The Department of Defense budget is facing looming and significant cuts in the next ten years. How bad is it? The 2010 Budget Control Act (BCA) requires the DoD to cut $480 million in spending over the coming decade and there is the growing possibility of an additional $500 billion in cuts if a provision of the BCA called sequestration is triggered at the start of 2013. The Department of Defense and defense industry wonks have proposed a wide number of spending reform strategies to mitigate the damage of these cuts to the industry including base closures and personnel reductions. However, one expert from a respected think tank argues for a different approach.
In a report released late last month, Dr. Daniel Goure of the Lexington Institute — a think tank with close ties to the defense industry — makes the case for less regulation of the defense industry as a cost-saving measure.
“Ironically, there are elements of the reform effort” argues Goure, “such as additional oversight and reporting, shortening the length of time for contracts to promote additional competition and emphasizing bid price over technical competence that are unlikely to result in major savings and could well cause costs to escalate and performance to decline.”
Amongst other factors, Goure argues that the defense industry faces hidden “taxes” that impede the ability of the companies to keep costs down. First, the defense industry faces excessive regulation and specification, the compliance with which puts a large burden on both the public and private sectors. Second, laws such as the “50-50” rule — requiring services to spend more than half of their maintenance resources in the public sector — prevent fair competition and therefore raise costs. Third, other laws such as the Buy America Act and the Berry Amendment increase costs of the defense industry by forcing them to use more expensive domestic suppliers while not being able to sell their products overseas. Finally, Congress typically purchases weapon systems over a short period of time then maintains them in the services for decades. This forces the defense industry to constantly retool, increasing per unit costs.
Goure does offer solutions. He argues that by reducing the regulatory burden on the defense industry, opening the industry to full and fair competition, updating the defense supply chain and other methods, the Department of Defense could save $45 to $95 billion per year.
