This document provides an overview and introduction to a paper that will examine the military industrial complex and its effects on government spending, particularly during the Cold War and post-Cold War periods. The introduction outlines that the paper will include a brief history of the MIC, an examination of how its constituent parts interact to form the complex system, an analysis of defense spending data, and a summary of the implications. It defines the MIC as the interaction between public and private sectors in defense and notes its real implications for politics, economics, and society both domestically and globally.

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Abstract
This paper examines the military industrial complex and analyzes some effects the
defense industry has had on the growth of government, primarily within the Cold War and post
Cold War periods. Part one will feature an introduction, giving an overview of what the reader
should expect from the paper. Part two will be a brief history, both chronologically and
intellectually, of the military industrial complex within the United States. Part three will
examine the system, its constituent parts and how they fit together and interact to form the
complex. Part four will examine data obtained from the undersecretary of the department of
defense’s website, and based on proceeding discussion, what the reader can take away from
that data regarding government spending and trends within the complex. Last, part five will
summarize what the reader has encountered and what this information possibly means for the
future of the defense industry.
Introduction
With Washington currently embroiled in a blistering debate over the budget and the
United States entangled in a huge debt problem (some say crises), a look at the military
industrial complex and its’ effect on defense spending is very relevant. The department of
defense’s budget currently occupies close to one out of every five dollars spent by the federal
government. The defense budget itself is split into eight parts1, of which two are most
1 Those eight parts are: 1) Military Personnel Programs 2) Operation and Maintenance Programs 3) Revolving
and Management Fund 4) Procurement Programs 5) Procurement Programs Reserve Components 6) Research,
Development, Testing, and Evaluation 7)Military Construction,Family Housingand BaseRealignmentand Closure
Programs 8) Other Justifications

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pertinent to the MIC2: 1)Procurement and 2) Research, Development, Testing and Evaluation
(RDT&E). Annually, these two programs constitute the second or third largest parts of the
Pentagon’s budget going back at least to the late 1940’s. Within non personnel related
spending, these two aspects of the budget constitute the largest part of defense spending for
many years over the same time period (defense.gov 2009).
The military industrial complex is a much maligned term in society today. It is many
times tinged with a negative connotation, but what exactly is the military-industrial complex?
James Ledbetter, in his book on the subject, defined the MIC as “a network of public and
private forces that combine a profit motive with the planning and implementation of strategic
policy” (Ledbetter 2011). Put succinctly, it is the interaction between the public and private
sectors in the realm of defense.
Importantly, the military-industrial complex does have real implications for the country.
It affects the political, economic and social realms of the United States, as well as permeating
global effects. This paper will look at the effects of the military-industrial complex on the
United States through an economics perspective, and how it has influenced the administrative
state. In particular, this paper seeks to examine the topic through the lens of privatization
versus nationalization of the defense industry. I seek to ask where the taxpayer will receive the
most benefit from defense spending. Would it be through a nationalized defense industry, a
privatized defense industry, or some regulatory regime combining both? In looking for
2 For the rest of the paper I will use“MIC” and “military industrial complex”interchangeably,with MIC being
shorthand for military industrial complex.

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answers, the focus should not only include cost-effectiveness, but that combination which also
allows for innovation (Weber 2001).
The pressures between economic and security concerns are paramount to
understanding the MIC and the debates surrounding it. Defense policymakers’ basic bargain in
defense is to provide national security while operating within constrained budgets and within a
security environment that is never fully comprehended (Markusen and Costigan 1999). From
this central point arise several debates. How does the Pentagon maintain military superiority
through superior weapons within this constrained budget? How does the Pentagon maintain
superior weaponry within a defense industry that does not operate in a traditional economic
market that is competitive and open? Does the Pentagon need to maintain weapon superiority
given the United States great technological military advantage compared to the rest of the
world? Congruently, does the American taxpayer get maximum benefit for their money within
this system? Furthermore, what does the current system mean for arms exports? These issues
constitute major policy dilemmas for Washington and will be examined more in depth within
this paper.
History
An arms industry has existed in the United States since the Revolutionary War (Weber
2001), but more concrete consolidations of interaction between private industry and the state
were seen following the Civil War. It was then that the U.S. Navy began to modernize its fleet,
and in so doing required vast amounts of steel and iron. The steel industry was dominated by a
handful of steel barons, thus cementing the relationship between private industry, shipbuilders,

