Start With Logic to Put the Pentagon on a Businesslike Footing

The defense reform initiative announced with great fanfare by Vice President Al Gore and Secretary of Defense William Cohen on Nov. 10 is not much of a reform nor is it very innovative.

This initiative, which is the product of six months of study by outside consultants, attempts to apply to the department those business practices that American industry has used to remain competitive. Yet it ignores the key business challenges confronting the Department of Defense.

The announced reforms fall into four areas: re-engineering, consolidating, competing and eliminating. The reforms are supposed to make the department a paper-free organization, with a smaller headquarters, significantly fewer bases and a higher quality and lower cost work force. These innovations, if fully implemented, will free up about $6 billion a year, which Defense says it needs to purchase new weapons.

Nearly half of the projected savings, $2.8 billion, will come from base closures. However, Cohen does not want to begin the process until 2001, with a completion target of 2005. Even assuming that Congress again gives base-closing authority to a commission and that the commission agrees to close 50 major facilities, the Department of Defense will not begin to save the full $2.8 billion until at least a dozen years from now.

The second biggest area of savings, about $2.5 billion annually beginning in about 2005, will come from allowing the private sector to compete with government workers for logistic and maintenance work. But this competition is not new. Between 1978 and 1994, Defense held more than 2,000 competitions, each of which saved the department about $7 million. In order to net another $2.5 billion of savings, the department would either have to conduct about 3,500 competitions over the next five years (or almost two a day), or realize a net savings of $40 million on each, almost a sixfold increase.

The third largest (but unspecified) savings will come from reorganization. Over the next seven years, Defense’s various headquarters activities will be reduced by 7% to 36%. But virtually all of the eliminated positions will be transferred elsewhere in the department’s vast bureaucracy. Moreover, at the end of this downsizing, some units--the office of the secretary is one--will be larger than they were at the height of the Cold war.

Finally, Defense has been moving toward a paper-free environment and adopting commercial practices for the past decade. But if the past is any indication, these efforts are not likely to save much money. For example, in 1989 the department’s “corporate initiative” was supposed to save billions by streamlining operations and deploying standard information systems to support common business operations. But as the General Accounting Office pointed out last month, the savings goal has not been met. Nor have acquisition reforms begun by Cohen’s predecessor freed up much money.

Since its creation half a century ago, there have been continuous efforts to make the Department of Defense more business-like. Its operations have been analyzed by political executives like Nelson Rockefeller and businessmen like David Packard and W.R. Grace. Despite the hype that greeted these efforts, the cumulative impact of all the changes in defense management had been marginal. The latest effort by Cohen and Gore is liable to suffer the same fate because Defense, like all government agencies, is not a business. Its highest goal is not efficiency, but carrying out the will of the people.

If Cohen really wants to apply business logic to defense, he ought to answer the following questions: Why do we spend more on defense than our allies and enemies (competitors) combined? Why do the Navy and the Air Force both have deep interdiction capabilities? Why is Defense spending about $100 billion extra to prepare for a second simultaneous war contingency when no one started another conflict while we were tied down in Korea, Vietnam and the Gulf? Why does the U.S. spend $50 billion a year to safeguard access to $10 billion a year worth of oil from the Persian Gulf while the Europeans, who use $30 billion a year, spend next to nothing? Why does the Pentagon need to free up funds to buy more weapons when it already buys far more weapons than Russia, China, Iraq and North Korea combined? The secretary of defense has the power to close bases simply by giving Congress a year’s notice; why wait 10 years?

Any business that does not deal with such core issues would be out of business, even if it was well organized and otherwise efficient.