Payoffs for Layoffs Have to Stop

Bernie Sanders represents Vermont in the House

It is ironic that it is up to me, the only Independent in Congress and a democratic socialist, to blow the whistle on a little-known, misguided Pentagon program that is a prime example of state-sponsored socialism.

Most Americans have no inkling that the Pentagon is spending billions to encourage giant defense contractors to merge at precisely the same time these companies are firing thousands of Americans. More than 2.2 million American workers in the defense industry have lost their jobs during the past eight years.

How could this be?

Until the early 1990s, defense contractors were free to merge but they did so at their own expense and without forcing the American taxpayer to pick up the tab. Isn’t that how a free market economy is supposed to work?


In 1993, Defense Secretary William Perry and former Deputy Secretary of Defense John Deutsch (now CIA director) suddenly approved a major policy change to reimburse defense contractors for various types of merger expenses called “defense restructuring costs.”

The bizarre rationale for Uncle Sam paying defense restructuring costs rests on the assertion that mergers will save the Pentagon lots of money in the future.

We are asked to believe that less competition and more integration among defense contractors will somehow yield cheaper prices for Pentagon procurement and greater savings for the American taxpayer. According to that twisted logic, if the Pentagon only had to do business with one giant contractor, then presumably we could arm and equip our nation’s armed forces most efficiently and economically.

As it happens, unlike the apostles of free market economics’ claim, government should play an important role in our economy and in the creation of decent-paying jobs. However, government money should not be used to eliminate jobs. De facto, taxpayers are unwittingly providing “payoffs for layoffs” via the Pentagon. We are funding corporations like Lockheed-Martin and General Dynamics with a golden incentive to merge their operations, stifle competition and put American workers out on the street. It is the worst kind of government waste and should be ended immediately, especially in a Republican-led Congress that celebrates the magic of the marketplace as a cure-all for our nation’s troubles.

General Dynamics has been given $200 million and $965 million is about to go out to Lockheed-Martin, yet the American people and their representatives in Congress have virtually no information as to what’s being bought with this money. On June 18, nine months late, the Pentagon finally submitted the first of what are to be annual reports to Congress on the costs of this program. Not surprisingly, this very cursory report is most notable for its lack of specificity and accounting credibility.

In August 1995, the General Accounting Office began its own investigation. The GAO’s report on two companies--FMC Corp. and Harsco Corp BMY--that have received such payments states “the contractor’s proposed savings were based entirely on work force reductions.” The GAO also found that in exchange for taxpayer dollars up front, the same companies’ actual savings in later years fell 85% short of what they originally estimated to Pentagon auditors.


Only one congressional hearing has ever been held on a policy the GAO estimates might pay out several billion dollars. Small wonder that at least 32 defense contractors are expected to request Pentagon reimbursement pursuant to corporate mergers.

Pentagon officials discount that these taxpayer-financed corporate mergers will result in less competition within the defense-industrial base. Similarly, they disregard the obvious unfairness to the companies having to compete for procurement contracts without benefit of merger subsidies.

Ask yourself: Why do Fortune 500 defense contractors need federal aid to improve their own efficiency and competitiveness? Especially at a time when Republican congressional leaders want to slash Medicare, Medicaid, education and other programs desperately needed by working families.

There is still hope that this boondoggle can be stopped.

In mid-June, the House approved an amendment that I coauthored with conservative Rep. Christopher Smith (R-N.J.) to flatly prohibit the Pentagon from spending any more taxpayer dollars to reimburse defense contractors for mergers. But the vaunted military-industrial complex is marshaling its small army of lobbyists to sustain their unique form of Pentagon socialism.

At a minimum, Congress and the American taxpayers are owed a full and immediate accounting of the costs that occur as a result of Pentagon payments in support of these corporate mergers. The Pentagon budget for fiscal year 1997 has yet to be finally appropriated. Stopping this corporate welfare should attract broad based support of progressives who are appalled by excessive military spending, conservatives who oppose government intervention in the economy and every other member of Congress who believes that spending tax dollars to lay off Americans makes little sense.