Authored by Dmitry Orlov via Club Orlov blog,
Within the vast bureaucratic sprawl of the Pentagon there is a group in charge of monitoring the general state of the military-industrial complex and its continued ability to fulfill the requirements of the national defense strategy. Office for acquisition and sustainment and office for industrial policy spends some $100,000 a year producing an Annual Report to Congress. It is available to the general public. It is even available to the general public in Russia, and Russian experts had a really good time poring over it.
In fact, it filled them with optimism. You see, Russia wants peace but the US seems to want war and keeps making threatening gestures against a longish list of countries that refuse to do its bidding or simply don’t share its “universal values.” But now it turns out that threats (and the increasingly toothless economic sanctions) are pretty much all that the US is still capable of dishing out—this in spite of absolutely astronomical levels of defense spending.
Let’s see what the US military-industrial complex looks like through a Russian lens.
It is important to note that the report’s authors were not aiming to force legislators to finance some specific project. This makes it more valuable than numerous other sources, whose authors’ main objective was to belly up to the federal feeding trough, and which therefore tend to be light on facts and heavy on hype. No doubt, politics still played a part in how various details are portrayed, but there seems to be a limit to the number of problems its authors can airbrush out of the picture and still do a reasonable job in analyzing the situation and in formulating their recommendations.
What knocked Russian analysis over with a feather is the fact that these INDPOL experts (who, like the rest of the US DOD, love acronyms) evaluate the US military-industrial complex from a… market-based perspective! You see, the Russian military-industrial complex is fully owned by the Russian government and works exclusively in its interests; anything else would be considered treason. But the US military-industrial complex is evaluated based on its… profitability! According to INDPOL, it must not only produce products for the military but also acquire market share in the global weapons trade and, perhaps most importantly, maximize profitability for private investors. By this standard, it is doing well: for 2017 the gross margin (EBITDA) for US defense contractors ranged from 15 to 17%, and some subcontractors - Transdigm, for example - managed to deliver no less than 42-45%. “Ah!” cry the Russian experts, “We’ve found the problem! The Americans have legalized war profiteering!” (This, by the way, is but one of many instances of something called systemic corruption, which is rife in the US.)
It would be one thing if each defense contractor simply took its cut off the top, but instead there is an entire food chain of defense contractors, all of which are legally required, no less, to maximize profits for their shareholders. More than 28,000 companies are involved, but the actual first-tier defense contractors with which the Pentagon places 2/3 of all defense contracts are just the Big Six: Lockheed Martin, Northrop Grumman, Raytheon, General Dynmics, BAE Systems and Boeing. All the other companies are organized into a pyramid of subcontractors with five levels of hierarchy, and at each level they do their best to milk the tier above them.
The insistence on market-based methods and the requirement of maximizing profitability turns out to be incompatible with defense spending on a very basic level: defense spending is intermittent and cyclical, with long fallow intervals between major orders. This has forced even the Big Six to make cuts to their defense-directed departments in favor of expanding civilian production. Also, in spite of the huge size of the US defense budget, it is of finite size (there being just one planet to blow up), as is the global weapons market. Since, in a market economy, every company faces the choice of grow or get bought out, this has precipitated scores of mergers and acquisitions, resulting in a highly consolidated marketplace with a few major players in each space.
As a result, in most spaces, of which the report’s authors discuss 17, including the Navy, land forces, air force, electronics, nuclear weapons, space technology and so on, at least a third of the time the Pentagon has a choice of exactly one contractor for any given contract, causing quality and timeliness to suffer and driving up prices.
In a number of cases, in spite of its industrial and financial might, the Pentagon has encountered insoluble problems. Specifically, it turns out that the US has only one shipyard left that is capable of building nuclear aircraft carriers (at all, that is; the USS Gerald Ford is not exactly a success). That is Northrop Grumman Newport News Shipbuilding in Newport, Virginia. In theory, it could work on three ships in parallel, but two of the slips are permanently occupied by existing aircraft carriers that require maintenance. This is not a unique case: the number of shipyards capable of building nuclear submarines, destroyers and other types of vessels is also exactly one. Thus, in case of a protracted conflict with a serious adversary in which a significant portion of the US Navy has been sunk, ships will be impossible to replace within any reasonable amount of time.
The situation is somewhat better with regard to aircraft manufacturing. The plants that exist can produce 40 planes a month and could produce 130 a month if pressed. On the other hand, the situation with tanks and artillery is absolutely dismal. According to this report, the US has completely lost the competency for building the new generation of tanks. It is no longer even a question of missing plant and equipment; in the US, a second generation of engineers who have never designed a tank is currently going into retirement. Their replacements have no one to learn from and only know about modern tanks from movies and video games. As far as artillery, there is just one remaining production line in the US that can produce barrels larger than 40mm; it is fully booked up and would be unable to ramp up production in case of war. The contractor is unwilling to expand production without the Pentagon guaranteeing at least 45% utilization, since that would be unprofitable.
The situation is similar for the entire list of areas; it is better for dual-use technologies that can be sourced from civilian companies and significantly worse for highly specialized ones. Unit cost for every type of military equipment goes up year after year while the volumes being acquired continuously trend lower—sometimes all the way to zero. Over the past 15 years the US hasn’t acquired a single new tank. They keep modernizing the old ones, but at a rate that’s no higher than 100 a year.
Because of all these tendencies and trends, the defense industry continues to lose not only qualified personnel but also the very ability to perform the work. INDPOL experts estimate that the deficit in machine tools has reached 27%. Over the past quarter-century the US has stopped manufacturing a wide variety of manufacturing equipment. Only half of these tools can be imported from allies or friendly nations; for the rest, there is just one source: China. They analyzed the supply chains for 600 of the most important types of weapons and found that a third of them have breaks in them while another third have completely broken down. In the Pentagon’s five-tier subcontractor pyramid, component manufacturers are almost always relegated to the bottommost tier, and the notices they issue when they terminate production or shut down completely tend to drown in the Pentagon’s bureaucratic swamp.
The end result of all this is that theoretically the Pentagon is still capable of doing small production runs of weapons to compensate for ongoing losses in localized, low-intensity conflicts during a general time of peace, but even today this is at the extreme end of its capabilities. In case of a serious conflict with any well-armed nation, all it will be able to rely on is the existing stockpile of ordnance and spare parts, which will be quickly depleted.
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http://www.zerohedge.com/news/2019-07-21/war-profiteers-and-demise-us-military-industrial-complex?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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