The Military - Industrial Complex
and the Obsession with Privatization

from the book

Sharing the Pie

by Steve Brouwer


From the end of World War II until the end of the 1980s, the Cold War with the Soviet Union provided the rationale for a massive arms race. A steady and enormous flow of money emanated from the Department of Defense and benefited America's largest industrial corporations. In this process a vast network of lobbying groups and media sources was created to heighten public perception of a Communist military threat. The situation reached its extreme in the early 1980s, when the Reagan administration, calling the Soviet Union the "Evil Empire," pushed military spending rapidly upward, from $118 billion in 1979 to $282 billion in 1987. This provided a bonanza to the military contractors.

In the 1970s American corporations were already enjoying higher profits in weapons production than were generally available elsewhere in the economy. But the defense buildup of the early 1980s increased the profit margins even further, to a rate nearly two and a half times greater than similar nonmilitary production.

When the Soviet Union dismantled itself in 1989 and there was no longer a Cold War to justify a huge defense apparatus in the United States, some observers thought the U.S. military-industrial complex would disappear, too. And there were, in fact, some cutbacks in defense spending. The percentage of gross domestic product devoted to the military declined from 6.3 percent at the height of the Reagan buildup to 3.6 percent in the mid-1990s.

But this did not mean that the military-industrial complex had been dismantled. It was merely awaiting the creation of a new threat, which appeared in 1991. In a war that cost very few American lives, the United States punished Iraq for its invasion of Kuwait with one of the fiercest air bombardments in history. Given the public's satisfaction with a "clean" war that seemed like an extension of a child's video game, the defense contractors looked forward to producing a whole new round of sophisticated weapons. Advanced hardware, from "smart bombs" to planes that could fly "blind," won favorable publicity. President Bush claimed that forty-one of forty-two U.S. Patriot missiles had hit their targets, the more primitive Scud missiles used by Iraq. {The statement later proved to be a gross exaggeration; according to reliable estimates few Patriot missiles ever hit their targets. Furthermore, a detailed study released by the government in 1996 revealed that high-tech bombs and missiles and the F-117 Stealth fighter plane were not any more effective than the older, far cheaper aircraft and weaponry that previously comprised most of the U.S. arsenal.

This analysis of effectiveness came far too late. Shortly after the Gulf War ended in 1991, the Pentagon announced that it was awarding a new contract to the Lockheed Corporation for the production of an updated Stealth fighter plane that would cost $65 billion. And this was not the only windfall from the war. The recklessness of Saddam Hussein allowed the Pentagon and its allies to begin a campaign to convince the Congress and the American public that a new foreign threat existed. They called it the "rogue state." According to defense analysts, rogue states operated outside the norms of civilized nations and were determined to unleash terror against larger, more pacific countries. One drawback to the theory was that the states in question were generally economic and military weaklings: Cuba, Iraq, North Korea, Iran, and Libya. Their combined military spending amounted to only $9.4 billion in 1995. In comparison, the NATO countries, not counting the United States, spent $147.6 billion on defense, while the U.S. itself was spending $264 billion, 40 percent of the world's total military dollars.

It is unclear whether the rogue state hypothesis was convincing to the general public, but few people protested when the Congress added $11.2 billion on top of President Clinton's requested military budget for 1997. Overall defense spending was staying fairly stable despite steady reductions in the number of armed forces personnel and the continued closings of superfluous military bases. Corporate contractors did not suffer from such cutbacks. The B-2 Stealth bomber, which had never flown in combat and cost more than $2 billion per aircraft, was funded again. The price of a variety of "smart bombs, " either already being built or on order, was $58 billion. Secretary of Defense William Perry told contractors that spending on new weapons systems would increase from $38 billion in 1996 to $60 billion per year in 2000.5 Overall military expenditures in 1997 were maintained at a level that would allow the United States to fight a major war, even though there were no significant military opponents in sight.

In fact, as the twenty-first century begins, the Pentagon continues to argue that it should be able to fight not one, but two major wars in two different parts of the globe at the same time. Retired Air Force Chief of Staff Merrill McPeak gave an honest assessment of this argument: "The two-war strategy is just a marketing device to justify a high budget."

Privatizing War and Privatizing Government

At the time President Eisenhower warned about the influence that the military-industrial complex exerted upon the government, most Americans believed that a massive Cold War defense budget was necessary for national survival. Today it is no longer necessary to marshal this level of public support for government spending, because the process of ceding control of public activities- including the defense of the United States-to private business is much further advanced.

