THE BIG SIX AND THE PENTAGON
Prime military contractors in the US have been reduced in number since the end of the Cold War from over 50 to just 6: Northrup Grumman, Lockheed Martin, L3 Harris, General Dynamics, Boeing, RTX (Pratt and Whitney, Raytheon, Collins Aerospace). Together they absorb most of the procurement and research and development expenditures of the US Dept. of Defense (DOD), currently amounting to $315 billion a year. These corporations' benefit from cost-plus contracts: research and development costs plus 10-15%. No wonder their stocks consistently outperform the market.
An example of the activity of the ‘big six” is the F-35 fighter jet (Lockheed), which began life in the 1990s and is expected to cost the American taxpayer up to $2 trillion over the lifetime of the aircraft. The ‘big six” specialize in producing “huge bits of hardware slowly.” Now combat requires smaller and simpler tactical equipment as well as communications, sensors, software and data, opening space under the tent for big tech, led by Amazon, Google, and Microsoft, to get in on the DOD action.
With people in the US struggling with the costs of housing, childcare, long-term care for the elderly, education and resettling migrants, wouldn’t it be good to redirect some DOD money to social needs? Or do we want to end up as a steel-plated colossus, increasingly feeble and empty inside?
Source: The Economist, 11/4/23