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and the Navy (Ledbetter 2011). We can see an interesting historical parallel between that time
period and the present in that the States’ dealings with private industry in the realm of defense
took place largely among a few large contractors. In the late 19th century a House Naval Affairs
Committee produced evidence that one of those contractors, Carnegie Steel, purposefully
delivered below par quality armored plates and deceived government inspectors as to their
quality (Ledbetter 2011). From the beginning, the potential for fraud and abuse by for profit
companies is seen3.
Naturally, this helped form a negative reaction of the public towards the defense
industry. Long before the term “military industrial complex” came into full public awareness
with the 1963 farewell address by President Dwight D. Eisenhower4, public reactions and
intellectual writings on the subject were unambiguously negative. These writings could be
categorized into four basic theoretical categories (Ledbetter 2011). The merchants of death
theory, which said arms dealers cause and encourage war to increase profits. The war economy
theory, which stated too much of modern industry was tied to the production of weapons and
the relationship between the State and private industry is dangerous. The garrison state
theory, which held large societies of the future would be organized in a highly militaristic
fashion, curtailing individual liberties and democracy. Finally, there is the technocratic elite
theory, which held that as American society becomes more complex and reliant on technology,
it will be dominated by a class of unaccountable bureaucrats (Ledbetter 2011). Also notable
was C. Wright Mill’s seminal work “The Power Elite,” which coalesced the arguments of authors
3 As another example, in the mid 18th century there were reports of gun manufacturers providingfaulty guns at
inflated prices (Ledbetter 2011).
4 See appendix A for excerpt from the speech pertainingto the MIC

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before him concerning the structure of the state and industry and spurred sociological research
on the subject into the future (Ledbetter 2011).
The emergence of a full scale private defense sector did not occur until World War II
(Ball and Leitenberg 1983). The defense industry before that time had been largely nationalized
(Weber 2001) and the American economy characterized by efforts to quickly increase arms
production during war times, then implement drastic cuts to this production when the war was
over (Ball and Leitenberg 1983). Ordnance departments of the Army and Navy were largely
responsible for production of their own weapons and would produce them in publicly owned
arsenals and laboratories, or enter into contracts for products mostly already commercially
available (Weber 2001). Accordingly, civilian and military technology abilities tended to mirror
each other (Ball and Leitenberg 1983).
World War II, however, changed the game as hundreds of firms were mobilized for the
war effort. With this mobilization came rapid advancements in technology that the arsenal
systems could not keep up with5. Thus, weapons production became much more privatized.
Lobbies began popping up, created by leading businesses for greater Congressional funding. In
addition, lawyers, accountants, and law firms joined in the business to help create and
negotiate the complex contracts between the State and the contractors they chose to engage
business with (Weber 2001). As a result of this increased privatization, the public sector
expected several benefits, including cost decreases per unit as a result of competition, more
innovation spurred by the potential for profit, and the ability of private firms to attract better
5 The Springfield arsenal,for example,took 17 years to develop, test, and produce the M-1 rifle. Interestingly,
some technological historianshaveargued that in factthese arsenals demonstrated a good capacity for innovation
(Weber 2001).

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talent than the arsenals due to an assumed ability to be able to pay more (Weber 2001).
Whether these benefits actually accrued is a source of ambiguity which will be looked at further
in this paper.
Following WWII, the defense budget did not recede back to prewar levels as was
anticipated, and this trend has continued to the present. While there have been valleys and
hills, the budget in constant dollars has stayed relatively high and constant since WWII. In large
part, the budget not receding to pre-WWII levels can be attributed to the Cold War. Bulges in
the budget during the Cold War period can be attributed to the Korean War, the Vietnam War,
and President Reagan’s military peacetime buildup of the mid 1980’s, respectively (Ball and
Leitenberg 1983). Even the fact that the advancement of aircraft and bomber technology post
WWII meant the seas offered less physical protection may be attributed to defense budget
growth (Gansler, 1980).
With the planting of privatization roots in the defense industry and the subsequent
institutionalized dealings formatted between the private contractors, the Department of
Defense, and Congress, we see the beginnings of the formation of the system as it is today.
The System
The MIC is a combination of forces that include the Executive branch (in the form of the
DoD), the Legislative branch, and private contractors that create the weapons (Ledbetter,
2011). In terms of supply and demand, the federal government forms the demand side and the
contractors form the supply side of the equation. Unlike normal, competitive markets
however, the defense market is generally characterized by one buyer and a few large

