THE PENTAGONISTS -- AN INSIDER'S VIEW OF WASTE, MISMANAGEMENT, AND FRAUD IN DEFENSE SPENDING
17. Our Corporate State
A LONG AND CURIOUS article titled "The Morning After" appeared in the October 1987 issue of the Atlantic Monthly. Its author, Peter G. Peterson, was an investment banker, former government official, and chairman of the Council on Foreign Relations. It was curious in that much of its analysis was so accurate and its conclusions so wrong. Those conclusions represent, in some interesting ways, a lot of the confused thinking of the 1980s.
Peterson wrote, "We now find that the budget deficits and an evaporation of the public's pro-defense consensus are drawing an ever-tightening circle around all our strategic options." That, of course, is only half the story. What is needed to complete the thought is a better understanding of the Reagan-era fiscal disasters that helped to evaporate the consensus.
Among other symptoms of fiscal illness, Peterson noted the collapse of our trade balance in manufactured goods "from a $17 billion surplus in 1980 to a $139 billion deficit in 1986." His solution? "First, we must tame the federal budget deficit." Obviously, but where do we start cutting? At the Pentagon? That's not impossible, according to Peterson, if fate would give us a lucky break: "Real defense spending has been effectively frozen for the last couple of years, and we may be at a crossroads in foreign policy which will allow us to make substantial future savings in security expenditure."
In looking forward to, presumably, a new era of detente with the Soviets, Peterson overlooked the fact that the greatest pacific development in American foreign policy over the past forty-two years -- the withdrawal from Southeast Asia -- was followed by an enormous increase in military spending. Peterson used the standard Establishment evasion: We can't control the huge expenditures at the Pentagon, but with a more benign foreign policy, expenditures may recede in some natural ebb of the tide. The reader will note that this argument rests on a supposed cause and effect that have no necessary connection.
Meanwhile, what to do? "We must," Peterson said, "increase federal revenue" by adding a huge sales tax on gasoline and a "five-percent value-added (sales) tax on all products." Presumably working people, who are hit hardest by such regressive taxes, would then be too broke to buy Japanese cars and televisions, and thereby the trade deficit would be reduced.
While in our nightly prayers we were supposed to wish for a change in foreign policy that might miraculously slow the Pentagon's upsurge in spending, where could we actually economize? The answer: in "non-means-tested entitlements," of which Social Security, a favorite Peterson target in the past, was the largest.
But wait. Social Security was not adding to the budget deficit; the Social Security trust fund was running a huge and growing surplus. According to the February 18, 1988, Washington Post, the Congressional Budget Office estimated that the surplus in the trust funds (Social Security was the largest of these) was likely to be $97 billion in fiscal 1988, as opposed to a deficit of $245 billion in the nontrust-fund part of the federal budget, or the Federal Funds Schedule. Chart 17-1 shows the role of the Social Security surplus in masking the size of the overall federal deficit and making the black hole look less deep than it is.
As of this writing, government actuaries estimate that Social Security surpluses will, unless there is an economic collapse, rise to the trillions before the inevitable downward trend when the Baby Boom generation begins to retire in the 2010s. The constant danger, of course, is that an administration faced with the hungry demands of the Pentagon will begin reneging on the deal with the old folks.
In his Atlantic Monthly article, Peterson pointed out that at the end of 1981 we were the world's largest net creditor nation, with foreigners collectively owing us $141 billion more than we owed them. By the end of 1987, Peterson forecast, we would be closing in on a negative $400 billion, with our net foreign debt projected to reach $1 trillion by the early 1990s. As Chart 17-2 shows, by 1988 the federal government's bonded debt was growing exponentially. It was becoming interest-driven; that is, we were borrowing money to pay accrued interest, which, as Senator Grassley has often pointed out, is a classic economic definition of bankruptcy.
How the Social Security surplus masks the size of the federal deficit.
Source: Congressional Budget Office.
So Congress had to take some action. It did that with the budget summit of 1987, making a modest start on the Peterson prescription. But in doing so it actually added more than $10 billion to the military budget set by the House Budget Committee and almost $5 billion to that approved by the Senate!
