Infographic: Myth of Pentagon Spending as Job Creator

By ANDRE FRANCISCO

Major defense contractors have been going around saying the sequestration cuts to Pentagon spending will cause widespread job losses, but history tells a different story.

Over a five year period, the five largest defense contractors received 10 percent more in federal contracts, but at the same time they fired three percent of their workforce. Now they are arguing a 10 percent reduction in Pentagon spending will be devastating to jobs, even though the Pentagon already has a bloated budget worthy of reductions.

POGO is fighting against the myth of Pentagon spending as a job creator, but we need your support to do so. Consider donating to POGO today to show your support for sensible defense policy. Then share our new infographic with your friends to spread the word.

Andre Francisco is an online producer with the Project On Government Oversight.

Follow @andrefrancisco

Comments

[Ben Freeman]

Hi Mary,

Thanks for your comment, and for holding us to a high standard for research.

We shared your exact concern about the possibility that more work was going to subcontractors.We knew that since 2001 many of the big Pentagon contractors have been growing through acquisitions of smaller subcontractors. Thus, it's possible that the use of subcontractors decreased during the time period we analyzed.

But, rather than assume this was the case we asked the firms themselves. Prior to reporting our findings here, we asked the firms whether they were hiring more subcontractors as their workforce was shrinking. None reported that this was happening.

Thus, we stand by our analysis. But, thank you for your inquiry.

-Ben Freeman

[Monongoahela Mary]

Oy, I just came across this, and I fear the authors made a silly, but grievous, mistake. It did not occur to them that the jobs no longer done by the primes are, in fact, done by subcontractors. That is where the jobs went. And most DoD subcontractors and vendors of any type are in the United States. That would be more true for companies like the big ones that deliver finished weapons systems.

Shame on your management of research and analytical quality. Does anybody check the work of interns and other junior people at POGO?

[Dfens]

By the way, if you want to visit the website for this little event, here is the website you should visit. Make sure to send them a note from the Contact Us page. You might want to register your company so you too can outsource more American jobs. If so, make sure to visit this page.

[Dfens]

I hope Romney reads this article before he decides to increase the defense budget. He should especially notice the timing of Boeing's gracious offer to its suppliers with respect to his own election campaign.

Boeing is actively encouraging its suppliers to outsource work to Mexico. Patrick McKenna, director of Supply Chain Strategy and Supplier Management at Boeing Commercial Airplanes, has urged suppliers to attend a Nov. 15 workshop in Chicago to learn how to do business in Mexico. "Several of our suppliers have successfully set up factories in Mexico because of the numerous advantages that Mexico offers to aerospace suppliers," McKenna wrote in a letter dated Oct. 17. "Boeing will be sending several people to this event, and we wanted to inform our supply base of this opportunity." The event's organizers will waive the $200 registration fees for Boeing suppliers, he said. Boeing's invitation comes near the end of a presidential-election campaign in which the outsourcing of U.S. jobs is a hot issue. -- http://seattletimes.com/html/businesstechnology/2019526318_boeingoutsource26.html

Now, does anyone need an explanation of why when defense spending has gone up 10% in the last 6 years, employment has gone down 3%?

[Dfens]

Yeah, POGO, this is a presidential election year. Clearly Americans aren't going to make important voting decisions based on 30 second sound bytes in a year like this.

Even so, it is funny how the 10% increase in funding resulting in a 3% reduction in employment mirrors the broader trend in defense where we spend at more than peak Cold War levels and yet have record low levels of employment of US citizens in the defense industry. Are these more jobs "Americans just won't do", or "jobs that aren't coming back?" Anyone who has worked in the defense industry for as long as I have has seen our defense plants changed from massive centers of large scale manufacturing to hollowed out warehouses full of parts produced overseas and shipped to a common location for assembly.

The jobs your tax dollars are buying are clearly not American jobs. People like Ed might not be able to figure this out, but the rest of the US has. That's why the majority favor cuts to defense. All we are really paying for is the defense of countries other than our own. The jobs our tax dollars are supporting are in countries other than our own. It is only the blood that is spilled that belongs to the sons and daughters of the USA. Don't be Ed.

[Joe Newman]

Ed,

Thanks for the feedback. I assure you that our mission at POGO has not changed. We’ve been driven by the same principles for more than 30 years – we investigate corruption, waste and abuses of power and we propose ways to fix the problems in order to achieve a more accountable federal government. Our staff is still doing the same in-depth investigations that have always been at the heart of our work. In recent months, we’ve exposed serious design flaws in the Navy’s Littoral Combat ship program that have become the subject of congressional inquiries. We put a detailed report out in May that identified $688 billion in wasteful Pentagon spending. Our critiques of the security breakdowns at the Y-12 nuclear facility have been covered
widely by the media.

We’ve also scored significant victories with our advocacy by helping get a health care bill passed for victims of the Camp Lejeune water contamination and pushing the administration to issue orders that address both human trafficking by contractors and strengthening whistleblower protections for those in intelligence community.

So what’s changed? Well, we’re introducing our work to tens of thousands of new people through social media, such as Facebook and Twitter and through our blog. Sometimes that requires simplifying our message for the average citizen—people who may not be POGO’s traditional audience of Washington insiders, but who still care deeply about how their government is run. The graphic that you’ve criticized is just one slice of our work in rebutting the defense industry’s talking points. We’ve put out a detailed briefing paper (http://www.pogo.org/pogo-files/resources/defense-contractors-driving-the-pentagon-budget-battle-2012-07-30.html ) and have explained our comparison in more detail (http://pogoblog.typepad.com/pogo/2012/08/defense-contractor-time-machine-less-spending-more-jobs-analysis-reveals.html).

