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Q. On a related subject, you have spoken in the past about not knowing anybody who you admire in history who would even want to serve in government— who would want to be Secretary of Defense, including yourself, Deputy Secretary of Defense or other positions. Do you want to talk about that?
A. You and I have talked about this. I probably overstated because there are some people I admire who've taken the job, Perry is one of them.
But you aren't going to find a long line around here for those jobs and I think there are several reasons. Maybe if I were to back up, I first served in government in 1965 under a Democratic administration. I'm a Republican but I'm a moderate. When I first went there, when we asked people to take relatively senior positions which probably would mean the top three layers in the Department, we had a batting average of, I would guess around 95 percent acceptance. Today I'm told it's just about the reciprocal of that, about 5 percent. Of course, that leads to the question you imply, and that's why?
From my perspective there are a number of reasons. One is the scrutiny, the onerous nature of going through a confirmation hearing. The fact that if you're as pure as Caesar's wife, you still can come out looking badly.
In my case, some years ago when there were some rumours I might go back to the government, my mother who's a great American and very proud of her only son was in tears that I might think of going back to government. She said it'll ruin your reputation.
But I suspect there are a lot of mothers that feel that way out there. And as I say, I don't know of anything in the world I've got to hide but I don't think that matters. So that's one thing.
I think the lack of human courtesy that's gotten into the way our government operates makes it kind of an unpleasant place to be. And I guess I would have one other thing, it's not clear to me you can accomplish a great deal. There are so many checks and balances that have come into place. So many single interests that it's not really clear you can accomplish an awful lot. So I think those are some of the factors that lead to the fact that it is difficult to persuade people.
Q. What does this say then about the quality of the leadership we do have if we can't get people who are qualified but they don't want to put up with things you just described.
A. I think we have a lot better leadership than we deserve, frankly. And fortunately we don't need an awful lot of really good people at the top.
Q. Part of your job is presumably thinking about future national security threats to the United States and thinking about how to deal and sell products to the government that would help deal with it. I'd be very interested in your thoughts about that issue, look to the 21st Century. What is coming at us in your view that's different and how can the country buy weapons or otherwise prepare for those threats.
A. I think one of the problems with the defense budget today, unless you're buying weapons and preparing for defense, is that we've let our expenditures get out of balance to the point where our modernization expenditures are badly neglected. We have too much force for the amount of modernization we seem to be spending.
If one looks to future threats, I find it kind of instructive to look backward to sort of calibrate ourselves. Most of the systems that were used in the war in the Persian Gulf were relevant to the '70s, using the research of the '60s, manufactured in the '80s. Which is to say that the systems that were in development in the '70s were the ones we used in 1991 decisively 20 years. So whatever we're talking about today is to deal with the war in the year 2020 perhaps.
And so you say to yourself what is the world going to be like in 2020 and my crystal ball is really fuzzy there. Also I think backward, all of the alliances have changed just in my lifetime where countries that were once our bitter enemies became our friends, and our enemies again, and vice versa.
I think also, perhaps, forces that could be re-constituted quickly, which to me would suggest that maybe reserve units or the likes are a way to save some money, and depend more heavily on reserve forces. Not entirely, for sure, but perhaps to a greater extent. Because I looked at the nearer term, it's not hard to have a list of concerns that are more obvious to you than even to probably myself. But all the way from North Korea to Libya to Iran and Iraq and other places around the Middle East, hopefully China will be a friend in the long term, one doesn't know.
Q. Can I get back to the industry for a second. Is [downsizing] something we should worry about.
A. Yeah, I think that as you down-size an industry, particularly the defense industry, which is, I think is, a Cold War important industry than some other industries to the nation. As you down-size it, I do think it's better to have two strong companies than six weak companies.
I also think it's better to have six strong companies than six weak companies. But of course that wasn't a choice we had. There's not enough money to have three or four strong companies. So as we've gone down, I don't get too worried, I feel there's plenty of competition out there until you go below two which is what you're addressing. I think two is the magic number in competition. When you go below two, things fundamentally change.
