The Budget Control Act, passed last summer by both parties as a mechanism to force compromise on debt reduction, is now being used by politicians and the defense industry for political gain. Mitt Romney’s campaign has said that sequestration will “saddle the military with a trillion dollars in cuts, severely shrink our force structure, and impair our ability to meet and deter threats.” He places the blame for these cuts on the Obama administration, conveniently forgetting that Republicans voted for sequestration and ignoring the fact that sequestration would be avoidable if the GOP would be willing to compromise on revenue increases.
Some in the defense industry have capitalized on this opportunity to delay or avoid cuts that would reduce their sales. Many top CEOs have started calling the $50 billion in cuts per year to the Pentagon dangerous to the defense industry and dangerous to our military’s ability to meet long-term challenges. They have said sequestration would force them to send out pink slips to their employees, a move that would be damaging to the fragile economy, especially in the swing state of Virginia. Lockheed Martin went as far as saying it might have to fire 10,000 of its workers.
Others in the defense industry, however, are calling these statements embellished and even unhelpful. William Swanson, the CEO of Raytheon, said recently, “When you look at this situation, I understand the danger, but there’s also an opportunity. And the smart companies, smart leaders, smart businesspeople know how to take advantage of opportunities.” He referred to the cuts as a speed bump as opposed to a roadblock.
So who to believe? It is important to bear in mind that the Pentagon increased its spending from $300 billion in 2001 to over $500 billion in 2012, meaning the 10% cut to defense spending per year under sequestration would still leave the Pentagon budget far larger than it was just ten years ago.
Industry executives who are engaging in political theater to pressure politicians to spare defense spending are relying on people’s acceptance of the status quo, where the Pentagon is able to spend as it pleases. When put into perspective, a 10% reduction on defense spending after the excess of the last decade doesn’t sound so bad.
Instead of trying to preserve an era of limitless defense spending in a changed fiscal landscape, as Lockheed’s CEO appears to be doing, defense industry executives like Swanson recognize that the times are different and the industry will have to adjust. Perhaps they are even thinking long-term about the nation’s burdensome debt and its effect on the ability of the military to remain predominant—a good thing for the defense industry. Former Chairman of the Joint Chiefs of Staff Admiral Mike Mullen called the debt crisis the biggest national security issue facing the country; if reforms aren’t instituted now, it will be worse for the defense industry down the road.
This doesn’t mean that sequestration, in its current form, is a good thing. Obviously, it would be far more prudent to tailor the cuts to specific programs instead of slashing everything equally. But given the dysfunction and political brinkmanship in Washington of late, there is a possibility that a compromise won’t be reached and sequestration will take place. For now, asking Congress to come to a compromise to avoid sequestration or allowing the Pentagon discretion in how it implements the cuts should be the focus of defense industry executives, not lobbying to exempt defense from further cuts.