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competitors, also called an oligopoly market. While this is far from perfect competition, an
even stricter market is formed once a contract between the federal government and a private
contractor is entered into. Called a monopsony market, this is a market characterized by one
buyer and one seller.
The Iron Triangle
A good place to begin our look at the MIC, its constituent parts, and how they interact
with each other is through the concept of the iron triangle, a term encompassing the idea of
the “revolving door” that exists between the DoD, Congress, and the private contractors.
Relating back to C. Wright Mill’s book “The Power Elite,” he noted that the same people
revolved in and out of top management of defense firms, top positions in the military services,
and sometimes Congress. These people were influenced by each other, went to similar schools
and shared similar values (Ledbetter 2011). More concretely, between 1957 and 1958 the 100
largest contractors employed 218 former generals or admirals and 768 former military officers
who had retired with at least the rank of colonel or naval captain (Sarkesian, 57). By the early
1980’s that figure had increased to over 3,000 (Boies 1994).
The Department of Defense and its interactions in the triangle is most visible. The
department needs a weapon and thus acquire their needs through contracts with private
contractors. A budget will be submitted to Congress including provisions for the weapons they
want to acquire in the next budgeting cycle and Congress will approve or disapprove it. One
interesting interaction is between the branch services themselves. Their bureaucratic

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competition for a portion of the DoD’s total budget results in redundancies in weapons systems
over the military as a whole (Markusen and Costigan).
The Department of Defense, owing to the fact that there are few large, primary
contractors, comes to rely heavily on them for defensive needs. Indeed, starting in earnest in
the mid to late 1960’s, a high level of concentration in defense production was seen (Boies
1994). This trend continued into the early 1990’s, when the end of the Cold War signaled
declining defense budgets. In response, the defense industry collapsed even more. These few
big firms then essentially became “national assets” that, like the big banks, became too big to
fail (Boies 1994). The DoD will and does give “bail outs” in the form of unnecessary contracts to
suffering defense suppliers (Boies 1994).
Further hurting the Pentagon is the fact that defense weapons exist as a very inelastic
demand market (Weber 2001). The prices can rise6 dramatically and still the Pentagon will pay.
Price is not the driving factor for the Pentagon in choosing weapon systems. However, in
developing weapons systems, profit is the primary motive of private contractors.
Congress plays a unique role in this triangle. They are not as directly involved as the
DoD and the contractors in the requirements of what is made and how, but they ultimately
hold the purse strings. In addition, Congress is a secondary, more minor purchaser of weapons
systems. They do not request systems, but instead will include the purchase of weapons within
legislative bills.
6or fall,butthis historically isnotthe trend

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Two key practices of note that occur in Congress are “pork” spending and “logrolling.”
Pork spending is the inclusion by a Congressman of a provision in legislation, usually with no
relevance to what the bill is actually designed for, that strictly benefits that Congressman’s
represented constituents. The defense industry will lobby hard to members of Congress that
represent districts where they have manufacturing facilities about the importance of a
particular program they have, not just in terms of national security, but also in terms of jobs
and stimulation to the local economy. Logrolling refers to the practice of Congressman to vote
on legislation that they do not care about as a favor to another Congressman, and in turn
expect that Congressman to return the favor. In this way, Congressman can cull support for a
vote that, for example, keeps an unneeded military base operational in their district. These
practices help explain some of the results of the interaction between Congress and the defense
industry. As a concrete example, under the Clinton administration, the Air Force seldom
requested F-16’s in their annual budget submission, knowing that the “strong Texas delegation
on the Armed Services Committee” would always add at least a dozen as pork for Lockheed
(Markusen and Costigan 1999).
The primary strategy the defense industry uses for trying to tap this Congressional
market is garnering political support for their weapons systems to continue being funded. In
peacetime, this is an especially effective way for the defense industry to conduct business as
Congress is more politically powerful than the military (Markusen and Costigan 1999). In times
of war, when the nation feels a threat, the military becomes more politically powerful and
Congress cedes more to their judgment for procurement needs, allowing the military to choose
favorite contractors and squeeze others out (Markusen and Costigan 1999). However, in

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peacetime Congress becomes more narrowly focused, primarily on jobs for their respective
districts (Markusen and Costigan 1999). Thus, Congress purchases weapons to keep production
lines running and employment higher, making the defense industry an employment asset as
much as a national security asset.
This line of thought leads to the fact that weapons systems, once started, tend to take
on a life of their own. Because of the enormous resources poured into major weapons systems,
once in full production they gain powerful Congressional support (Markusen and Costigan
1999). One example (and a prime example of logrolling in action) is the B-1 and B-2 bombers.
The air force admitted the bombers limited utility, yet over a twenty year period the aircraft
was kept alive, ultimately costing the taxpayer $44.4 billion by the time the program was
halted. However, senator Sam Nunn of Georgia and several members from the southern
California delegation, where the B-2 was produced, continued to fight to keep the program
alive. In return for the support Nunn gave the southern delegation, the delegation members
supported the “expensive and troubled” C-17 transport aircraft, which was manufactured
primarily in Nunn’s state of Georgia (Markusen and Costigan 1999).
Technological sophistication
It is high technology that has defined the defense industry since the beginning of the
Cold War. This is a product of Cold War military planners who maintained a strategy of military
superiority through continual technological innovation. As a result of its monopsony buying
power, the government requires exacting specifications for its weapons (Ball and Leitenberg

