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Aug 13, 2012

How defence spending 'contributes to American
prosperity'

Australia defence spending contributes generously to American defence corporations.

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The extent of Australian taxpayer support for the US defence industry has become clearer from an analysis of major defence procurement data and current defence tendering.

The government has continued to attract criticism for its cuts to major defence procurement spending in the May budget, with former chief of Army Peter Leahy the latest critic to voice concerns. Last month US neoconservative and defence industry lobbyist Richard Armitage criticised the government’s funding cuts. In May, the government announced spending cuts of $5.4 billion, with big reductions obtained from delaying or cancelling major procurement processes.

Tony Abbott, after a recent trip to America, criticised the cuts and suggested the government had “disappoint[ed] our friends and allies at what is for everyone a difficult time”.

A Crikey study of major procurement contracts over the last decade illustrates the stakes for US defence companies in Australian procurement cuts.

Based on data for only the largest contracts administered by the Defence Materiel Organisation and, before its establishment, the Department of Defence, US corporations have received just under $22 billion over the last decade of the $69 billion spent on major projects. That doesn’t include revenue flows indirectly to US corporations via fully-owned local subsidiaries like Lockheed Martin Australia or Boeing Defence Australia. The list of projects includes some of the most controversial procurement projects of past and present, including the disastrous Seasprite Helicopter acquisition and the Joint Strike Fighter, now vastly behind schedule and over budget.

The US is easily the biggest offshore beneficiary of Australian defence procurement in the last decade; France is a distant second with a little over $3 billion. Many of the procurement projects are conducted under the US Foreign Military Sales program, which is described by US Defence Security Cooperation Agency as “the government-to-government method for selling U.S. defense equipment, services, and training”. Its website states:

Responsible arms sales further national security and foreign policy objectives by strengthening bilateral defence relations, supporting coalition building, and enhancing interoperability between U.S. forces and militaries of friends and allies. These sales also contribute to American prosperity by improving the U.S. balance of trade position, sustaining highly skilled jobs in the defence industrial base, and extending production lines and lowering unit costs for key weapon systems.

Foreign Military Sales don’t come without their own cost to the US. According to data submitted by the US Defence Department to Congress, in 2010 the Americans spent about US$480,000 as part of an overall US$600,000 spend on staff employed (four in the US, one based in Australia) to “work closely with members of the host country defence establishment to develop and execute security assistance/cooperation programs” in Australia. The US planned to spend around $480 million worldwide promoting its arms sales in 2010, including over a million dollars selling weapons to the Gaddafi régime it helped to overthrow last year.

However, US companies don’t only benefit from major procurement projects. They and their local subsidiaries compete — or sometimes are simply handed via “direct sourcing” — tender contracts for a vast array of defence-related services, including everything from cleaning and building maintenance services to software, maintenance, consultancy services, engineering services and project management — as well as military, communications and computer hardware.

The Austender website shows that top five US defence corporations — Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon — have secured smaller contracts worth just under $160 million this calendar year alone from the Department of Defence and Defence Materiel Organisation. General Dynamics secured over 190 contracts. The fully-owned local subsidiaries of Lockheed Martin, Boeing and Raytheon have secured another $142 million. All provide services to other government departments as well; Raytheon Australia claims to have recorded revenue of $700 million in 2010. All are headed by men with deep roots in the Australian military. Lockheed Martin Australia is headed by former admiral and defence attaché to the US, Raydon Gates; Boeing Defence Australia is headed by former senior DMO official Kim Gillis.

Defence spending is often better understood as industry assistance under another guise. In Australia’s case, a vast component of that assistance is for the benefit of US corporations, thereby “contributing to American prosperity”.

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22 comments

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22 thoughts on “How defence spending ‘contributes to American
prosperity’

  1. Scott

    The US accounts for 33% of total global arms exports and is our major ally. It’s no surprise we are using them as our major supplier for weaponry and military services.
    Would you rather Australia use the number 2 exporter (Russia with 26% of global arms sales)?

  2. Down and Out of Sài Gòn

    Scott: there’s a choice between buying military hardware from the US, buying the same from Russia, and not buying it at all. Procure only what we need, not what makes US corporations happy.

