How America broke its war machine Analysis by Foreign Affairs

Foreign Affairs has published an article covering privatisation and the hollowing out of the US Defence Industry. Caliber.Az reprints this article.

After Russia invaded Ukraine in February 2022, the United States pledged its “unwavering support for Ukraine’s sovereignty.” This support has materialised in over $75 billion in security assistance to date, with the United States committed to aiding Ukraine until the fighting stops.

As US Secretary of State Antony Blinken said in announcing a new instalment of weapons to Ukraine: “The United States and our allies and partners will stand united with Ukraine, for as long as it takes.”

These unlimited commitments to furnishing Ukraine with weapons to counter Russian aggression have invoked parallels to World War II. Weeks after the fighting began, New York Times columnist Paul Krugman argued that the United States and its allies are “serving as the ‘arsenal of democracy,’ giving the defenders of freedom the material means to keep fighting” in Ukraine.

Journalist Elliot Ackerman then wrote that the workers building missiles for Ukraine’s defence “are a key component of America’s arsenal of democracy.” President Joe Biden has also embraced the “arsenal of democracy” analogy.

When he visited a Lockheed Martin plant in Troy, Alabama, in May last year, Biden told the audience that the United States “built the weapons and the equipment that helped defend freedom and sovereignty in Europe years ago” and is doing so again today.

But this lofty rhetoric does not match the reality on the ground. Shortages in production, inadequate labour pools, and interruptions in supply chains have hamstrung the United States’ ability to deliver weapons to Ukraine and enhance the country’s defence capabilities more broadly.

These problems have much to do with the history of the US defence industry since World War II. Creeping privatisation during the Cold War, along with diminished federal investment and oversight of defence contracting since the 1960s, helped bring about the inefficiency, waste, and lack of prioritisation that are complicating US assistance to Ukraine today.

After the Berlin Wall fell, major players in the US defence industry consolidated and downsized their operations and labour forces. They also pursued government contracts for expensive, experimental weaponry to obtain larger profits to the detriment of small arms and ammunition production.

As a result, the industry has been underprepared in responding to the Ukraine crisis and unmoored from the broader national security needs of the United States and its allies. Although reforms are possible, there are no quick fixes to these self-inflicted injuries.

The way we were

Today’s defence industry bears no resemblance to the US system of military production during World War II. Back then, the industry was predominantly a government-run business. President Franklin Roosevelt’s New Deal emphasised economic regulation and relied on “alphabet agencies” such as the Works Progress Administration to boost employment, paving the way for later wartime contracting. New Deal agencies inspired the creation of the War Production Board in 1942, which mobilized business and rationed resources for the battlefront.

Weapons production was concentrated in shipbuilding and aircraft, with companies based mainly in industrial centres in the Northeast and Midwest in government-owned, government-operated facilities known as GOGO plants.

The government-owned nearly 90 per cent of the productive capacity of aircraft, ships, and guns and ammunition. This is in contrast to today’s climate, where commercial items have comprised over 88 per cent of new procurement awards since 2011, and private capital invests over $6 billion a year in the defence industry.

When the Japanese bombed Pearl Harbor in 1941, federal control over defence production, and the Roosevelt administration’s rapid response to the attack, allowed speedy conversion from civilian to military production at companies such as Ford and General Motors, which went from making automobiles to bombers.

Big companies were not the only ones to prosper. The federal government also looked to support small subcontractors that produced war-related materials in government-operated plants.

Back then, no small group of powerful contractors dominated the industry, unlike today’s “Big Five”: Boeing, General Dynamics, Lockheed Martin, Northrop Grumman, and Raytheon. 

Although the scale of weapons production for Ukraine is nowhere near equivalent to what was needed during World War II, that time period still provides valuable insight into today’s problems.

As historian Mark Wilson has shown, the success of military mobilization during World War II—the ability to become an arsenal of democracy—required central planning and government control over industry.