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1983)7. Accordingly, few new defense companies can enter into the market. The political and
capital requirements remain too large for most companies.
In many instances, the monopsony market pervades even after the production contract
has been fulfilled, due in large part to the fact that defense weapons now are so technically
sophisticated only one company has the knowledge, facilities, and expert staff capable of
producing a given single weapon (Markusen and Costigan 1999, Weber 2001). In line with this,
the research that goes into these weapons and the time to production makes it very difficult,
economically and politically, for a more competitive market to arise.
Many defense planners and analysts wonder if the high technology approach is the
correct one. Post Cold War defense planners have put great emphasis on maintaining superior
military ability through world-wide force projection (Markusen and Costigan 1999). This ability
is largely focused on an ability to continually innovate technologically.
Yet, the Cold War is over and the United States still maintains complete technological
military dominance the world over. Is it necessary for the United States to continue this
strategy when the world is far from catching up to our technological abilities, especially in light
of severe budgetary problems? Moreover, there is no great power struggle anymore. The
world, though it is changing, is still uni-polar. By many accounts, China will overtake the U.S.
economy in the coming decades, but this is not a certainty nor does it have to mean certain
conflict.
7 One administrativeconsequenceof this situation is largedefense contractors have specialized staffs thatdeal
strictly with the complex paperwork necessary for the procurement process (Ball and Leitenberg 1983). Indeed, in
1980 DoD procurement regulations included over 16,000 pages of text, in addition to hundreds of pages of
appendixes (Gansler 1980).

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During his administration, President Clinton issued his analysis of the defense industry,
known as the Bottom Up Review (BUR). Among its most important contributions, arising from
thinking about the first Gulf War, was a prescription for a military with a force structure capable
of unilaterally fighting two wars simultaneously and winning both (Markusen and Costigan
1999). This is a policy still in force (Quadrennial Defense Review 2010) and controversial. It
remains unlikely that two regional wars will break out simultaneously requiring the forces of
the United States military (Markusen and Costigan 1999). Yes, the U.S. is currently involved in
two wars, but one of them was, in strict defensive terms, unnecessary to engage in.
This begs the question what might alternative defense budgets look like. After all, the
philosophy behind security needs is one of the biggest drivers of the defense budget (Markusen
and Costigen). Writing in the late 1990’s, Greg Bishak analyzed several defense budgets put
forth. He analyzed the Bush/Cheney proposal, the Clinton/Perry proposal, a proposal put forth
by Michael O’ Hanlon of Brookings Institute, and one by Randall Forsberg, director of the
Institute for Defense and Disarmament. The Bush and Clinton proposals cost $293 and $266
billion (in 1993 dollars) respectively, while the O’Hanlon proposal cost $163 billion and the
Forsberg proposal $87 billion (Markusen and Costigan 1999). The purpose of introducing these
figures is to highlight that with each lessening budget cost, there was a concurrent lessening of
force projection expected8. From a lessened force projection would come a relaxed standard of
technological specification.
8 The Forsberg proposal in particular relied heavily on military alliances and cooperativeeffort, through
organizations likeNATO. Whilethis would not sitwell with foreign policy realists itis oneavenue that needs to be
seriously explored and is continual rhetoric broughtup in defense publicationsi.e.Quadrennial DefenseReviews,
DoD annual budget listingsetc.

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Many economic benefits are associated with this development, were it to occur. One is
the chance for greater civil-military integration as less exacting requirements would allow more
commercial firms to enter the market (Markusen and Costigan 1999). With the increased
competition should come decreased cost to the taxpayer. This strategy could potentially
reduce economies of scale and scope9, as new firms with less physical capital and process
knowledge aggregation enter the market, negating some savings10. Still, combined with
procurement savings coming from contracts less likely to be subject to cost overruns, intuitively
it seems civil-military integration would provide net savings. It is a possibility for future
research.
Additionally, looking at new security frameworks is necessary as the DoD’s acquisition
budget likely will only increase in the coming future. The departments focus in the future is on
the concept of “netcentric warfare.” As an example, the Army is in the midst of implementing a
new Future Combat System (FCS) program which will integrate 14 systems that include
unmanned ground and air systems as well as unattended sensors and munitions to be
implemented in new combat brigades (Government Accounting Office 2009). The program
costs as of 2007 (in 2009 dollars) totals close to $130 billion, and the program is not fully
implemented yet (Government Accounting Office 2009). This example is amplified when seen
in light of the trend of growing DoD acquisition programs. In 2000, the departments’ portfolio
9 Economy of scaleis theaverage decrease in cost of units produced through increased production by a firm. This
is a resultof fixed costs being spread out over more units (investopedia.com)
Economy of scope is the average decrease in costof units produced due to a greater variety of units being
produced within one firm. This is a resultof cost of production of different units beingcombined within one
facility.
10 There are arguments (J.S. Bain 1956) that call into question the efficiency claimed of achievingeconomies of
scale(Gansler 1980).

