Big Business often supports enlarged governmental powers for defensive and strategic reasons such as shaping statutory authority and the administrative mechanisms of nascent programs to derive the greatest benefit (Higgs, 2012, p. 115). Law prohibiting the activities of rival firms or mandating an activity a preferred firm is already doing is an effective way to gain advantage. In addition, formal standards can be strategically employed to raise the cost of entry for competitors (Salop & Scheffman, 1987; Swann, 2000). Even voluntary standards can influence the technological infrastructure of a particular market and increase compliance costs for rival firms. The industrialist Henry Ford favored “reasonable” Federal regulation and involvement in the nation’s economy (New York Times, 1978). Business magnate John D. Rockefeller went a step further when he declared “Competition is a sin” (Rockefeller, 2015).
Regulatory capture describes a state where particular groups try to influence governmental regulations to support their own interests (Stigler, 1971). All industries are susceptible to the phenomenon, and the defense industry is no different. The direct path of senior military officials to senior spots within large defense firms is an example of how industry attempts to shape the policy landscape. A recent Government Accountability Office (GAO) report on post-government employment restrictions discovered many situations where senior officials (i.e., general or admiral) and acquisition officials left the Department of Defense (DOD) and went to work for defense contractors, which can lead to conflicts of interest and affect public confidence in the government. Certain former senior DOD officials are prohibited for up to two years from lobbying executive branch officials regarding DOD matters. While there are federal laws that impose limitations on the employment of former DOD officials, the 14 major defense contractors GAO reviewed hired approximately 1,700 recent former DOD senior civilian and military officials (DiNapoli, 2021).
The Budget Control Act established limits on discretionary budget authority for 2021 that totaled over $1.2 trillion and established automatic procedures to reduce those limits under certain circumstances (Swagel, 2020). Contractors upset with military budget caps as a result of budget control measures intended to rein in government debt spent millions lobbying Congress to lift the cap (Cohen, 2015), and their efforts succeeded. The Bipartisan Budget Act of 2019 canceled automatic reductions and set new caps for 2021 that were $153 billion higher than they would have been if the automatic reductions had still been in place (Swagel, 2020).
It is disappointing to contemplate that trusted senior military officials may use their influence and contacts for nefarious ends. However, it could be argued that enhanced—if overpriced—national defense is not the worst thing that could happen to a nation as far as corrupt activities go. Far worse would be a situation where business was bad (i.e., too much peace) and defense firms actively sought U.S. involvement in war in order to provide more arms and simultaneously increase revenue. This situation, or perhaps one even worse, may have prompted President (and former General) Dwight Eisenhower, in his 1961 farewell address, to warn: “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist” (Eisenhower, 1961).
2 United States Code § 1602.
Cohen. Alexander. Defense Contractors Spend Millions to Overturn Limits on Military Spending. Time Magazine (2015). https://time.com/3984453/defense-contractors-lobbying/.
DiNapoli, Timothy J. Post-Government Employment Restrictions: DOD Could Further Enhance Its Compliance Efforts Related to Former Employees Working for Defense Contractors. Government Accountability Office. GAO-21-104311 (2021). https://www.gao.gov/assets/720/716461.pdf.
Eisenhower, Dwight D. President Dwight D. Eisenhower’s Farewell Address (1961). https://www.ourdocuments.gov/doc.php?flash=false&doc=90
Henry Ford, at Conference, Leads Critics of Federal Business Rules. New York Times. https://www.nytimes.com/1978/01/31/archives/henry-ford-at-conference-leads-critics-of-federal-business-rules.html.
Higgs, Robert. Crisis and Leviathan: Critical Episodes in the Growth of the American Government. The Independent Institute (2012).
Public Law 110-181, § 847.
Public Law 115-91, § 1045.
Rockefeller, John D. John D. Rockefeller on Making Money: Advice and Words of Wisdom on Building and Sharing Wealth, p.4, Skyhorse Publishing, Inc. (2015).
Salop, S.C. and Scheffman, D.T. Cost-Raising Strategies. Journal of Industrial Economics (1987), pp. 19-34.
Stigler, G.J. The Theory of Economic Regulation. Bell Journal of Economics and Management Science (1971), pp. 3-21.
Swagel, Phillip L. Sequestration Update Report: August 2020. Congressional Budget Office (2020). https://www.cbo.gov/publication/56508.
Swann, G.P. The Economics of Standardization. University of Manchester, Manchester, UK (2000).
Comments are closed.