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| November 2, 2000 |
| November 2, 2000 |
New Benefits for Defense Industries
Colonel Daniel Smith, USA (Ret.), Chief of Research, dsmith@cdi.org
Less than a year ago the anguished moans of defense contractors were almost overpowering. The onslaught of the "dotcoms" seemed to be unstoppable as they sucked investment dollars and talent from the old blue chips. Stock prices of the latter seemed to be in a free-fall with no bottom in sight. Government Executive magazine reported that in 1999 Lockheed Martin's shares lost 48%, Raytheon dropped 50%, Northrop Grumman slid 30%, General Dynamics dipped 10%, while only Boeing, among the largest defense contractors, was in the black -- up 24%.
Part of the slide in the fortunes of the main defense contractors was the result of product/work failures and inefficiencies. Rockets failed, performance parameters were not met, in some cases take-overs were not properly rationalized. Industry largely laid the blame at the Pentagon's feet: lack of stability in program funding, constant changes in equipment quantities, inexperienced civilian and military personnel in program management and contracting positions -- in short, no appreciation of industry's needs.
The Defense Science Board, which conducted a three month study of the situation, declared that "Aggressive, near-term actions are required to reduce the risk that the Defense Department's industrial base will be technologically weakened, less competitive, and unresponsive to our defense needs....Fixing these problems is critical to our future national security."
Whatever the causes, Congress and the White House panicked. Congressional committees held hearings to mull over ways to alleviate the slide in market valuations. Talk so far has not become action, but the game is not over yet.
What was lost in all the hubbub then were two truisms. First, companies that keep up with changing times by remaining efficient and whose products successfully meet the customer's demands retain economic viability. Second, if there's real value in what a company does -- and there is value in maintaining a strong, responsive defense -- what goes down will go up -- for the reason just cited.
One of the "new" efficiencies for industry, according to Defense News, is to give workers more of a stake in the work they do by balancing rewards between leadership executives and those who actually do the work -- a performance-based evaluation and pay system that links goals and objectives to workplace activities. Meanwhile, the Defense Department has been trying to shore up its relationship. Earlier this year it decreed that new weapons contracts in excess of $50 million required extra scrutiny to ensure that no company was unduly favored. The Pentagon also has started a conscious effort to educate field contracting officers about changes in regulations.
The Defense Science Board, among 27 proposed changes, recommended increasing "progress payments" (the money paid at significant phases of contract completion), removing the cap on profits for successful research and development program completion, allowing companies to keep all the profits accrued from downsizing and consolidating underused physical plant, reimbursing contractors for hiring and retention bonuses for critical skills, and abolishing the rule requiring contractors to pay their subcontractors before the Pentagon reimburses them.
Meanwhile, Aviation Week and Space Technology reports that the third quarter has been good for defense industry. Net profits at Boeing and Northrop Grumman rose by 29% while United Technologies saw a 14% increase. Lockheed Martin and Raytheon are regarded by Wall Street as having had a good quarter, and Raytheon expects to do better in the fourth quarter.
Finally, a provision of the Defense Authorization Bill creates a new 12-person commission to develop options to improve Pentagon-industry relations. The entire panel is to be in place by March 2001 with a final report due in March 2002. While there is no guarantee that the "problems" that generated the current concerns will have disappeared, changes in the domestic and international scene and in the markets themselves may have so altered that we will be treating conditions that no longer pertain.
To paraphrase Shakespeare, in the end the recent flurry of activity may really have been much ado about practically nothing.
Arms Trade Ups and Downs
Rachel Stohl, Senior Analyst, rstohl@cdi.org
As conflict rattles various corners of the globe, the force of today's sophisticated (and not so sophisticated ) weaponry is in full display. While stones and primitive grenades are thrown throughout the Middle East, high-tech helicopters fly overhead firing machine guns and missiles. While the world seems at times to be embroiled in war, a new report reveals that the global trade in arms actually decreased in 1999.
