than the next
largest military spender (Russia), 6 1/2 times more than Britain,
7 1/2 times more than France, 7 1/4 times more than Japan, 8 1/2
times more than Germany. Our military budget is bigger than the
next nine largest military budgets combined, and sixteen times
larger than the combined military budgets of all of our "regional
adversaries"- Cuba, Syria, Iran, Iraq, North Korea and Libya.
It accounts for 37% of all military spending on the planet (in
comparison, our economy is only 22% of the world total).
As enormous as the Pentagon's budget is,
there's more military spending buried elsewhere-in the Department
of Energy's production of fuel for nuclear weapons, in the military
portion of the NASA budget, in the VA, etc. By adding in these
hidden military expenses, the Center for Defense Information (CDI),
a Washington think tank run by retired generals and admirals,
concluded that we spend a total of $327 billion a year on the
military. (When it did similar computations independently, the
War Resisters League came up with $329 billion.)
But that doesn't include what we have
to pay for past Pentagon budgets. The CDI went back to 1941 and
multiplied the military's percentage of each year's budget by
the deficit for that year. Using that method, they figured that
interest on past military spending cost us $167 billion in fiscal
1996. (The War Resisters League went all the way back to 1789
and came up with $291 billion.)
Since the CDI's estimates are lower, let's
be conservative and use them. Adding them together gives us a
figure for total military spending-past and present-of $494 billion
a year ($9 1/2 billion a week, $1 1/3 billion a day.
Waste beyond your wildest dreams
But just the scale of the Pentagon's budget
alone can't explain its prodigious ability to waste money. Another
quality is required- world-class incompetence. There are so many
examples of this that they tend to blur together, numbing the
mind. Here are just a few:
According to a US Senate hearing, $13
billion the Pentagon handed out to weapons contractors between
1985 and 1995 was simply "lost." Another $15 billion
remains unaccounted for because of "financial management
troubles." That's $2B billion-right off the top-that has
... According to the Bulletin of the Atomic
Scientists, every single one of the top ten weapons contractors
was convicted of or admitted to defrauding the government between
1980 and 1992. For example:
* Grumman paid the government $20 million
to escape criminal liability for coercing subcontractors into
making political contributions.
* Lockheed was convicted of paying millions
in bribes to obtain classified planning documents.
* Northrop was fined $17 million for falsifying
test data on its cruise missiles and fighter jets.
* Rockwell was fined $5.5 million for
committing criminal fraud against the Air Force.
In another study, the Project on Government
Oversight (PGO) searched public records from October 1989 to February
1994 and found-in just that 4~/~-year period-85 instances of fraud,
waste and abuse in weapons contracting. For example:
Boeing, Grumman, Hughes, Raytheon and
RCA pleaded guilty to illegal trafficking in classified documents
and paid a total of almost $15 million in restitution, reimbursements,
* Hughes pleaded guilty to procurement
fraud in one case, was convicted of it in a second case and, along
with McDonnell Douglas and General Motors, settled out-of-court
for a total of more than $1 million dollars in a third case.
* Teledyne paid $5 million in a civil
settlement for false testing, plus $5 million for repairs.
* McDonnell Douglas settled for a total
of more than $22 million in four "defective pricing"
But General Electric was the champ. PGO
lists fourteen cases, including a conviction for mail and procurement
fraud that resulted in a criminal fine of $10 million and restitution
of $2.2 million. In our own research, we found several other examples
of GE crimes and civil violations:
* In 1961, GE pleaded guilty to price-fixing
and paid a $372,500 fine.
* In 1977, it was convicted of price-fixing
* In 1979, it settled out-of-court when
the State of Alabama sued it for dumping PCBs in a river.
* In 1981, it was convicted of setting
up a $1.25 million slush fund to bribe Puerto Rican officials.
* In 1985, GE pleaded guilty to 108 counts
of fraud on a Minuteman missile contract. In addition, the chief
engineer of GE's space systems division was convicted of perjury,
and GE paid a fine of a million dollars.
* In 1985, it pleaded guilty to falsifying
* In 1989, it paid the government $3.5
million to settle five civil lawsuits alleging contractor fraud
at a jet-engine plant (which involved the alteration of 9,000
daily labor vouchers to inflate its Pentagon billings).
In 1990, GE was convicted of criminal
fraud for cheating the Army on a contract for battlefield computers;
it declined to appeal and paid $16 million in criminal and civil
fines. ($11.7 million of this amount was to settle government
complaints that it had padded its bids on 200 other military and
space contracts-which comes to just $58,000 or so per contract.)
In 1993, GE sold its weapons division
to Martin Marietta for $3 billion (retaining 23.5% of the stock
and two seats on the board of directors).
