Howling into the wind

It has been said that the definition of insanity is continuing to do the same failing thing, hoping the outcome will be different the next time. A good part of the U.S. defense industry is clearly stuck in this pattern.

CQ/Roll Call ran a piece over the weekend that lays bare the time warp some contractors and their trade associations are stuck in.

The headline talks about how the industry is facing its "moment of truth." The content makes it clear that the industry, and its spokesperson, the Aerospace Industry Association, is far, far from facing the truth about the defense budget.

If this piece is any indication, the industry continues to live in a hermetically sealed box, telling itself its own dream-like stories, and expecting to be "saved" by actors on the Hill who are in the box with them.

The reality is that sequester is now underway, not because the industry lobbying campaign failed in some technical way, as some in the industry seem to think. Millions of dollars ($27 million in campaign contributions alone), numerous road shows (McCain, Graham, and Ayotte visit carefully pre-selected friendly audiences), thousands of interviews (will Buck McKeon ever sit down?), factory-floor lobbying, visits to the Hill — they were all done to a fare-thee-well. These are tried and true lobbying techniques, which I described at length in my 1980 study, The Iron Triangle.

But the techniques only work if the message is in tune with the voters at large and the majority of the members of Congress. The industry’s problem is not technical, it is the failure to recognize we are in a defense drawdown. The budgetary party is over.

Defense budgets rise and fall in response to changing international and political conditions. And those have changed dramatically: The end of the war in Iraq and the coming end of the war in Afghanistan lower significantly the level of public and congressional attention and concern about national security.

And some in the industry seem not to have noticed that we are in a major budget battle, and have been for two years. It is a much bigger battle than the one over the defense budget; that smaller fight is a side show. And as long as some Democrats do not want to change entitlements and Republicans do not want to put tax expenditures on the table, the drive-by budgetary victim of that battle is discretionary spending.

Last time I looked, defense was about 55 percent of discretionary spending, and the third largest cause of the U.S. debt more than doubling since 2001. Of course it is on the table; does the industry still think it is going to get a pass?

The days of ever upwards on defense are over. Sequester or not, defense budgets are going down and sequester just accelerates the pace. The industry should be prepared for the projected defense budgets over the next 10 years to fall at least 20 percent in constant dollars, or roughly a trillion dollars from the current forecast of more than $5 trillion.

When the industry still tries to argue that Leon Panetta "cut" defense $487 billion over 10 years, when all he did was flatten the projected growth in defense, leaving it to grow with inflation, they are not being realistic.

When they think Rep. Harold Rogers, the appropriations chair in the House, is going to save their bacon by giving DOD flexibility on sequester, when that will never survive the Senate, they are not being realistic.

When they think just a little more money to the Aerospace Industries Association to fund more misleading studies about the jobs impact of sequester will be adequate to turn the public around, they are not being realistic.

The realistic companies have been coping for two years: attrition and layoffs, buying in capacity they used to contract out, selling divisions that are less strong in a declining market — they know what to do. The rest of the industry seems to be howling into the wind.