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of acquisition programs totaled 75. By 2007 that number had grown to 95 (Government
Accounting Office 2009). Undoubtedly, this can be attributed to the United States being
involved in two wars. Whether these kinds of unilateral world projection forces can be
sustained economically is a serious concern for the future.
The Procurement Process
The procurement process is what links together all players in the MIC. Its
strongest linkage exists between the Department of Defense and the private contractors, as
DoD is the one who actually procures new systems. Congress doesn’t procure and specify new
systems, but can include in the budget systems already in existence, even if the service
associated with a particular system has no need for it, as touched on earlier.
The procurement process itself has changed over time. In the 1950’s contracts were
changed from fixed price contracts to negotiated price contracts (Weber 2001). There is a big
difference in the two forms of contract, one that has contributed to the rise of acquisition costs
in recent decades. With fixed price contracts the government pays a contractor a fixed, pre-
negotiated price regardless of profitability or workability of the program. Alternatively,
negotiated price contracts mean the state pays a contractor for costs incurred plus a negotiated
profit margin. In this case, a contractor has nothing to lose except the time spent preparing the
bid and performing the research.
One of the main reasons for the shift to the present form of contract “negotiation” is
that, as was mentioned earlier, pre WWII acquisitions were mostly made for commercially
available technology. Once the technology ante was upped, companies no longer found it

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profitable to bid on contracts because of the risk involved that the technology would fail
(Gansler 1980, Weber 2001). So risk of failure was shifted to the state while potential for profit
was kept with the company (Weber 2001).
The current procurement process is divided into four parts (Weber 2001). First, the
concept formulation phase where a branch voices a need for a systemand Pentagon employees
devise estimates of cost, schedule and technical risk. Second, the concept demonstration and
validation phase where the service takes bids from potential contractors. The contract is
awarded to the company that will engineer preliminary designs or is awarded to a few
contractors who will compete for the chance to develop the system. Third, the full scale
production phase where prototypes are tested and the system is finalized and prepared for
deployment. Assuming the systemis built, the contractor receives a guaranteed production
contract. Last, the final production and deployment phase where the contractor builds a small
number of units and transitions into full scale production (Weber 2001). Taking the process as
a whole, we can divide it into two parts. The first two phases combining to a research and
development phase, and the last two combining for a development phase. The government
takes bids for both phases, but rarely does a contractor who received the research contract not
receive the development contract also. Again, the technological sophistication of the projects
many times dictates this outcome.
There are a few problems with this system that cause costs to overrun. First, awards are
based more on their technical promise than price (Gansler 1980). Second, mechanisms built
into the systemgive contractors the incentive to underbid the initial research phase because

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they know the government will reimburse them for most costs. Even if they do take a small loss
on that phase, they are virtually guaranteed a production contract, which prove far more
lucrative (Markusen and Costigan 1999).
Most programs change their scope due to the length of time it takes to go from the
drawing board to deployable in the field. From 1962 to 1976, a program was likely to grow by
at least 45% over its duration (Gansler, 1980). From 2000 until 2007, the change in total
acquisition cost of the DoD’s total weapons procurement portfolio grew from 6% to 26%
(Government Accounting Office 2008). Additionally, adjusting for inflation and change in
quantity ordered, the cost of military equipment rose from 1940-1980 at about 5% per year
(Gansler 1980). Finally, in 2007 the share of programs with a 25% or more increase in program
acquisition cost was 44% of programs (Government Accounting Office 2007). All of these
figures highlight from different angles the fact that acquisition costs have risen over periods
since negotiated price contracts have been in force.
Arms Exports
A last part of the system we will briefly look at is arms exports. After the Reagan arms
buildup in the mid 1980’s, and the subsequent end of the Cold War a few years later, the
United States found itself with a large excess capacity of weapons. Compounding this was less
procurement spending, which meant firms began looking abroad to help boost sales (Markusen
and Costigan 1999).
Whether arms exports help or hurt an exporting country is a subject of significant
debate. For the state there are macroeconomic arguments that arms exports help stimulate

