Should The U.S. Government Take A Share In Lockheed Martin?

Close-up of sign with logo for Lockheed Martin Space Systems in the Silicon Valley town of Sunnyvale, California, October 28, 2018. (Photo by Smith Collection/Gado/Getty Images)

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The headline of today’s Reuters dispatch by Susan Heavey and Mike Stone, “Trump Administration Mulls Taking Stakes in Defense Firms, Including Lockheed Martin,” sent ripples through the defense and business press, and could foreshadow what will hopefully be a vigorous debate in Congress.

When asked about the prospect of U.S. government investment in major weapons firms in an interview on CNBC, Commerce Secretary Howard Lutnick said “They’re thinking about it . . . There’s a lot of talking that needs to be had about how do we finance our munitions acquisitions.”

The answer to the question of how to produce munitiosn reliably and relatively quickly will not be solved by risking tax dollars by taking a share of major weapons firms like Lockheed Martin. To the extent that there is a current or looming munitions shortage, it has little to do with a lack of capital on the part of big weapons makers.

U.S. support for Ukraine’s defense against Russia’s invasion and Israel’s brutal war in Gaza has certainly put strains on the U.S. network for producing artillery shells and other munitions. This is partly because of the sheer volume of munitions being burned through in the Ukraine war. But is also linked to the Pentagon and industry’s preference for lucrative big tickets systems like combat aircraft, bombers, and intercontinental ballistic missiles over mere artillery shells. In the years running up to the Russian invasion of Ukraine, Pentagon procurement of bombs and ammunition had dropped substantially. And it would be quicker to step up production at government arsenals, or reopen old ones, than to pump money into Lockheed Martin, which does not even produce artillery shells.

Even if one were to suggest that giving more liquidity to Lockheed Martin would somehow free up funds that could be used to purchase munitions, the argument would not hold up. As Sen. Elizabeth Warren (D-MA) has pointed out, even as the Pentagon budget was on the path to its current enormous sum of $1 trillion, and big weapons makers were crying about needing more funds for research and development, those same firms were spending billions on stock buybacks designed up their share prices. This nothing to expand defense production, but it is great news for military company shareholders, not to mention their CEOs, some of whom have compensation packages in excess of $20 million per year, good chunks of which involve stock options. Given this level of self-dealing and fiscal chicanery, do we really need to plow our tax dollars into Lockheed Martin and the other big weapons makers?

Is there any sensible rationale for taking a government stake in a company like Lockheed Martin? One argument might be that it would give the government more leverage over the company’s activities. But even if true, that leverage would come at a high price. Once the government throws its lot in with a private firm, some officials might end up being more interested in the financial performance of Lockheed Martin than the security impacts of buying specific systems from them. Ideally, the government should be at arms length from the companies it is supposed to regulate, not a financial partner.

Furthermore, although it is hard to know in advance, what conflicts of interests might arise out of such an arrangement? Would government officials charged with overseeing public investments in Lockheed Martin be allowed to work for the firm after leaving government service. Given that members of Congress are still allowed to invest in defense stocks, would any of them be tempted to pour more taxpayer money into Lockheed Martin or another weapons firm to boost their own stock portfolios? Would the government get a seat on Lockheed Martin’s board, and if so would the official designated for that role be required to leave the company’s board upon retiring from government?

There should be plenty of funds in a $1 trillion budget to buy sufficient munitions, especially if Congress puts the brakes on the Trump administration’s proposal to build a leak proof “Golden Dome” missile defense system. Independent scientists – not to mention the Pentagon’s own tests – have shown that a leak proof defense against intercontinental ballistic missiles is physically impossible, and that the effort to do so would be enormously expensive. And President Trump wants to outdo President Reagan – who pledged to develop a leak proof defense against ICBMs in his 1983 “Star Wars” speech – by suggesting that a Golden Dome system could also flawlessly intercept hypersonic weapons, low flying drones, and cruise missiles. Golden Dome is more of a marketing scheme or public relations exercise than it is a serious defense plan. A small fraction of the tens of billions that could be thrown at it in the next few years would be more than enough to bolster the munitions production base and produce adequate numbers of artillery shells and other basic items.

Then there’s the way the Pentagon buys weapons. As Sen. Warren has also pointed out, the Pentagon is routinely subjected to price gouging because contractors are too often not required to supply certified historical pricing data for systems being sold to the government, which leaves government negotiators flying blind and prone to be overcharged. And then there’s the absence of the “right to repair” on the part of government when it comes to certain weapons systems. For example, despite the fact that the F-35 was overwhelmingly funded through your tax dollars, Lockheed Martin controls the rights to the software needed to repair the aircraft, putting them in a position to charge top dollar to maintain them. This is no small sum when one considers that F-35s are in the hangar for repair and maintenance almost half the time. In some instances Lockheed Martin has essentially been paid to fix its own mistakes.

Then there is the question of accountability. At the behest of industry, the Trump administration is seeking to weaken the Pentagon’s independent testing office, one of the few detailed sources on the costs and performance of major weapons programs.

Finally, in the name of parochial politics, Congress often blocks the Pentagon from retiring weapons it no longer finds useful, or adds funding for certain systems beyond what the Pentagon even requests. Rest guaranteed that these added funds are not for lowly artillery shells. They are for systems like the F-35, which Lockheed Martin claims to be the source of massive numbers of jobs spread across 46 states. There is even a handy map on the company’s web site where you can click on your state and see how many jobs tied to the F-35 Lockheed Martin claims are located there. The fact that the company exaggerates the job numbers, as well as the true number of states where the plane produces a significant number of jobs does not alter the fact that economic arguments carry a lot of weight in Congressional decisions on weapons procurement.

The U.S. government does not need to own a piece of Lockheed Martin. It needs to do a better job of holding it and other big arms firms accountable for producing weapons that work at prices that are not artificially inflated. And it needs a clearer strategy that is less intent on maintaining the ability to intervene anywhere in the world on short notice, coupled with a plan to buy weapons suited to carrying out that strategy.

Our strategy is misguided and our weapons buying system is broken. Throwing more money at Lockheed won’t change that, and could even make matters worse.