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Volume 2, Number 13               May 5 - 11,  2002                     Quezon City, Philippines

Special Report:
United States Profiting from War?

A special report prepared by IBON Foundation, an independent research think-tank, on the U.S. military-industrial complex (reposted from IBON Features)

By JENNIFER DEL ROSARIO-MALONZO
IBON Features

U.S. Military-Industrial Complex: Profiting from War (Part 1)

Bush's War on Terrorism Boosts Military-Industrial Complex (Part 2)

Top U.S. Defense Corporations (Sidebar)

The United States is the biggest military spender in the world. Last December, the U.S. Congress debated a Bush defense budget of $343.2 billion, an increase of $32.6 billion over the previous year. The increase would bring U.S. military spending to more than half of all discretionary spending.

The largest defense corporations are also based in the United States. In arming the U.S., the so-called Globocop, corporations derive the most benefit because they are lavished with billions to come up with lethal weapons, surveillance equipment, tanks, submarines, ships and airplanes designed for a seemingly never-ending war.

While many sectors in the U.S. are suffering from the economic crunch, top weapons manufacturers are awaiting new orders, hiring new people, looking for new investments and gaining attention on the stock market.

The bond between the U.S. military establishment and defense corporations brought to existence the military-industrial complex. But beyond being a label, the phrase resonates with the power and influence of a partnership that has sustained America’s arms superiority and aided its economy.

Muscle of the U.S. economy

The military industry is a dominant player in the U.S. economy. Military orders drive America’s manufacturing sector. More than one-third of all engineers and scientists in the U.S. are engaged in military-related jobs. Several sections of the country and a number of industrial sectors, particularly shipbuilding and aerospace, are greatly dependent upon military spending or foreign arms sales.

The Department of Defense (DoD), together with the top defense corporations or what is known as the military-industrial complex, control the largest coordinated bloc of industry in the United States.

In 2001, after taking into account the emergency anti-terror funding and supplemental appropriations to finance the war in Afghanistan, the Pentagon’s budget amounted to some $375 billion. In addition to the rising annual defense budget, military spending also eats up much of the budgets of the Department of Energy and the National Aeronautics and Space Administration. At present, it consumes about 55% of the federal government’s discretionary expenditures. Roughly 75% of federal research and development expenditure is devoted to military projects.

The top aerospace and defense corporations – about 11 of them - employ 901,258 people. (See Table) These corporations mostly rely on DoD contracts. Most of these companies are also among the top defense corporations in the whole world.

It is not surprising, therefore, that many Americans and their elected representatives support continued Pentagon spending. The military industry has become a huge and untouchable jobs program employing directly and indirectly a large number of blue-collar workers and a rising number of technical professionals. Defense workers are kept in line by the fear of job loss and ensuing economic crisis. This threat is also used to frustrate efforts to scale back military production or to convert it into socially-useful purposes.

Historically, the U.S. economy shook off economic depression during World Wars I and II as establishments and factories vigorously worked to support the American war machine. For a superpower like the United States, war is an avenue leading out of an economic slump since practically all economic sectors become engaged in the country’s war efforts. Aside from boosting the local economy and generating jobs, the United States also earned from selling weapons to its wartime allies.

Exporting war

With the end of the Cold War and the Reagan weapons buying binge of the 1980s starting to slowdown, U.S. weapons manufacturers began to give more attention to foreign markets as a way to sustain their profit margins.

In pursuit of easy profits, practically all major weapons producing companies worldwide are collectively pushing to boost their exports. U.S. companies gained market dominance, cornering 40-50% of the total global weapons market in the 1990s.

Companies like Lockheed Martin and Boeing have realized that the only way to expand their exports beyond present levels is to open up new markets, by eliminating existing restrictions of potential recipient states, or seeking new government subsidies that can be used to create more cash-paying customers (i.e., foreign clients that use U.S.-supplied cash to buy American weapons).

For instance, Boeing does not only work hard to shape the opinions and policies of officials in Washington, DC, it also proves to be a major player in the international scene. During the World Trade Organization’s Seattle meeting in 1999, major transnational corporations donated $9.2 million in exchange for privileged access to WTO proceedings.

What do Boeing and other defense corporations get from sponsoring the WTO meeting? So much more than the amount they shelled out. Weapons makers are interested in the WTO agenda because they are becoming more dependent on exports to boost profits and are willing to enter into joint ventures, partnerships, and even mergers with companies in other countries.

It s not surprising that Boeing, which makes $13 billion annually selling missiles, combat aircraft, and other weapons systems ($3 billion in arms exports), would be a prime sponsor of the WTO meeting. Boeing has been a strong advocate of WTO membership for China, which provides a huge market for the company’s airliners. And the Aerospace Industries Association (AIA), of which Boeing is a member, has been pressing for normal trade relations with China.

Under the WTO system, arms corporations derive a double benefit. Not only do they profit from the elimination of environmental, health, and labor standards under the WTO, but their own activities in the military domain including massive research and export subsidies from their home governments are exempt from challenge under the WTO’s security exception. This security exception gives governments incentive to invest in the military sector at the expense of civilian projects.

Another pet project of defense corporations is the expansion of the North Atlantic Treaty Organization (NATO). Lockheed Martin and Boeing have been among its most enthusiastic supporters, and for a lucrative reason: enlarging NATO could pave the way for the creation of a huge, subsidized outlet for U.S. weaponry, including $8 billion to $10 billion in sales of fighter planes and a total weapons market of $35 billion over the next decade.