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economic growth through employment and income and help balance trade deficits (Markusen
and Costigan 1999). Microeconomic arguments include exports help open up new markets,
thus allowing more revenue to spread over fixed costs, reducing per unit costs for the importing
and exporting countries (Markusen and Costigan 1999).
Along with lowering costs, industry contractors argue that exports are necessary to keep
production lines running. Once shut down, they say, it is hard to get running again in a timely
fashion because of high start up costs (Markusen and Costigan 1999). Thus, should a surge in
weapons be needed, they will be ready for production instantly.
Policy shifts within the United States have been seen over subsequent presidential
administrations. Under President Carter, policy was substantially in favor of restricting arms
exports. Under Reagan and Bush those restrictions were lessened, and even more so under
Clinton (Markusen and Costigan 1999). In fact, Clinton justified arms exports and the United
States increasing share11 of that market by focusing on the economic benefits more than
previous administrations had (Markusen and Costigan 1999). In response, a Clinton Presidential
advisory board designed to look at the issue stated, “Industrial base issues should be treated
separately from arms exports and the best solution to overcapacity…is to reduce supply rather
than increase demand” (Markusen and Costigan 1999).
In addition to economic arguments, other factors should be weighed when considering
arms export policy. Foremost, is the potential of advanced weaponry to be sold and used at a
later date against soldiers of the very country who exported the weapon. As export markets
11 It was estimated the U.S. controlled 64% of global arms tradein 1993. In addition from1986-1994,foreign U.S.
military exports were up 140%.

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become more competitive and countries rely on these markets as sources of economic
benefit12 their standards of who will qualify as a customer necessarily declines. Furthermore,
sellers of advanced weapons may have it come back to hurt them in more subtle ways. For
example, in the first Gulf War, the French Air Force could not fly its French Mirages because the
radar could not tell the difference between the French version and the one the Iraqis were
flying (Markusen and Costigan 1999). In some cases a country may find itself having to upgrade
a system or keep a systemthat could otherwise be scrapped because other countries can
challenge that system due to sells13. In an extreme case this could cause a country to be in an
arms race with itself (Markusen and Costigan 1999)!
As the preceding material has shown, the MIC is a very complex systemwith many
revolving parts interacting with each other, often with ambiguous consequences for the
taxpayer and nation as a whole. Let us now turn to data compiled from the department of
defenses’ website and see what this can add to the discussion.
Data (provided in appendix B)
I have provided four tables for analysis to reinforce the preceding material and provide
figures for trends that extend beyond what much of the reviewed material covered. The data is
presented in five tables. Table one lists DoD spending as a percentage of GDP. Table two lists
DoD spending as a percentage of the federal budget. Table three provides statistics on the DoD
labor force. Table four presents the DoD total budget, procurement budget, and research,
12 Because of a lack of good data to use, it is very hard to say to what extent, and even if, economic benefits due
accrue((Markusen and Costigan 1999).
13Another benefit of arms exports to the buyingcountry is the potential for technology transfer.

19. Brisson Page 19
development, testing, and evaluation (RDT&E) budget in real dollars. Table five presents the
same parameters as table four but in constant (2005) dollar terms. All tables measure data
from the years 1950 to 2010. This time frame was chosen for a few reasons. One, it starts with
the beginning of the Cold War, which provides good proximity to the defense industry
becoming significantly more privatized. Second, it goes through the Cold War and through the
1990’s when the defense industry merged and consolidated. Last, it goes through the first
decade of the 21st century, which saw the United States engaged in two simultaneous wars for
most of the decade. All three of these time periods represent shifts in defense policy and
spending.
Tables one and two (DoD spending as % of GDP / Federal budget) mirror each other in
that there is a sharp rise from 1950 to the mid 1950’s where the figures peak. From there they
gradually decline to the present with sharp declines from the early to mid 1970’s. Bulges can
be seen from the mid 1960’s until 1970 and again from the early to mid 1980’s. The sharp rises
seen in the early 50’s can surely, largely, be attributed to the start of the Korean war and the
decline starting in the mid 50’s to its armistice resolve. The early 1960’s signaled the real
escalation of troops in Vietnam, but interestingly we only see a rise in both graphs starting in
the mid 60’s and continuing until the early 70’s. After this time a rapid decline is seen in both
graphs as the United States cut defense spending after it ended its involvement in Vietnam.
The bulge of the 80’s can be attributed to the Reagan administrations arms buildup.
Furthering the trend of the first two tables, table three (DoD labor) shows the same
characteristics, peaking in the mid 1950’s and declining ever sense, even more dramatically

