1. Here's the backstory on what Elizabeth Warren is saying and why it's so important. First let's start by noting policy about how big a military we need is different than how to organize the industrial policy behind it. Warren here is discussing industrial policy.
In the 1990s, America had 51 major contractors bidding for defense work. Today, there are only five massive companies remaining. Defense contracting should be reworked to break up the massive contracts awarded to the big guys and create opportunities for firms of all sizes.
6. Norm Augustine of Lockheed, soon to be Lockheed Martin, cut a deal with the Clinton administration. Contractors wouldn't oppose reduced military spending, if Clinton raised their margins by fostering mergers and removing contracting rules.
8. The Pentagon actually *paid* the merger costs during the frenzy. It was layoffs for millions of workers, bonuses for executives. In 1998, then-Rep Bernie Sanders finally put an end to defense consolidation by working with Republicans like Chris Shays. https://www.latimes.com/archives/la-xpm-1996-07-11-me-23009-story.html…
9. This was not just bad for the military, but for America. Boeing merger with McDonnell Douglas, turning the aerospace industry into a monopoly. It also destroyed Boeing, and led directly to the 737 Max fiasco. https://mattstoller.substack.com/p/the-coming-boeing-bailout…
10. But more broadly, the entire sector consolidated, from 100 'prime contractors' - the big guys - to just 5. This was extremely bad and wasteful. Nearly every major weapons system became monopolized, and taxpayer money bought worse weaponry for higher prices.
13. Under Trump, Northrop bought Orbital, consolidating monopoly power over every part of our nuclear weapons arsenal. This increases costs, yes, but it also lowers quality. And you do NOT want lower quality less reliable nukes. https://mattstoller.substack.com/p/sometimes-antitrust-is-rocket-science…
14. These problems were new. During the 'arsenal of democracy' of WWII, there were a dozen producers for every major weapons systems, so the DOD could be like 'screw you' if, say, Boeing refused to produce what it wanted. https://mattstoller.substack.com/p/the-pentagon-turns-on-wall-street…
15. Moreover, the government ensured that the technologies developed from R&D dollars during the WWII and Cold War era were shared with the public. This policy spawned everything from radar to semiconductors to commercial aerospace to the internet.
16. Defense spending also industrialized the South, which had been desperately poor and bereft of capital and transportation options for seventy years. Yes the military industrial complex was dangerous. But it was also our hidden industrial policy.
BREAKING: Raytheon CEO Greg Hayes says not to expect the company to make any M&A deals because of the "regulatory environment in Washington."
But Hayes said the company wants to sell off pieces of its company and "find a better home for a couple of businesses."
24. All of which is to say that if we want to do stuff with our government - reduce carbon emissions, feed the hungry, go to Mars, build supercomputers, whatever - we need to think carefully about how to manage these centers of power. That's what Warren is doing.
25. Rather than bemoaning a discussion of how to organize a defense base, we should be excited by it. Here we have the ability to to craft state capacity, cut the power of big contractors and make our country and world better. That's great.
Hi. I work at the American Economic Liberties Project.
Also, I wrote the book Goliath, and I write a monopoly-focused newsletter BIG: https://t.co/ZIPlU6qcF7