Since the two houses usually reconcile their budget figures by splitting the difference, the Senate Budget Committee staff focused on the midpoint of the difference between the two bodies, as shown in the summit outcome. This produced an increase for the military of $6.676 billion and a cut of $1.587 billion for everybody else, which meant a net increase of $5.089 billion in overall obligational authority. When this was translated into projected spending, the Pentagon outlays budget went up $5 billion from fiscal 1987 to 1988 and a whopping $8.5 billion for FY 1989. Most of that new $13.5 billion was for acquisitions.
In the end the Merlins of the budget announced a projected reduction in the deficit. But how? First they used the trust fund surpluses as camouflage. Next they whistled up some hoped-for increases in revenues from 1987 to 1989 -- $119 billion, partly from higher Social Security taxes and partly from projected increased revenues from general taxation.
The summit's action seemed insane: the only scare loose in the world was a peace scare. Congress had decided that we were not going to initiate a war in Central America. Mikhail Gorbachev was behaving less like an Evil Emperor and more like a politician eager to make arms reduction deals with Ronald Reagan. There was no known increase in The Threat. It had been demonstrated to all Pentagon insiders that we could drastically reduce unit costs for weapons while improving their quality. So why the big increases in the military budget?
The secret was that the planners in the DoD had continued to stick to their ascending plan even during the slowdown called the Freeze. Over the previous twelve years Congress had appropriated so much more than the Pentagon was able to unload that there was a huge backlog of unspent money. Spending did rise, just more slowly. Meanwhile, back at their computers, the planners and programmers looked into their crystal screens and saw visions of new billions after the Freeze nonsense was forgotten.
Chart 17-2. U.S. public debt, 1930-1988. Source: Office of the Secretary of the Treasury, May 3, 1986.
Their guiding horoscope was a kind of five-year plan. Back in 1961 the Robert McNamara Whiz Kids created something called the Program Planning and Budgeting System, or PPBS. Managers used it to make their future cost projections, which were combined into the Five Year Defense Program, or FYDP. This latter, with its year-by-year estimates for each element, was intended as fiscal guidance for the president.
Needless to say, the negotiations that produced the FYDP were horrendous, with great politicking, re-estimating, trimming the losing programs and expanding the winners, adjusting and reallocating the adjustments. My friends in the office of the secretary of defense estimated that all this consumed at least a million manhours per year in the Pentagon. And though it was far from perfect, PPBS did bring some order to Fort Fumble's feeding frenzy.
Then in 1986 an odd thing happened. The price tag on the future plans vastly exceeded even Ronald Reagan's permissive guidelines, the sum of the parts being much greater than the acceptable total. Weinberger and his baffled aides finally gave up trying to reconcile the figures, and thus there was no balanced FYDP in 1987.
Under strictest secrecy, they were able to get away with the concealment, sharing the facts only with Pentagon insiders, big contractors, and tame members of Congress. This was management breakdown on a huge scale, involving hundreds of billions of dollars in mismatched projections. But it passed unnoticed in 1987, and in 1988, under the Poindexter-Packard plan, no reconciled FYDP was required.
It was a hefty time bomb that Cap Weinberger had wrapped up to present to the new administration when it took office in January 1989. A new management team would "discover" that the Pentagon "needed" as much as $400 billion more than previously planned for the ensuing five years in order to avoid immediate mass layoffs, contract terminations, and base closures -- all nightmare prospects for even the most fiscally responsible president.
The obvious course of that point would be for the president to announce to the country that in this crisis the nation's security and economic health were at stake. He would call upon everybody to make sacrifices until he could bring order out of chaos. In the meantime Pentagon spending would have to remain at the current level, or even higher.
The only thing that prevented Weinberger's ruse from succeeding was the vigilance of one senator, Lowell Weicker, and his staff assistant, Charlie Murphy. Informed members of the Pentagon underground passed the news to Murphy in early 1987. I learned of it at about the same time, but I was crippled by the straitjacket of Poindexter-Packard and the new secrecy gag rules, which threatened me even though I had not signed the SF 189. More important, almost everybody else had gagged themselves, which greatly reduced the flow of information.
My arithmetic showed that the Air Force alone had a five-year price tag that exceeded the Reagan guidance by $24.5 billion and exceeded our expectations of what Congress might appropriate by $72.8 billion. I tried repeatedly to get my new military bosses to discuss the issue, arguing that the sooner we squeezed some appreciable amount of fat from our programs, the better off we would be when we faced the budget discrepancy.
