June 21, 2017
covered for Breaking Defense yesterday, Senator John McCain of Arizona was rather tough on the administration’s nominee to be deputy defense secretary. C-SPAN has the video, at roughly the 3:02:00 mark:
No, Senator, it's not 90 percent.
John McCain grossly exaggerates the power of defense contractors, and unfairly criticizes Patrick Shanahan.
By James Hasik
I want to move forward as quickly as I can with your nomination, [but] I am concerned. Ninety percent of defense spending is in the hands of five corporations, of which you represent one. I have to have confidence that the fox is not going to be put back into the henhouse.
Patrick Shanahan was until recently the senior vice president for supply chain and operations at Boeing. He had been at the company since 1986, working in rotorcraft, missile defense, and commercial aircraft. Boeing is clearly a major supplier to the US armed forces: the company did account for about 5.4 percent of all new defense prime contracts in 2015. (Figures for 2016 are not yet available.)
But broadly, the senator is simply incorrect about the concentration of supplier power in defense in the United States. As I wrote in December 2015, according to the Federal Procurement Data System, the Pentagon’s five biggest supply accounts were awarded 27.8 percent of the gross value of its new contracts in 2014. The top ten accounted for 35.7 percent. In 2015, those percentages increased slightly to 28.5 and 36.8. None of these figures approach 90 percent. Correcting the record is important simply because that sort of exaggeration can get repeated to ill-informed voters, who might then draw bogus inferences about the state of national defense.
The condition is not new. In 1959, for example, the top five accounted for 25.0 percent, and the top ten for 36.9. That was at a time when the government was spending 4.3 percent of US gross domestic product on military contracts; in 2014, that figure was just 1.7 percent. As I wrote in that first essay, “by this similarly gross measure, the political influence of those companies has probably greatly waned.” Boeing was unnaturally close to at least one of its military customers in 2003, when the Air Force decided to lease a fleet of 767s as aerial tankers, substantially on the company’s advice. Then again, that deal was quashed, the CEO resigned, and both the CFO and the infamous Darlene Druyun went to prison over their related corruption. That was also 14 years ago, and as then-Defense Secretary Donald Rumsfeld told the Washington Post, at a time of “very little adult supervision.”
Today, Boeing’s military contracts amount to less than 0.01 percent of US GDP. It’s also important to observe that Boeing and its employees aren't receiving net-net 5.4 percent of the $175 billion that the Defense Department contracted out in 2015. Much of that is flowing to its subcontractors. So even if the top line is a lot of money, it hardly constitutes political power in all things.
As for keeping the fox out of the henhouse, McCain’s assertion may seem cute, but it’s insulting. He offers no evidence that Patrick Shanahan, who has already departed Boeing, would unduly protect the company in his dealings from the side of the government. A more reasoned criticism could question whether someone with long service at a big company in the defense industry is the right person to help manage the Defense Department, at a time when the senator and others want to bring profound change to that agency. Then again, Shanahan spent much of his career at Boeing in commercial aviation, so he has had years to observe the differences in how business is done in and out of government, and how it should be done. If Shanahan is not the right person for the job, I’d like to hear who might be.
James Hasik is a senior fellow at the Brent Scowcroft Center on International Security.