The Military Balance 2000-2001, an annual publication of the International Institute for Security Studies (IISS), covers armed conflict, the international arms trade, military budgets, and other security issues for countries around the world. The current edition reports that while the world arms trade fell in 1999, the United States still far outweighed all other suppliers in terms of the value and quantity of arms sales. What's more, IISS stresses that current U.S. policies will have the United States continuing to export huge quantities of weapons around the world for years to come.
The Military Balance pegged global arms deliveries at $53.4 billion in 1999, down from $58 billion in 1998. The Middle East remained the number one destination for weapons. Saudi Arabia was the biggest recipient of weapons, receiving $6.1 billion in deliveries in 1999. However, Saudi imports were down as well from $10.8 billion in 1998. East Asia and Australasia were the second biggest region for arms deliveries in 1999, with Taiwan the leading importer with arms deliveries worth $2.6 billion.
As already noted, the United States remained the world's largest arms exporter, with 49.1% of market share in 1999, up from 47.6% in 1998. The UK ranked second with 18.7%, and France was third with12.4%. Russia's value of arms transfers actually increased in 1999, up to 6.6% in 1999 from 4.6% in 1998.
Although the value of arms deliveries in 1999 decreased, IISS analysts believe this does not represent a trend. According to the report, "global military expenditure overall in 1999 was, at $809 billion, much the same as in 1998 and available budgets for 2000 and beyond do not indicate a decline." Further, "arms procurement usually accounts for 20-30% of the military budgets of the larger arms-purchasing countries, while the largest portion is normally spent on operations, maintenance, and personnel." The report notes that, other than Western Europe, military budgets do not appear to be falling, indicating that the percentage of defense budgets spent on weapons is remaining constant.
In the United States, the ability to export more weapons more easily is growing. In mid-2000, the Clinton Administration announced its new Defense Security Trade Initiative (DTSI). DTSI is "intended to expedite the export licensing process to improve industrial competitiveness" (for more information on DTSI see "U.S. Changes Arms Export Policy," Weekly Defense Monitor, June 1, 2000). The proposals will streamline the export licensing process and reduce the time necessary for industry to obtain permission to export U.S. weaponry abroad. Although language in this year's Security Assistance Act attempted to standardize the license exemption process and make requirements for exemption as strict as possible, there is no indication that U.S. weapons will end up more secure than they are under the current system. The real beneficiaries of DTSI are the defense industry and those eager and able to buy U.S.-manufactured weapons.
The U.S. is in no danger of losing its tremendous lead as the world's largest exporter. Still, the United States looks for every possible angle through which to retain its advantage. Whether through DTSI reforms or restrictive resolutions killed in the Congress, the U.S. seems loathe to risk its potential to make the next big sale.
In October House Speaker Dennis Hastert (R-IL) protected a $4 billion contract for Bell Textron's KingCobra Helicopters when he blocked House consideration of a sense-of-the-House resolution recalling the genocidal deaths of 1.5 million Armenians in Turkey from 1915-1923. Turkey, which adamantly denies the charge of genocide, had threatened to restrict U.S. use of the Incirlik airbase, impose sanctions against the United States, and withdraw defense projects from U.S. industry if the resolution went forward.
Even in the face of war, the U.S. is arranging arms transfers. The U.S. has over $1 billion in sales of Apache and Blackhawk helicopters to Israel pending -- paid for with U.S. funds -- even though there is clear and convincing evidence that the Israeli Defense Forces are using similar helicopters to attack civilians. The United States need not cancel these contracts but should at least suspend the sale until the renewed fighting in the Middle East ceases and assurances can be made that the helicopters will not be used against civilians.
Because the U.S. will dominate the arms trade for the foreseeable future, it should set an example by weighing human rights concerns, the regional security balance, and the danger of retransfer when negotiating an arms trade. Being the world's largest exporters must bring some responsibilities. The United States ought to begin to live up to them.
For more information on the U.S. arms trade see "U.S. Still Number One Arms Exporter," Weekly Defense Monitor, August 24, 2000, and "Turkey Looks to U.S. for Attack Helicopters," Weekly Defense Monitor, March 16, 2000.
Congressional War Powers - Friend or Foe to the President?
