Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

For Defense Contractors, the Lobbyists Still Rule


The new defense budget will have plenty on K Street scrambling.

Last week, the Obama administration submitted a $708 billion budget proposal for defense spending for 2011.

That amount accounts for 4.7% of the US economy, and, as the Financial Times notes, this number "is before taking into account the many other US outlays on national security."

Martin Feldstein, an economics professor at Harvard, points to defense spending as a "great stimulus." So does fellow conservative William Kristol, editor of the Weekly Standard.

Take the $70 billion F/A-22 fighter program, for example. In 2005, an article in the Washington Post claimed that the F/A-22 was "an economic engine, with 1,000 suppliers -- and many jobs -- in 42 states guaranteeing solid support in Congress."

In 2009, Defense Secretary Robert Gates tried to cancel the program, but lawmakers and state governors lobbied President Barack Obama to keep production going to preserve 95,000 F/A-22-related jobs.

William Hartung and Christopher Preble of the libertarian Cato Institute, not exactly a collection of ex-flower children listening to the Grateful Dead while debating the pros and cons of bongs versus vaporizers, say these arguments ignore the fact that "military spending is supposed to serve one central purpose: advancing US security. The defense budget is not a jobs program, nor should it be. Decisions on how many Humvees to buy or how many bases to refurbish should rest on military necessity, not economic expedience subject to political chicanery."

Who is at the heart of this job creation? The Financial Times article includes a breakdown of the top 10 defense contractors by size of military contracts awarded in 2009, as well as the amount of money spent by each on lobbying.

1: Lockheed Martin (LMT)
$31.3 billion in contracts/$13.5 million spent on lobbying

2: Boeing (BA)
$20.9 billion in contracts/$16.9 million spent on lobbying

3: Northrop Grumman (NOC)
$16.1 billion in contracts/$15.2 million spent on lobbying

4: General Dynamics (GD)
$15.9 billion in contracts/$10.3 million spent on lobbying

5: Raytheon (RTN)
$15 billion in contracts/$7.3 billion spent on lobbying

6: United Technologies (UTX)
$7.1 billion in contracts/$8.1 million spent on lobbying

7: L3 Communications (LLL)
$7.1 billion in contracts/$5.2 million spent on lobbying

8: BAE Systems (BAESY)
$6.8 billion in contracts/$5.3 million spent on lobbying

9: Oshkosh (OSK)
$6.4 billion in contracts/$380,000 spent on lobbying

10: KBR (KBR)
$4.7 billion in contracts/$650,000 spent on lobbying

Companies in the defense sector know the bulk of their profits are generated by one major customer: the government.

When the White House announced the military build-up in Afghanistan, the 10 aforementioned companies spent $27 million lobbying the federal government in the fourth quarter of 2009 -- that's an increase of $7.2 million over third-quarter expenditures.

Boeing spent $6.1 million as compared to $3.7 million during the previous quarter. United Technologies jumped from $1.4 million to $3.7 million in lobbying expenses. And Raytheon spent $2.2 million, up from $1.9 million.

Corporate bread needs to be buttered, and the return on lobbying investment is extremely high.

"Companies spend a lot of money on lobbying because it's cost-effective," Melanie Sloan, executive director of Citizens for Responsibility and Ethics, tells Minyanville. "What we have nowadays is just a legalized form of bribery." She notes that spending $50,000 on lobbying is nothing if it ends up leading to a $100 million contract.

In fact, it's difficult to determine where the private defense sector ends and the government begins. Many former high-ranking government officials are on the boards of the corporations doing the biggest business with their former employers -- the Air Force, Army, Navy, and Marine Corps.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos