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GUEST COMMENTARY: Sequestration would significantly damage defense industry

Thursday, September 20, 2012 | 11:37 a.m. CDT

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.


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Comments

Skip Yates September 20, 2012 | 2:16 p.m.

Unfortunately, DOD is paying the price. The payback is not being equally shared by other, and some costlier programs (welfare). This is what happens when congress agrees to "borrow" money with a hard line promise to pay it back on a future set date. Everything in this article is spot-on. The Russians and Chinese must be laughing their a$$ off.

(Report Comment)
Mark Foecking September 20, 2012 | 2:37 p.m.

Skip Yates wrote:

"The payback is not being equally shared by other, and some costlier programs (welfare)."

Are you saying the federal government spends more on defense than on welfare? Maybe if you include Social Security and Medicare, it's comparable, but spending on assistance programs for the poor is a small fraction of defense spending.

The author is complaining about a 6% ($500 billion over 10 years or $50 billion/year out of $800 billion/year- interesting how he conveniently left out the "10 years" part) cut in defense spending. I'd think an organization as large as DOD could come up with that without cutting a lot of appropriations for weapons and parts.

Even these "doomsday cuts" are a drop in the bucket. Without really significant new revenues, we'll continue to run trillion dollar deficits well into the future. I doubt either candidate has a true picture of how difficult this will be to fix.

DK

(Report Comment)
Richard Saunders September 20, 2012 | 2:55 p.m.

This is BS. There has never been, nor will there ever be "defense" cuts. This is just more election year rhetoric to give the plebs something to fight over.

Besides, by then, WWIII will be well underway.

(Report Comment)
Skip Yates September 20, 2012 | 8:20 p.m.

Mark. No I didn't say that. Sequestration should occur. It was an agreement that facilitated borrowing. I guess if I'd used "disproportionate" my comment would have been clearer. And it is a 10-year program, changes little that DOD is footing the bill compared to others. Within DOD, I understand 2000 pink slips are going out on l November, which the White House is trying to prevent. Even with all the things DOD could do, it really is a significant jobs program. Base Realignment and Closing (BRAC) has been killed in CONUS until 2014, thanks to our very own Claire (no earmarks) McCaskill simply to protect Ft Leonard Wood and Whiteman. The F-35 program is a disaster in cost overrun, off schedule and it isn't meeting some of the required parameters, acceleration and legs, to name a couple. The Navy has two new LCS ships, purchased at a higher cost to provide jobs at two different shipyards, and has yet to discover a real blue-water Navy mission for them..and the concept of a module change to meet the mission has failed. Washington has got to realize everyone should suffer some to get this country back on the center line, and they won't. Dang farm bill which was supposed to be signed this week won't be..and the reason has nothing to do with farmers; but, rather about food stamps. Aw, had a lot of hail damage to home, disagreeing with insurance company...guess today is just a bad day at Black Rock for me. But, ya got the gist of what I'm about!

(Report Comment)
Derrick Fogle September 21, 2012 | 7:42 a.m.

BTW, I wonder what the Colonel, Mike, Frank, etc. think about being called moochers and parasites? And yes, the data is correct, you peeps are most definitely in the group he called moochers, and Romney confirmed he meant what he said: He really does believe you're lazy moochers and parasites who will never take personal responsibility for your lives.

I bet you're all lining up, just begging to be dissed like that?

Here's another classic Conservative hypocritical paradox: Government spending (on defense) is a wonderful economic job creator; while government spending (on anything else) is a massive job killer. Well, here's reality: Macro doesn't care much what it's spent on, and in fact social spending creates more domestic jobs, dollor for dollar, than defense spending.

Furthermore, anyone who cries about debt and deficit, but but champions defense spending, needs to review this data, about 10 Trillion times:

Military spending vs. annual deficits, 1981-2010:
(money in Billions)

YEAR MILITARY DEFICIT PCT-OF
---- -------- ---------- ------
1981 157,513 -79,000 199%
1982 185,309 -128,000 145%
1983 209,903 -208,000 101%
1984 227,413 -185,000 123%
1985 252,748 -212,000 119%
1986 273,375 -221,000 124%
1987 281,999 -150,000 188%
1988 290,361 -155,000 187%
1989 303,559 -153,000 198%
1990 299,331 -221,000 135%
1991 273,292 -269,000 102%
1992 298,350 -290,000 103%
1993 291,086 -255,000 114%
1994 281,642 -203,000 139%
1995 272,066 -164,000 166%
1996 265,763 -107,000 248%
1997 270,505 -22,000 1300% (*)
1998 268,207 69,000 *
1999 274,785 126,000 *
2000 294,394 128,000 *
2001 304,759 -128,000 238%
2002 348,482 -158,000 221%
2003 404,778 -378,000 107%
2004 455,847 -413,000 104%
2005 495,326 -318,000 156%
2006 521,840 -248,000 210%
2007 552,568 -162,000 341%
2008 607,263 -455,000 133%
2009 675,084 -1,416,000 48%
2010 689,000 -1,294,000 53%

Fact: There is an *extremely* high correlation between US military spending, and US federal budget deficits and debt. Structural US debt (public) increased about $11 Trillion from 1981-2010; total military spending for the same timeframe is about $10 Trillion. Face it, our military spending is *THE* reason we are having problems with our national debt.

Point being, if you want a strong military, you darned well need to pay for it - with much, much higher taxes. If you want less government debt, you're going to have to cut military spending. Having both is pure fantasy.

It's also easy to see the run-up in military spending since 2001. It's a good indicator of just how much the "war on terror" has cost us as a nation: our military budget has more than doubled over the last 10 years. Did the roughly $2 Trillion spent over the last 10 years above baseline military spending trends buy anything anyone really wanted? Exactly what is that, anyway?

(Report Comment)
Skip Yates September 21, 2012 | 7:21 p.m.

Derrick, your twist on facts are interesting. I guess your numbers are noble enough; equally, I could find others that show defense spending relative to GNP is a bargain. Defense, after all, is a constitutional requirement; the myriad of redundant social programs are not. That you managed to evolve comments on sequestration to make a personal attack on Colonel Miller and others speaks volumes as to your intellect and relevance.......

(Report Comment)

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