Thread by @matthewstoller

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.

https://twitter.com/SenWarren/status/1629145143289819140

2. In terms of policy on the size of our military, Warren is a regular critic of military spending, and tends to vote against higher levels. Warren is an outlier, most Senators vote for higher military spending. She does not. But that's not at issue here. rollcall.com/2023/02/01/law…

3. Here's the issue. Most people think of the military industrial complex as Dwight Eisenhower described it in his farewell speech, as an immense opaque center of political and military power. archives.gov/milestone-docu…

4. But the Cold War ended in 1989. And something new began in 1993. Not a military industrial complex so much as a private equity-industrial complex. That origin story starts with a meal at the Pentagon in 1993, which came to be called "The Last Supper."
washingtonpost.com/archive/busine…

5. In 1993, Defense Department official William Perry gathered CEOs of top defense contractors and told them that they would have to merge into larger entities because of reduced Cold War spending. “Consolidate or evaporate,” he said. theamericanconservative.com/americas-monop…

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.

7. This is what happened under the 'Reinventing Government" framework of Al Gore, and run by Elaine Kamarck and Steve Kelman. They stripped anti-price gouging provisions from the law, and gutted the Defense Logistics Agency that had kept a lid on costs. economicliberties.us/our-work/cavea…

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. latimes.com/archives/la-xp…

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. mattstoller.substack.com/p/the-coming-b…

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.

11. Soldiers lives were put in jeopardy, as they were increasingly disallowed by contractors from repairing their own equipment. Classic monopolization - right to repair, only for the DOD. nytimes.com/2019/11/20/opi…

12. Private equity jumped into defense contracting and began operating like Martin Shkreli. Transdigm CEO Nick Howley would buy small companies that made a random part for an old military plane, and raise prices by 1600%. huffpost.com/entry/defense-…

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. mattstoller.substack.com/p/sometimes-an…

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. mattstoller.substack.com/p/the-pentagon…

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.

17. The post-Cold War strategy has enriched private equity, but no one else. And the Pentagon now realizes what a catastrophe it has on its hands. The number #2 at DOD - Kathleen Hicks - sees that the number of subcontractors has collapsed. defenseone.com/business/2021/…

18. DOD Report: "Since 2000, the defense industrial base lost more than 20,500 domestic manufacturing firms. The work they once performed was sent overseas, creating a situation where “A surprising level of foreign dependence on competitor nations exists.”
news.usni.org/2018/10/05/u-s…

19. So what are we doing about it? Senator Warren, along with anti-monopolists, have started to turn the ship around. Last year, the Federal Trade Commission blocked the merger of Lockheed and Aerojet, which is the last independent maker of rocket engines. ftc.gov/news-events/ne…

20. Raytheon's CEO is now saying that more mergers are off the table, at least for now, because of antitrust enforcers.

https://twitter.com/LeeHudson_/status/1628404697819226117

21. Warren is also seeking to have Northrop-Orbital - the nuclear weapons monopolist - broken up. And antitrust enforcers are investigating.

But wait, there's more! defensenews.com/pentagon/2023/…

22. Remember Covid era medical shortages? In the 2022, National Defense Authorization Act, Warren included several key provisions to reinstate constraints on contractors, as well as address medical shortages. warren.senate.gov/newsroom/press…

23. How we organize defense base isn't about war but about basic state capacity. For example, in 2022, it was an entrepreneurial military officer who found and broke the bottleneck of Covid swabs. He got a Navy contractor to come in and ramp up production. bloomberg.com/news/features/…

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.