Marcus Corbin, Senior Analyst, mcorbin@cdi.org
The presidential candidates have emphasized differences over how much they would use U.S. military forces to intervene in foreign countries. However, neither one has spent much time addressing the intractable problem of the role of Congress in dispatching troops.
It is widely accepted that the 1973 War Powers Resolution, designed to formalize a greater role for Congress, has not worked as well as hoped, largely because of obstructionism by presidents. In a world of more frequent, difficult, and controversial peacekeeping operations, however, Presidents - and especially their Secretaries of Defense - should recognize it is in their interest to cooperate more fully with Congress and work out mutually agreeable mechanisms for implementing the War Powers legislation. As the next Administration conducts its Quadrennial Defense Review, it should not forget that domestic support is an essential component in any U.S. intervention strategy, and domestic support means Congressional support.
When it comes to decision-making on deployment of armed forces to potentially hostile situations, presidents seem to believe that it is in their interest to cut Congress out of the process as much as possible. President Clinton even initiated a clearly offensive war against Yugoslavia without meaningful congressional approval, let alone a declaration of war. Formal congressional approval of interventions in Somalia, Haiti, Bosnia, and elsewhere likewise were not sought by presidents, presumably because they have uniformly viewed such interventions as short-run or justified them as "humanitarian" or other "non-war" deployments.
As virtually all of these interventions exceeded their expected duration, in the longer run the self-interest of the executive branch becomes clearer; involving Congress provides vital political cover if the intervention doesn't go well. Fortunately for President Clinton his higher-risk operations have gone well in terms of limited U.S. casualties.
Future U.S. interventions, however, may not go as well. As the attack on the USS Cole presages, and as the military is fully aware, those who oppose U.S. interventions are likely to become increasingly experienced, emboldened, and adept at causing substantial casualties among U.S. forces by using "asymmetrical" attacks. It is not a matter of whether but of when the United States will suffer significant casualties again because of its global presence.
The 1992 intervention in Somalia was abruptly terminated in 1993 after 18 U.S. personnel were killed in a firefight - and Secretary of Defense Aspin had to resign as a result. President Clinton and Secretary Cohen may not appreciate how lucky they are that hostile Serbs never adopted the obvious strategy of inflicting casualties among U.S. soldiers in Bosnia which might well have tipped the balance in favor of the ardent congressional opponents of the mission. If U.S. military personnel abroad suffer large casualties from a biological or chemical attack, the outcry against a solo presidential operation is likely to be even greater. The Secretary of Defense, of course, tends to be the "fall guy" when any military intervention debacle occurs, so the next incumbent will have a strong incentive to encourage the commander-in-chief to open up the process.
The candidates and parties may disagree on how much to intervene in the new century, but they agree that when an intervention is deemed important and does take place, the United States should not cut and run at the first trouble. If the president has truly consulted with Congress ahead of time, and possibly has gained some measure of formal approval, the majority of the Congress will think twice before demanding a hasty pullout. Moreover, congressional advice and involvement could reduce ill-conceived interventions while increasing staying power for sound ones. Following Congress's termination of U.S. participation in the Vietnam War in 1973 by cutting off funds, it is accepted that Congress already has the power to end an intervention, even if it is politically unlikely to do so except in the most extreme circumstances. Hence, increasing congressional involvement in the deployment decision isn't really giving Congress powers it doesn't already have. In that sense, a president should view Congress' early involvement as a "freebie" - he or she gains possible endorsement of the deployment, while not giving up something never really possessed - exclusive power to intervene. If Vice-President Gore wins the election he will certainly need more political cover for his interventions because the groundwork has already been laid by Governor Bush and the Republican Congress to charge him with indiscriminate deployment of U.S. forces. If Mr. Bush wins, he will have to carry through with his announced intent to pull out of the Balkans and might have to pull back from the Persian Gulf plus refrain from new interventions elsewhere or he will lose all credibility if one of these operations sours on his watch.
