Secretary Gates said recently: “If the Department of Defense can’t figure out a way to defend the United States on a budget of more than half a trillion dollars a year, then our problems are much bigger than anything that can be cured by buying a few more ships and planes.” He has a point. The problems in the defense budget are much bigger than the recent debates over buying more F-22s, cancelling the Presidential Helicopter, or building an alternative engine for the F-35 Joint Strike Fighter. In fact, the Department of Defense’s (DoD) problems are eerily similar to the challenges General Motors faced a year ago.
First, consider the labor cost structure of both GM and DoD. Noncash and deferred compensation for GM employees, such as healthcare and retirement pensions, accounted for 46% of total compensation in 2006—far higher than the private sector average of just 29%, as reported by the Bureau of Labor Statistics. In comparison, noncash and deferred compensation for active-duty troops in the US military is 52% of total compensation, according to the Government Accountability Office—an even higher share than GM.
Military healthcare alone, not including veterans’ healthcare, costs over $47 billion each year, nearly one tenth of the DoD base budget. At the current rate of growth, these costs will nearly double every ten years.
Another similarity between the two is that both organizations are in a period of disruptive change in the competitive environment. In GM’s case, its market share rapidly eroded as gas prices climbed higher, the economy slowed, and consumers turned to smaller, more fuel-efficient vehicles. GM found itself building a fleet of SUVs and trucks that consumers did not want and could not afford. Similarly, DoD now finds itself saddled with a number of weapon programs whose capabilities are ill-suited for the types of conflict the military currently faces and whose costs have risen beyond what the Department can afford. Many of the new weapons being funded today are optimized for middle-of-thespectrum conflicts—that is, conventional, military-on-military conflicts such as Operation Desert Storm in 1991.