Although I have been in Washington for more than 35 years I cannot think of a law more stupid than the 2011 Budget Control Act (BCA). Not only did the Act first cut $489 billion from the defense budget over ten years but it mandated an additional $500 billion reduction starting in January 2013 if a Congressional super committee failed to come up with an alternative way to save that amount of money. While senior Pentagon officials assert that they can absorb the first $500 billion spending reduction while not totally compromising U.S. national security, they are unanimous in their belief that the loss of an additional half trillion dollars over ten years would be disastrous for national security. Moreover, the Act mandates that the second $500 billion reduction be taken in the worst way possible. In essence, every line item in the budget gets an equal reduction regardless of whether it is to pay for lawn maintenance at the Pentagon or for critical equipment going to our forces in combat in Afghanistan. New programs, well established ones, it doesn’t matter. The President can exempt the military personnel accounts from the cuts but that means that all the others take a bigger hit.
Even though the law does not come into effect until the second quarter of fiscal year 2013 and may be short-circuited by some last minute legislative maneuver in the lame duck session of Congress following the November elections, damage is already being done to national security, our military and the defense industrial base. Although Secretary of Defense Panetta has forbidden his department from doing any planning or making any preparations for sequestration, the same cannot be said for the defense industry. Corporate leaders have a responsibility to their shareholders, employees and customers. I have heard senior defense acquisition officials say that they believe sequestration will break every major acquisition program. Even if military personnel are protected from the effects of sequestration, defense industry stands to lose one million jobs. So defense industry leaders must take precautionary steps to ensure they can remain profitable or at the very least viable if the worst happens. There’s irony for you: the private sector is preparing for a possibility that the government created but is refusing to address.
Many major defense companies such as Lockheed Martin, BAE Systems and Northrop Grumman began to prepare for the expected downturn in defense several years ago, offering buyouts to some workers, cutting expenses and even selling or spinning off some operations. But even these measures may prove insufficient to deal with the shockwave that will hit the defense industry if sequestration occurs. According to a report in Aviation Week, Boeing is already reducing its workforce, shuttering uneconomical facilities and squeezing overhead in anticipation of the “distinct possibility” that U.S. defense spending will be cut by a total of $1 trillion over the next decade. Other companies are delaying hiring, halting investments in plant and equipment, shifting key resources to non-defense projects, doing less R&D and letting go of vendors and subcontractors. The efforts by corporations to insulate themselves to the extent possible from the effects of sequestration will intensify in the months ahead, all the way through November.
The loss of people, R&D, productivity, capacity and competitive energy is harming national security. Moreover, the defense industry does not operate like a light on a dimmer switch. Once the lights begin to dim they cannot just be made brighter again with a flick of the wrist. Skilled personnel who have been let go may not want to return to their former jobs or will have found new ones. In some instances, particularly in manufacturing, those skills can atrophy very quickly, resulting in reduced productivity even if workers are rehired. Potential new hires may go on to other jobs. If the vendor base is damaged it takes companies time to reconstruct it. Less R&D can result in fewer innovative products and services. All these things are happening now.
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