They had a sudden and interesting deafness. It took me a little while to realize that what the top Pentagonists were aiming for was fiscal chaos. They actually believed that chaos would benefit them and their contractor allies by forestalling any new spending discipline. It would be a license to steal.
I had some clues about this that would have been amusing under any other circumstances. In one staff meeting when I was trying to get some useful discussion of our overriding problem, I was silenced so that the meeting could devote itself to the price of haircuts in Air Force barbershops. In another meeting I was cut off in favor of a discussion dear to the heart of the chief of staff of the Air Force: leather flying jackets for pilots. In the year 1987 pilots no longer actually wore leather jackets (our open-cockpit biplanes had all been retired), but in their off-duty hours, such jackets would give them a kind of heroes-of-the-Dawn-Patrol look greatly admired by the chief of staff.
Specifications had been drawn up for the purchase of North African goatskins, which were supple and soft and supposedly had more sex appeal than other goatskins. But the North American goat breeders were horrified. What about the Buy American act? What about the fact that American goatskins were almost half again larger than the foreign kind? Shut up, Fitzgerald, this is a lot more important than any $73 million budget shortfall.
I then appealed to General Claudius Watts to declassify information about the serious budget mismatch, but while the bureaucrats stalled, Senator Weicker brought the news. In the meantime a secret deal -- a kind of defense summit -- had been in the works. Apparently, part of that deal was to replace Weinberger with Frank Carlucci. Carlucci, the rumor went, looked more "reasonable" to the public and Congress and would probably be a more plausible front for increased Pentagon spending.
On January 10, 1988, the Washington Post published a chart that gave a graphic view of the budget mismatch before the summit deal (see Chart 17-3). The exact details of the deal have not been made public at this writing, but the essentials were these: the Reagan administration had projected spending at the 1987 level plus 3 percent annual growth plus inflation; the deal changed that to 2 percent plus inflation, compounded annually. The trade-off was an accelerated increase in the congressional funding line. Instead of rising to $300 billion by 1997, congressional funding would get to that figure by 1990, seven years sooner. All this, of course, would be the problem of the new president. It was a true banana-republic solution: postpone it to manana. Peter Peterson was only one of many economists and critics who commented on the defense spending crisis. Seymour Melman wrote a monumental book on the subject, titled Profits without Production (1983). A key passage noted that "the Pentagon has effectively displaced cost-minimizing with a system of cost- and subsidy-maximizing," a demonstrably correct proposition that David Packard and Ronald Reagan have hailed as a virtue.
Chart 17-3. Defense Department budget projections. Source: System Planning Corp., prepared for the Commission on Long Term Strategy but not included in the commission's report to the Pentagon and the president.
The point is that the comparison is tainted. The industries with "similar products" were already infected with cost-maximizing by the defense giants in their midst. Thus it was only natural that the infected sectors should be only slightly behind the disease carriers. Adams and Gold did not even begin to address the problem of a manufacturer whose cost for making one toilet pan was $600. He could not sell his product in any truly competitive market, domestic or foreign; his only conceivable buyer was the Pentagon.
Melman and his colleagues had noted the important "lost opportunity" factor, which is one way that military spending drains the general economy. Engineers who devote many hours to designing a plain three-inch piece of wire are not using their time to design products that might compete with Toyota or Sony. Worse, engineers long employed in such boondoggles rust and lose their skills. Adams and Gold missed those points entirely. They also failed to understand the additional drain caused by the lax and slovenly work habits so endemic to defense industries -- and so easily spread to "civilian sectors with similar products."
Another attempt to answer the great "why-can't-America-compete-any-longer?" question arrived in a 1988 treatise titled "The Case for Manufacturing in America's Future," prepared under the general supervision of Colby H. Chandler. Mr. Chandler was chairman and CEO of Eastman Kodak, a sizable military contractor. The paper began with the sensible but obvious thesis that American manufacturing now compares badly with that of the rest of the world and that we thus have reason to worry about our competitiveness. Chart 17-4 (constructed from data compiled by the CIA) illustrates the situation.
After that beginning, Chandler and company headed for the deep end. They decided that "our competitiveness plummeted due in large measure to an overvalued dollar." As patient readers of this book know by now, our "competitiveness" began to decline in 1965, and whatever the state of the dollar -- high in 1985 or low in 1988 -- the overall trend in our balance of trade has been down. Obviously we can improve the balance of trade if we take less for our goods and pay more for imports, thereby reducing the American standard of living. But this is a self-flagellating solution to the major problem of competitiveness.
