It’s just that dirty Hippie Commies want you to think there’s one out there.
Alternative Title: What Military-Industrial Complex? 2014 Edition
I've noticed a recent uptick in references to Eisenhower’s ‘feared’ Military-Industrial Complex in public discourse across various media outlets; in print and online articles as well as the internet comment threads for same. It is almost as if a new generation of low-information consumers has discovered the MIC, aping the old ‘Sixties Left’ paranoia and deceit. They throw out the ‘MIC’ as if it were argument-ending proof or at least ‘evidence’ of a malevolent and destructive phenomenon: something that is wreaking havoc on the American polity and economy at this very minute or, ‘trust them’- by golly there would be if ‘we’ don’t put a stop to it. Just ask ‘em!
So it is time, once again, to insert proper perspective into the discussion…and slap the Military-Industrial Complex myth silly. This time, I plan on the ‘definitive’ debunking. Barring any wild economic gyrations in the near future, I shouldn’t ever have to revisit the topic, and should be able to just point others here whenever the topic comes up for a VERY long time.
This post is in two halves. In the first half, we’ll revisit (with a little twist) what we have covered in the past (here and here) to put proper perspective to the current relative economic power of defense activities within the total scale and scope of the American economic machine. In the second part, we will reach across time to examine the scope and relative impact of the Mythical MIC from the time Eisenhower first framed his now ‘infamous’ warning and compare it with today.
Some Housekeeping Up Front
Data SourceAll data shown and not otherwise labeled/attributed is from the US Bureau of Economic Analysis, Downloaded in early August. The BEA data has since been updated at the source at least once in the interim, but for our purposes, there is no material difference in newer data and the data I used here.
Define Our TermsIt is particularly important that we first define our terms, since I categorically reject (obviously) the modern, clichéd definition of what a “Military-Industrial Complex” actually IS. If the accepted definition of the MIC in modern parlance was the same “manifestation” that Eisenhower noted in the ‘MIC’ speech where he stated “We recognize the imperative need for this development” then I would happily accept use of the term ‘Military-Industrial Complex’.
However, the term ‘Military-Industrial Complex’ has been routinely and now pervasively perverted to represent something only with those characteristics Eisenhower feared would come about, as specifically stated in following the acknowledged need for “this development”:
Yet, we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved. So is the very structure of our society.
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.Eisenhower above speaks of a Military-Industrial Complex that NEVER came into being. This is easily demonstrated by weighing the facts against the part of Eisenhower’s speech preceding the passages above:
Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But we can no longer risk emergency improvisation of national defense. We have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security alone more than the net income of all United States corporations.These passages describe the state of America’s economy at the time of Eisenhower’s speech. He saw his 1961 ‘MIC’ as part of an “imperative need” even though at the time, the US was spending more on “military security” than what the “US Corporations” ‘netted’ every year. (Which when you think about it, is not that surprising. Military Security is a whole sector of public spending. ‘Net’ profits are a small subset of the private sector.) By the time we complete ‘Part 2’ it will be obvious that not only did Eisenhower’s feared Military-Industrial Complex NOT materialize, his 1961 MIC atrophied into a shadow of its former economic presence. This real history unfolded not just through the relatively flattened or declining GDP proportions of military spending, but came about just as much, or more, through the growth of other parts of the economy.
Instead of the mythical Military-Industrial Complex, America’s defense has been and is still (perhaps too tenuously these days) supported by what we will refer to as a ‘National Defense Infrastructure’. From here on forward in these ‘MIC Myth’ posts I shall refer to the ‘MIC-that-never-happened’ as the Military-Industrial Complex (‘MIC’) and the MIC that actually came into being as the National Defense Infrastructure (‘NDI’).
We now proceed with the first half of the discussion…
Current Defense Industry Economic Impact: The Defense Industry Share of the Economic Pie.
|No Military Industrial Complex Here|
No MIC here.The little blue scratches in the plot of this chart and the next are ‘defense revenues’ of the ‘biggest’ defense companies. As has become our custom, let’s zoom in closer to see the top Fortune 100 companies more clearly.
For completeness, I have also included the only non-publically traded company with significant ‘defense’ revenues in the position they would hold if they were a public company.
This chart actually displays some useful details. First, the biggest company with significant defense revenues (a Global Top 100 Defense company) is General Electric, but GE's defense revenues are almost insignificant compared to the company’s non-defense revenues. In fact, only Boeing, Lockheed Martin and General Dynamics, could be unquestionably characterized more as ‘defense companies’ than just 'non-defense companies with defense business interests' in the Fortune 100.
If one wants to be concerned about concentration of economic power, take a look at Berkshire Hathaway.Over half the companies in the Fortune 100 took in MORE non-defense revenues than Lockheed Martin’s total income, and any two non-defense companies on the Fortune 100 list, even those companies smaller than Lockheed Martin, took in more revenue than Lockheed Martin. I observe here that each of the top 3 largest companies at the top of the Fortune 500 took in more revenue than ALL of the defense revenues brought in by the U.S. Global Top 100 Defense Companies on the Fortune 500 list, and the fourth company on the Fortune 100, Warren Buffet’s Berkshire Hathaway, had revenues equal to about 86% of the defense revenues of those same Global Top 100 Defense Companies on the Fortune 500 list.
