Hollow Defense Debate . Why Hope IS the Method

October 1, 1998

Comment: #198

Discussion Thread:  #197

Reference:

[1] George Cathlink, "FORMER ARMY CHIEF SAYS $30 BILLION HIKE NEEDED," Defense Daily, October 1, 1998.

In Reference #1, George Cathlink of Defense Daily reports that retired Army Chief of Staff Gen. Gordon Sullivan is now calling for a $30 billion increase in the defense budget, or twice as much as the $15 billion increase suggested by the Joint Chiefs at the infamous readiness hearing held by Senate Armed Services Committee on 29 September 1998 [see Reference #1 to Comment #197].

Sullivan, who is now president of the Association of the US Army, a Washington-based lobbying operation, says we need to bring the defense budget from 2.7 percent of GDP to over 3 per cent of GDP. But this is just the beginning of the budget ramp for General Sullivan, who noted that we should return to the 5 percent of GDP, which our nation spent in the early 1990s.

On the other hand, Sullivan did not indicate what threat would warrant these budget increases. Nor did he acknowledge that the United States now spends more than three times as much as Russia, China, and the seven rogues states combined. Add in the contributions of our allies and the ratio goes to six to one. If Cathlink's report is comprehensive, the only argument he offered to justify the budget increase is an 'argument by analogy' premised on the fact that we are now spending a smaller portion of GDP on defense than at any time since before World War II.

Duh!

There is no global threat that is even remotely analogous to that posed by Hitler, Stalin, or the institution of the Soviet Union. Sullivan's tortured comparison may capture the imagination, and dull some peoples' critical faculties, but it has absolutely no foundation in the context of today's chaotic geo-political conditions. Moreover, he sullies the analogy with innuendo based on fear mongering. Note how he links the idea of paying a "price on future battlefields," to a phony analogy. By doing this, General Sullivan is conjuring subliminal comparisons with Pearl Harbor, the Invasion of France, and the Cold War, if we don't follow his advice to grow the budget to 5 per cent of GDP. The subliminal command: Spend the money or you will have blood on your hands.

General Sullivan's "per cent of GDP" argument is preposterous for other reasons as well.

First of all, the current estimate for the annual GDP in the second quarter of 1998 is $8441 billion; Sullivan's long range goal of 5 per cent implies a defense budget of $422 billion expressed in today's dollars (compared to about $260 billion being spent today). Where are we going to get this kind of money and pay for the skyrocketing costs of social security and Medicare in the next century?

Second, the per cent of GDP argument measures input, not output. Yet, as I have stated repeatedly in past commentaries, the Defense Department's problems (a modernization program that can not modernize the force and the readiness nose dive) stem from the fact that we can not convert inputs into acceptable outputs, because (1) procurement and operating costs always grow faster than the budget, even when the budget grows rapidly as it did in the 1980s, and (2) a corrupt accounting system makes it impossible to understand the details of cost inputs to all forms of output. With economics like this, feeding the monster increases its voracity, and General Sullivan wants to serve up more bloat.

Third, when used in ISOLATION, the per cent of GDP argument is meaningless pap, because the game can be played two ways: You could increase the measure to 5 percent by increasing the numerator of the ratio (i.e., defense spending) or by decreasing the denominator (i.e., reducing GDP via a depression). Given the possibilities of a global financial meltdown, the latter seems more probable than the former. Would this pathway to 5% make General Sullivan happy?

Fourth, a comparison of per cent of GDP in 1940 to the current situation is utterly meaningless, because the makeup of GDP changed dramatically over the intervening period. In particular, the manufacturing share of GDP has declined sharply to about 17% of GDP, while the share of non-manufacturing services has increased dramatically. Defense spending, on the other hand, impacts the manufacturing sector disproportionately (over 80% of non-pay purchases impact the manufacturing sector). In Reference 1 to this message, General Sullivan said we should go back to the 5 percent of GDP level spent in the early 1990s. How will this proposal impact our economy, given the disproportional concentration of defense expenditures in the manufacturing sector?

The best way to answer the question is to look at the situation in 1990. After removing the expenditures for government salaries, the Defense Department spent about 3.6% of GDP in 1990 on purchases of goods and services in the commercial market. According to the Statistical Abstract of the United States, that 3.6% soaked up 11% of our nation's manufacturing capacity and 27% of public and private research and development expenditures. According to the Department of Commerce's Survey of Current Business, that 3.6% of GDP soaked up 22% of capital goods shipments. According to Professor Lloyd Dumas, of the University of Texas, that 3.6% of GDP soaked up over 30% of our nation's scientific and engineering manpower. Sullivan says nothing about these percentages, nor does he address the question of how so a large diversion would impact economic performance, but his proposal makes the question of the defense diversion an interesting issue.

Consider the following: it is now manifestly clear that US economic performance and competitiveness has improved at an increasing rate while defense spending declined from the peak reached in the mid-1980s. It is also abundantly clear that technology the civilian sector has been setting the pace of technological development in our nation since the early 1980s. It is also clear that attempts at conversion to the civilian market place by defense companies have generally resulted in economic failures, because their "cost-plus mentality" weakened their ability to compete technologically or economically. To wit -- according to William Anders, former CEO of General Dynamics, a McKinsey study for General Dynamics in the early 1990s showed an 80% failure rate for non-defense acquisitions by defense contractors. Anders said, "This isn't surprising. Defense industry management teams generally have little commercial experience and market savvy." "Most have been cost-plus and mil spec trained." "In short, most don't bring a competitive advantage to non-defense business." "Frankly, sword makers don't make good and affordable plowshares." [Keynote address, 12th Annual Defense Week Conference, 10/30/91.]

Do we really want to increase the diversion of scarce technical resources into a non-competitive, semi-socialistic sector of the economy, where cost-plus training creates an sub-economy where costs always grow faster than budgets? Can such a diversion possibly make sense when there is no threat to national security to justify the high opportunity costs of that diversion?

In the early 1990s, General Sullivan co-authored a best-selling book entitled "Hope Is Not a Method : What Business Leaders Can Learn from America's Army." Hopefully business leaders will not learn from his latest proposal, because it suggests that REALITY IS NOT HIS METHOD either.

Welcome to Versailles on the Potomac at the end of the Twentieth Century. Who said the Nineteenth Century had a monopoly on fin de siecle(s)?

Chuck Spinney

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