With Saudi Arabia still deep in debts it incurred during the 1991 Persian Gulf War and Asian arms customers reeling from financial crisis, East and Central Europe are but a couple of the few potential bright spots for U.S. weapons-exporting companies.

The absence of a compelling reason for NATO expansion is more than offset by the strong desire of powers-that-be to see the alliance broadened. While military contractors are looking for new markets, the Pentagon is seeking a new mission.

Post-Cold War, the Pentagon’s budget is still at Cold War levels. The military-industrial complex needs a mission to justify its continued dominance, and NATO expansion is a good candidate to fill that role. The September 11th attacks gave the military-industrial complex further justification for increased military production and an excuse to use war to boost the sagging U.S. economy.

Oil connection

Behind the war on terrorism that the United States supposedly waged against Afghanistan are corporate interests involving oil. Without doubt, the military-industrial complex has a stake in expanding areas to be exploited for oil as well as protecting U.S. oil sources.

According to Ahmed Rashid, Central Asia correspondent for the Daily Telegraph and the Far Eastern Economic Review, Afghanistan is the shortest route to the Persian Gulf from the gas resources of Turkmenistan and Uzbekistan from Northern Central Asia and Western Central Asia. It is far shorter than the routes through Iran, the Caucuses or China. Any pipeline would pass through only two countries, whereas at present the pipeline is passing through seven or eight countries. Thus, Afghanistan would be the best option for interested oil companies if it were brought under control.

Both competing oil companies Bridas (Argentinian multinational) and Unocal (American company) had very close relationship with the Taliban. In fact, the U.S. government supported the Taliban’s rise to power. There are a number of reasons why America supported the Taliban.

Rashid said one reason was that the Taliban was vehemently anti-Iran and anti-Shia, and this was the time of the dual containment policy which the United States was trying to use on Iran and Iraq. And the Taliban fitted the bill very well. Secondly, two U.S. allies in the region, Pakistan and Saudi Arabia, were supporting the Taliban. The third reason is that the United States wanted to build this pipeline. There was a lot of support from the Pentagon and the State Department for the Unocal effort.

Another analyst, Prof. Michael Klare, said the root of the war in Afghanistan lies in America’s efforts to dominate the oil resources of the Persian Gulf. The United States is protecting its interests in Saudi oil by defending the royal family from being overthrown by extremists like Bin Laden and replaced by a more doctrinaire Islamic rule.

The nature of U.S. protection for Saudi Arabia has evolved over time. At first, it was provided through indirect forms of support such as military advisers and arms aid. The direct presence of U.S. military forces began to increase over the years. Today, the United States has between 5,000 and 10,000 soldiers on Saudi soil, and a much bigger number offshore, on ships and the island of Bahrain.

According to Klare, the royal family has always provided U.S. interests a privileged position with respect to Saudi oil supplies, in terms of both the access to oil and the pricing of oil.

In the OPEC, the Saudi royal family has maintained warm relations with the United States by keeping prices at a level that does not burden the U.S. economy so much. There is apprehension that if the extremists took over, they might deny U.S. access to Saudi oil and/or increase prices, and thus result in an even worse economic situation than the United States is suffering at present.

Afghanistan is not the first time that the United States has gone to war because of oil. The United States got involved in local conflicts in other countries because of its interest in petroleum resources. It had been enmeshed in the internal politics of Iran (it had very close relations with the overthrown Shah). Klare said, historically, “(the United States) has been involved in conflicts in Mexico over oil. (It is) now involved in Colombia in a conflict that’s as much about oil as it is about drugs. This is because the United States views oil as a national security concern. Thus, its foreign and military policies involve the protection of its oil sources.”

Exciting days for war business

In December 2001, the U.S. Congress debated a Bush defense budget of $343.2 billion, an increase of $32.6 billion over the previous year. The increase would bring military spending to more than half of all discretionary spending.

This is good news to the weapons industry. While many sectors in the US are suffering from the economic crunch, top weapons manufacturers are awaiting new orders, hiring new people, looking for new investments and gaining attention on the stock market.

A defense analyst with the Lexington Institute said, “The whole mind set of military spending changed on September 11. The most fundamental thing about defense spending is that threats drive defense spending. It’s now going to be easier to fund almost anything.”

These are fruitful times for companies like Lockheed Martin, Raytheon, Northrop Grumman and Boeing. The war in Afghanistan is definitely a success despite friendly fire incidents, bombing accidents, mounting civilian casualties and the recent crash of a $280 million B-1 bomber. The Bush administration is already targeting new countries for military action, with Somalia, Yemen and Iraq topping the list. Indeed, this is a satisfying time to be in the war business.

For a long time, the U.S. defense industry just didn’t seem like a sexy area that has a lot of legs to it, said a partner at one options trading firm. But all that has changed. In response to investor interest, stock exchanges are thinking about creating a new Defense Index.

“While Congress worked out the versions of the military budgets, weapons manufacturers and their supporters are confident that it will be big. With the [Bush] administration, we’ll see a rebuilding of the military to bring it back to where it was eight years ago,” said defense analyst Paul Nisbet. “We’ll see a considerable appreciation in defense stocks, as we saw in the Reagan years.” (Reposted from IBON Features) Bulatlat.com

U.S. Military-Industrial Complex: Profiting from War (Part 1)

Bush's War on Terrorism Boosts Military-Industrial Complex (Part 2)

Top U.S. Defense Corporations (Sidebar)

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