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posted on 18 March 2017

Eisenhower Was Right: The Military-Industrial Complex Poses A Real Threat ... And An Opportunity

by Elliott Morss, Morss Global Finance

In the 20th and 21st Centuries, the US has been at war far more than any other nation. And recently, US wars appear to be increasingly unfocused and unproductive. Back in 1961, Eisenhower warned about the growing power of the military-industrial complex.

I quote at length from his speech given on January 17, 1961, three days before he left office:

My fellow Americans:

We now stand ten years past the midpoint of a century that has witnessed four major wars among great nations. Three of these involved our own country. Despite these holocausts America is today the strongest, the most influential and most productive nation in the world. Understandably proud of this pre-eminence, we yet realize that America’s leadership and prestige depend, not merely upon our unmatched material progress, riches and military strength, but on how we use our power in the interests of world peace and human betterment.

Crises there will continue to be. In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties….

The record of many decades stands as proof that our people and their government have, in the main, understood these truths and have responded to them well, in the face of stress and threat. But threats, new in kind or degree, constantly arise. Our military organization today bears little relation to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea…. we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence - economic, political, even spiritual - is felt in every city, every State house, and every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Disarmament, with mutual honor and confidence, is a continuing imperative. Together we must learn how to compose differences, not with arms, but with intellect and decent purpose. Because this need is so sharp and apparent I confess that I lay down my official responsibilities in this field with a definite sense of disappointment. As one who has witnessed the horror and the lingering sadness of war - as one who knows that another war could utterly destroy this civilization which has been so slowly and painfully built over thousands of years - I wish I could say tonight that a lasting peace is in sight.

You and I - my fellow citizens - need to be strong in our faith that all nations, under God, will reach the goal of peace with justice. May we be ever unswerving in devotion to principle, confident but humble with power, diligent in pursuit of the Nation’s great goals.

Note the tone of the speech - that the United States, the most powerful nation in the world, must lead with “intellect and decent purpose." Sadly, that notion has vanished. Regarding the military, I fear the US has not lived up to what Eisenhower had warned about.

Table 1 provides a list of US wars since Eisenhower took office. In retrospect, I see only the last two wars as being justified.

Table 1. - US Wars During/After Eisenhower’s Presidency

Source: Wikipedia

Eisenhower’s concerns are also reflected in US military expenditures. As Table 2 indicates, the US spends far more on its military than any other nation in the world.

Table 2. - Military Expenditures by Country (mil. US$ 1990 prices)

Source: Stockholm International Peace Research Institute (SIPRI)

Table 3 looks at leading military exporters and how have they changed over time. SIPRI says “these values do not represent real financial flows but are a crude instrument to estimate volumes of arms transfers, regardless of the contracted prices, which can be as low as zero in the case of military aid. Once again, we see just how dominant the US military is worldwide: it has nearly doubled its exports since 2001. Total US exports of goods in 2015 were $1.5 trillion, meaning military exports were 39% of the total. It is also notable that Russia’s military exports have not grown. Are some of these exports getting into “the wrong hands?" It is inevitable.

Table 3. - Military Export Trends, by Country

Source: Stockholm International Peace Research Institute

It is also interesting to see who the largest arms importers are (Table 4). Since 2010, the Middle East oil exporters have increased their military purchases significantly. China and India have reduced military imports as they increase production at home.

Table 4. - Arms Imports (mil. US$)

Source: SIPRI

SIPRI also provides data on military imports by type of weapon. Table 5 shows that the demands for ships, missiles and air defense systems have grown most rapidly since 2010.

Table 5. - Weapon Imports by Type (mil. US$)

Source: SIPRI

Looking Ahead

The US military-industrial complex is powerful. Open Secrets reports that in 2016, it employed 746 lobbyists and spent $127 million on lobbying. And they have been at work: the results are reflected in Trump’s 2018 budget calling for an increase in military spending of 10% or $54 billion. Some items from the budget:

  • $30 billion to rebuild the U.S. Armed Forces and accelerate the campaign to defeat the Islamic State of Iraq and Syria (ISIS)….

  • $24.9 billion for urgent war fighting readiness needs and to begin a sustained effort to rebuild the U.S. Armed Forces.

  • $5.1 billion in the Overseas Contingency Operations budget for DOD to accelerate the campaign to defeat ISIS and support Operation Freedom’s Sentinel in Afghanistan.

  • $7.2 billion for operations and maintenance to address urgent readiness shortfalls across the joint force.

  • $13.5 billion for procurement and modernization, including additional Army Apache and Blackhawk helicopters, F-35 and F/A-18 fighter aircraft, tactical missiles, unmanned aircraft systems, and Terminal High Altitude Area Defense interceptors, and the DDG-51 destroyer.

  • $2.1 billion to accelerate priority research and development efforts, including ballistic missile and air defense, missile defeat, unmanned aircraft systems, next generation fighter aircraft, electronic warfare, anti-ship and land attack missiles, cyber operations technology, and targeting and strike support for special operations forces.

  • $962 million for the costs of increased supply stocks and critical facility repair.

  • $236 million for military construction to complete previously authorized but unfinished projects.

  • $1.4 billion to support urgent operational needs associated with the acceleration of Operation Inherent Resolve, DOD’s campaign to defeat ISIS. The request includes funding for force protection, precision-guided munitions, intelligence collection, targeting and surveillance, defensive weapons systems, and countermeasures against ISIS’s lethal drone program.

  • $2 billion for a flexible fund that would enable DOD to allocate resources in support of the new counter-ISIS strategy to maximize the impact of U.S. counterterrorism activities and operations.

  • $626 million for a new Counter-ISIS Train and Equip Fund

  • $1.1 billion for ongoing U.S. operations in Afghanistan and support to global counterterrorism activities, including resources and equipment to better enable and protect our service members in their fight against terrorist groups such as the Taliban, al Qaeda, its affiliates, and the Islamic State of Iraq and Syria.

Aside from the US budget, the US military should benefit from Trump’s insistence that NATO members spend more on defense. But one wonders:

  • How long will the US military be satisfied?

  • How long before it gets the US engaged in another war?

Investing

Table 6 provides financial data on leading arms companies. And while their prices have increased in anticipation of the Trump presidency, it is hard to see how they could not do well in the coming years.

Table 6. - Large Arms Producers

Sources: Yahoo Finance and Bloomberg

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