Washington's "Defense" Establishment Needs Rent Control
July 21, 2017
Jason Sibert / The Progressive Populist
In the discipline of economics, the term rent means more than a payment to a landlord. Making a profit from the sale of goods or services in a free market is different from rent, which is extracted from the public by entities who hold monopoly rights or something close to it. The military-industrial complex extracts larger rents from the American taxpayer than justified. In 2015, Raytheon -- the world's leading producer of guided missiles -- received 90% of its revenues from the federal government.
Defense Establishment Needs Rent Control
Jason Sibert / The Progressive Populist
(August 1, 2017) Today's defense establishment needs a little rent control. And this battle could be fought with a path travelled by one of our most important founding fathers.
The military-industrial complex extracts larger rents from the American taxpayer than justified.
In the discipline of economics, the term rent means more than a payment to a landlord. As economics writer Mike Konczal and others have argued, profits are very different from rents. Making a profit from the sale of goods or services in a free market is different from rent, which is extracted from the public by entities who hold monopoly rights or something close to it.
Those who own rental property and toll roads and bridges collect rents that tend to be based on recurrent fees rather than sales to ever-changing consumers. While truly entrepreneurial capitalists need to be creative in order to keep ahead of the competition, "rentiers" -- the term for people whose income comes from rents - earn a perpetual stream of income even if they are completely passive.
Raytheon -- the fourth largest military contractor in the country and the world's leading producer of guided missiles -- who in 2015 received 90% of its revenues from the federal government, would be an example of a rentier. If one received 90% of its revenue from the government, it doesn't have a variety of customers – this company doesn't play the game of free-market economics!
Also included in the rent we pay is the outrageous compensation of the chief executive officers of military contractors; executive compensation is a part of any firm's cost. In 2015, Raytheon CEO Thomas Kennedy took home $20.4 million in compensation and in 2014 Lockheed Martin, which received 78% of its revenue from the federal government, paid its CEO $33.7 million.
It keeps getting better! In 2015, the CEO of Boeing earned $29 million. In addition, the profits of any defense contractor -- which all private firms must earn or they go out of business – are also passed onto the citizen's tax bill. Not bad in a country where fast food workers and retail workers don't receive a living wage!
The taxpayer-funded inefficiencies continue beyond the executive level. In 2013, Sen. Dick Durbin (D-Ill.) pointed to a Defense Department report that revealed that the average employee of a defense contractor costs two to three times as much as the average Defense Department civilian employee for performing similar work. The same report stated that contract employees comprised 22% of the department's workforce but accounted for 50% of its cost.
Writer Michael Lind compared today's military-industrial complex to the Soviet Union in its final days in his wonderful 2010 story, "The War Socialism of the American Right." He drew a comparison between our country and Soviet Union in us being bogged down in an unwinnable conflict in Afghanistan.
Lind also drew a comparison in our overfunded military sector and a chronically weak, dysfunctional civilian sector. The Soviet system was supported to the end by Soviet military and intelligence personnel and defense factory workers and managers.
The American Republic cannot thrive with a landlord which charges as much rent as our military-industrial complex. If one observes our history, Americans have won against rentier industries before. In the early twentieth century, exploitative private power companies were domesticated as regulated public utilities.
The Enron scandal, associated with late-20th century deregulation, proved how relevant those reforms were. At one time citizens used to agree on water, electricity, transportation being either publicly owned or publicly regulated utilities.
In taking on this parasitical sector, we can save money and not resort to privatizing Social Security and Medicare, abolishing subsides for the Affordable Care Act, slashing funding for the State Department, research and development, foreign aid and education. To find models in this fight, one can look back to the beginning of the republic.
Alexander Hamilton, the first secretary of the treasury, favored a mixed economy. He felt the market played an important role in an economy, but he also felt there was a role for the state. Hamilton published a paper on the mixed-economy titled "A Report on Manufactures" that advocated government support of manufacturing through protective tariffs, subsides for manufacturing or the promotion of state-owned manufacturing businesses.
Our first secretary of the treasury spearheaded the founding of the Bank of the United States where private investors and the government held deposits. It was a partially state-owned bank accountable to the people. The government should at least purchase controlling interest in defense contractors like Raytheon, Boeing and Lockheed-Martin.
With this Hamiltonian approach, our government -- owned by all of the citizens -- could minimize the profits these firms pass on to the public and also control the excessive CEO compensation and the higher costs of defense contractor employees. Let us move from an expensive war economy to a peace economy.
Jason Sibert worked for the Suburban Journals in the St. Louis area for over a decade and is currently executive director of the Peace Economy Project in St. Louis, Mo. Email firstname.lastname@example.org.
Posted in accordance with Title 17, Section 107, US Code, for noncommercial, educational purposes.