Q. You talked about the advantages before of the size of the company. But a lot of other industries' companies assemble and get real big and discover it's a disadvantage, like AT&T's broken up recently; Sears has done that. I wonder, will you ever get to that point where the company just gets too big for one person to manage.
A. The point's a very legitimate one. I think that size has advantages and disadvantages. Size in its own right isn't necessarily the only answer. We competed, Lockheed and Martin Marietta separately, with Boeing for many years and McDonnell-Douglas, when they ranged from two to five times our size, almost always we did very well because we picked our fights.
And so, Goliath doesn't always necessarily win, although, if you'll forgive me, appropriate to the times a basketball coach said at my alma mater at Princeton last year when they played UCLA and happened to win that game. And the coach was asked how does he like always being David? His answer was that just one time he'd like to be Goliath and kick the hell out of David. And so to get efficiency we sort of had to combine these companies which brought us to larger scale. And so larger scale did make us more efficient. We decided, when we began these mergers, that we would reduce our costs by $2.6 million a year, every year. Most of which would go to the government, our principal customer. And we are going to make savings and they are going to go to the government, those would be net. As a matter of fact, we're doing better than we projected, tried to be conservative. So that's a piece of good news.
Q. What's the bad news.
A. I forgot the bad news, I tend to do that. The bad news, of course, is that as you get bigger you can become bureaucratic and inefficient and slow and all the things that go with that.
We tried to design our companies so that we're basically a bunch of little companies with the resources of a big company. And the way we do that is we create virtual companies to go after each new opportunity. And those virtual companies are made up of people from all different parts of the corporation.
Q. Do you think that we're in danger that the technology edge that we've enjoyed could be over?.
A. I think that's almost inevitable as we cut back the emphasis on it. When I got out of college, there were a lot of people who were excited about going to work in the intelligence community. Today I doubt that there is a long line of students wanting to do that. So I think they've got a tougher role today.
Q. I've heard it said that the number one national security threat in the country is the use of biological weapons terrorists, that that's something that just nobody's thinking about and it's easy for terrorists to do. I wonder if that's an area your company is thinking about or just what your thought is about on that.
A. It's an area that we've done a little bit of work on, not so much that we set out to be in that market but because things we do for other reasons have had applications, infrared detectors and things like that. So we do work in that area. But it's one of those things which in the business just doesn't amount to enough to be a very attractive little business even though it's an important national problem, but not a very interesting business. Because the quantity of things you would buy is so small, each one costs so little. I guess it's one of those things why you have governments that the enterprise system probably would never go work on that problem. So, as I say, we do have some involvement.
But the other threat though that strikes me, is the shoulder-fired anti-aircraft missile. That one worries me a lot. I would suppose there had been six or seven hundred thousand of those made around the world and they've been used in wars and there must be a lot of them have been lost. And I used to live in McLean on the river there and airplanes came into National Airport you could sit there and you could shut down National Airport just from my porch.
You could sit in McLean today and then next month you could sit in Englewood, Calif. by L.A. International and then you could go up and sit in Secaucus and knock down one airliner a month. Think what that would do to the transportation system of this country. To our commerce. To our way of life. The population of San Diego flies every day in the U.S. alone. A lot of lives would get changed if that happened. That really worried me and I've just been amazed it hasn't happened already.
Well, once again, we happen to build a system. But having said that any defensive system like that is of necessity going to be imperfect. And when you're in wartime you could stand certain imperfections and certainly the systems we build are a lot better than not having one. A lot better. But the problem with this is it takes so few leakers, as we would call it, to have this huge political impact and social impact. [But] we lose 50,000 or 40,000 [people] a year in automobiles and we don't mind driving. Maybe we'd have to get used to the idea.
