The Little Agency That Could Have Tamed the Military-Industrial Complex

(Larry MacDougal via AP)

Ground crew work on two Lockheed Martin F-35A Lightning II fighter jets belonging to the U.S. Air Force, at Abbotsford, British Columbia, in August 2017.

To win World War II, the United States turned its economy into a war machine; then the Cold War encouraged the military-industrial complex to dig in for the long haul. But even though the Berlin Wall fell nearly three decades ago, this feature of the American national security landscape endures. Defense giant Lockheed Martin brags on its website that its new fighter jet is built in 46 states. In a society nearly allergic to the idea of industrial policy, America’s de facto military-industrial policy means that businesses, workers, and whole communities across the country continue to depend on Pentagon spending.

At the beginning of President Barack Obama’s first term, then-Deputy Defense Secretary Ash Carter paid a visit to the Pentagon’s Office of Economic Adjustment (OEA). The agency has been around since the post-Vietnam days to help communities adjust to lower levels of military spending, either from base closures or contract cancellations. Obama’s team knew that his promise to end the wars in Iraq and Afghanistan had a downside: Communities living off the post–September 11 military spending surge would be taking a hit.

Carter came in with a proposition for OEA officials: We want to plus-up your budget over five years, while the defense cuts take hold. Concern for these communities was presumably one motivator; staving off the political backlash if they did nothing was another. When OEA got the money, its Defense Industry Adjustment program began ramping up, creating new economic diversification programs in more than half the states. 

The agency’s base closure redevelopment work provided them a good model. The base closure process, when it’s working right, pulls together a broad-based set of community stakeholders to come up with a plan for Life After the Pentagon. Though most communities treat the prospect of losing their base like the coming of a plague, there are plenty of good outcomes to report. When the Philadelphia Naval Shipyard closed in 1995, 10,000 jobs were wiped out. Today, with the OEA’s help, it has more than replaced those jobs with a thriving mix of housing, retail, and light manufacturing, with a special focus on green businesses. (Philadelphia officials recently offered the Navy Yard site, along with two others, as a potential Amazon’s HQ2 headquarters.)

It’s a truism of economic development that diversified economies are better than the ones with too many eggs in one basket. The millions in new money the agency has doled out in recent years could have offered communities the chance to come together and figure out what kind of economy they wanted, to take the place of what they had. Why the agency did not make it happen merits a closer look. For starters, its spot at the Pentagon has always raised suspicions among members of Congress who don’t see why they should fund an agency devoted to helping communities move beyond the defense market. Encountering the OEA line item in the Pentagon’s budget, some congressional committee members can usually be relied on to ask, “What’s in this for the warfighter?” So staying under the radar has been an agency priority for years.

The OEA has always had to contend with resistance to the idea of public-sector involvement in private business affairs. Once a community, usually despite its best efforts, loses its military base, public officials and residents tend to appreciate the OEA’s help in creating new economic activity. (We haven’t had a round of base closings since 2005 though, when the Pentagon closed 22 bases and changed the way it used 33 others. But since then Congress has rejected every Pentagon request for new closings.)

Since bases, unlike businesses, are public assets, the idea of a community deliberating on a plan to reclaim those assets for their own use seems normal and acceptable. But using local economic development planning to address job losses at private companies is trickier, in our industrial policy–averse culture.

The politics of the military budget finally eroded justification for the OEA’s state-level economic diversification programs. The troop withdrawals from Iraq and Afghanistan and the caps on military and domestic spending imposed by the 2011 Budget Control Act did shrink the Pentagon budget by about 8 percent in the early Obama years. 

But lamentations about our “gutted” military soon began to emanate from Congress, by then in Republican hands, despite the fact that military spending remains higher, adjusted for inflation, than it ever got during the Reagan-era buildup. Since then, Congress has repeatedly relaxed the caps on the Pentagon’s budget alone and added money to the Overseas Contingency Operations (OCO) account, the separate budget created to fund the wars, which the caps don’t touch. And now the latest budget deal jacks up Pentagon spending very close to its post–World War II record.

