The United States is preparing to spend half a trillion dollars over the next ten years to modernize its nuclear weapons stockpile. Fifty-year-old systems are beginning to reach the end of their original lifespans and face serious readiness issues. This modernization has been subject to debate about the merits of continuing to fund all three legs of the American nuclear triad–missiles, submarines, and bombers. Some argue that “the nuclear triad is not sacred” and one leg could be discontinued, while others, including members of Congress, argue that all three elements are required for deterrence.
The question of the triad’s future was even included in the Senate nomination hearing for the Deputy Secretary of Defense Kathleen Hicks earlier this year. Given the domestic and international changes in threats and technology since the nuclear triad’s Cold War origins, America’s nuclear policy should be examined, and the ongoing Nuclear Posture Review completed, before billions are spent on modernization. As Deputy Secretary Hicks stated in her confirmation hearing, the U.S.’s “decisions on nuclear weapons should be driven foremost by strategy.”
Regardless of the strategy of having all three legs, it remains to be seen if the American industrial complex can even deliver a modernized capability. The production of America’s nuclear triad is dangerously monopolized. Wisconsin Democrat Rep. Mark Pocan wrote to the Federal Trade Commission in August to ask them to examine unwinding past defense industry mergers and prevent future ones. He noted that military defense monopolies pose a threat to American national security goals and waste billions of dollars each year, “divert[ing] tax dollars from life-saving research, treatments, and assistance” and “diminish[ing] the federal government’s return on defense-related investments.”
As Representative Pocan discussed in his letter, the dramatic consolidation that has occurred over the last three decades in the U.S. defense industrial base will affect the modernization of the submarines, missiles, and bombers that form the U.S.’s nuclear triad. Only five main defense contractors remain from a once crowded field, and now “nearly two-thirds of major weapon system contracts have only one major bidder.” This level of consolidated power over U.S. national security interests is expensive, constricting, and has a direct impact on the nuclear triad’s coming upgrade. Rather than being built and sustained by a robust array of companies that compete to drive down price for an improved product, a single company, Northrop Grumman, now has control over significant parts of every single leg of the triad: They build the Air Force’s B-21 bomber, the motors that power submarine launched missiles, and are now the sole bidder to produce the next iteration of intercontinental ballistic missiles (ICBMs). America’s triad would not have any legs without Northrop Grumman.
Such consolidation is costly and risky. As the Pentagon noted in its 2017 Industrial Capabilities Report, it causes “cost increases due to lack of competition, decreases in internal research and development efforts, and risk of security of supply if a catastrophic accident should occur.” Focusing on the nuclear triad in particular, the General in charge of Air Force Global Strike Command said that “billions” of dollars would have been saved through the competition of even two contractors for the upcoming ICBM modernization.
The monopolization of the nuclear triad was not inevitable; it is the result of a pattern of bad antitrust policy and lax enforcement. While this problem is not new (a 2013 decision to refrain from suing Google is now resurfacing), in 2018, FTC officials approved the acquisition of Northrop Grumman and Orbital-ATK. At the time, Orbital-ATK was the only major builder of solid rocket motors (which was itself a roll-up of rocket engine producers). The merger was approved by the FTC even though it would create a non-competitive atmosphere for the new ICBM modernization.
Shortly after Northrop Grumman’s acquisition of Orbital-ATK, Northrop Grumman’s lone competitor, Boeing, pulled out of the competition to build the next generation of ICBMs, citing the overwhelming disadvantage it faced due to Northrop Grumman’s acquisition of the rocket-maker. While the FTC stipulated that Northrop Grumman would be required to provide rocket motors “on a non-discriminatory basis to all competitors for missile contracts,” it was not enough to level the playing field. Today the Pentagon cannot negotiate price when it comes to nuclear missiles, accepting whatever price Northrop Grumman chooses.
This is a familiar story, and the nuclear triad is now poised to go the way of other national security programs hampered by consolidation. Dependence on a single supplier elevates the risk to taxpayers and our national security; the industrial base becomes more fragile and less robust, and the U.S. government becomes forced to support the company, regardless of its actions. Northrop Grumman (or any defense contractor) could decide to start working with U.S. competitors, like China, or dramatically cut costs in product design such that they produce faulty systems.
Neither scenario is conjecture. The U.S. has been put in the same position by other monopolies that control defense department programs.
For example, semiconductor designer Qualcomm offered to collaborate on chip production with the Chinese Communist regime and voluntarily contributed $150 million to a Chinese R&D investment fund. When the FTC sued Qualcomm for being a monopolist and harming “competition in two markets for baseband processors” (i.e., modem chips), the DoD came to Qualcomm’s defense, ironically emphasizing how much the U.S. needs Qualcomm to compete with China. Qualcomm effectively cornered the market and America had nowhere else to turn.
