The Pentagon Turns on Wall Street(mattstoller.substack.com)
mattstoller.substack.com
The Pentagon Turns on Wall Street
https://mattstoller.substack.com/p/the-pentagon-turns-on-wall-street
5 comments
Your comment, at face value, seems to defend the status quo.
-> Politicians have used the concept of a "modern 21st century military" as the rationale for decreasing naval investment in new submarines and now those same politicians are surprised that there are fewer companies that make submarines.
The author alleges there was a deal made by Clinton to allow M&As in the defense industry - he says that politicians and financial industry are both to blame. Can you provide an alternate explanation?
-> Similarly, w.r.t. modernizing the nuclear arsenal, how can you expect a healthy competitive marketplace to exist for a product that no one has purchased in 50 years?
The author clearly argues that this is due to anti competitive business practices that forced Boeing to withdraw from the bid. Northrup purchased a key supplier, now refuses to sell to Boeing.
You're right, in 50 years a lot of the know-how has eroded. But we could imagine, in a market with a dozen competing shops, they'd be hungry enough to take a shot at a bid, if nothing else to try to survive. What's being procured in this project isn't so much a "product" as it is a service. Specifically engineering, R&D, and production services. Author's point still stands that productive capacity has been eroded - when these weapons were first being produced (they had never been produced before), there was healthy competition.
-> Politicians have used the concept of a "modern 21st century military" as the rationale for decreasing naval investment in new submarines and now those same politicians are surprised that there are fewer companies that make submarines.
The author alleges there was a deal made by Clinton to allow M&As in the defense industry - he says that politicians and financial industry are both to blame. Can you provide an alternate explanation?
-> Similarly, w.r.t. modernizing the nuclear arsenal, how can you expect a healthy competitive marketplace to exist for a product that no one has purchased in 50 years?
The author clearly argues that this is due to anti competitive business practices that forced Boeing to withdraw from the bid. Northrup purchased a key supplier, now refuses to sell to Boeing.
You're right, in 50 years a lot of the know-how has eroded. But we could imagine, in a market with a dozen competing shops, they'd be hungry enough to take a shot at a bid, if nothing else to try to survive. What's being procured in this project isn't so much a "product" as it is a service. Specifically engineering, R&D, and production services. Author's point still stands that productive capacity has been eroded - when these weapons were first being produced (they had never been produced before), there was healthy competition.
> Your comment, at face value, seems to defend the status quo.
The comment is observational, not persuasive. Few people are happy with the current situation we find ourselves in. I'm certainly not.
> The author alleges there was a deal made by Clinton to allow M&As in the defense industry - he says that politicians and financial industry are both to blame. Can you provide an alternate explanation?
The author's argument is that the lack of competition in military suppliers is due to relaxed regulatory scrutiny. I don't find this convincing. Even if U.S. regulatory bodies had aggresively enforced antitrust, many of these companies would have gone bankrupt sooner or later because demand for military assets collapsed after the cold war. This, combined with the fact that newer competitors aren't entering the market, means we'd still be in a similar position due to attrition.
It's silly to blame the financial industry because they're reacting to the incentives that the government created. It isn't the investment bank's fault iRobot is worth more as a tech company than a defense company. This is akin to blaming an engineer choosing to work for a tech company rather than a defense contractor because the tech company pays more.
> The author clearly argues that this is due to anti competitive business practices that forced Boeing to withdraw from the bid. Northrup purchased a key supplier, now refuses to sell to Boeing.
That's a fair point, but I think it's trivial in the larger picture. There were other SRM manufacturers lost in the decades prior to the Orbital acquisition. The fact that we allowed the the number of suppliers to decrease to two and didn't encourage any new suppliers is indicative of a much larger problem. We can't expect to place these companies in stasis for decades until we decide we're ready to buy from them again. People and companies move on without the proper incentives.
The comment is observational, not persuasive. Few people are happy with the current situation we find ourselves in. I'm certainly not.
> The author alleges there was a deal made by Clinton to allow M&As in the defense industry - he says that politicians and financial industry are both to blame. Can you provide an alternate explanation?
The author's argument is that the lack of competition in military suppliers is due to relaxed regulatory scrutiny. I don't find this convincing. Even if U.S. regulatory bodies had aggresively enforced antitrust, many of these companies would have gone bankrupt sooner or later because demand for military assets collapsed after the cold war. This, combined with the fact that newer competitors aren't entering the market, means we'd still be in a similar position due to attrition.
It's silly to blame the financial industry because they're reacting to the incentives that the government created. It isn't the investment bank's fault iRobot is worth more as a tech company than a defense company. This is akin to blaming an engineer choosing to work for a tech company rather than a defense contractor because the tech company pays more.
> The author clearly argues that this is due to anti competitive business practices that forced Boeing to withdraw from the bid. Northrup purchased a key supplier, now refuses to sell to Boeing.
That's a fair point, but I think it's trivial in the larger picture. There were other SRM manufacturers lost in the decades prior to the Orbital acquisition. The fact that we allowed the the number of suppliers to decrease to two and didn't encourage any new suppliers is indicative of a much larger problem. We can't expect to place these companies in stasis for decades until we decide we're ready to buy from them again. People and companies move on without the proper incentives.
> The most interesting part of Taiclet’s response was, like Hicks’s answer, the ideological component. Taiclet suggested that antitrust enforcers look to “competitors, which are China, Russia, Iran, and North Korea for example, comparing our defense industrial base capabilities to those of the peer group.” In other words, while Hicks argued that our democratic competitive systems make us stronger, Lockheed Martin’s CEO said just the opposite. We should, in his view, mimic authoritarian societies in the way we run our commerce.
Ideology in this case is whatever answers the inconvenient questions.
Ideology in this case is whatever answers the inconvenient questions.
I'm not sure that interpreting Taiclet's response as "we need to mimic authoritarian regimes" is quite right. It seems to me that what he's really saying is "as long as we have more competition than our authoritarian opponents, we're just fine".
Of course, there is very little practical difference between tacking towards more consolidation as a result of explicit mimicry vs. as a result of shifting the Overton Window except perhaps in rhetorical terms of the stated preferred end state ("duopolies are more competitive than monopolies, right?")
Of course, there is very little practical difference between tacking towards more consolidation as a result of explicit mimicry vs. as a result of shifting the Overton Window except perhaps in rhetorical terms of the stated preferred end state ("duopolies are more competitive than monopolies, right?")
Who else remembers Obama's quip in the 2012 debates equivocating buying naval warships with purchasing horses and bayonets? Politicians have used the concept of a "modern 21st century military" as the rationale for decreasing naval investment in new submarines and now those same politicians are surprised that there are fewer companies that make submarines. Similarly, w.r.t. modernizing the nuclear arsenal, how can you expect a healthy competitive marketplace to exist for a product that no one has purchased in 50 years?