To date, executive branch opposition has stymied attempts to improve the War Powers legislation. On the other hand, no one wants - and the nation cannot afford - 535 commanders-in-chief or free-wheeling debates in open session about a president's intention to intervene militarily in a crisis. Perhaps more use could be made of special smaller groups - leaders of each congressional chamber plus chairs of the Foreign Affairs/Relations and perhaps Armed Services committees. After all, as former Chairman of the Committee on Foreign Affairs Rep. Dante Fascell (D-FL) noted during 1988 hearings on the War Powers Resolution, he had been serving longer than seven presidents and nine secretaries of state. Surely the experience, political acumen, and participation of congressional figures such as he would be worth something to an administration undertaking the risk-laden and controversial interventions the nation will face in the future.
Who Will Keep The Peace In The Former Soviet Union?
Tomas Valasek, Senior Analyst, tvalasek@cdi.org
As Russia stepped up its efforts to deepen region cooperation through the Commonwealth of Independent States (CIS) framework, one group of former Soviet Republics is pulling itself away from Moscow. The defense ministers of eight CIS members met in Dushanbe, Tajikistan to sign a new Collective Security Treaty. Two countries -- Ukraine and Azerbaijan -- refused to sign on while another three -- Georgia, Moldova, and Uzbekistan -- ignored the meeting altogether. These five countries together set out to create their own security organization under the auspices of the four-year old GUUAM accord (named after the first letters of the countries' names).
GUUAM leaders have floated several ideas about future joint military activities. One involved setting up a joint peacekeeping battalion. There are plenty of regions on the member states' territories that would benefit from an impartial peacekeeping operation. Because the internal borders of the Soviet Union ignored ethnic lines, the breakup of the USSR sparked a half dozen wars by ethnic groups caught on the wrong side of the newly formed political borders. To this day, the populations of Abkhazia (officially part of Georgia), Transdniester (officially part of Moldova), and Nagorno Karabakh (officially part of Azerbaijan), live in a twilight zone of semi-independent self-rule unrecognized by the world community. The deployment of peacekeeping missions which would guarantee the safety of the populations and, more importantly, keep apart the heavily-armed ethnic communities, would be a logical part of a larger political settlement.
But GUUAM members are simply not in the position to provide truly neutral troops for a peacekeeping mission in the traditional sense because they fought on one side of the wars that led to the current state of affairs in the first place. Deploying Moldova's troops as peacekeepers in Transdniester, for example, would be akin to sending the Yugoslav army to keep peace in Kosovo. This is not a moral judgment on who's wrong or right but simply a matter of perception; the ethnic Russians in Transdniester fought a war for independence against Moldova's troops and simply will not accept these same troops back as peacekeepers. The same holds true for Azeri troops in Nagorno Karabakh and Georgian troops in Abkhazia. Without the acceptance by both parties to the conflict, peacekeepers become warriors. Under international law, Georgia has every right to deploy its troops to Abkhazia, which is a part of its territory -- as do the Moldovans in Transdniester and Azeris in Karabakh -- but it would not be a peacekeeping operation (nor a very peaceful one).
Even if Moldova's troops were kept out and other GUUAM countries formed the mission, they would be too closely tied to the Moldova's government for the population of Transdniester to accept them as peacekeepers. This highlights the second problem in the post-Soviet world; although fought regionally, these conflicts are being used in a larger fight to determine who will have the most influence and dominate the area of the former Soviet Union. Just as GUUAM countries are trying to enlist Western support for their cause -- in this case, re-establishing control over their breakaway territories -- the separatist groups have recruited a willing Russia to their side. In fact, many social scientists argue that internal borders of the old Soviet Union defied ethnic lines precisely because Moscow was intent on creating ethnically diverse territories that would inherently weaken the regional SSR governments. Such a design also guaranteed that the minority population would call on Soviet support to protect their rights and their very existence. This past Soviet policy is paying handsome dividends to those in present-day Moscow who advocate an assertive policy in the Russian "near abroad." Russian troops have been deployed in Transdniester and Abkhazia, and Russian weapons helped the Armenian forces win the Nagorno Karabakh war. Moscow has made itself indispensable to the solution of the regional conflicts on GUUAM territory, although GUUAM members no doubt view Russia as a part of the problem rather than a solution.
For their part, the GUUAM countries have, to varying degrees, cast their lot with the West. Ukraine has generally pursued a policy of close cooperation with NATO and has signed a special partnership treaty with the alliance. Both Georgia and Azerbaijan aspire to NATO membership and have informally offered to host NATO facilities on their territory.