  3. andrew.riddle36

    Well yes, most of Australia’s big procurement contracts go to the country that:
    1. Spends the most (by a long long way) on weapons development;
    2. Has the most and most recent operational experience, thus making its weapons well-tried and tested;
    3. Is our most important ally;
    4. Is the global hegemon;
    5. Is the world’s biggest arms dealer.

    Based on those facts alone, it would be wildly irresponsible not to award most foreign defence contracts to US companies – as the many servicemen who’ve had to deal with finicky and unreliable French systems that occasionally slip through could attest.

    Sure, some contracts, like the F-35, are definitely Australia helping to subsidise the US in their maintenance of broad superiority – but in a sense that’s the responsibility of an ally. When the global leader, a liberal democracy, is in danger of losing its primacy to a totalitarian state because of the sheer epic cost of its security commitments, pouring billions into one of its troubled fighter programs is actually, realistically, an effective use of our defence budget – possibly more effective than tanks and artillery that may never be used.

  4. geomac62

    I think the relationship between our defence procuring department and the US sellers should be on a less cozy basis . We were sold duds with the tanks etc but is that the fault of the sellers or people like Nelson , Reith and so on regardless of who is in office . Israel gets 5 billion in aid a year every year from the US , hardly a third world country is it ? We pay through the nose and when we get a plane like the F 111 its good value . However while we are waiting for its replacement we have to but 2nd rate jets to fill the time gap . We aren,t considered good enough to buy the better replacement and make do with the plane that only the US navy uses and regrets its choice . We should buy on requirements , availability and cost not on a one sided alliance .

  5. izatso?

    Occasionaly, a good friend must let a friend know that the object of their desire is about to burn them, even as that friend snorts that its desire must be quenched before all rationale can be considered. good friendship can sometimes survive such circumstance, but sorry don’t cut it .

  6. izatso?

    OK , then, but if it is Burn, or Burn the World, what *do* you say to that Politico-Military-Hegemony er, Friend ?

  7. Michael James

    The US provides quality weapon systems, well tested and usually battle proven, with quality post-sales access to support provided as part of the deal.

    Try asking people like Malaysia, India or Indonesia about the value of Russian weapons systems. Cheap to buy, but a nightmare to maintain and usually of second rate quality.

    Given that our money is going to purchase equipment being used to defend the nation, operated by the best of our young men and women, I’d frankly be shocked if anyone here demanded we skimp on buying the best we can afford.

    I might also point out that Australia’s defence spending according to this article works out to $2.2 billion per annum over the last decade, which is a tiny, nay miniscule drop in the bucket compared to the annual US defence spend of some $683 billion last year. I.E. o.oo3% of the US total spend.

    Hardly something of critical importance to a US contractor.

    A sense of perspective is a wonderful thing, too bad that here on Crikey far too many people lose it when it comes to Defence.

  8. Owen Gary

    There’s already to many American fingers in Australias economic pies, time to cut a few of them off.
    You really need to consider how U.S agri-businesses are cutting off Australian farmers at the kneecaps, yeah great allie. How much of the U.S foreign policy is causing destablisation around the world??

    The military arms complex has a vested interest in this type of policy making and it’s about time Australia got through puberty & walked our own path.

  9. shanghai

    It’s not just in the defence sector. Take a look at resource and IT contracting.

  10. geomac62

    A sense of perspective is a wonderful thing, too bad that here on Crikey far too many people lose it when it comes to Defence.
    Well Michael perspective could be an argument put to the US in regards to its defence spending . The figure I have from the Institute for strategic studies is 739 billion . It outspends China 90 billion , the UK , France , Germany , Russia , Japan and Brazil combined by over 300 billion .
    Regarding the best of our young men and women I,d like to know how you assess that . Surely you are not disregarding the police , fire fighters including the CFA , ambulance staff etc etc ? Young nurses come to mind when thinking about the best on the few occasions I,ve had hospital treatment . Any career you care to mention can have the best and brightest or the average and usually a smattering of the despicable .

