Military Waste & Fraud: $172 billion/year
excerpted from the book
Take the Rich Off Welfare
by Mark Zepezauer and Arthur Naiman
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 nation.
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
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
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 simply disappeared...
... 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.
* 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, fines, etc.
* 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" cases.
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
* In 1977, it was convicted of price-fixing again.
* 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 time cards.
* 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 contractors.
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 $1.2 billion.
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 contracting.
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 Office (NRO).
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
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
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 of Bechtel.
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 and 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 Marietta.
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
* 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 this way:
* 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 worse.)
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