Chart I7-4. Changes in components of the U.S. trade deficit. Source: Central Intelligence Agency.
Chandler's article, in fact, gave evidence that our competitiveness did not plummet solely as a result of an overvalued dollar. He included a chart of values ("U.S. Real Exchange Rate") based on an index for the years 1970-1988 and compiled by Morgan Guaranty Trust. It compared the prices, in dollars, of nonfood manufactures in the United States, to prices for the same goods in other countries, in their currencies. In 1970 (the year before our first modern-day trade deficit), the index stood at 112. By 1987 it had dropped by 17 percent to 93. In other words, the dollar had lost only 17 percent in relative value while our balance-of-trade figures were in a free fall. The correlation Chandler's authors sought just wasn't there.
Chandler had a Petersonian remedy, though: boost consumer taxes, especially the value-added kind. That would raise the price of American manufactures at home and "all imported goods would be taxed, so that consumers would not detect any differential between the retail prices of domestic and imported goods." It was a marvelous soak-the-poor-to-support-the-rich program -- the rich being anybody who profited from military contracting and the poor being all ordinary taxpayers.
Chandler went on to give apparently impressive figures on increases in defense manufacturing jobs: over a million new ones in 1977, 1980, and 1985. As manufacturing employment in general decreased by 1.29 million from 1980 to 1986, defense employment went up by 740,000. Without defense industries to bolster the job market, he stressed, employment would be at its lowest since 1965.
So a lot more people were working in defense, but what were they producing? Chandler said nothing about output of useful products, nor even whether all that employment culminated in the noneconomic objective of outgunning the Evil Empire.
The ergo at the end of all this was that military acquisitions were wonderful medicine for our economic health: "Just as the manufacturing sector benefits the most when defense spending increases, it will be the largest loser as spending declines." And, making the prognosis of many a quack doctor before him, he uttered the words most likely to make Congress turn faint and helpless: "Defense cutbacks will ... lead to rather concentrated employment reductions."
Like Adams and Gold, Chandler was not quite in the real world. As many of our giant corporations became less and less able to compete in foreign -- or domestic -- markets, Congress gave them massive intravenous injections of military money. Unfortunately, as Chart 17-5 demonstrates, that was no cure. If anything, Congress anticipated the steep drop in our competitive ability. The upward-zooming line of "total obligation authority for DoD acquisition" actually preceded the downward slide of the trade figures because the former is done by fiscal year and the latter by calendar year. Prior to 1977, then, the obligation figures appeared on July 30 and the trade figures at year's end. Furthermore, the obligation authority is simply a permission to spend. The actual spending usually comes a year or so later.
Chart 17-5. Defense acquisition costs versus U.S. balance of trade, 1960-1988, in current dollars. Source: Office of the Secretary of Defense and the Department of Commerce.
In their simplistic surveys of economic problems, Chandler and other writers overlooked another subtle aspect of the "lost opportunity" factor Melman had pointed out. This was the deterioration brought about by underemployment in defense industry. When a contractor warehoused a team of engineers in order to take advantage of the "full absorption accounting principle," he was letting talent rust. That principle encouraged corporations to keep technical teams together even if they had to be given busywork. The degradation of so many American engineers may be the most devastating hidden effect of our reckless military spending. When I was an engineering student and young engineering practitioner, we were indoctrinated with the idea that engineering is applied economics. Defense manufacturers seem never to have heard it.
Still another strain of military-contractor infection that began to spread through the general body of the nation from the 1970s on was cost justification, which the academics in charge of B-school management training adopted in all its manifestations. The cost-plus-percentage-of-cost concept (politely called "pass-through") spread into the campus courses and from there into many areas of business and industry, most rapidly in administered-price industries.
The health-care industry became one of the chief sufferers. The feverish rise of health-care costs starting in the late 1960s went hand in hand with the hospitals' adoption of cost-plus pricing. Along with that, physicians' billings were now based on an elaborate pricing system that (like the military contractors') was based on an average of past billings -- an average that kept moving higher and higher. The same disease spread to the quasi-public corporations such as the Postal Service, Amtrak, and Comsat.
For a long time I have felt like an eyewitness to the systematic disintegration of everything that made America competitive in the industrial world of the twentieth century. From the factory floor to the boardroom to the rarefied air of high government offices, a slackness of mind has set in. To be tough-minded, economical, and bent on winning is no longer the fashion.