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than the first two. Of note, the civilian labor force stayed fairly constant from 1955 until 1990,
and then declines by close to 40% in the 2000’s. While defense spending ebbed and flowed
during this time period, DoD civilian employment stays relatively stable. This possibly reflects a
reality that weapons spending and employment within the department are not tightly linked.
While these tables show a decline of spending in relation to other factors, tables four
and five show actual spending figures by the department. These trends do not mirror the
trends of the first three, in fact taking a much more upward slope than downward. This is
merely a reflection of how much the American economy was growing in relation to defense
spending over the time periods observed.
As stated, tables four and five show actual spending by the department split up into
three categories: Total budget and then the two most pertinent to the military industrial
complex in procurement and RDT&E spending. Table four is shown in real dollar terms and
table five is shown in constant dollar terms. Looking at spending in constant dollar terms allows
for a more nuanced and complete picture of defense spending over the time periods presented
as it compares the spending accounting for inflation/deflation. For example, we see that in real
dollar terms from 1970-75 there was a slight increase in spending. Holding the dollars constant
however, we see that money spent over that same time period actually purchases less, as
spending decreases.
The trends noticed in these tables are, most strikingly, spending has increased overall.
Indeed, in 2010 it was higher than any previous time observed in real and constant terms.
Another striking feature is that procurement spending mirrors total spending almost perfectly.

21. Brisson Page 21
In every period of rising total budget there is a corresponding rise in procurement spending and
likewise for decreases. The same trend is not seen with research and development,
demonstrating its looser correlation with department spending and less impactful nature on
Pentagon budgets. As stated earlier, procurement contracts are where the big business is at.
Again the war trends are noticed. In constant dollar terms, the Pentagon escalated spending at
the start of the Korean war. However, there is not the same decrease in spending as seen in
the first three graphs, and in fact a continued increase. Cold War spending is the culprit for that
trend. Again there is a rapid drop off in spending after the Vietnam war back to Korean War
level spending. Notably, when Reagan assumed office, as reflected in the graphs, there is a
large jump in defense spending. In constant dollar terms, procurement spending peaked at its
historical high at this time, in the mid 1980’s. The end of the Cold War shows a decrease in
total spending (constant dollars) falling back to the first years of post Vietnam spending and at
least a 50% cut in procurement spending. Again, this coincides with major mergers of the
defense industry as a strategy to combat this loss of funding. Beginning in 2000, we again see
rapid rises in total spending to its present all time high14. Except for the mid to late 1980’s,
procurement spending has seen the same. One curious trend that would be interesting for
future research is the historical closeness that procurement spending and RDT&E spending
have seen since the mid 1990’s. Indeed, research and development spending has been higher
over the past 10 years than at any other time these graphs show.
14 The stocks for the major contractingcorporations duringthis decadehave done extremely well also. Lockheed
Martin,Boeing, Raytheon and Northrop Grumman all sawtheir stocks hitpeaks in the late2000’s. From 2000 until
the present, Boeing stock has doubled, representing the smallestincreaseof the largecontractors duringthis
period. Lockheed Martin’s quadrupled,representing the largest. Also noteworthy, every company but Boeing saw
their stocks risedramatically fromthe early 90’s on, coincidingwith the largedefense mergers post Cold War.
Boeings stock had been risingsincethe 70’s. All facts gathered: (http://finance.yahoo.com/)

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One other angle of analysis the graphs show is the ratio between procurement and total
spending. During the 50’s it stays close to one to three (one dollar spent on procurement to
three for total). The decade of the 60’s saw a decline in that ratio that fluctuates between 1 –
3.5 and 1 – 4. In the mid 80’s there is a rise back to a 1 – 3 ratio until a decline beginning in the
mid 90’s to the present, where we see about a 1-6 ratio.
Conclusion
This paper has covered a quantitative overview of the military industrial complex, and
hopefully a qualitative one as well. I have highlighted a brief history of the complex, in terms of
government/private industry interaction as well as intellectual influence and public reaction to
this concept. We then turned to the systemwhere I showed how the constituent parts work
together and some of the trends that have existed in the defense industry since the Cold War
began and some of the evolution the industry has taken as well as problems associated with it.
Throughout I have attempted to present the material with a lens towards the economics of the
industry and the taxpayers’ money in sight, focusing on such topics as the procurement
process, national security philosophy, the role technology plays within the MIC, and arms
exports. We have seen the procurement process is in need of reform, technological
specifications drive the industry, and that the peculiar relationship the players have with each
other and the markets that are thus created constitute less than optimal efficiency for not just
the taxpayer, but sometimes the nation as a whole.
So what may be some solutions for greater efficiency for the industry going into the
future? One solution, as has been touched on, could be for greater civil-military integration in

