Reforming a Defense Industry Rife with Socialism, Industrial Policy, and Excessive Regulation

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The U.S. defense industry is hardly a bastion offree-market competition. Even Secretary ofDefense Donald Rumsfeld has compared the waythe Department of Defense does business, includingthe way the Pentagon buys weapons, to Sovietcentral planning. The industry has a socialist component:government laboratories, shipyards,depots, and arsenals that, in many cases, competewith private companies. Even the part of theindustry that is in private hands is subjected toDoD's industrial policy and excessive regulation.Congress, to win votes in states and districts thatare home to such industrial concerns, keepsunneeded government and private facilities openthrough phony "competitions," creating muchexcess capacity in an industry that was insufficientlydownsized after the Cold War.

The result is weapons that have ballooningcosts, are years behind schedule, and contain technologythat is out-of-date when the systems arefinally fielded. Costs per unit accelerate because ofthe military's excessive emphasis on performanceand frequent changes in design, the dwindlingnumbers of units purchased, and contractors'deliberate initial underestimation of costs.

DoD has no incentive to reform the systemwhen the president and Congress continue toreward such inefficient practices by slatheringthe department with ever-increasing budgets,long after the demise of the Soviet Union as asuperpower rival. (Its national defense budgetgives the United States overkill in the fightagainst the destitute nations that sponsor andharbor terrorists.) In fact, if the Pentagon's budgetwere reduced, it would be under increasedpressure to make the process of weapons buyingmore efficient.

Although DoD officials have talked a great dealabout using commercial practices in military procurement,only limited progress has been made. ThePentagon should not only use commercial practices;it should eliminate excessively detailed military specificationsand buy commercial products and evencommercial components for weapons—thus reducingbarriers to entering the defense industry andincreasing competition. In all its purchases, DoD,like the commercial sector, should focus on gettingthe best value for each dollar spent instead of focusingexcessively on performance. Also, Congressshould allow the Pentagon to buy weapons systemsfrom friendly nations and thus open the U.S.defense market to greater competition.

Ivan Eland

Ivan Eland is director of defense policy studies at the Cato Institute and author of Putting "Defense" Back into U.S. Defense Policy: Rethinking U.S. Security in the Post-Cold War World (Greenwood/Praeger, 2001).