Not that these shoddy, new habits are unresisted or universal; some stubborn and honest people do remain in corporations and the government. In my own area of concern, performance measurement systems are still in place even after years of battering from the cover-up troops. Should-cost worked when we were allowed to use it properly. Whenever we could pry loose enough information to do technical audits, they were valuable. We clung to the concept of work measurement for factories and managed to preserve it in principle. The times when we could persuade the big spenders to permit some competition for a contract, it paid off.
Competition had some interesting facets. In 1985 Congress passed a "reform" act called the Competition in Contracting Act, or CICA. One of its immediate effects was to allow the Pentagon to change the definition of "competitive" in its reporting. Before CICA, competition meant advertised solicitations and sealed-bid responses. Under the new system, even if the rivalry was no more fierce than two sumo wrestlers running the hundred-yard dash, any vying qualified. One striking case of CICA's effects was when a little competition brought the bid from one of our worst-case contractors down by about 80 percent. This contractor still couldn't make, say, a plastic toilet pan for less than $1,000 apiece, and if he ever tried to compete in the world market, the most insignificant Japanese company would eat him up.
And CICA failed to do anything about the grand swindles that hid under the Pentagon's label of competition. A splendid example of this was demonstrated by Ronald Brousseau, Sr., whose remarks were first secretly recorded by the FBI and later amplified in a guilty plea, according to Peter Stockton, who was following the case.
Brousseau was a Northrop buyer who took kickbacks on purchases for the B-2 Stealth bomber. This machine was headed for a $500 million price tag (each), and Brousseau explained part of the reason. Original bids would be "bumped," or increased, so that the seller could pay a kickback, about 25 percent of the bump, and keep the rest. Brousseau explained how he got away with it for so long: "Nobody questions dollars or anything like that. As long as I can show competition or courtesy competition or bullshit competition you know. That's all I gotta be able to show is competition." (All these quotes come from the U.S. Attorney's sentencing memorandum.)
Brousseau's prosecutor further illuminated the practices, describing "courtesy competition" as "a fraudulent arrangement between a buyer and a group of sellers who agree that the suppliers will take turns being the low bidder." Everybody inflates his bid so that the low bid is still fat enough to provide a kickback and a nice cushion of profit for the winner.
It's a beautiful scam, and if it weren't for the occasional FBI operative with a body mike, a safe one. The big corporate contractors have let their own internal controls wither away until they no longer have much ability to check on such schemes. The auditors and purchasing systems evaluators have the comforting multiple-bid documentation to show that competition has taken place and the rest doesn't matter. Brousseau summed it up when he said, "Don't get greedy. You know, a nickel (5 percent) here and a nickel there. Everybody's gonna get fat and everybody's gonna be happy."
Peter Stockton shortly thereafter interviewed a supplier who said he'd been shaken down by most of the big corporate names in his industry. He was willing to testify that what Brousseau had done was common practice in military contracting. But the Edwin Meese Justice Department wouldn't grant Stockton's source immunity in return. The department promised to take some action, but that action never came. Not surprising, inasmuch as Brousseau himself received only light punishment, according to Stockton.
Another subtle and seldom-perceived danger was the growth of the military into a gross and mighty bureaucracy, one of the scariest developments of the 1980s. Reagan, after outbidding Carter with contract gold for the favor of the military party, then supplanted civilians with the Praetorian prefects of procurement. In this he was only following the example of the Emperor Lucius Septimius Severus, who, as he lay dying after a pointless campaign in North Britain, advised his two sons and heirs, "Make your soldiers rich; don't bother about anything else."
Reagan raised the pay and allowances of the military brass to unprecedented levels. With their handsome raises and tax-free allowances, supplemented by taxpayer-financed personal servants, drivers, homes, and executive airplanes, generals and admirals live in multimillionaire style. Even Air Force colonels, so thick on the ground that special jobs have to be concocted for them, cost the taxpayers 40 percent more than equivalent-grade civilians doing the same work. And many, of course, are headed for retirement rewards as executives in the contractor companies they have been cozy with while in uniform or as consultants ("rainmakers" in trade jargon) making sure the big contractors don't want for business.
