Loren Thompson
The U.S. Department of Defense is a huge consumer of technology, and as a result America is home to many of the world’s biggest makers of military hardware.
If you were to infer from this that Americans have a love affair with defense companies, you’d be wrong. It is a longstanding tradition in the domestic political culture to view military contractors with suspicion.
That tradition is not confined to one party. During the 1920s, Republicans led the charge in labeling military suppliers like Dupont as “merchants of death.” Fifty years later, during the Vietnam War, it was Democrats who took the lead in condemning the “military-industrial complex.”
The latest wrinkle in this longstanding bipartisan bias is the charge that traditional defense companies are not innovative, and that if the Pentagon wants cutting-edge technology it needs to turn to commercial companies in Austin, Boston and Silicon Valley.
The Air Force's next-generation bomber being developed by Northrop Grumman requires the input of ... [+] WIKIPEDIA
The allegation is basically wrong, but everybody in Washington seems to have embraced it. Republicans and Democrats alike believe that if the military is seeking innovative solutions to its challenges, Silicon Valley is the place to be.
Doubts about the defense industry’s ability to innovate are commonplace among analysts. For instance, the prestigious Boston Consulting Group regularly releases a ranking of the world’s most innovative companies.
AppleAAPL +2.5%, AmazonAMZN +3.6% and Alphabet generally top the list. No major military contractor manages to make it into the ranks of top fifty innovators. Coca-Cola and Pepsi do, but not Lockheed or Raytheon.
The companies that get positive coverage in the media when discussing defense acquisition tend to be small commercial enterprises with outspoken leaders, like Palantir.
Meanwhile, the big, traditional contractors are derided in the media on a regular basis for cost overruns, schedule delays and supposed performance shortfalls in their signature products.
Coverage of the Pentagon’s biggest weapon program, the F-35, is a case in point. Many members of Congress apparently believe the program is a mess. You would never guess from reading most of the coverage that F-35 outperforms legacy fighters on any mission you can name by a country mile; that it the most survivable fighter ever built; that it costs less to produce than an empty jetliner; and that it is the most reliable tactical aircraft in the joint fleet.
Having spent much of my professional life working with big defense companies, I have a pretty good idea of what they are capable of achieving. The best aren’t just innovative, they are among the most innovative enterprises in the world.
Take Raytheon Technologies. Its Collins Aerospace unit has 30,000 patents in force or pending. Its Pratt & Whitney unit spent $10 billion of company money developing a geared turbofan engine that surpasses the fuel efficiency of conventional turbofans while greatly reducing noise and emissions. Its missile unit pioneered the application of gallium nitride as a substitute for silicon in computer chips, making them faster and more efficient.
There are many similar stories at companies like Northrop GrummanNOC +1.6% and Lockheed MartinLMT +2.1%. Two weeks ago, Northrop won a contract to develop a secure mesh network for space systems that will advance the ability for warfighters to communicate across diverse warfighting domains.
Northrop bid a rock-bottom price to build the world’s most advanced strike aircraft, and the Air Force says that effort is on track and within budget. The company’s electronic eavesdropping satellites enable collection of intelligence that seems to defy the laws of physics.
And then there is the biggest defense contractor of all, Lockheed Martin, which is heavily invested across ten of the Pentagon’s eleven top-priority technologies, from artificial intelligence to cybersecurity to hypersonics to directed energy. The company routinely partners with leading commercial innovators like IntelINTC +3.2% and Nvidia in pursuit of breakthroughs.
All of these companies have contributed to my think tank at one time or another, so I have a fairly detailed grasp of their accomplishments. The mystery is why much of official Washington thinks the government needs to go elsewhere to find creative engineers and scientists.
Over the years I have developed a theory about why lawmakers and other Washington insiders disparage an industry that any other country in the world would be grateful to claim. It comes down to a series of propositions about how the domestic political culture operates.
First of all, the technologies involved in defense innovation are typically arcane, and few political players have the expertise to really understand them.
Second, journalists seldom report on military programs unless something has gone wrong. Programs are almost always described as over budget, and the acquisition system is typically characterized as “broken.”
Third, much of what the industry does is classified—secret—so public accounts of even the biggest programs are often fragmentary or speculative.
Fourth, Congress frequently confuses company performance with the fallout from byzantine political processes. In other words, if a program is running late, it is often because the federal customer has changed its mind about the goals, or Congress has not provided funding in a timely manner.
Finally, there are the electoral politics that surround any major military program. Lawmakers will always rush to the defense of programs that sustain local jobs, but their interests lie with the workers rather than the companies.
Imagine if Lockheed or Northrop were generating the kinds of margins that some Silicon Valley innovators routinely achieve. Intel and Nvidia typically have operating margins in the 40% range. Big defense contractors invariably are at less than half that level.
If Northrop Grumman’s operating margin hit 40%, you can be sure there would be an investigation. That would make for excellent political theater in an election year, with lots of opportunities for grandstanding.
The amazing thing is that the biggest defense companies manage to innovate at a furious pace, even though they aren’t compensated the way their commercial counterparts are, and are regularly criticized for being unimaginative.
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