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Although other

port from their own governments). That

make more difficult the closure of unneeded

R&D advantage should be factored in when

production lines and the reorientation of the

U.S. industries

Congress and the executive branch consider

defense industrial base to the demands of an

have been given

requests from the arms industry for addi-

information-based "revolution in military

some funding by

tional favors from the government, such as

affairs." If the contractors had to assume

tax breaks or export subsidies.

more of the costs of those facilities, they

the government

might be less resistant to changes in con-

over the years, no

Government Funding for Factories and

tracting patterns and more amenable to

industry has

Equipment

embracing the next generation of weaponry.

Major military contractors like Lockheed

received the con-

Martin and General Dynamics also benefit

Further Risk Absorption:

sistent level of

from low- or no-cost government-supplied

Pentagon Subsidies for

equipment and factories. In some cases, the

support received

Defense Industry Mergers

government-owned facilities, known as

by the weapons

GOCOs, have their origins in the transfer of

companies.

government-built plants to private contrac-

One of the most blatant federal subsidies

tors during the demobilization that occurred

for military contractors is a relatively new

after World War II. Beyond providing four

phenomenon: the provision by the Pentagon

walls and a roof, the Pentagon often picks up

of so-called restructuring costs to weapons

the tab for complex pieces of production

companies to help them defray the costs of

equipment, such as multiple-axis machine

mergers and acquisitions with other defense

tools or automated painting machines. The

firms. Over the past several years, this new

largest GOCOs are Air Force Plant 6, which

subsidy for consolidation of an oversized

forms part of Lockheed Martin's F-16 pro-

defense industrial base has cost taxpayers

duction complex in Fort Worth, Texas, and

well over $1 billion. But such consolidation

the two massive M-1 tank plants run by

could have been carried out without govern-

General Dynamics in Warren, Michigan, and

ment financial assistance.52 Mergers and

Lima, Ohio. In exchange for the use of gov-

acquisitions occur naturally in any industry

ernment-furnished facilities and equipment,

with declining demand (the budget for

the contractors pay modest leasing fees. As of

weapons procurement has declined since the

this writing, a full accounting of the number

end of the Cold War) because companies

and cost of GOCOs that are being provided

profit from economies of scale, taking over

to private military contractors is not avail-

new lines of business or reducing overhead by

able. However, in 1981, the last time a full

eliminating redundant production capacity.

accounting was done--in Gordon Adams's

Such consolidation usually increases market

The Iron Triangle, a classic account of the poli-

capitalization (stock price x shares outstand-

tics of Pentagon contracting--GOCOs were

ing) for the companies involved, which

widespread and encompassed over a dozen

results in a bonanza for the shareholders,

major facilities with hundreds of thousands

without a dime of federal subsidies.

of feet of floor space.51

The notion that taxpayers should directly

shoulder the burden for merger-related

In any comprehensive review of govern-

expenses--such as bonuses for top executives

ment subsidies for weapons makers, the

or the costs of shutting down factories and

Pentagon should provide Congress and the

moving equipment--was the brainchild of

public with an accounting of government-

then Lockheed Martin chief executive officer

provided plant and equipment, including an

Norman Augustine. In the summer of 1993

estimate of the value of those assets to the

Augustine raised the idea in letters to William

private contractors that benefit from such

Perry and John Deutch, who were at that time

arrangements. The availability of govern-

the second- and third-highest officials, respec-

ment-furnished production resources might

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