Edward Gibbon, in his Decline and Fall of the Roman Empire, noted that "an hundred thousand well-disciplined soldiers will command, with despotic sway, ten millions of subjects." Instead of the gladius and the pilum, the dominating weapons of our own military party are rich contracts, jobs, assured profits, power, and prestige. And one more: the power to deny jobs to people in many areas of our society. For example, the loss of a security clearance is often tantamount to the loss of a work permit. I don't intend to imply by this that the military alone is running an "invisible government." The military side of the spending coalition has thus far been satisfied with its perks and has remained a servant of the corporate side. But if one day the power should shift, we are in for more serious trouble.
Where the military exercises a scarcely visible governing power is in its use of National Security Decision Directives (NSDDs). These, as we have seen, can be promulgated by a militarized National Security Council staff and okayed by the president's auto-pen. (And remember, the Nixon v. Fitzgerald decision put the president out of reach for civil damage suits.)
In 1988 The Threat seemed to have lost much of its old black magic, what with perestroika, a medium-range ballistic missile treaty, and the withdrawal of troops from Afghanistan. A Russian landing on Long Island did not seem imminent. The administration started a frantic search for sinister foreign enemies -- even little Threats -- to make continued big military spending seem respectable. But Ortega failed the test, then Noriega failed to build as hoped and even became an embarrassment.
A move was made to throw our armed forces into the war against the drug smugglers, but that was handicapped by increasing evidence that our national security apparatus, or parts of it, had tolerated certain smugglers in certain very suspect ways. In any classic scenario of power taking, the military would be happy to move into enforcement, but our military wanted none of the drug-policing role. Narcs have a hard, nasty job and few showy victories.
Another circumstance that separated the United States from the classic banana republic was our highly developed industrial and economic base, dominated by corporate oligarchies rather than oligarch families. The privileged Pentagon contracting corporations took for granted that they would give to their government customer in accordance with their ability, or their mood of the moment. The grateful government would see to it that the ever-malleable contracts were changed to conform to the giants' actual products. And the big corporations would be compensated in accordance with their need, as documented by their actual spending.
Just as the Pentagon contractors' bad work habits and worse management practices were encouraged and spread throughout the United States' corporate body, so did the notion of corporate communism. Every big corporation seemed to think it had a right to be kept alive, no matter how poorly it performed. The sloppier and more unsuccessful the management, the more it insisted on bailouts and protection from competition. The very thought that favored giant business firms should compete for the trade of consumers with free choice was somehow abhorrent to the defenders of privileged status for the big corporations. The suggestion that a changing economic climate demanded that dinosaur companies adapt or die bred panic. The pampered giants had become so grossly fat, so lethargic, and so nonproductive that their most strenuous efforts were periodic campaigns for more public money and more protection.
The evolving corporate welfare system was brilliantly described and analyzed by two British academics, R. E. Pahl and J. T. Winkler, in "The Coming Corporatism" (Economic Affairs, March-April, 1975). By their definition, corporatism is a political-economic system under which government guides privately owned businesses toward four goals: order, unity, nationalism, and "success."
Order, they said, "meant the elimination of the anarchy of the market in all its forms (including extreme success or failure for capital or for labor). This desire for stability emanates from a revulsion against the market processes that lead, on one hand, to the collapse of major companies in important industries ... and, on the other, to excessive speculation and windfall profits."
Unity is the "substitution of cooperation for competition. This desire for collaborative effort arises from a revulsion against the perceived wastefulness of competitive struggles."
Nationalism is the "elevation of 'general welfare' to complete priority over self interest or sectional advantage."
"Success" is the "attainment of national objectives established by the state.... it means giving conscious direction to the economy by establishing priorities and targets and by restricting work done toward alternative objectives. First and foremost, this means the control and concentration of investment and of the allocation of resources."
The authors were writing about corporatism in Britain; American academic writers prefer the more palatable "industrial policy." Pahl and Winkler had a less bland description: "Let us not mince words. Corporatism is fascism with a human face." They went on to say, "An acceptable face of fascism, indeed, a masked version of it, because so far the more repugnant political and social aspects of the German and Italian regimes are absent or only present in diluted form." Corporatism, they said, takes over "the core elements of the economic strategy" of old-fashioned fascism. "Corporatism is a distinct form of economic structure. It was recognized as such in the 1930s by people of diverse political backgrounds, before Hitler extinguished the enthusiasm which greeted Mussolini's variant." That is true; many economists of the 1930s admired Mussolini's reorganization of the Italian economy along corporative and syndicalist lines. By setting up special parastate agencies or "corporations" to replace failing or inadequate private enterprises, he was able to control the important economic sectors. Elitists everywhere found that laudable.