This is an essential lesson for those concerned with the US defence industrial base and its ability to provide Ukraine and its allies additional weapons: government-mandated war production was required to provide the Allied powers with the requisite material they needed to defeat the Axis powers and end widespread unemployment created from the Great Depression—not private ingenuity alone.

Big business

The federal effort to spur employment through defence ended in the 1960s. Defence contractors lobbied Congress to relax government regulations to privatize the industry’s operations even before World War II ended. Defence mobilization during the Korean War revealed the growing power of private enterprise in US military affairs.

When war broke out in 1950, President Harry Truman relied on both executive orders and congressional legislation (including the 1950 Defence Production Act) to spur private—not public—investment in the military. As historian Tim Barker has pointed out, 90 per cent of war production during the Korean War came from private finance.

After the Korean War, the federal government aimed to create jobs in the private defence sector and in universities working on Pentagon-funded projects; it did not focus on public employment. The federal government believed it had an obligation to create jobs to enhance a “cooperation with science and industry,” in the words of President Dwight Eisenhower.

The US government also sought to outcompete the Soviet Union in the space and arms race by growing the American labour force. Shocked by the Soviet launch of the Sputnik satellite in 1957, Eisenhower signed into law the 1958 National Defence Education Act, which provided government scholarships and loans to Americans pursuing secondary degrees (including doctorates) in science and technology related to the defence industry.

The program raised the fortunes of the middle class, funding students in need who wished to pursue careers in defence. The National Defence Education Act enhanced the livelihoods of Americans, bringing thousands of Americans into the middle class, and setting a precedent for government to subsidise private job creation for the purposes of national security.  

During the Kennedy and Johnson administrations, Secretary of Defence Robert McNamara instituted a series of reforms that both deemphasized the production of conventional weapons and closed large GOGO facilities. By the time US military operations in Vietnam escalated into a full-fledged war in 1965, most defence installations were no longer government-owned, government-operated plants.

 In the years to come, the industry increasingly relied on government-owned, contractor-operated plants that gave companies more leeway to oversee their operations. The industry’s growing independence—and reduced accountability—led to a backlash during the Vietnam years.

By the late 1960s, members of Congress, particularly William Proxmire, a Democratic senator from Wisconsin, were more vocal about the waste and abuse in the Pentagon budget.

“It is discouraging for me, as a citizen and senator, to know that weapons cost far too much, are delivered far too late, and function far below their specifications,” Proxmire said in 1970. Still, Congress proved unable to enforce sustained regulations on the defence industry.

In the decades that followed, the rate of privatization and decline of congressional oversight only quickened. When cost overruns and fiscal management almost forced major companies such as Lockheed to near bankruptcy, defence companies complained of insufficient profits.

After Vietnam, there was less pressure on Congress to scrutinise the industry, and the Department of Defence looked to help companies accumulate more profit by encouraging private investment in defence plants and weapons production that set the stage for the 1980s and 1990s.

The last supper

Vietnam was the last major conventional war for the US defence industry. After the war ended in 1973 and the defence budget began to shrink, the industry shifted to foreign arms sales.

The rise in arms exports to countries in the global South—from $404 million in 1970 to $9.9 billion in 1974—also coincided with deindustrialisation and the outsourcing of defence manufacturing to foreign countries. This caused plant closures and job losses in domestic manufacturing in the United States.

More defence parts were made overseas, and US defence manpower declined by 9.8 per cent from 1960 to 1975. Areas of the United States like New England saw a 50 per cent decrease in civilian and military personnel.

By the 1980s, both the Pentagon and Congress grew increasingly concerned with the overall weaknesses of the defence industrial base. Lawmakers feared that the United States’ “mushrooming dependence on foreign sources,” according to Democratic Representative Richard Ichord of Missouri, would imperil defence preparedness.

In 1988, the Pentagon warned that “in a national emergency, the consequences of extensive dependence on foreign sources could be extreme.”