The largest investigation of Pentagon
fraud took place between 1986 and 1990. Called Operation Ill Wind,
it began when Pentagon official John Marlowe was caught molesting
little girls. He cut a deal to stay out of jail and, for the next
few years, secretly recorded hundreds of conversations with weapons
There's no way of knowing how much the
crimes Ill Wind looked into cost the taxpayers, but the investigation,
which cost $20 million, brought in ten times that much in fines.
According to Wall Street Journal reporter Andy Pasztor, "more
than 90 companies and individuals were convicted of felonies...
including eight of the military's fifteen largest suppliers....Boeing,
GE and United Technologies pleaded guilty...Hughes, Unisys, Raytheon,
Loral, Litton, Teledyne, Cubic, Hazeltine, Whittaker and LTV...admitted
they violated the law."
Unisys signed the largest Pentagon fraud
settlement in history: $190 million in fines, penalties and forgone
profits (which means they weren't allowed to charge for cost overruns
the way military contractors usually do).
Assistant Navy Secretary Melvyn Paisley
was the central figure in the Ill Wind scandal and the highest-ranking
person convicted (he was sentenced to four years in prison). He
ran his office like a supermarket for weapons manufacturers, soaking
up bribes, divvying up multibillion-dollar contracts and diverting
work to a firm he secretly controlled with a partner.
Paisley may have been a bit more...flamboyant
than most, but there was nothing terribly unusual about his approach.
As of 1994, nearly 70 of the Pentagon's 100 largest suppliers
were under investigation. Fines for that year totaled a record
That may sound like a lot, but it's less
than 2% of the weapons industry's net income (which averaged $64
billion a year in 1994 and 1995). A billion or two in fines is
hardly an incentive to end the corruption and waste in Pentagon
The black budget
Not all Pentagon waste is visible. Hidden
within the military budget is a secret "black budget"
that's not subject to any congressional oversight (toothless as
that usually is). It includes money for the CIA (tucked away in
the Air Force budget, it gets about 10% of the total) and for
less well-known but better-funded "intelligence" organizations
like the National Security Agency (NSA) and the National Reconnaissance
In 1995, several members of Congress tried
to argue that, with the Cold War over, there was no harm in publishing
the total amount of the intelligence black budget, without details
on how it was spent. Even this modest proposal went down to defeat
but, in the process, led to the absurd spectacle of legislators
mentioning the figure-$28 billion for fiscal 1996-while arguing
that it shouldn't be publicly disclosed.
John Pike of the Federation of American
Scientists estimates that the 1996 black budget included an additional
$3 billion or so in military "stealth" projects, for
a total of about $31 billion-down from about $36 billion a year
during the Reagan years. Pike attributes the decrease to a couple
of projects that grew too huge to be hidden in the black budget.
One of the projects that "surfaced"
into the public budget is the B-2 bomber. Originally projected
to cost $550 million each, B-2's ended up costing $2.2 billion
each-literally more than their weight in gold.
Another is MILSTAR, which is designed
to ''fight and win a six-month nuclear war...long after the White
House and the Pentagon are reduced to rubble." The Air Force
has tried to kill this idiotic program four times since it emerged
from the black budget, but Congress won't listen. MILSTAR has
cost us between $8 and $12 billion so far, and could cost another
$4.5 billion between 1996 and 2000.
Since the black budget is completely off
the books, it encourages waste on a titanic scale. As one Pentagon
employee put it: "In a black project, people don't worry
about money. If you need money, you got it. If you screw up and
need more, you got it. You're just pouring money into the thing
until you get it right. The incentive isn't there to do it right
the first time. Who's going to question it?" ...
Don't call it bribery
Why do our legislators put up with military
waste and fraud? For the same reason they do anything. Defense
PACs gave members of Congress $7.5 million in 1993 and 1994. And
PAC money is just part of the story.
Of the $4.5 billion in unrequested weapons
funding added to the Pentagon budget for fiscal 1996, 74% was
spent in or near the home districts of representatives who sit
on the House National Security Committee. Another $290 million
was spent in or around Newt Gingrich's home district, Cobb County,
Georgia. (Cobb gets more federal pork than any county except Arlington
in Virginia, which is right next to Washington, and Brevard in
Florida, where Cape Canaveral is located.)
Although the Pentagon insists that it
doesn't need any more B-2 bombers, Norman Dicks (D-Washington)
and Ted Stevens (R-Alaska) don't care. Dicks-who's one of the
largest recipients of military PAC money in the House-received
over $10,000 from nine major B-2 contractors in the four months
just before the battle to resurrect B-2 funding. Stevens got $37,000
between 1989 and 1994, making him one of the top ten recipients
of PAC contributions from B-2 contractors. (Isn't it amazing how
little politicians cost?)
If PAC money isn't enough, military lobbyists
can always argue jobs. It didn't hurt funding for the B-2 that
spending for it was spread across 88% of all congressional districts
and all but two states.