Our blog is not the sum of our work. Rather, it’s one of many avenues we use to let people know about our work and to comment on issues that are important to us.

Joe Newman
Director of Communications
Project On Government Oversight

[Ed]

The simple comparison of contracts to jobs is nothing but a simple comparison and should not be used to reach a conclusion. Although I am not a supporter of defense contracts, I find POGO's analysis to mean nothing but a couple of numbers. Without knowing the type of contracts (service vs. manufacture), length of contract, mix of contracts (cost type with lower fees or fixed price with higher profit percentage), the numbers mean nothing.

I have noticed over the last year or so that POGO has gone from in-depth well thought out analyzes (Nick's type of in-depth investigations) to conlusions reached based on no analysis and not understanding the facts. I am not sure whether POGO's mission has gone from well thoughtout investigations to "flashy" blogs with no substance. POGO is losing credibility with some long time supporters due to superifical reporting. I have decided not to donate to POGO this year due to the lack of substance and in some cases, wrong conclusions reached based on a lack of understanding the facts. Bring people like Nick back and maybe you will regain your credability.

[Dfens]

Another industry mouthpiece speaks. This one takes issue with any facts that don't support the defense industry's talking points. Imagine that.

He too wants you to believe that the defense industry has gotten "more efficient" despite all evidence to the contrary. You know, crap like the fact that it now takes decades to design aircraft that we used to design in the same number of years. But rest assured, idiot taxpayer, just because you give contractors $1.10 for every $1.00 they spend, they continue to get more efficient every year as if they are oblivious to the fact that being less efficient nets them more profit. It's true, because capitalist incentives don't work worth a damn. Just ask a defense contractor's CEO who is making $25 million a year. They'll tell you that is true.

[Dave Glantz, Market Connections, Inc.]

I take issue with the logic of the infographic’s argument.

That last five-year period (2006-2011) saw defense spending that covered a great many contracts, a lot of them associated with two major wars, including the longest war in US history (Afghanistan). Going forward, the next five-year period is likely to see fewer (planned) wars (we hope) and thus fewer, less expensive contracts.

Also, it stands to reason that over that very active five-year period of defense spending, the defense contractors themselves were able to identify efficiencies along the way that allowed them to complete their contracts with fewer personnel – I would imagine this to be the case for the longer term and more mature contracts especially. In other words, like other industries, the contractors were able to raise more productivity per worker over time, and thus were able to shed some workers as and when they saw fit.

But sequestration is supposed to hit contractors more suddenly, with immediate and indiscriminate program/budget cuts, with no advance notice of what exactly is to be cut or by how much. In many instances my guess is the contractor will not have the luxury of time to shed workers when and as they choose, and still remain profitable. They may instead need to make that decision up-front, given the unpredictability of the environment and the conceivably reduced scope of any new programs that are approved or survive.

I don’t want to automatically take the side of the defense contractors, because even without sequestration they would have been aware (as we all are) that the winding down of two wars and a fiscally strapped federal government would lead to less business. Nor do I feel the Pentagon in particular is or should be seen as a Job Creator, because its budget (and consequent freedom to issue contracts) is authorized by Congress.

It is true that if the Pentagon suddenly reduces contracts by ten percent, then that action cannot help but be the impetus for job losses to the firms that supply the Pentagon with products and services. Indeed, the prospect of a big and sudden cut to budgets in ANY industry is likely to lead to equally immediate job losses. That’s very different from industry’s shedding jobs due to productivity gains over the course of many contracts from 2006-2011, an era of unprecedented defense spending.

At the same time, I don’t think it’s fair to label the Pentagon as a Job Destroyer. Like the contractors, the Pentagon is also looking for efficiencies over time, and it is only reasonable to expect (as the contractors do) that more can be built by fewer hands. From that standpoint, it really isn’t in the interests of the Pentagon to encourage more hiring in the first place if fewer hands can do the work.

If anything, the label of Job Destroyer belongs to Congress for fashioning that 10% reduction as a massive, sudden and ill-conceived action that prevents the Pentagon itself from allocating funds as it sees fit to maximize the cost efficiencies of the programs it runs, and to cut programs it doesn’t need.

[Dfens]

Bill thinks the defense contractors have become more productive. Bill is funny!

[Bill]

That is poor logic at best. Saying more money does not lead to more jobs does not mean that less money won't lead to less jobs.

So, if the defense industry has become more productive, that is making more money with fewer people, then, less money would logically lead to even fewer jobs than before.

[NambyPambyRomney]

While I am hardly a fan of the large defense contractors, Pogo attempts to skewer them continue to become more amateurish, crude and analytically stinky. Your "methodology" does not take into account changes in contract/program mix over time; ya think some things these companies make, or services they provide vary in labor intensity by a factor of, say, 3 to 5, or even by an order of magnitude (product vs service, for example)? Delve into the contracts and find out. This alone could swamp the puny delta you want to make a flaming point about. Further, do you think the companies should offer iron-clad job security, e.g., like the government (for the most part)? Is that the American way. Do you think the jobs are guaranteed by the US Constitution, or even law or regulation? Why is it so hard to believe that workforces expand and contract due to the flow of contracts, increases in productivity, the mix products and services bought, the use vendors of things and subcontractors? Your naiveté and cluelessness about this makes it difficult to put much faith in Pogo analyses of any type. And to this occasional observer, the good stuff Pogo does is becoming less frequent. Keep your eyes on the prize: use experienced people who don't guess or use extremely weak or even no analytical method and who care little about data quality, not to mention logic. You sound more and more like the companies you criticize.

[Dfens]

Cut the defense budget, please. Working in the defense industry may suck, but at least it is a consistent paycheck. If you keep throwing money at defense, pretty soon all of the jobs will be outsourced overseas.