But imagine that the OEA’s new diversification programs had actually been judged on their success in reducing states’ dependency on the defense sector. And what if savings from the defense drawdown had been invested in, say, an overhaul of our country’s energy and transportation infrastructure to improve productivity and forestall climate catastrophe? (In this counter-factual, the Middle East wars really ended and the Budget Control Act actually stayed in place, taking a decent bite out of the military budget.) This would have created what economists call a demand-pull to new non-defense markets, making economic diversification in the former military communities more attractive, and thus more likely.

Instead, an agency well-aware of prevailing political sentiments established state programs that have been less than committed to helping communities diversify beyond defense. Maryland’s Commerce Department, for example, hired a consulting firm to convene focus groups around the state to inform its “diversification plan.” The firm’s report is mostly an impressively thorough portrait of the state’s defense industry, county by county, and its role (important!) in the state’s economy, including detailed job estimates and analysis of the state’s defense-dependent industry clusters. 

Perhaps because the focus groups were dominated by local economic development officials and defense contractors, though, neither of the groups’ main recommendations actually focus on diversification. The first calls for more skilled workers (useful presumably for expanding as well as shrinking the state’s defense dependency.) The other focuses on protecting the state’s defense economy from more base closures.

The report’s diversification “plan” includes a grab-bag of standard economic development tools the state might try—like entrepreneurial incubators, tax breaks, and networking conferences, plus a couple of outlier mentions of wind and solar possibilities. 

The state has also been trying to mine the state’s military installations, mostly concentrated in Southern Maryland, for technologies that can be commercialized. As of November, the coordinator of the program reported that 17,083 such technologies had been identified. The record of commercialization, as far as she knows, is zero. 

In addition to commissioning the study, and the technology transfer project, Maryland has chosen to spend the bulk of its OEA money on launching the Maryland Defense Network. It’s an online portal designed to connect the state’s defense contractors for networking. When asked how defense contractors networking with other defense contractors would facilitate diversification beyond defense, an OEA official acknowledged that this was a good question. 

One of the strongest OEA programs is a three-state consortium involving the University of Michigan, Purdue, and Ohio State. They report having worked with 101 companies and 28 communities since 2014. Results from the first grant include 4,153 jobs retained and 273 created, and $310 million in new sales. But are these military or non-military sales? They don’t know: They don’t ask. 

While the consortium professes to help their states’ businesses diversify, it is also focused on “a current high-priority challenge to the military and the defense supply chain sector,” which is “to identify the most promising high potential technologies that will sustain U.S. defense industry leadership decades into the future.” Making sure, in other words, that they have an answer to that question “What’s in this for the warfighter?”

Asked for one example of a non-military product resulting from their work with defense contractors, the Michigan program director, Lawrence Molnar, cited a company that produces armor plating for military vehicles. It is now working to develop uses for the product to protect school buildings from shooters. Of some benefit, perhaps, in the absence of serious measures to deal with our gun-saturated culture, but hardly forward-looking. 

Americans need to look elsewhere for better examples showing that government can facilitate economic transitions toward the greener, less-militarized future that the country needs. Take the Hybridrive program, for example. In the aftermath of the Cold War, the Clinton administration launched the Technology Reinvestment Project, funding consortia of defense and commercial businesses, universities, national labs, unions (in some cases) and others to turn Cold War swords into plowshares. The project had its flaws and failures. But one of its successes was a consortium that worked with Lockheed Martin to adapt a fighter jet’s hydraulic system to power the drive train of a hybrid bus.

In 2000, Lockheed sold the business to another contractor, but as of October 2017, 8,000 Hybridrive-powered buses were reducing emissions in New York, Chicago, San Francisco, Seattle, and Houston, as well as in Japan, the United Kingdom, and Canada. A few thousand buses will not put much of a dent in the climate crisis. Only a Manhattan Project-level investment in a clean energy and transport transition would do that. (The “infrastructure plan” now before Congress is nothing of the kind.)

The OEA was never going to bring the military-industrial complex to its knees, of course. But its programs could have brought about good broad-based community convenings, as the base-closings process did, and provided technical assistance in the hunt for new markets, reduced dependency on the defense sector, and put companies and people to work making fewer weapons and more products that the United States actually needs. With a few modest exceptions, the little agency that could have tamed America’s dependence on defense economics missed its opportunity.

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