When the cold war “ended” at the beginning of the 1990s, there was a slowdown in military spending. But the “defense transition policy,” which was intended to ease the plight of hundreds of thousands of permanently laid off defense workers, got sidetracked into wholesale consolidation and restructuring of the military industry.
This process of concentration of ownership treated defense-related manufacturing employees largely as obstacles to more profitable weapons production. It forced workers to shoulder nearly all the economic pain of downsizing.
The Clinton administration used both covert negotiation and overt subsidies to encourage a merger frenzy that reduced the number of large, specialized Pentagon contractors from 17 to eight.
At the same time the remaining military contractors cut payrolls by outsourcing to both domestic and foreign subcontractors. Not surprisingly, these actions raised profits for management and investors – the stock prices of large defense firms outperformed the S&P 500 Index during the first seven years of the 1990s
Finally, the pressure to consolidate overrode any incentives these companies might otherwise have had to diversify beyond military production or to convert entirely to nonmilitary production.
Consequently, a key result of the extensive consolidation of the industry was massive and unrestrained layoffs. The case of United Technologies Corp. (UTC) is an example of outsourcing that continues to result in defense industry layoffs even with stable defense department procurement funding.
UTC, a $25 billion company, makes Sikorsky helicopters and Pratt & Whitney engines, which together account for 42 percent of its annual sales. Other divisions in the UTC conglomerate are also involved in both military and civilian production. Half of UTC’s annual sales are foreign.
The fact that former Defense Secretary William Perry sits on the company’s board certainly accounts for some of this international success. Another reason for UTC’s success in global sales is the corporation’s willingness to negotiate joint ventures with potential buyers.
Such was the case in the August 1998 $500 million deal with Turkey. That country’s defense industry executive committee agreed to purchase 50 S-70 Black Hawks on the condition that a joint venture would be part of the final agreement so that the new helicopters would be co-produced by Ankara-based Tusas Aerospace Industries.
Tusas is jointly owned by Turkish and American shareholders. No information has been made public documenting how many hundreds or thousands of jobs were lost in UTC divisions due to the outsourcing of military helicopter production.
Tusas has also had a long-standing joint-venture agreement with Lockheed Martin Aeronautics Company to build F-16 combat aircraft. In 1983 the government of Turkey announced plans to buy 160 F-16s.
All but the first eight of these aircraft were assembled in Turkey during the 1980s. Since then Tusas has been awarded a contract to build wings, center and aft fuselages for U.S. Air Force F-16s. They have also been awarded a contract to build 46 F-16s for the Egyptian Air Force. In March 1992, a follow-up order for 80 additional F-16s was placed. These aircraft were built in Turkey and delivered from 1996 to 1999.
Levels of spending (adjusted for inflation) by the Department of Defense decreased from the late 1980s through 1998. These decreases eventually brought spending back to the levels that existed before the Reagan build-up of the 1980s. But spending increased starting in 1999, and even before Sept. 11, Bush requested a further increase to $329 billion for the Defense Department.
At close to 9 percent, this is the largest percentage increase since 1982 – and a lot more has been added since Sept. 11. But don’t look for a bulge of good paying jobs with benefits to follow.
Corporate profits will most certainly reach new heights, but you’ll find many of the new jobs in non-union job shops, or in Turkey, Taiwan, Indonesia, Mexico or wherever defense contractors believe they can make the most money.