In fact, the nature of corporate interest in defense activities has expanded far beyond the provision of hardware and supplies; today large companies are taking over areas of foreign aid and military support that were once provided by the Department of State or American troops. One company, Military Professional Resources, Inc. [MPRI], which advertises itself as having "The World's Greatest Corporate Military Expertise," has landed big contracts to provide military training to two of the Balkan armies, the Croatian and the Bosnian. Investigative reporter Ken Silverstein found that twenty-two senior corporate officers of MPRI were once senior military officers in the U.S. Armed Forces, including retired general Carl Vuono, who was U.S. Army Chief of Staff in the early 1990s. MPRI is being paid $400 million to train the Bosnian Army but most of the money comes neither from the United States nor from Bosnia itself; instead it is supplied by countries such as Saudi Arabia, Kuwait, Brunei, and Malaysia.

In June of 1997, the Defense Intelligence Agency (or D.I.A., a part of the Department of Defense) invited potential corporate contractors to a closed-door symposium on "The Privatization of National-Security Functions in Sub-Saharan Africa." In effect, the D.I.A. was promoting a growth industry; the increasing use of mercenary forces to support or topple the governments of African nations has opened new opportunities for American companies and unemployed ax-military personnel. Such efforts can threaten the development of democracy in other countries, but they also pose a danger to democratic decision-making in the United States. Privately run military operations can either circumvent the intentions of our government or they can be used clandestinely by the Defense Department, the Department of State, or the CIA (a la Oliver North's Iran-contra operation of the 1980s) in order to keep unseemly strategies out of the public eye.

The privatization of military activity raises an even larger issue about how democracies function and who is responsible for public policy. "Market solutions" utilizing private enterprise are now applied to many areas-prisons, police departments, hospitals, welfare systems, and schools-that were formerly handled by local, state, and federal governments or by nonprofit corporations that were subject to public oversight. In some cases, private business arrived on the scene at a time when local and state governments were so financially strapped by budget cuts that they could not afford to carry out their duties, much less invest in modernizing technology. At other times, a political choice to "reduce the size of government" led to immediate openings for private operations to take over.

The Welfare Reform Act of 1996, for example, slashed benefits for the poor, but allowed private companies to line up for their share of the support checks. Because the Welfare Reform Act designated that states would receive lump-sum payments for welfare programs that previously had been handled by the federal government, states suddenly had tens of billions of dollars that they had to process and disburse to individuals each year. A number of states sought to contract out the work to private businesses, such as Lockheed Information Services (a subsidiary of the giant defense contractor Lockheed Martin). In a bidding war in Texas, the object was to take over $563 million in state welfare operations; among the bidders was Electronic Data Systems, the outfit that once made a huge fortune for Ross Perot by handling computerized records of Medicare and Social Security disbursements. Another contractor, a $4.2 billion subsidiary of the giant accounting firm Arthur Anderson, warned of the possible boondoggles: "There's some easy money if the states aren't careful."

These cautionary words involved more than competition for a big contract. Abuse of the system had occurred before when Lockheed Information Services was banned from New York City for its part in a political influence-peddling scandal that involved parking meter collections. Electronic Data Systems was called "grossly inefficient" by the attorney general of Florida due to the way it handled a large welfare contract in that state.

Lockheed Martin was so intent on entering the welfare market that it hired a new senior vice president, Gerald Miller, who had previously been employed by the state of Michigan to direct the dismantling of social programs. If there was any doubt about what was motivating "welfare reform, " Miller cleared it up: "The private sector will ultimately run these programs. The era of big government is over.'' He might have added that the era of big business running big government was well under way. Later in the same month, September 1996, Lockheed Martin was still expanding operations in its old line of work, aerospace. It signed a $7 billion contract to take over part of the space shuttle program for NASA.

Can everything be privatized? At first glance, some public ventures do not seem to lend themselves to colonization by giant corporations. One of these is public education, an area of American life where the tradition of direct community control through democratically elected school boards is well established. However, when the new breed of corporate investors looks at the nation's public school systems, they see something else: the possibility of taking over a giant economic entity that generates six hundred billion dollars in revenue each year. The prospects are indeed bright for the development of a new "education market." In 1996 the Lehman Brothers investment firm sponsored "the first educational investment conference"; their managing director foresaw a rosy future for "a local industry that over time will become a global business.''

Sharing the Pie