Hitler, with a much more highly industrialized nation, built on and to a great extent integrated the existing large corporations into the government system. The smokestack barons of the munitions industry benefitted greatly, of course.
At first both Italy and Germany seemed to have produced an economic marvel. They had created markets for troubled industries and made jobs for many more workers. Hitler's wehrwirtschaft (roughly, "defense economic system") was very much like our own parastate cartel of giant defense contractors in many respects. It appeared to be a splendid tonic for the economy. Another similarity was that the smokestack barons supported this new order and gave it direction. The Wehrwirtschaftfuhrer role played by Alfried Krupp was similar to that of David Packard in our own day.
Despite the rosy look of prosperity from making more guns than butter, the German and Italian arms economies were nonproductive in a classic economic sense. They did not add much of anything to the infrastructure or to the quality of life, and they weren't competitive in foreign markets. And that meant even more subsidies and protectionism.
In the end, going to war was the only cure. In Hitler's Secret Book, the Fuhrer despaired of competing with the productive capacity and efficiency of the United States, and he spoke of us as "emerging in all fields as the sharpest competition to all European nations fighting ... for the world's markets." He added, "Despite (America's) enormous wages, it no longer seems possible to undercut her prices."
It is tempting to array all the similarities between the 1930s corporate state and today's American military-industrial complex and use them as a predictor of things to come. However, I think the threat we face is from a peculiarly American version of corporatism. In this, our strengths are also our weaknesses. Hitler, Mussolini, and Tojo had no chance of making their vast slave empires work in the long run -- the home bases were too small and inadequate. Ours, in contrast, is the largest economy in the world, if we decided to, we could live very well within our own borders, with perhaps a few raids abroad to secure strategic materials or to prevent Grenada from falling into Cuban hands.
Or to teach somebody like Khadafi a lesson. The morning after the April 1986 bombing of Libya by the USAF, my associate Tom Amlie appeared live on Cable News Network and explained that the raid was necessary: "It's that time of year." In other words, military budget time. "The budget's in trouble; aid to the Contras is in trouble," Tom said. And Khadafi was an ideal enemy. As Tom pointed out, he was "not a Christian, he talks funny, and he is probably guilty of most of the things we accuse him of." Tom then got the hook from CNN, but he had made his point.
Most Americans have a deep respect, almost reverence toward the military, from memories of Washington at Valley Forge to the Marines at Iwo Jima. They don't realize that the combination of Pentagon Praetorians and big-corporation executives has nothing to do with heroism and, in fact, almost nothing to do with war except for the occasional bloody spasm to provide an emotional excuse for more big spending. The only thing the soldiers, sailors, and pilots in combat arms service have in common with the Praetorians is the uniform.
It was only natural that corporatism in America should flourish during the eight-year lease of the White House by a sleepy old actor who loved multimillionaires, but it had been well started under his predecessor, whose notable contribution was a scheme called the President's Executive Interchange Program.
In a personally signed directive, Carter told us that this program was "a positive force for marshalling our human resources. Through this effort, both the public and private sectors jointly contribute to greater sensitivity and responsiveness in the interest of all Americans."
No, he was not offering a sensitivity-training course. He was very gently trying to give us a kind of Mussolini message: "Boundary lines between government and business are blurring. The activities of both have become increasingly similar. Each recognizes the need for closer cooperation to achieve its goals." Those goals were:
It was the perfect definition of institutionalized conflict of interest, which is one of the "unifying" aspects of corporatism.
If Carter's interchange program should reach full flower, imagine the pool of executives and generals who could be called to serve on blue-ribbon commissions. Since not all Pentagon acquisition practices have been made legal, and since some of them still leak out and get a bad reaction in the press and from Congress and the public, we'll need blue-ribbon commissions for some time to come. Somebody has to drag the red herring, paint the whitewash on, pull the wool, stack the deck, and otherwise get the world to overlook whatever must be overlooked.