Q. You talked a little bit about your efforts in the commercial world. You've made some progress.
A. Yeah, we've made a lot of progress and we've gone at it very deliberately and very slowly on purpose. I think you in fact have quoted me as having said that our industry's record of diversification is unblemished by success. The problem that the industry has had is in past down cycles in defense spending, the answer among the academic community you know, is diversify, do other things. If you're a rocket scientist surely you could sell toothpaste. Well it turns out it's darn hard to sell toothpaste. We tried to get, we our industry, has tried to get too far away from the thing -- and have generally been unsuccessful for that reason, I think. Or our company in general.
This time we said we'd try to do something a little bit differently. One is we've taken products that were closely related technically to the things we now build, video games, space-launched vehicles, telecommunication satellites. We have said that we will work only with large customers, large corporations and governments, we're not going to try to sell to the consumers. And, thirdly, that we'll do this very slowly and deliberately.
But our commercial businessess have grown and, they kind of, they run a whole spectrum of things. I mentioned space telecommunication satellites, space launched vehicles, I mentioned the video games. Another one that intrigues me is that we build electronic highway systems, particularly for tolling and weighing, collecting tolls and weighing vehicles while they're going down the highway so they don't have to stop. And that turns out to be really important because a highway's where you have traffic jams and toll booths. We could increase the through-put of a single lane by about a factor of 6 with our systems, without building new concrete lanes. And we have our systems now throughout much of the country, we're just now putting it around Manhattan, it's very popular, easy.
Q. You mentioned diversity and I wasn't sure if you meant regional or gender, ethnic, race? A company like yours is a diverse workforce, talent work pool.
A. That's a good question. When I used the word diversity I was referring to all of the above. We're recruiting, for example, at traditionally black colleges. We also recruit around the country because we have plants around the country so we try to recruit in areas where we have plants particularly.
We face exactly the problem you cited. We have a lot of things we're proud of. Last year the black engineer of the year in America, all corporations, was from Lockheed Martin. This year the black engineer of the year was from Lockheed Martin. Last year the Hispanic engineer of the year was from Lockheed Martin and this year, throughout the country was from Lockheed Martin, so we're very proud of that. The problem is we can find one or two really outstanding ones, but the percentage is not what it ought to be.
The difficulty is there are very few minorities studying engineering today and women are doing better, I think we're up to about 30 percent. Overall, the number of engineers is declining in the country, particularly in electronics and computer science. They all want to be lawyers and investment bankers.
Q. And in the same area, older workers?
A. I was really saying that you really can't afford to hire young people when you're laying off longtime employees, so by and large we have not been doing that. And that's created the problem that we have of an aging work force and a gap among younger people. And so we've in general tried not to do that. We did have an age discrimination suit, or we do have I guess still, in Denver and those are really difficult. One of the things that makes it so difficult is the rapid pace of change in technology. And you take the average college graduate that makes a third perhaps of what somebody who's been in the business 40 years but hasn't really devoted themselves to keeping up and it's hard to keep up. And that college graduate will be much more valuable to an employer in many cases. And so what you tend to do perhaps is just not discrimination against age, you try to pick what employee will contribute the most. And if your interest is in some esoteric kind of software, the odds are it'll be a 22-year-old employee, not the one my age.
Q. One more question about your anniversary. As you look at the company that you put together from these diverse sources, what's the likelihood that you're going to find pieces that just don't fit the business that you have? And that you'll end off spinning off one or more of the 17?
A. The likelihood is very high and we've already begun that. The most obvious example would be, we were the second largest producer of crushed rock in America. It's a wonderful business and I would say we've never had a rock explode. But it is one great business. You don't get returns from the customer. Big profit margins. But your point is exactly right, we bring nothing to it and there are others who bring more to it. We've sold it. There were two businesses in sort of the ordnance munitions area that really don't fit us very well, but they fit General Dynamics very well and we just sold those to General Dynamics. But there are a couple of others that we're looking at. So you put your finger on something that, as you collect these things, you get things that really don't need.