During the 1970s, what was once a rather obscure school of economics in Chicago changed the course of American history. Milton Friedman, George Stigler and a host of other economists from the University of Chicago set out to prove that state intervention in the United States economy was only leading to high inflation and a blooming national debt. What was needed, according to these economists, was a tight fiscal policy that de-emphasized state control.
The result was the efforts of presidents Reagan, Bush and Clinton to deregulate the energy industry, rail transport and AT&T. The companies assumed to have a natural monopoly were thrown into the market and surprisingly, competition emerged. In fact, after investigating the various companies receiving state support, it was discovered that a large amount of corruption was taking place between the state-regulated corporations and politicians.
By cutting government regulation and subsidization, former state-supported corporations had to quickly streamline their operations, eliminating waste and excessive management. These efforts at deregulation proved that private corporations are better qualified to make economic choices than government regulators. This revelation has swept through government, prompting many politicians to call for more privatization and deregulation. Yet, one government-led intervention in the market has avoided scrutiny'defense contracting.
The Department of Defense is one of the biggest bureaucracies in the world. It has more than 2.3 million personnel, including 1 million full-time soldiers, 700,000 reserves and National Guard and 600,000 civilians. In 1999, the Defense Department had more than $250 billion to spend on new projects'a larger amount than any other organization in the government.
The Defense Department's size and its unquestionable political power means that waste and fraud are endemic. Horror stories like $18 hammers being purchased for $450 and 13 cent washers being bought at $2,043 abound. In an attempt to explain this high cost, a company spokesperson said, \There are some people who would rather go down to the supermarket and buy these items for an airplane. But I wouldn't particularly want to be on that airplane.""
In one case, Defense Department officials rigged the tests being conducted on a new troop transport called the Bradley Fighting Vehicle to conceal fatal design flaws. Although hyped as ground-breaking new technology, after additional testing it was found that the Bradley Fighting Vehicle had a tendency to explode on impact. For the Defense Department, it was more important to protect the interests of companies making these new military weapons than the average soldier who could potentially die due to a design flaw.
The cause of this waste and fraud is the defense contracting process, which promotes inflated bidding and encourages politicians to seek pork barrel programs for their home constituencies. Large corporations like Raytheon, General Electric, Boeing, McDonnell Douglas, General Motors, Northrup Corporation and GTE Corporation benefit the most from government contracting, often making enormous profits by charging exorbitant costs for unneeded equipment.
The economic reason why the government is being fleeced can be traced back to neoliberal economic analysis'a lack of competition. The elite corporations that generally receive defense contracts know that the Defense Department is willing to pay an outrageous price. They know there is no other company that will bid lower than a 50 percent markup. Due to this lack of competition, Robert Costello, an undersecretary of defense for acquisition in the Reagan administration, said up to 30 percent of the $150 billion spent by the Pentagon for weapons procurement is wasted.
This type of waste has extraordinary consequences for the government, considering the current crisis. Consider the recently passed emergency spending bill that included roughly $20 billion to the Defense Department. Of the $20 billion, $6 billion will be wasted on overpriced equipment. That is a hefty sum of money considering how much other agencies are asking for in the wake of the Sept. 11 attacks. A $6 billion budget could easily fund a new government agency in charge of Homeland Security.
Milton Friedman and the Chicago school of economics has proven that government can no longer afford to prop up inefficient firms and engage in wasteful spending. Defense contracting needs to be closely examined by independent oversight to make sure all firms are included in the bidding process, not just the Defense Department's institutional favorites. There must be a willingness to punish defense firms that produce substandard equipment by offering future contracts to competitors.
Even in defense industries, the forces of market competition will produce efficiency and minimize fraud and corruption. The United States may very well find itself in a financial crisis if resources are not used efficiently and effectively. Efficiency can only be created by reinserting competition into the defense contracting process.