Liberal California Representative Maxine
Waters defended her vote to continue B-2 funding by candidly admitting
that it was one of the few ways she knew to bring federal jobs
to her district. (Since her district is South-Central Los Angeles,
you can understand her desperation.)
There's no conceivable need for Seawolf
submarines (which cost $2.4 billion apiece)- except for the votes
in Connecticut, where it's built, and in surrounding states. That's
why liberal New England senators like Ted Kennedy, John Kerry
and George Mitchell supported it, as did Bill Clinton-who needed
votes from those states-in his 1992 campaign.
Neither the Air Force nor the Navy wants
any part of the V-22 Osprey assault plane, which the Bush administration
tried in vain to kill. But it's supported by legislators in Texas
and Pennsylvania-the two states that do the most contracting for
it-and by Clinton, who...oh, you get the idea.
What about the jobs we'd lose? -- If new
weapons systems are nothing more than make-work programs, they're
really inefficient ones. A 1992 Congressional study estimated
that shifting money from the Pentagon to state and local governments
would create two jobs for every one it eliminates. Building weapons
we don't need is so wasteful that the economy would probably be
better off if we just paid people the same money to stay at home.
The Congressional Budget Office concluded
that a billion dollars spent on successfully promoting arms exports
creates 25,000 jobs, but if that same billion is spent on mass
transit, it creates 30,000 jobs; on housing, 36,000 jobs; on education,
41,000 jobs; or on health care, 47,000 jobs.
Aside from the cost, using federal money
to prop up military contractors creates a disincentive for them
to convert to civilian products. Shifting Pentagon funds to urgently
needed domestic uses would be good for both the US and the rest
of the world. As President Eisenhower put it, "Every gun
that is made, every warship launched, every rocket fired signifies,
in the final sense, a theft from those who hunger and are not
fed, those who are cold and not clothed."
Pentagon boosters argue that military
spending has already been slashed too far, since more than 800,000
military-related jobs have disappeared since 1990. But many of
these layoffs were in nonmilitary divisions of the companies,
and more than half of them were caused by the economy contracting
in a recession, not by smaller Pentagon budgets-especially since
they've dropped off only slightly from their all-time high of
$304 billion (adjusted for inflation) in 1989.
Just eight companies-McDonnell Douglas,
Lockheed, Martin Marietta, Boeing, General Dynamics, Northrop
Grumman, Raytheon and Hughes-were responsible for half of all
military contractors' layoffs in 1993. Only 15% of Boeing's layoffs
and a third of McDonnell Douglas' were related to military production.
After the firings, the stocks of these eight companies rose by
20% to 140%, and the salaries of their CEOs soared.
The revolving door
Another reason for Pentagon waste and
fraud is the revolving door between military contractors and government
personnel. Before he was Secretary of Defense, Caspar Weinberger
was a top executive at Bechtel, which does massive engineering
projects for the Pentagon and foreign clients like Saudi Arabia.
Before he was Secretary of State, George Shultz was president
Before his days as a Navy felon, Melvyn
Paisley worked for Boeing-as did his boss at the Pentagon, Navy
Secretary John Lehman. Secretary of Defense William Perry and
CIA Director John Deutch both did consulting work for Martin Marietta
before they joined the Clinton administration. The list goes on
Generals have an interest in keeping weapons
contractors happy-at least if they want to sit on the boards of
corporations after they retire. Contractors can use their connections
at the Pentagon to find work there and, like Paisley, feed lucrative
contracts to their friends in the private sector.
On both sides of the revolving door, militarists
live in the lap of luxury. Nobody batted an eyelash when Paisley
entertained contractors in staterooms on the Queen Elizabeth,
nor is there ever much dismay when military aircraft are used,
at a cost of tens of thousands of dollars an hour, to fly politicians,
lobbyists and weapons contractors on pleasure trips.
Still, personal perks don't cost us much
compared to corporate perks. For example, when Lockheed and Martin
Marietta merged to become Lockheed Martin, $92 million in bonuses-or
"triggered compensation," as they prefer to call it-was
handed out to top executives and members of the board. They expect
the government to pick up $31 million of that.
John Deutch quietly reversed a 40-year
ban on such compensation when he was at the Pentagon. The biggest
bonus, $8.2 million, went to the new company's president, Norman
Augustine, who Deutch and William Perry had done work for at Martin
Both Deutch and Perry obtained waivers
from an ethics regulation that prohibits Pentagon officials from
dealing with people they formerly did business with untl a year
has passed. (Up to 30,000 employees will lose their jobs as a
result of this merger.)
Military contractors milk the government
in other ways as well. It's common for the State Department to
give foreign aid to brutal dictatorships like Indonesia and Guatemala,
with the requirement that the money be used to buy US weapons.