Although President Ronald Reagan pursued a defence buildup, growing spending from $176.6 billion in 1981 to $325.1 billion in 1990 (defence spending climbed to over six per cent of GDP between 1982 and 1988), he failed to address these concerns. Instead, defence spending under Reagan prioritized experimental projects such as the MX missile and the Strategic Defense Initiative, a proposed missile defence system that would protect the United States from nuclear attack.

Nicknamed the “Star Wars” program, it cost the US government $30 billion before President Bill Clinton cancelled it in 1993. The Reagan administration also poured money into advanced aircraft such as the B-2 stealth bomber and the F-22 stealth fighter over other less glamorous purchases of artillery and ammunition.

Reagan also failed to properly modernise defence plants in the United States and revive the manufacturing workforce in the defence sector. The largest defence companies fared the best under Reagan.

By 1987, Paul Burnsky of the AFL-CIO warned Congress that “American companies that formed the core of the US defence… are finding little support from the Reagan Administration. Many have gone bankrupt, particularly the subcontractors in the small business community.” Other subcontractors found the defence business to be less than lucrative in the 1980s and shifted to other sources of revenue.

The Reagan buildup also coincided with an antigovernment ethos that permeated American politics and shaped the decisions on national defence made by both Democrats and Republicans. This ethos even shaped defence acquisition reform in the 1980s.

When reporters uncovered rampant waste and abuse within the procurement process— including the discovery that the Navy was paying $600 for toilet seats —the 1986 Packard Commission criticized government inefficiency as the source of the problem.

“The nation’s defence programs lose far more to inefficient procedures than to fraud and dishonesty,” wrote the commission.

A faith in free trade, cost cutting, and “efficiency” also expedited defence outsourcing, enabling the defence industry to continue to shed American workers. Indeed, the US-based defence workforce would reach its height in the 1980s with 3.2 million people, consistently declining to the present-day number of 1.1 million.

When the end of the Cold War led to a discussion of a “peace dividend,” and US policymakers began reevaluating how much to spend on defence, military contractors felt they had to make a choice: consolidate or perish.

At an infamous 1993 dinner at the Pentagon, which is known among industry insiders as “The Last Supper,” Pentagon leaders warned the CEOs of the country’s biggest defence companies that the defence budget was about to fall precipitously. Deputy Secretary of Defence William Perry told them, “We expect defence companies to go out of business. We will stand by and watch it happen.”

Contractors got the message and began consolidating. Mergers went from being valued at $300 million in 1990 to $20 billion by 1996. The number of contractors for tactical missiles went from 13 to three, and for fixed-wing aircraft, the number went from eight to two.

Clinton hoped consolidation would lower costs and streamline the contracting process. Neither materialised. Thousands of jobs were lost, and the Clinton administration offered meagre assistance to those newly out of work.

Although defence spending surged again after 9/11, little changed in the defence industry. Consolidation continued to grow during the “war on terror” and has now reached record numbers due the influence of private equity firms.

Indeed, recent statistics indicate more than 500 companies have been bought out by private equity in the last two decades, which has lent further instability and unaccountability to defence acquisitions. The high rate of debt held by private equity firms, their lack of accountability to public oversight, and their higher risk of default do not serve US national security interests.

In addition to the role of private equity, the proliferation of Silicon Valley–based defence startups over the past several years has promised innovation and the modernization of the defence industrial base. But those promises have yet to materialise.  

Meanwhile, defence contractors have continued to pursue big-ticket items over purchases of lower-cost munitions. For example, the F-35 Joint Strike Fighter program is estimated to cost $1.6 trillion from start to finish. The production of small parts—rocket motors, ball bearings, tubes, steel casings, and other materials essential for the Ukrainians—is not as profitable and, until recently, had less important for both the US government and defence contractors.

Parochial politics and lobbying have also skewed the Pentagon’s priorities and forced the military to maintain contracts for obsolete programs such as the littoral combat ship. As Undersecretary of Defence William LaPlante told Eric Lipton of The New York Times in March, “[The United States] really allowed production lines to go cold and watched as parts became obsolete.”

