Another election year is on the horizon. Foreign affairs are shaky and the budget is still not set. The country is at a time when its leaders need to come together and make bipartisan decisions that are best for the entire country. Instead, the American people will get more speeches and advertisements and less decisions.
Although some articles tout the possible silver linings in the cloud of sequestration, the real effects of the Budget Control Act are not likely to be so rosy. What is more likely to happen is a growing impact to the economy and the security of America. Of course the sky did not fall when sequestration went into effect. The erosion to the American capabilities and economy is slow, and it’s the slow, creeping changes that have the biggest impact.
What’s the current status of life post-sequestration? With the Budget Control Act (BCA) in effect, many large defense companies appear to be doing fine, but a closer examination reveals that they are doing okay by cutting costs and increasing commercial and international investments and sales. Additional jobs may be eliminated when option years are not awarded to contracts or when support contracts end with no re-compete in sight. While larger companies have weathered the initial cloudy skies by cost cutting in order to still turn a profit, smaller companies and suppliers are feeling it a bit more. Larger companies are doing more in house and not using as many subcontracts, and small businesses suffer.
Bottom line is that the effects are gradually building as defense leadership seeks to apply sequestration measures as slowly and carefully as possible. Assuming the BCA continues, the government is facing increased choices between eliminating “force structure” and eliminating “investment”. Unfortunately, the end is not in sight because there is significantly less political backing for defense and security. It is the path of least resistance, and Congress has not connected the dots between the BCA and job losses in their district.
Federal employees aren’t the only ones facing job loss. The current budget atmosphere is putting scientific breakthroughs on the endangered list. And the end is nowhere in sight, as universities and research facilities battle sequestration;s fallout, as well. Scientist, math, and medical research jobs are being lost. The director of the National Institutes of Health (NIH) warns it could cost them 20,000 research and technician positions.
For now, downsizing and layoffs have been lower for defense contractors. But as the contracts continue to dry up, what happens when companies can no longer increase profits just by cutting costs? Eventually company revenues will play a bigger role in personnel cuts. An important observation is that many jobs cannot be easily turned back on. Specifically, losses to university research programs do not get restarted in an instant, which will create gaps and delays in investments.
Fairly soon, the defense industry will lose the option of shifting dollars, and will begin to shift personnel. Perhaps that will force Congress into action, as job cuts expand in already struggling districts. At the very least, analysts hope the Department of Defense will be allowed more discretion in how it adopts the BCA’s cuts. Action needs to occur before creeping cuts become crippling ones.
