Yes, Virginia, there is a military-industrial complex.
Boom times for War Inc. by James Galbraith, Salon.com 09/30/04. If you're shopping for good stock plays, defense-related industries are doing very well, as the helpful chart accompanying Galbraith's article illustrates.
In fact, the American Stock Exchange didn't waste much time after the 9/11 attacks adjusting to a, shall we say, dynamic new environment as relates to that sector:
On Sept. 21, 2001, the American Stock Exchange created the Amex Defense Index, a measure of the stock prices of 15 corporations that together account for about 80 percent of procurement and research contracting by the Department of Defense. The index, of course, includes the five largest military contractors: Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon.
The chart above, presented at a conference in Paris by economists Luc Mampaey and Claude Serfati, shows what has happened since then. With the Afghan war the arms index surged, gaining over 25 percent by April 2002. Then it slumped, along with the rest of the market. If you had invested $1,000 in a defense portfolio at the peak of the Taliban boomlet, by March 2003 you would have lost a third of your stake.
But then came Iraq. And it's been clover for contractors ever since. Total gains since March 2003 are above 80 percent. Even if you'd put your money in at the beginning, in September 2001, you'd be up over 50 percent. That isn't bad, considering.
The Carlyle Group, the merchant bank that is one of the key economic institutions supporting the Bush dynasty, has done very well in this sector, Galbraith observes.
But it's important to remember that, despite the claims and even pristine faith of those who believe in the virtues of war for the United States, war tends to be good for only parts of the economy:
Back in 1919, in the wake of the Great War, John Maynard Keynes wrote of the effects of war on business: "The war has disclosed the possibility of consumption to all and the vanity of abstinence to many." Something like this happened after September 2001. Households borrowed and kept up their spending evenas incomes shrank. But businesses, forward-looking and unsettled by the prospects ahead, curtailed investment. As Keynes also wrote, "no longer confident of the future, [capitalists] seek to enjoy more fully their liberties of consumption so long as they last." But they don't invest, and they don't create jobs.
The big scandal isn't who made money. It's who didn't. It isn't the handful who got good jobs working for defense firms. (It isn't the brave truck drivers risking their lives on the roads of Iraq.) It's the millions who got nothing at all. It's the fact that Bush did nothing about that. The message, once again: Bush doesn't care.
This makes, he says, a direct connection between Iraq and the poor jobs performance of this economy. One that Kerry will hopefully be able to hammer home in these last crucial weeks of the campaign.
Galbraith is not alone in recognizing the dynamism of this sector of the economy. The Sept. 2004 Harvard Business Review features an article by Mahlon Apgar !V and John Keane, "New Business with the New Military" that looks at this expanding era of profit opportunities:
The "military-industrial complex" that President Eisenhower first recognized [sic] is taking new form. Then, the Department of Defense (DoD) and the four military services (the Army, Marine Corps, Navy and Air Force) were closely tied to a few major weapons contractors that managed large programs within a labyrinth of detailed regulations and specifications. Now, the military is turning to nontraditional business partners to meet a wide range of needs, from health care to housing to information technology. In essence, the long-standing government monopoly on every aspect of national security is being replaced by a more businesslike model in which DoD's warfighting capabilities are supported through outsourcing and business alliances for numerous noncombat functions.
They estimate that the "nonwarfighting business opportunities exceed $200 billion per year." And they observe a very important feature of doing business with DoD, especially with a Republican administration and Republican Congress who wouldn't dream of restraining war profiteering, or even recognizing such a thing as a legitimate concern:
Once companies have become military suppliers, that business is relatively secure. Firms that take the time and effort to acquire a military contract are rewarded by continuing relationships and stable, predictable revenues. Through large, long-term DoD programs, military partnerships can dampen volatility and cyclicality in service businesses whose economic are whipsawed by the industries they serve - even if margins are lower. DoD's cost-reimbursable contracts (the customer [DoD] reimburses the supplier for all costs incurred) and profit model (percentage of costs incurred, prenegotiated fee, or - increasingly - fee plus incentives based on outcome) complement the fixed-price and guaranteed maximum price contracts in industry.
When you filter out the jargon, that translates into: nice work if you can get it. And an especially sweet deal if your former CEO is now Vice President and is still getting paid by your company. Sweet deal.
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