The Carter-era and Reagan-era moves for tighter "nationa1 security" secrecy is another support for corporatism (as well as for larceny). Congressman Jack Brooks gave a stirring description in testimony before the House Post Office and Civil Service Committee on October 15, 1987:
Yet the secret part of the government keeps adding bulk. Tim Weiner, who won the Pulitzer Prize for his reporting on the "black," or supersecret, budget told a meeting of the Fund for Constitutional Government on April 20, 1988, that one measure of this was the increase in funding for secret programs during Reagan's first seven years. When Reagan took office, the price tag for intelligence and secret military activities was about $12 billion a year. In 1988 it had risen to $35 billion a year. The military portion of that amount had gone from about $2 billion to $18 billion, an increase of 900 percent. That jump suggests how much more the Pentagon, under Reagan, had to cover up. For instance, the Stealth Bomber fiscal atrocities, some of which are beginning to come to light at this writing.
The corporate state always encroaches on individual rights. And one sign of corporatism victorious is court decisions against individual rights in favor of government "security." There is the pernicious practice of making a security clearance and a work permit one and the same, in imitation of the KGB. Take the 1987 case of Navy v. Egan. Egan, a shipyard worker, was denied a security clearance and thus had his job taken away without due process. A majority of the U.S. Court of Appeals panel agreed that Egan was entitled to a fair trial, but Chief Judge Markey dissented. The man couldn't have a trial, he ruled, "because there is no law to apply." The security clearance process, Markey wrote, was "predictive ... judgmental and neither factual nor legal." For the millions of people who needed security clearances to keep their jobs, the single test was the judgment of "responsible military officials."
Markey added that the officials derived their power from the president, and his power flowed from "the President's constitutional mandate to provide for the national defense, U.S. Const., Art. II, Section II." Interestingly, Article II, Section II says nothing of the sort.
When the case went to the Supreme Court on February 23, 1988, the court upheld Judge Markey. This logic, if carried to its conclusion, could permit the (mostly secret) NSDDs to usurp the legislative power of Congress, as usually happens in corporate states. The Reagan administration's push in this direction can be measured by the estimated three hundred or more of these edicts that Reagan issued between February 1981 and mid-1988.
The most dangerous sign of the times in 1988, however, was the slowly gathering consensus in favor of a big budget increase to finance a new spendthrift era at the Pentagon. The Washington Post's lead editorial on April 10, 1988, denounced candidate Jesse Jackson's military spending proposals as a "caricature of a policy" that "no president would try, or, if he did, would not be allowed by either party in Congress to pursue."
And what proposal by the Reverend Mr. Jackson so frightened the Post? A budget freeze like the one sponsored by those dangerous left-wingers Senator Charles Grassley and Representative Denny Smith. The editorialist's notion was a strange anomaly for a newspaper with an excellent reporting staff and plenty of stored information to show what damage irresponsible military spending has done. I called the editorial office to ask for clarification, but I was given no answer.
The adverse consequences of the Pentagon's addictive boondoggling to our economy and true military capability are serious indeed, but the damage to our country's moral fiber is catastrophic. Our Constitution and our laws have been subverted to excuse wrongdoing and to rationalize the wasteful system. Concealment of misdeeds had become an official virtue, and suppression of truth national policy. Sophistry reigns in "intellectual" circles. Government officials, from the majestic office of the president to the lowest, sleaziest procurement office, lie routinely and with impunity in defense of the system. So do leaders of business and academia. Some, though thankfully not most, working people have succumbed to the lure of easy money, of what was called blood money in my youth.
So, the blocks, beams, and lintels of a corporate state are already at the construction site and the foundation has been laid. Anyone who has seen the marble structures built in Rome between 1922 and 1943 will know what it is going to look like. But looks are deceiving: this is meant to be a prison for most of us.
I have a hunch, however, admittedly an overly optimistic hunch, that it will never be built. Part of that hope comes from the fact that the military party is so blunder-prone that even its rites of omerta can't keep the truth from getting out eventually. The June 1988 disclosures of widespread bribery and bid rigging in the acquisition community are just one example. But, even more important, I conjecture that ordinary Americans will stop this sinister architecture from being built on our soil. To use an old and unfortunately debased word, it's truly un-American.
Here is the voice of one working man who figured it out. Greg Nelson, a Lockheed employee, published this view in the October 1987 issue of The Union Member's Review:
I happen to think that a lot of Greg Nelsons have the strength to overwhelm a few David Packards. But if we are going to stop the corporate state from rising on our land, we had best remember the words of the late Supreme Court Justice William O. Douglas, who wrote (in The Douglas Letters):