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the defense sector, allowing for a more competitive, classical economics free market (of course
the Federal government constitutes the main purchaser, so it will never be a “free market”).
This would allow more firms to enter the defense market and should help drive down costs. It
could also allow for the Pentagon to once again design more systems and subsystems from
commercially available products, reducing the need for regulations that come with the current
acquisition process. For greater civil-military integration to occur however, there must be a
philosophical shift away from constant technological innovation within weapons systems that
causes defense technology to run far ahead of private sector technology. As mentioned
previously, this causes companies to incur too much risk to profitably be able to produce all of
the next generation weapons the military wants, thus causing the state to take on the risk itself.
Of course, this approach would mean implications for U.S. force structure and possibly force
projection throughout the world, but I see no reason why American vital interests could not be
maintained through a more commercialized defense industry, especially when combined with
more effective and vigorous diplomacy. In this line of reasoning, the U.S. should use some
funds saved through lower costs as a result of this restructuring and put them to use in the
State Department, helping build more effective defensive coalitions through multilateral
platforms.
Another possibility for the industry is nationalization. This has the effect of aligning the
interests of Congress, the DoD and the weapons industry more soundly than presently exists.
Taking a profit motive out of weapons development effectively ceases lobbying. Yes, Congress
would still have narrow interests in considering jobs and economic benefit to their constituents,
and weapons systems would most likely still have a tendency to garner powerful political

24. Brisson Page 24
support once in production, but the acquisition process would be virtually eliminated, reducing
overhead, excess capacity and controlling cost overruns. Plus, with negotiated contracts, the
defense industry is already nationalized in terms of taking on the risk of failure.
One common contention with this approach is that the government would not be able
to innovate or come up with proper technologies in a timely manner. This is a valid concern
with historical perspective, though one could make the argument to a certain degree this is true
of the defense industry as is presently configured.
Perhaps another solution would be to nationalize the production side of the defense
industry while maintaining a robust, privatized research and development side. In this way the
benefits of negating procurement cost overrun and fraud as well as better defense industry
alignment of interests among players could be maintained while providing innovative, dynamic
technological research, testing, and even prototype development. If the government needed to
offer negotiated contracts to make this profitable business for private firms to engage in, it
would be much more acceptable as RDT&E costs substantially less in procurement contracts
than does the production side, for obvious reasons.
One downside of this approach would be that production lines would not be as “hot.”15
In my estimation, this is acceptable for two reasons. First, excess capacity develops with hot
lines, encouraging arms sells. Economically, the funds used developing excess weapons could
be put to use manufacturing civilian goods for export. Moreover, as mentioned earlier, the
15 Keeping a production line“hot,” “warm,” or “cold” refers to how often the production assets (facilities,
materials,labor) areused in producingthe weapon system in question. If a production lineis not kept in use (hot
or warm), the argument goes, it makes itharder to produce the systems when needed as the assets needed for
production have been turned to productivepursuits,makingitdifficultto quickly mobilizethem back to the
weapon system in need.

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economic benefits commonly associated with arms exports’ is in doubt. Morally, arms sells are
ambiguous. On the one hand I see the need for some arms sells in helping certain allies
maintain adequate defense they otherwise could not produce for themselves, as well as
maintaining regional balances of military power. And not to be misunderstood, a nationalized
production side defense industry could still produce enough for that very purpose. On the
other hand however, the very arms we sell if done too liberally could obviously come back to
harm deployed soldiers in future combat. Second, hot lines of production aren’t necessary
because the Cold War is over. The United States does not need high weapons production
because it is not in an arms race with anyone and likely will not be in the foreseeable future.
Our current fiscal problems preclude such a measure anyway. Again, some might say what
about China. I would argue any war with China is unlikely for several reasons. They have a
more vested interest than the Soviet Union did in integrating into the world order. China’s
economic systemis much like ours and their political system is showing creeping signs of
becoming less centralized and more democratized. If history is an indicator, after adopting a
capitalist economic system, this democratization trend will only continue. These shared values
would help alleviate mistrust of the other sides’ intentions as well as alleviate ideological
tensions, which were such underlying driving forces of the Cold War with the Soviet Union.
Regarding a more classical, hot war if you will, China has nowhere near the capability to engage
the United States through military power, and beyond that our economies are so intertwined it
would be crippling to both countries to engage in a war. These factors are unlikely to change
anytime soon.

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Here then, are three suggestions for creating a more efficient and ultimately taxpayer
friendly Department of Defense. It is imperative for the United States to get its budget in order,
and lowering Pentagon expenditures is one place that must be addressed.
Last, the military industrial complex offers almost unlimited areas for future research.
Production, research and development, procurement, technology, arms exports, and the
continued interaction among the DoD, Congress, and private contractors are just some of the
areas which could be more deeply investigated.
Mark Brisson
Senior Seminar
Dr. Kravchuk
May 3rd, 2011