Each year this program results in the transfer of $5-7 billion
from US taxpayers to US arms merchants (not to mention the murder
of lots of innocent people in the countries involved).
The Pentagon has similar programs that
not only provide subsidies to foreign countries to buy from US
weapons suppliers but also help them negotiate the sale. In 1994,
General Dynamics and Lockheed received a total of $1.9 billion
in foreign military sales awards- 126,567% more than the $1.5
million they gave to candidates for federal offices in the
1994 elections. (As we've already remarked,
politicians sure are a bargain.)
Thanks in large part to these Pentagon
programs-on which we spend $5.4 billion a year, almost half our
total foreign aid expenditure-the US is the largest arms supplier
on earth, with 43% of the world trade. What's more, many of these
loans are ultimately defaulted on or forgiven. Egypt, for example,
was let off the hook for $7 billion in loans, as a reward for
participating in the Gulf War...
How much military spending is waste?
Even if you accept the absurd two-war
plan, lots of savings are still possible:
* We have more Trident missiles than we
could ever use, and nobody to aim them at. But the Navy isn't
happy with their old Tridents (currently funded at $787 million
a year). They want to replace them with a newer version, even
though both kinds of Tridents are likely to be eliminated under
the next arms-control agreement, START lll.
* Although our 121 C-5 and 265 C-144 transport
planes are perfectly adequate, the Pentagon wants to replace a
bunch of them with 120 new C-17s, at a total cost of $45 billion.
The rationale for the F-22 fighter is
especially weak. It was designed to achieve air superiority in
the 1990s over the now-defunct Soviet Union. We already have 900
F-15s (which the GAO calls the best tactical aircraft in the world),
and none of our real or potential enemies have more than a handful
of planes that come anywhere close to matching its capabilities.
That hasn't stopped the Pentagon from asking for 442 F-22s, at
a total cost of $72 billion.
* Even a hawk like Barry Goldwater points
out the waste involved in the Army, Navy, Air Force and Marines
each having its own air force. Both the Marines and the Army have
light infantry divisions, and the Navy and the Air Force aren't
satisfied with the same kind of satellites and cruise missiles-each
has to have its own kind.
* The Pentagon keeps 100,000 troops in
Europe and 70,000 in Korea and Japan. We spend $80 billion a year
on NATO, $59 billion a year in South Korea and $48 billion a year
in the Persian Gulf. In all of these cases, the countries we're
supposedly defending have militaries that are better-equipped
and much better-funded than their enemies'.
* As we've mentioned above, even the Pentagon
doesn't want any more B-2 bombers, V-22 Osprey assault planes
or additional Star Wars funds. The Navy doesn't want the Seawolf
submarine and admits it doesn't need another $3.5-billion nuclear-powered
aircraft carrier. But try telling that to the companies that make
those weapons, or to the politicians whose campaigns they fund.
By now it should be obvious that the "defense"
budget isn't based on any rational calculation of what the defense
of this country actually requires-it's based on what US arms manufacturers
can get away with (almost anything, it turns out).
Attaching the word "defense"
to this spending isn't just misleading-it's the complete opposite
of the truth, since military waste and fraud make our country
weaker, not stronger. The preposterously obese Pentagon budget
is the single greatest threat there is to our national security.
It's not just wild-eyed radicals who feel
* Lawrence Korb, a military planner under
Reagan who's now with the Brookings Institution, says we could
have the most overwhelmingly powerful military in the world for
around $150 billion a year.
* In a report called Ending Overkill,
the Bulletin of the Atomic Scientists laid out a detailed military
budget that includes funding for a lot of programs we think are
unnecessary (Star Wars, for example). Even so, its report calls
for scaling down the military budget to $115 billion by the year
2000, and states that this would still give us a force "adequate
to undertake six or eight Somalia-like operations at the same
time, or to mount a force somewhat larger than the American part
of Desert Storm."
* The Center for Defense Information (founded
by retired generals and admirals) thinks we could get by quite
nicely with about a million soldiers, instead of the 1.6 million
we now have, and with a Pentagon budget of about $200 billion.
The average of those three estimates is
$155 billion a year-quite a bit less than the $327 billion a year
we actually spend. (And remember: that $327 billion doesn't include
the $167 billion or more we lay out each year to service debt
that's the result of past military programs. Unfortunately, there
isn't much we can do about that past debt-except to cut down on
present military budgets, so the problem doesn't keep getting
Subtracting $155 billion from $327 billion
gives us a figure for current military waste and fraud of $172
billion a year-almost $500 million a day-virtually all of which
goes to large corporations and super-rich individuals. (Sure,
some of it pays for ordinary people's salaries, but they'd also
be earning money if they were doing something useful.) Half a
billion dollars a day could buy a lot of medical care, or fill
a lot of potholes, or...you name it. After all, it's your money.
the Rich Off Welfare