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Vast military arms buildup making industry rich { October 1 2004 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2004/10/01/business/01pentagon.htmlhttp://www.nytimes.com/2004/10/01/business/01pentagon.html
BUSINESS/FINANCIAL DESK | October 1, 2004, Friday
A Vast Arms Buildup, Yet Not Enough for Wars
By TIM WEINER (NYT) 1949 words
Late Edition - Final , Section C , Page 1 , Column 2
Amid one of the greatest military spending increases in history, the Pentagon is starved for cash.
The United States will spend more than $500 billion on national security in the year beginning today. That represents a high-water mark, and it is creating boom times in the armaments industry.
Yet the military says it has run $1 billion a month short over the last year paying for the basics of war fighting in Iraq: troops, equipment, spare parts and training.
The disparity between spending on the arsenals of the future and the armies of today is great, and growing.
The Pentagon will spend $144 billion in the coming year researching and building weapons for future wars, another record and twice the annual costs of wars in Iraq and Afghanistan by most independent estimates.
The Pentagon says it has 77 major weapons programs under development. They include the $200 billion Joint Strike Fighter, a fleet of next-generation aircraft; a $112 billion Army program to create networks of weapons and communications systems; and an experimental Navy destroyer, the world's first $10 billion warship.
Those 77 weapons systems have a collective price tag of $1.3 trillion. That is nearly twice what they were supposed to cost, and 11 times the yearly bill for operating and maintaining the American military.
The spike in weapons spending is a bonanza for the nation's military contractors, almost all of which report surging profits and soaring stock prices.
The shares of Lockheed Martin, the nation's largest military contractor, have more than tripled since their low in early 2000; Northrop Grumman's are up some 165 percent.
Since the beginning of 2001, prime Pentagon contracts awarded to the top 10 arms makers have nearly doubled, to $82.3 billion in 2003. Lockheed's sales have risen over that period to $31.8 billion from $24 billion; Northrop's are up to $26.2 billion from $13 billion.
A Lockheed Martin spokesman, Thomas Jurkowsky, said the company's success since 2000 came from the "changed geopolitical landscape," in which Lockheed helped the Pentagon "meet the demands that have been placed on it by providing a broad range of advanced technologies and capabilities."
The rise in Pentagon spending is the greatest in 20 years, nearly matching the buildup that President Ronald Reagan initiated in the early 1980's. Spending went up $100 billion (about $170 billion in today's dollars) during Mr. Reagan's first term, to $276 billion (or $464 billion today). It started rising sharply again in 1999 and has increased $148 billion since then, not counting the costs of war.
But when it comes to fighting the wars, the money has not flowed as freely.
In 1999, while running for president, George W. Bush proposed a new direction for national defense - away from an industrial era of cold war planes, tanks and ships, toward an information era of wired, speedier, stealthier forces.
"I will defend the American people against missiles and terror," he said then. "I will begin creating the military of the next century."
The arms industry gave nearly $9 million to Republican candidates in 2000, twice as much as to Democrats, expecting that Republicans would significantly increase Pentagon spending. The stock market value of military contractors began rising that year.
"As the public and investors became aware that Bush had a good chance of becoming president, defense stocks began going up right away," said Paul Nisbet of JSA Research in Newport, R.I., who has analyzed the industry for 30 years. "It looked very much like the situation when Reagan came in."
But President Bush and Defense Secretary Donald H. Rumsfeld soon faced a quandary. "There is no question that we probably cannot afford every weapon system" in development, Mr. Bush said in August 2001. "This administration is going to have to winnow them down."
Would they rebuild the arsenal they had or skip forward to the next generation of weapons?
"On Sept. 10, 2001, Rumsfeld faced a totally invidious choice," said Gordon Adams, who oversaw national security spending at the Office of Management and Budget under President Bill Clinton.
"He had to choose between the present and the future, and he knew it," Mr. Adams said. "The Pentagon planning system was in a crunch. The budget was in severe stress."
But overnight the terrorist attacks of Sept. 11 "completely changed the planning horizon for defense," Mr. Adams said, adding: "The floodgates opened. Everything was a priority."
