Continuing tensions in Ukraine, an expanding war in Iraq and Syria, and record stock prices for major firms like Lockheed Martin and General Dynamics all seem to indicate happy days on the way for companies and communities that depend on Pentagon spending. At first glance, these developments suggest that defense dependent communities around the country can breathe a sigh of relief and stop worrying about diversifying their economies. But putting off planning for a transition from reliance on Pentagon spending would be a serious mistake.
The Pentagon’s base budget has come down a modest 10 percent since its peak in 2010. This isn’t much compared to other post-World War II builddowns, but it has been enough to cause economic disruption in key cities and states.
For example, in Wisconsin, Oshkosh Truck Corporation, which relies on production of military vehicles for the bulk of its business, has laid off hundreds of workers in the past few years as Pentagon procurement plans have shifted towards other projects.
General Dynamics’ tank plant in Lima, Ohio is being kept alive by Congressional add-ons that even the Pentagon has not requested, but with no new tank project on the horizon this stopgap strategy can’t be sustained indefinitely.
Other communities around the country will face similar challenges regardless of what happens with the Pentagon budget in the next few years. Many of the programs that are now in line to be eliminated or scaled back are unlikely to be bailed out by more spending on the wars in Iraq and Syria, or even by an increase in the Pentagon’s base budget beyond levels that are allowed under current law.
For example, there is no scenario in which the Navy can afford a pricey new ballistic missile submarine, more aircraft carriers, and a whole array of other surface ships. Nor can the Air Force afford a new nuclear bomber, a new aerial refueling tanker, and the F-35, the most expensive weapons program ever undertaken by the Pentagon. To its credit, the House recently voted down the Pentagon’s request to stick eight F-35s – which have no relevance to the wars in Iraq and Syria – into the war budget. So even if the Pentagon budget rises above current projections, something will have to give.
Given this reality, it makes sense for defense dependent areas to devise plans to diversify their local economies now, before more shifts in Pentagon spending leave them with few viable alternatives. A more diversified local economy is better in any case, since it shields communities from the inevitable ups and downs of Pentagon contracting. And economic development specialists agree that it is far better to plan before a crisis hits than try to scramble at the last moment when a key program is reduced or scaled back.
Take Oshkosh. Following a layoff of 900 workers at the truck plant 18 months ago, the city got a grant from the Pentagon’s Office of Economic Adjustment, an agency whose purpose is to help communities develop strategies to diversify their economies. Oshkosh got to work on its adjustment plan.
But waiting until after the ax had fallen clearly put this embattled town behind the curve: Last week the company announced another 300 layoffs in its military vehicle division.
Reporting this development, the Milwaukee Journal Sentinel contrasted Oshkosh’s fortunes with those of Marinette, up the road. Thousands of jobs building the Navy’s Littoral Combat Ship (LCS), the article said, make Marinette one of the state’s “remain[ing] pockets of military spending strength.”
Not so fast. Earlier this year Secretary of Defense Chuck Hagel cut the department’s total buy of Littoral Combat Ships from 64 to 32 because, among other things, the boat can’t adequately defend itself against anti-ship missiles. Given the cost and performance problems that have also plagued the LCS program, further cuts are possible. Marinette needs to get to work on its diversification plan. Now. As do other forward-thinking communities across the country.
The all-eggs-in-one-basket economic strategy needs to be a thing of the past. So does a strategy that pins its hopes on a prolonged war.