A Global, More Encompassing PerspectiveIn the past, I’ve focused on data sources that relied on contract awards to identify the ‘big boys’ in the American ‘Defense Industry’. This year, I took a different tack and extracted data for all listed American companies in the “Global” Defense 100: i.e. the US Companies that are among the biggest defense companies in the world. This obviously excludes state-run industries that do not report revenues, found in places like the PRC and NoKo. But then, their industries are hardly direct participants in the US economy.
The breakdown by country of the Top 100, illustrating the distinction between defense and non-defense revenues is shown here:
The US company revenues dominate the list. Note that even the ‘World Top 100’ defense revenues tail off to almost undetectable levels once the top few counties’ contributions are counted. To make it easier to see the non-US revenues, here we exclude the US total to show ‘the rest’ of the world’s Global Defense 100 economic impact:
There are minor ‘quirks’ in this breakdown, such as tiny Netherlands shows up as a major defense player due to the Airbus Industries consortium being headquartered there, and there is a possibly-significant portion of BAE Systems US-based businesses being rolled into the UK totals, but what is important to us is the overall scale, and relative proportions of defense and non-defense revenues. This will later be put into the greater perspective.
|Revenues for the biggest US Defense 'Defense' Companies|
Defense as a part of the GDP: 1960 vs 2013We now return to Eisenhower’s speech, and the world that existed during that time Does the economic impact on the U.S economy by the defense industries bear any resemblance to the 1959-1961 era?
The short answer is NO.Here is a ‘snapshot’ of Government spending as a percentage of GDP running from the end of the Korean War through to 1965:
|Percentages of GDP for Government Spending in the Eisenhower Era|
- Even at the time of Eisenhower’s farewell address, ‘Defense’ spending was in decline as a percentage of the GDP, and thus was in decline as a relative influence on the total economy.
- Federal Non-Defense spending and State and Local Government spending were becoming larger factors of influence on the total U.S. economy.
Here is a graph comparing defense spending and personal spending (including investments) for the same time frame as percentages of the GDP:
|Defense Spending Was Not Eating into Personal Spending in the Eisenhower Era|
Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But we can no longer risk emergency improvisation of national defense. We have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment…He and others were remembering what it took out of the civilian economy to mobilize and mechanize for WW2, and he knew we were headed into new and uncharted territory
Eisenhower himself had tried to reduce Defense Spending by moving away from ‘expensive’ conventional forces via his ‘New Look’ strategy, but quickly (in ‘political’ measures of time anyway) realized he had to back well away from replacing conventional forces with nuclear forces as much as he had originally planned. By the time Kennedy took office, the buzzword had become “Flexible Response” with a marked re-emphasis on conventional forces (I touched on this back and forth in policy and how it affected the tactical force structure somewhat here). But also by the time Kennedy took office, the American economy was clearly moving beyond being a defense-driven one and it was personal spending that was on the rise. Interestingly, neither Vietnam and the war in Southeast Asia nor the much misunderstood 'Reagan Buildup' caused more than an economic ‘blip’ in the 'defense spending' vs' personal spending' timeline:
So Where Might We Find Growth in Government Spending?
"You know, right now, 40 percent, 40 percent of GDP is state, local, or federal money. I mean, that's an incredible number. So that, you know, adding more [government spending] to that, I think, is going to ... distort things even more. And the public is so concerned about it."Politifact took up the challenge to test Ms. Robert’s numbers, and related this bit to its readers:
Marc Goldwein, an economist with the New America Foundation, framed the conundrum in this mind-bending fashion: "What percent of GDP is made up of government spending is a different question from what government spending equals as a percent of GDP."So hidden ‘off the GDP books’ and in transfers to state and local governments is a large chunk of money above and beyond the official Federal GDP contributions (BTW, Politifact found Robert’s claim for 2009 “Mostly True” (within ~5%).
That's because when a government "transfers" money — such as through Social Security — it is shifting money around rather than spending it directly. "This can have real and large effects on GDP, but it does not directly impact GDP, since tax and transfer policies simply take money that one person could be using for consumption or investment and give it to another person to use for consumption or investment," he said.
How much is ‘hidden’ from the GDP federal (overwhelmingly non-defense) numbers over time? I’ve not found ‘hard data’ to plot, but I have found significant snapshots of data and other indicators.
First, the Congressional Budget Office (CBO) provides this handy graphic:
Another CBO (2013 chart of 2011 data) chart gives us a snapshot of how those Federal ‘grants’ are 'apportioned':
At the ‘State’ level, these funds show up as significant portions of the State General Fund. from taxfoundation.org:
So we can now state that while State and Local Government spending has been increasing, it is clear that one of its driving forces is the Federal dispensation to the states and localities above and beyond what is found in the Federal GDP contributors.
SummaryIn summary, we have shown:
- The feared Military-Industrial Complex never materialized.
- The Defense Industry is relatively minute compared to the rest of the world’s and U.S. industrial base.
- Personal Spending as part of the GDP has risen constantly over time, even when inflation is accounted for.
- Defense Spending to support the National Defense Infrastructure has declined as a percentage of the GDP since 1953.
- As a percentage of GDP and in absolute dollars, only State and Local Government spending has grown consistently over time since the end of WW2.
- Defense spending has only increased in dollars, not as a proportion of the GDP, and at lower rates than all other forms of government spending over time since 1953.
- Much of what State and Local Governments are increasingly spending actually involves spending significant Federal ‘Non-Defense’ dollars off the record as far as GDP books. That money which is ‘laundered’ through the State and Local Governments, overwhelmingly goes to ‘Health Care’ and ‘Income Security’.