This politicization of regional conflicts guarantees that no GUUAM country will be accepted as impartial by the Transdniestrans or the Abkhaz, who rely on Russian assistance. The pro- or anti-Russian sentiments have only deepened the gulf between the breakaway communities and the central governments under which they nominally fall. They also made it all but impossible for GUUAM countries to act effectively as peacekeepers in their own region. A joint GUUAM peacekeeping battalion could, however, deploy under NATO or other auspices in other crisis areas.
EU, Russia Agree to Oppose Changes to ABM Treaty -- French President Jacques Chirac, speaking on behalf of the European Union, and Russian President Vladimir Putin jointly "condemned" any potential changes to the 1972 Anti-Ballistic Missile (ABM) Treaty. "The European Union and Russia have an identical viewpoint. We have condemned any potential revision of the ABM treaty, believing that such a revision will involve a risk of proliferation that will be very dangerous for the future," Chirac said. Putin and Chirac appeared at a press conference following an EU-Russia summit in Paris, France on October 30.
USS Cole Crew Coming Home, Pentagon Prepares for Ship Repair -- The remaining crew of the USS Cole are expected back at their home port of Norfolk, VA, on Friday, November 1. The damaged vessel is being ferried back to the United States by a Norwegian salvage vessel, a journey expected to take a month. Meanwhile, the Navy is trying to decide where the repairs will be performed, at the ship's home port, or at the Mississippi facilities of the ship's builder, Ingalls Shipbuilding. Meanwhile, Senate Majority Leader Trent Lott (R-MS) says that $150 million for the repair of the USS Cole is included in the Labor-HHS-Education Appropriations legislation which Congress is set to pass after the November 7 elections.
Air Force Needs "Full Buy" of F-22s -- Buying fewer than the planned 339 F-22 "Raptor" fighter aircraft would create a "massive problem" for the service, according to Secretary of the Air Force Whitten Peters. Earlier this year the Congressional Budget Office suggested that the Air Force could save $22 billion by cutting the planned buy to 120 aircraft, but doing so would stress both the aircraft and crews, says the Secretary. "You cannot use the aircraft in any sensible way...you work the people to death and you don't have enough assets to renew that force structure."
German Women to Serve in Combat -- The Bundestag voted to change the constitution to allow women to serve in combat beginning in 2001. Women are allowed to join the German armed forces, the Bundeswehr, but have been restricted to non-combat roles only. The constitutional amendment is expected to clear the upper house of the German parliament without opposition.
Moderate Wins Kosovo Vote -- The Democratic League of Kosovo led by Ibrahim Rugova, writer and advocate of non-violence, won 21 of the 27 contested municipalities in the first election in Kosovo since the deployment of international forces there. Rugova defeated the Democratic Party of Hashim Thaci, a former guerilla leader, whose forces enjoyed de facto control of virtually all municipal governments in Kosovo since the end of the NATO air war. Both Rugova and Thaci are advocates of independence of Kosovo, which puts them at odds with NATO and the new Yugoslav government of Vojislav Kostunica. Rugova's toughest immediate task will be to end the corruption which has stifled the economic development of Kosovo, and to stamp out organized crime which has come to dominate the province.
Quotation of the Week -- "If you pay it as a function of making progress, you are giving [contractors] a real incentive to make their progress on time or early, because the main thing the defense industry is motivated by is cash flow." -- Pentagon procurement czar Jacques Gansler, on providing financial incentives to defense contractors, "Pentagon Enacting Initiatives to Boost Defense Industry," Defense News, October 30, 2000.
This week on America's Defense Monitor: "The Thinning Threat"
Over the past ten years, the enemies of the United States have become poorer, weaker, and more isolated. With America's growing military advantage, and its eagerness to demonstrate its destructive power anywhere and anytime, today it is America's potential enemies who feel threatened.
Airs in Washington, DC on Sunday, November 5 at 10:30 a.m. on Channel 32.
Airs in NYC on Saturday, November 11 at 7:00 a.m. on Channel 13.
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