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No. 350

August 12, 1999

Corporate Welfare for Weapons Makers

The Hidden Costs of Spending on Defense and

Foreign Aid

by William D. Hartung

Executive Summary

fulfillment of legitimate security needs.

The defense and foreign aid budgets are the

In concordance with a recommendation

largest single source of government funding for

made by the Presidential Advisory Board on

private corporations. More than half of U.S.

Arms Proliferation, government subsidies for

weapons sales are now being financed by taxpay-

arms exports should be phased out. Federal

ers instead of foreign arms purchasers. During

subsidies to corporations in the national secu-

fiscal year 1996 (the last year for which full sta-

rity sphere should be the exception rather than

tistics are available), the government spent more

the rule. The executive branch and Congress

than $7.9 billion to help U.S. companies secure

should establish an independent commission

just over $12 billion in agreements for new inter-

to conduct an annual review of corporate-tar-

national arms sales. The annual $7.9 billion in

geted contracts, tax breaks, and price subsidies

subsidies includes taxpayer-backed loans, grants,

contained in the military and foreign aid bud-

and government promotional activities that help

gets. Only those subsidies fulfilling important

U.S. weapons makers sell their products to for-

national security objectives that could not be

eign customers. Also, the provision of low-cost

accomplished without government assistance should

facilities and extensive subsidies for research and

be maintained. The overall review should be

development and mergers and acquisitions to

supplemented by a separate panel, modeled on

major contractors fosters a "risk-free" environ-

the Defense Department's Base Realignment

ment in which weapons makers have little eco-

and Closure (BRAC) panel, which would put

nomic incentive to produce effective systems at

forward an annual list of pork-barrel military

affordable prices. Furthermore, a portion of the

procurement projects that should be terminat-

$120 billion the Pentagon spends each year on

ed. To limit "horse-trading," the list of unnec-

contracts with U.S. defense contractors is being

essary projects would have to be voted up or

wasted on defense pork--that is, redundant or

down in its entirety--much like BRAC proce-

unneeded weapons systems. Such subsidies and

dure for military base closures.

spending for defense pork can interfere with the

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William D. Hartung is the President's Fellow at the World Policy Institute.