If the Department of Defense (DoD) were a country it would be the 18th or 19th largest economy in the world, ahead of developed economies such as Switzerland, Belgium and Sweden. Unfortunately, DoD has less in common with these countries and more with today’s “sick man” of Europe, Greece. Both the Pentagon and Greece are in desperate need of structural reforms to their economic systems in order to avoid collapse. While Greece is being forced to make profound changes in the way it does business as the price of a bailout by the “troika” consisting of the European Union, the International Monetary Fund and the European Central Bank, DoD is not. As a result, Greece may one day return to solvency. DoD may not.
The central problem faced by Greece and the Pentagon essentially is the same; both have been living beyond their means. Both were able to mask their structural problems for the past decade or so because credit was cheap, interest rates low and budgets were rising. In essence, they were living in a bubble.
The 2008 fiscal economic crisis shattered the illusion that the Greek economy was viable. Because it was a member of the single currency, the Euro, Greece could not use devaluation as a tool for solving its debt problem. The interest rate on Greek bonds shot up to staggering levels and the country required not one but two bailouts plus an agreement by its bondholders, not just a haircut but a scalping. In addition, the Greek government was required by its rescuers to put in place a series of austerity measures including firing some 150,000 civil servants, slashing pensions and raising the retirement age.
More significant, but more problematical, Athens agreed to a series of structural reforms that, if implemented, would breathe new life into Greece’s moribund economy. These measures included privatizing many public functions and companies, cutting bureaucratic red tape associated with starting and running business, liberalizing labor laws and regulations, reducing the minimum wage and improving tax collection. To date, the Greek government has moved at a snail’s pace to make good on its promise to restructure that country’s economy.
But the Pentagon could do something more. Like Greece, it could implement structural reforms to the way it does business, reducing red tape and regulations, easing up on draconian accounting and auditing standards, ridding itself of businesses that could be performed better and cheaper in the private sector. Two studies by the Lexington Institute have highlighted structure reforms to the way DoD buys goods and services that could save tens of billions without requiring any reduction in forces or changes to strategy.(*)
When it comes to war fighting, the U.S. military is without peer. But when it comes to managing one of the largest economies in the world, the Pentagon is no better than Greece. Maybe worse, if Athens actually goes forward with planned structural reforms.