The real defense scandal is the condition of the military-industrial complex or, if you prefer, the defense industrial base. A new report from a House Armed Services subcommittee underlines the point.
Conservatives should be up in arms because an inefficient defense industry can frustrate their plans for a rapid military buildup, and liberals because an efficient, flexible industrial base provides necessary insurance for arms control agreements and reduces the diversion of funds from domestic programs.
The fact is that if, under current circumstances, the Reagan administration and its congressional allies live up to their promises of large-scale increases in defense spending, the additional dollars will not lead to more equipment for U.S. forces. Instead, they will produce greater inflation, even higher unit costs than we are now paying and probably longer delays in delivery.
Why is this so? First, suppliers and subcontractors have steadily left the defense sector, owing to its instability, better and more secure profit margins elsewhere and the vicissitudes of contracting with the government. As a result, prime contractors, and hence the government, must pay more for the products of the remaining suppliers and subcontractors. The aircraft, industry has excess capacity, while naval ship-building has too little, at least of the kind that can turn out today's complex vessels on time and at the right price.
Then, planning and budgeting decisions by the Pentagon and Congress have focused exclusively on major prime contractors. As real defense spending declined throughout the mid-1970s, DOD attempted to maintain existing production lines -- ostensibly to retain "surge" capacity -- by reducing unit production levels and stretching out programs, while permitting the maintenance of a "healthy" first-tier of major prime contractors. This decision contributed to further cost increases and a serious decline in the number of subcontractors able and willing to do business with the Defense Department.
Overall, the bitterness of the bite will increase if more dollars are thrown at the problem, since, historically, the sudden availability of these dollars only drives up costs, not output, as the government and defense contractors vie with the civilian sector for scarce materials and the highly skilled manpower that staffs defense industry.
Already there is a large overhang of obligated but unspent defense funds -- unspent because defense industry can't absorb them. This overhang will grow; but output, if it increases at all, will do so only slowly and at considerable, unnecessary cost.
Lead times for critical components -- such as aircraft landing gears, titanium forgings, aircraft engines and integrated circuits -- have doubled or tripled in the past three years. Even "priority" ratings, which give most defense orders preference over civilian orders, are unable to cut through delays resulting from capacity problems and poor planning.
The recent congressional decision to extend national defense coloration -- including the use of national defense priorities -- to many synthetic fuel projects will likely strain still further the limited supplier base for many common, as well as high-technology, components.
These and other constraints that confront the Reagan administration as it seeks to build up military might are admirably detailed in a recent study, "The Defense Industry," by a former industry and Pentagon official, Dr. Jacques S. Gansler.
But all his proposals will be for naught unless there is a general recognition that a flexible, effective defense industry, one that operates economically in peacetime and can be both mobilized or demobilized rapidly, represents a national interest. Through the 1950s and much of the 1960s, a consensus existed, holding that America's military strength depended not alone on its edge in technology but equally on its ability to apply its engineering skills rapidly where they counted.
The Vietnam War, of course, called into question the entire U.S. approach to security issues. To a large degree, the industrial base was a casualty of both the economic and the political dislocation of that war. There was a general shortsightedness. Defense Department officials, congressmen and industry executives alike made expedient, short-range investment decisions and neglected the long term. They enjoyed the "Me Decade."
In 1971, as the Vietnam War began to wind down, Deputy Defense Secretary David Packard, in a memo to service secretaries, directed planning that would ease the economic impact of decreased procurement while preserving a mobilization base. Little was done to implement it.
In 1975, the committee established by the Defense Production Act of 1950 to oversee the adequacy of the defense industrial base and to protect against its undue encroachment on the civilian economy began a comprehensive review of the mobilization base. In a 1977 "economy" move, Congress disbanded the committee -- with its work only party done -- as unnecessary.
In 1976, a band of Pentagon and OMB officials in the Ford administration had prepared a report on inefficiency and excess capacity in the aircraft industry. They attempted to send a distress signal, and escape censure, by releasing the report summary the day before Jimmy Carter's inauguration. It sank like a stone.
Meanwhile, ongoing arms limitation negotiations focused liberal and conservative attention unduly on force-in-being, to the neglect of both the mechanism that produces the forces of the future and the best guarantee of compliance with any agreements that are reached -- an efficient peacetime mobilization base.
During the 1980s, a decade or more of damage will have to be repaired. More money will aggravate the problem, not alleviate it. Meanwhile, the public appears to have lost confidence, perhaps rightly, in the ability of Pentagon and industry officials to manage a lean and supple industrial production system. If the Reagan administration truly wants to contribute to a strong defense, rather than merely create a shadow-box perception, its first priority must be to straighten out the mess in the defense industry.