  11. izatso?

    we get second rate or worse. Abrams, don’t even. that chopper deal that consumed half your 2bill did not fly, the JSF ain’t comin’ cheaply or soonly, even when we won’t need it, the only part of your article that works is that it is *only* two thousand million DOLLARS ! Shoot !

  12. michael r james

    Most commenters, both pro and con, have got the wrong end of the argument.

    We should be developing our own. And the response to those defeatists who think it impossible, well read Geomac62; most of the stuff we buy from the US is inappropriate and we then spend another fortune trying to adapt it to fit-for-purpose, usually with dismal failure. A lot of American stuff (eg. tanks) is overblown (every new development cycle they make things bigger and bigger until the burden becomes self-defeating) and requires ridiculous levels of logistic support if ever used in anger.

    Of course we cannot build state of the art fighter jets. But then neither can the US! It is highly arguable whether we should be spending that kind of money on something limited by humans, and that will consume a huge chunk of defense dollars for the next 3 or 4 decades. (and therefore limit our real defense options). We should go straight to unmanned craft and develop them ourselves. No, not buy American drones. Develop them (and fighters) ourselves. Most of the significant parts (engines) are off-the-peg and those American fighters source them from the same few manufacturers in the world anyway. And make sure all the $$ remain in Australia, building industrial capacity in design, software & ICT, manufacturing etc. It isn’t as important as some economic bean-counters think that it might be “inefficient” if the dollars and expertise stay in Australia. How does anyone think the US has (or had) such a lead on many things if not by supporting so much with massive cost-plus defense contracts, ditto for NASA.

    And the notion of interoperability is simply a fancy name for surrender of an independent defense policy.

  13. izatso?

    Dont we have some vestige Jindivik research/production at Hawker ? I know, I know, Over the Horizon was us too,

  14. izatso?

    Thats torn that then

  15. Ron Lee

    Re the second last para. I’d like to see Crikey attempt to list the other ex Australian military and DoD personnel who are in senior roles at the local subsidiaries of the US defence companies. Shouldn’t be too hard.

  16. AR

    Even before the soi disant FTA, the largest trade deficit we had, and have and, on current grovelling performance, WILL have with any country is amerika.
    That country’s domestic economy would collapse were it not for “defence” (shorley, hic.. aggression?) spending.
    The reason every guerilla has an AK47 (Kalashnikov) is because they are cheap, hardy and can be repaired with a hammer or large enough rock, like most of the weaponry or machinery.
    If Oz needs defence equipment it should be home grown, anyone remember the now defunct BSA factory in Lithgow? Others above mention Jindalee and we should not forget the Jindivik, a precursor of the now ubiquitous drone.
    Forward defence, aka, pre-emptive attack, was all the rage in the daze of Penang/Butterworth & the Malayan “emergency” (to whom?) but this country would be best advised to adopt the Swiss strategy, too costly to invade.

  17. Kevin Herbert

    I’m with you Ron Lee.

    How about it Bernard? Shouldn’t be too hard

  18. Kevin Herbert

    No-one’s mentioned the elephant in the room i.e that all of these US companies are card carrying members of the Military Industrial Complex MIC) who make up the US neocon movement along with the America Israel Public Affairs Committee (AIPAC) , and the neocon poltical goons who control both the Democrats & the Republicans.

    Their criminal conspiracy to keep the US at war permanently somewhere in the world is the result of 60 years of distorting intelligence & manufacturing threats to national security where there were none (Vietnam, Iraq and Afghanistan) and murdering 4 million plus unarmed civilians along the way.

    Under the false flag of patriotism, these war mongering evil people have murdered & maimed around the globe to this day…and what for?

    What’s been gained? Anyone?

  19. Robert Phillips

    “What’s been gained? Anyone?” Huge profits, that what, surely your not expecting “Freedom and Democracy” that’s paid for with the blood of our sons and daughters.

  20. Robert Bruce

    It gets worse. There was a time when powerful nations paid mercenaries from other counties to join their military adventures. Now not only do we buy most of our weapons from the USA we WE pay to join their military adventures. Go figure.

  21. gikku

    When will we be granted US passports?

  22. Ian

    Who wants a passport from a crumbling, dysfunctional empire?

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