For almost a year Congress has been talking about the budget cuts known as “sequestration” that will slash more than $500 billion from the military, starting in January 2013.
We’ve learned that these cuts will decimate military readiness by mechanically slicing a mindless 10 percent to every line item in the Pentagon budget, cutting critical military technologies the same as office supplies and marching bands.
We know these cuts could sound the death knell for economic recovery, sucking over $215 billion out of U.S. GDP next year and destroying more than one million defense-related jobs (including 33,000 here in Missouri). The non-partisan Congressional Budget Office says the cuts could push us over a fiscal cliff and back into another recession. The Department of Defense predicts the cuts will add a full percentage point to U.S. unemployment.
But despite this unambiguous projection of the devastation, sequestration will bring in January 2013, Congress has not acted. While some assume these cuts will simply dent the bottom line of a few gigantic defense contractors, the truth is they will hit small and midsized businesses the hardest.
According to the DOD, nearly 75 percent of all defense industrial purchases go to smaller companies and suppliers, not major “household name” defense contractors. Cuts might start at the top, but for every major program canceled, hundreds of supply chain firms lose business.
In the case of indiscriminate, broad-based cuts like sequestration, that could mean an industrial bloodbath. Defense Secretary Leon Panetta warned the Congress last fall that sequestration would mean the end of a laundry list of major programs, from the F/A-18 Super Hornet to the C-17 cargo plane. Submarines, helicopters, surface ships – all at risk, along with the hundreds of suppliers that support them.
For large firms with diversified global portfolios, sequestration will be painful but is not likely to be the difference between company life or death. Even mid-sized firms will likely weather the storm. But smaller suppliers, like my company, Tech Manufacturing in Wright City, are a different story.
Abrupt indiscriminate business shocks like sequestration can easily spell the death knell for local firms. A machine shop or materials fabricator that supports critical military programs like the Super Hornet, assembled at Boeing’s St. Louis plant,simply might not survive a sequestration-driven termination.
Those losses will reverberate throughout the defense ecosystem. One industry CEO recently estimated that 60 percent of his suppliers were “sole source,” meaning they were the only provider of that particular component or service. Supply chain firms are home to critical technical capabilities and engineering know-how, often built up over decades of R&D investment and on the job experience. The loss of these unique skills due to sequestration will erode the industrial strength of this nation, perhaps irretrievably.
That has devastating consequences for our economy, but also for our military. America’s military is the best-equipped force the world has ever known, and our troops go into battle with fundamental advantages like drone support, night vision, satellite surveillance, and secure global communications. If we lose the skills and capabilities unique to the American industrial supply chain, we erode the foundation of that battlefield edge and allow our enemies to close the technology gap.
Loss of jobs, loss of companies and significant diminution of national security will be the fruits of sequestration. It is time to cut down that most dangerous tree. After eight months of talk, it’s long past time for Congress to act on sequestration.
Charles Stout is the president and CEO of Tech Manufacturing LLC in Wright City. Questions? Contact Opinion editor Elizabeth Conner.