This was not the first time a U.S. company decided to work with China at the expense of national security. More than 20 years ago, the McDonnell Douglas Corporation, a large aerospace company that later merged with Boeing, was indicted on charges related to their sale of “13 pieces of machining equipment to China” that were ultimately used for military related manufacturing.
Speaking of Boeing, they recently chose to launch an unsafe aircraft, the 737 Max, instead of fixing fundamental aerodynamic control problems. That’s just on the civilian side; Boeing’s governmental products, like the KC-46 Pegasus and NASA’s Space Launch Vehicle, are behind schedule, over-cost, and often do not work as advertised. Nevertheless, when Boeing sought a $60 billion bailout, Congress and the Federal Reserve were supportive because Boeing is the country’s only major aircraft maker. While Boeing did not receive the requested $60 billion, they were bailed out through the Federal Reserve’s actions in the bond market, even though Boeing spent $40 billion on stock buy backs since 2014, juicing shareholder returns and leaving them cash-strapped in an emergency.
Defense contractors love monopolies because they remove any worry about the cost to taxpayers or the quality of their products. In a 2020 fourth quarter earnings call, while discussing the idea of further consolidating the defense industrial base by acquiring Aerojet Rocketdyne, Lockheed Martin’s President and CEO, James Taiclet, presented his goal of rolling up more of the industry, saying that “vertical integration concerns from a classic antitrust perspective are dwarfed” by the supposed benefits that come with monopolization. He even suggested the U.S. mimic the authoritarian defense base of North Korea, China, Iran, and Russia. This line of thinking is reinforced by consulting firms, like BCG, KPMG, and Deloitte, each of which are encouraging the Biden Pentagon to embrace more defense mergers in the name of efficiencies. But those efficiencies, the money companies save from vertical integration, are not necessarily translated into lower costs for the DoD or taxpayer; instead, it becomes internal profit. And this ultimate industry motive, efficiency driving profit, often runs counter to robust and resilient national security.
Fortunately, some policymakers are noticing this flawed view. During Deputy Secretary Hicks’s confirmation, Senator Richard Blumenthal discussed consolidation in the defense industrial base, noting his concern about the diminishing number of suppliers for military programs. Deputy Secretary Hicks acknowledged the problem, noting that “extreme consolidation does create challenges for innovation.” Recognition of the problem is a first step, but we need much more. The deputy secretary has an array of tools in the DoD and federal government’s arsenal to combat consolidation throughout her tenure, but it will require sustained prioritization and effort.
The first thing the Pentagon and FTC should do is unwind the Northrop-Orbital merger, and put a halt to further consolidation, including Lockheed Martin’s attempted $4.4 billion acquisition of Aerojet Rocketdyne. Lockheed is confident that this acquisition will be approved, especially now that 13 members of the House sent a letter to the DoD supporting the merger. Their letter argues that the acquisition “is necessary to ensure that our defense industrial base is on the strongest footing possible to enable the continued research, development and manufacture of leading-edge rocket propulsion,” especially since “Aerojet Rocketdyne is the last standalone rocket propulsion manufacturer of any appreciable size.” This is an odd argument given that lax anti-trust enforcement is how Aerojet became the last company standing in the industry, and consolidation is actually worse for leading-edge rocket propulsion. Raytheon also plans to contest the plan as they would be forced “to buy about 70% of its missile’s propulsion systems from its primary competitor.” Lockheed says they will “play fair” when selling engines, but that same “play fair” clause failed to help Boeing compete with Northrop Grumman on the ICBM contract.
Stopping mergers should be first on the priority list, but Congress and DoD also needs to foster an environment that builds back a resilient and robust industrial base. One way to foster competition and enable small businesses would be to require a consortium approach instead of awarding a sole contract winner. Companies could compete to manage a contract and others could compete to become one of a designated amount of sub-contractors. Smaller contractors would be able to break into the market, learn from larger businesses, and not need to worry about being pushed around or acquired. This would be more expensive from a management perspective, but it would be worth the price if it meant achieving redundancy and resiliency in the industrial base, sustaining more American jobs, and bolstering support to national security goals. Other policy changes within DoD could also encourage competition, like addressing commercial item exceptions and reducing the barriers to entry for first time companies seeking to work with the government.
The only beneficiaries of defense monopolies are their shareholders. Service members are stuck with program delays and quality issues, taxpayers are stuck with the bill, and America is stuck with a more brittle industrial base that undermines our national security. The U.S. cannot and should not compete with China at their own consolidation game. America’s advantage is its ability to foster open, free, and competitive markets that drive innovation and ensure resiliency. The FTC should reject future defense sector mergers and acquisitions, and unwind some that have already occurred. Competition will enable a robust and sustainable nuclear strategy, and besides, breaking up monopolies should be a blast.
Elle Ekman recently left the Department of Defense after more than a decade of service. She is a senior fellow at the American Economic Liberties Project and a 2021 Shawn Brimley Next Generation National Security Leaders Fellow at the Center for a New American Security.
Originally found on American Conservative. Read More