For the coming year, the Pentagon will spend at least $420 billion, not counting the costs of combat in Iraq and Afghanistan - which will run at least $72 billion and probably more, according to Congressional staff members.
Adding $32 billion for homeland security, the bottom line comes to $524 billion. Apart from the mandatory bills for Medicare, Medicaid, Social Security and other payments to individuals, that exceeds the combined cost of running the rest of the federal government.
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The accelerating pace of spending is unlikely to slow noticeably no matter who wins the election on Nov. 2. President Bush supports all 77 major weapons systems now under development; Senator John Kerry has said he would cut back on one, missile defense, which costs $10 billion a year. Mr. Kerry said he would use the money for more troops.
Why is there plenty of money available for the weapons of the future, but not enough for the troops at war today? Because, military experts say, one thing did not change after 9/11 - the way the Pentagon and Congress pay for wars.
"We pay for war with supplementals," or special requests to Congress, said Lt. Col. Rose-Ann Lynch, a Pentagon public affairs officer. "We do not budget for war. That's the way we do it, and that's the way we've been doing it for years."
Despite the record increases in weapons spending, the military, according to the Government Accountability Office, the budget watchdog of Congress, still faced shortfalls of more than $12 billion over the last year for the myriad nuts and bolts of war: supporting troops, buying spare parts and maintaining equipment.
The Army reported the greatest gaps. It estimated this summer that it would run $10.2 billion short in its operations and maintenance accounts in the fiscal year that ended yesterday.
At least $8 billion of this reflected the basic needs of soldiers at war in Iraq, like refurbishing and maintaining equipment, the G.A.O. reported. The military is trying to cover these costs by reducing training for troops and deferring equipment maintenance, both of which cut into military readiness.
The Pentagon consistently has understated the costs of combat. "The cost of operating in Iraq has clearly exceeded the original estimates," said Dov S. Zakheim, the Pentagon's comptroller and chief financial officer from April 2001 to May 2004. "The number of troops have gone up. We originally estimated some kind of steady state, a leveling off, maybe even a dropping off of forces."
When the war-fighting money runs dry, the Pentagon taps into operations accounts and seeks tens of billions in "emergency" funds, spending them as fast as they are approved by Congress, sometimes faster.
"The military has been underreporting the actual costs of war in Iraq," said Mr. Adams, director of security policy studies at George Washington University's Elliott School of International Affairs. As a consequence, he added, the Pentagon is led to "raiding the operations and maintenance accounts - which is mortgaging the future."
The war in Iraq started before the White House sought money to pay for it, and its financing has been patched together on the run, said Winslow T. Wheeler, who spent 31 years as a military spending analyst for Republican and Democratic senators.
When the war began, "the president had failed to ask for money to fund it," he said. "To go to war, we canceled training, slowed down equipment maintenance - just the kind of thing you want to be goosing up" in wartime.
But back home, Congress continues to enjoy the political perquisites commonly known as "pork," taking billions from the Pentagon for pet projects.
"The way Congress pays for this is by raiding other accounts, specifically for military training, spare parts and maintenance," said Mr. Wheeler, whose new book, "The Wastrels of Defense" (Naval Institute Press), will be published in October.
Mr. Zakheim, the former Pentagon comptroller, agreed that the "cultural traditions" of Capitol Hill include underfinancing, paying for the rest by shifting money from the Pentagon's operating accounts.
"Congress," he added, "has not done away with that culture" since 9/11.
The result is an army scraping for spare parts and combat-ready equipment while Pentagon officials continue to pour money into futuristic new weapons and the accounts of military contractors building them.
The Pentagon's budget, in actual outlays, is now nearly 10 times as great as any other nation's. The American arsenal can overwhelm just about any opponent in a conventional war, as it did in vanquishing the Iraqi army and toppling Saddam Hussein. But whether it holds the right mixture of weapons for fighting long-term battles with the enemy of today looks much more questionable.
The Pentagon soon may be forced to rethink its priorities for both weapons and spending, said Loren Thompson, chief operating officer of the Lexington Institute, a nonpartisan research group in Arlington, Va.
"It's harder to justify high-tech weapons," he said, "when we seem unable to defeat an adversary fighting with low-tech weapons and relatively primitive insurgent tactics."
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