The Global Defense Industry - Here Are The Best To Buy

The Macro View

The Congressional-Military-Industrial Complex is alive and flourishing. This applies not just to the USA but to nearly every other republican democracy.

If your nation is an autocracy or oligarchy or mercantilist combination of the two, you don’t need to feed your draftees well. You don’t need to provide them housing comparable to the standards outside the military. You may or may not offer them health care during their time of service (perhaps only enough to keep them working for the time of their enlistment). You may not even need to train them to the highest standards or equip them with the tools to best protect them in combat. (An example: the Chinese draftees in the Korean War, only some of whom were issued rifles. The rest were to pick up the rifles of the dead or dying and continue the assault. The Chinese soldiers were following Mao Zhedong's theory of "man over weapons.")

If, on the other hand, you live in Israel, Canada, the United States, the UK, Australia, France or any of the other democracies of the world where the population is thought of as individuals rather than masses or classes, you need to spend the money to ensure your people are the best trained they can be and have the tools to defend themselves as capably as is possible. Equipment costs, in other words, begin at a higher baseline when each human life is considered precious. Is it “worth” $25,000 an hour to have a fast-burner respond to a surrounded SOF team on the ground? If you are one of those team members or their family, it sure as hell is.

The second factor in making democracies with parliaments and such spend more than they would absent their congresses: the Congressional-Military-Industrial Complex, with the emphasis on “Congressional.”

I wish I could take credit for the term “Congressional-Military-Industrial Complex,” but I have merely juxtaposed the original wording. It is the most accurate term that well describes how most nations and armed movements defend their sovereignty or make war on their neighbors and those unwilling to submit to them.

The author is former president Dwight David Eisenhower. It is most often the warrior who hates war the most. Ike was no different. He understood the necessity for a strong military, but he detested the waste he saw in the inefficient acquisition process.

One of President Eisenhower’s early biographers, Geoffrey Perret, reported that an earlier draft of his Farewell Speech to the nation used the phrase "military-industrial-congressional complex," but the word "congressional" was dropped from the final version to appease members of Congress that his successors would have to deal with. If that draft had remained, it would be a far more accurate reflection of the reality of defense spending. Here’s why, using a hypothetical example.

Let’s say the U.S. military would like to have a certain capability, for instance, a long loiter-time robotic de-mining capability without putting human beings in harm’s way. The various companies within the defense industry see they could do well by doing good and they bid on the contract, detailing why their particular vision and capabilities to deliver the best product should win out. So far, so good. The Congress intervenes. The members’ basic question, no matter how cleverly they phrase it (or try to conceal it) is, “How much pork can I bring home to my district so I can get re-elected?”

A capability deemed desirable by the military and able to be designed, prototyped, accepted and built by industry - with an eye on their bottom line - suddenly finds itself held hostage to the demands that function “x” or part “y” be made by a sub-contractor, not because the original bidder can’t do it themselves but because the sub-contractor is located in Congress critter “Z's” home district.

The result is pretty much a certainty that the de-mining robot will be built overbudget and delivered late. Don’t get me wrong! Cutting-edge technologies requested by materiel acquisitions officers may already be rife with too many conflicting add-ons. For instance, industry may already recognize that their bid was so low that cost over-runs are necessary to finish the production, but they are confident the prototype will wow the audience enough to get a little extra funding. But it is members of Congress’ insistence that pork be larded to their districts that puts the whole thing over the edge.

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Disclosure: I am long ESLT.  Stovepipes are dangerous to your wealth.If you buy only tech, only defense, only REITs, or only anything, it will add both volatility and risk.At Investor's ...

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