Despite this, the industry continues to chase investment in high-cost advanced aircraft and missiles such as the B-21 stealth bomber and the LGM-35 Sentinel intercontinental ballistic missile, even though these types of programs predictably lead to widespread delays and cost overruns, which American taxpayers have to cover.

The home front

This 70-year history of consolidation, privatisation, outsourcing, job cuts, federal inaction, and a hunt for larger profits has created a perfect storm that now hobbles security assistance for Ukraine, and potentially for future conflicts, as well.

As reported in Politico and The Wall Street Journal, the United States does not have the necessary labour force to produce the number of Javelin missiles requested by Ukraine, even after Ukraine burned through a putative five-year supply of Javelins in the first six months of the war. It also consumed what was meant to be a six-year supply of Stinger missiles in just ten months.

One of the few US government-owned, contractor-operated plants that produced the black powder needed for artillery rounds exploded in 2021 and was never rebuilt because it could not generate enough profit. Interruptions in global supply chains are also expected to plague the defence industry for the foreseeable future.

Although the industry expects increased sales and profit margins over the next year, long-standing backlogs, supply disruptions, and cost overruns remain.

The United States cannot rectify these problems in the short term or reverse this history overnight. Comprehensive solutions require government involvement and stronger control over the industry in the immediate and long term.

Defence reform must go beyond acquisition or auditing—although changes are needed on both fronts. Congress must reimagine defence reform, drawing lessons from the last time the United States truly was an arsenal of democracy. A key takeaway from this time is that greater federal intervention in the defence industry is needed if the industry is to produce otherwise “unprofitable” weapons.

Signs of comprehensive bipartisan defence reform are on the horizon. Senator Elizabeth Warren, a Democrat from Massachusetts, has spearheaded legislation that takes on consolidation and monopolization, and her efforts are supported by some Republicans, such as Senator Chuck Grassley, a Republican from Iowa.

Their efforts are laudable given that the numerous subcontractors that proved essential to winning World War II do not exist today because they cannot compete with the monopoly power of the “Big Five.”

The preeminent concern among analysts has been how to replenish stockpiles of weapons to ensure the United States does not deplete its overall arsenal. But stockpiling weapons is impossible given the dearth in skilled American labour. Defence contractors have struggled to recruit workers for years in an industry that often requires vocational training or two-year degrees from its employees.

Educating and training future defence workers takes time—time that Ukraine does not have at the moment. Weapons production cannot be willed into existence. To achieve a more stable, trained workforce, the United States must support job creation across all employment sectors, not just defence, so that Americans have the requisite skills and training needed in times of crisis.

Biden is attempting to address this with the CHIPS and Science Act, which he signed into law in 2022. The impetus for the new law is the United States’ competition with China, and the legislation sponsors grants and loans to students pursuing careers in STEM fields.

But the Biden administration can go beyond the program and pursue additional policies that subsidise higher education and job creation in peacetime—to revitalize struggling post-industrial cities that are involved in aiding Ukraine’s defence but will surely experience economic downturns when the war ends, such as Camden, Arkansas, or Troy, Alabama, where over 25 per cent of the population lives below the poverty line.

The United States should expand its workforce for the long term, for the health of its own democracy, not just for its national security interests related to Russia and China.

This is particularly important given the historical reluctance of the industry to diversify its operations or to quickly adapt to the needs of American troops engaged in conflict. During the wars in Iraq and in Afghanistan, US soldiers regularly faced shortages in equipment and ammunition.

This had much to do with the fact that, by 2004, only one plant in Missouri produced ammunition for the entire US military, down from five during the Vietnam War, plus there was only one manufacturer of protective body armour.

 For years, the industry—supported by the Pentagon—has tried to do more with less, to consolidate its operations then ramp up production in times of crisis. But this strategy has not worked for the United States in the past, and it is currently not working for Ukraine.

The United States cannot be an arsenal of democracy to Ukraine, or to any country, if it does not better align its foreign and domestic policies in ways that improve the lives of American citizens. To better serve Ukraine, the United States must invest more in Americans’ futures, not just in its own defence capabilities.