Living on the West Coast we often hear about the dangers posed by Big Tech monopolies. After all, these incredibly wealthy companies have such an outsized influence here.
The Justice Department’s anti-trust suit against Google was the talk of the town when filed last October, particularly since eleven state Attorneys General joined as plaintiffs. DoJ noted that Google is worth over $1 trillion, accounts for nearly 90% of the nation’s internet search queries, and allegedly engages in a wide swath of anti-competitive practices.
Facebook, Twitter, Amazon and other West Coast titans are also facing increased calls nationwide and in Congress to neuter their business practices. And let’s not forget, the government sued Microsoft in 2001under the Sherman Antitrust Act of 1890, forcing the company to make concessions in how they bundle software and licensing agreements, not unlike the narrow legal arguments being made against Google today.
As the literal gatekeepers to the internet and social media platforms for billions, let alone reshaping how Americans buy and sell goods, anti-competitive business models are both dangerous and undemocratic.
Yet as bad as they seem in Big Tech, I believe defense industry monopolies may be even more dangerous to the country.
That’s because our military acquisitions process works best when various companies compete to research, design and produce the world’s best weapons systems for our warfighters. When just one company can run the table on the others, bad things are bound to happen. Costs go up, and reliability goes down. A few people profit mightily. The rest are out of luck. It’s physics.
As a retired Air Force officer who once ran the Air Force press desk at the Pentagon, I’ve seen how the acquisitions system works from the inside.
Which is why I was dismayed to learn recently that one great American company is trying to corner the market on missile propulsion at the expense of several other great American companies --literally one of the key components of our defense industry writ large.
Last December, Lockheed Martin announced a bold plan to acquire Aerojet Rocketdyne, our nation’s only independent rocket propulsion manufacturer, for $4.4 billion. Lockheed Martin’s press release says the transaction strengthens its “support of critical U.S. and allied security missions and retains national leadership in space and hypersonic technology.”
Just one problem.
Aerojet Rocketdyne, a.k.a.Rocket.com, a California-based company with 5,000 employees, has also partnered with four other major U.S. defense contractors on rocket and missile propulsion systems and is the last independent Solid Rocket Motor provider in the country. If successfully acquired by Lockheed Martin, the other four would either have look to foreign companies overseas to find suitable replacements -- or get out of the missile business entirely. That’s anti-competitive and a national security risk.
Now, it’s a good thing the U.S. is investing in space and hypersonic technology, imperative actually. Especially since rival major powers China and Russia are making progress as we lag behind. Russia claims to have already deployed hypersonic missiles with troops.
Our own Missile Defense Agency said the characteristics of such missiles, flying at over Mach 5, or about 3,800 miles an hour, “makes them challenging targets for our current missile defense systems.” So yes, we must invest. Though doing so with just one company solely to benefit its own “vertical integration” of missile systems is overall counterproductive for the U.S.
Fortunately, this is not a done deal. At least not yet. The Defense Department and Federal Trade Commission still have to approve the merger.
During his Senate confirmation hearing in January, now confirmed Secretary of Defense Lloyd Austin noted how “a number of weaknesses exist in the defense industrial base” which include “reliance on sole or single source suppliers, reliance on foreign sources (including adversarial sources), and vulnerabilities to predatory and adversarial capital investments…” Bingo. Sounds like he just described this proposed merger.
But this type of thing has been on the Pentagon’s radar awhile, and rightly so.
At a 2015 press briefing, then-Defense Secretary Ash Carter said it is “important to avoid excessive consolidation in the defense industry to the point where we did not have multiple vendors who could compete with one another.”
And the FTC is also aware of the dangers. In June 2020, it released new guidelines with DoD for evaluating vertical mergers, calling them “an important step forward in maintaining vigorous anti-trust enforcement” and that they “reaffirm our commitment to challenge vertical mergers that are anti-competitive and would harm American consumers.”
Such a proposed merger between Lockheed Martin and Aerodyne would create a mega-company undermining America’s industrial defense base -- one completely at odds with existing FTC-DoD guidelines. Let’s hope government officials study this carefully and do the right thing for our fellow Americans.
Mike Paoli is a retired Air Force officer and former overseas air station commander. He studied national security issues at the Air War College and nuclear reactor technology at MIT.
This article was originally published on RealClear Markets on February 19, 2021.