Maryland's defense economy will outlast Iraq war

August 08, 2010|By Jay Hancock

One of Maryland's top industries — defense and war — seems at risk from its own recession.

Designated U.S. combat forces are due to be out of Iraq by the end of the month. Political support is waning for the war in Afghanistan, which looks as if it will be wound down in a year or two. A key advisory group told the Defense Department last month that it needs to shed more than 100,000 civilian jobs.

The last time something like this happened, this state plunged into a five-year slump. The end of the Cold War two decades ago presaged the loss of 100,000 Maryland jobs, a budget crisis and a political shift that nearly made a governor out of Republican Ellen Sauerbrey, who was sipping tea before tea parties were cool.

But odds are that this peace dividend won't prove to be as traumatic for the state as the last one. First of all, there's not likely to be peace, rhetoric from Washington notwithstanding. And there won't be much of a dividend for the taxpayer in the form of substantially lower spending, either.

The prospect for declining defense spending "is obviously cause for concern," says Daraius Irani, director of applied economics at RESI, Towson University's consulting wing. "If they cut back on the number of missile systems they need, for example, that's obviously going to trickle down to here."

But the slowdown and spending cuts should be far less severe than they were in the early 1990s.

"We took our lumps then pretty good," he said. "We'll see some effect, but I don't think it'll be as bad as it was then."

The beauty of the war on terror, for those who like their defense budgets fat, is that it goes on and on whether or not combat troops are on foreign soil. And the war on terror, as The Washington Post series "Top Secret America" made startlingly clear last month, has been very, very good to Maryland, Virginia and Washington.

One tidbit from the series will serve as an executive summary: Pentagon spending is so out of control that Defense Secretary Robert M. Gates couldn't find out how many corporate contractors work for his own office, he told The Post.

The hateful fanatics who crashed airplanes in New York, Virginia and Pennsylvania nine years ago set off the greatest boom in U.S. defense spending since World War II.

Defense spending in inflation-adjusted dollars is greater now than it was during the 1980s amid the famous "Reagan defense buildup." Then the enemy was a nation-state with 30,000 nuclear warheads. Now it's people with box cutters and handmade explosives.

Much of the money is being spent overseas on two wars, of course. But large amounts are also showered within 75 miles of Washington, on both sides of the Potomac.

From 2000 to 2008, the latest year for which figures from the Census Bureau are available, federal spending in Maryland grew from $45 billion to $78 billion, much of it for defense and espionage. Given that Maryland's gross state product is less than $300 billion, you can see what a difference an extra $33 billion might make and why the state has earned its crown as the nation's wealthiest.

The increase was accompanied by a bonanza in outsourcing to corporations, which has driven up costs. Thousands of Maryland jobs listed as "private sector" by the Labor Department are filled by security consultants, defense data analysts and telecom specialists whose paychecks depend on the Pentagon and the National Security Agency just as much as those of the colonels up at Aberdeen Proving Ground.

A 2008 study from the Office of the Director of National Intelligence, cited by The Post, said that contract employees make up 29 percent of the work force at the NSA and other intelligence agencies but cost the agencies 49 percent of their payrolls. So much for saving money by outsourcing.

The Defense Department's overhead — its administrative cost — "is much larger than many nations' entire gross domestic product," wrote retired Marine Corps Maj. Gen. Arnold L. Punaro in a report to the Defense Business Board last month. "And there are more people tied to DOD's overhead than live in the entire state of Rhode Island."

All of which might suggest that the gold rush is about to end. Defense and spy spending is enormous, the federal deficit is unsustainable and the wars are diminishing.

But the history of the Defense Business Board leads us to a different conclusion. Created in 2001 by then-Defense Secretary Donald Rumsfeld as part of his plan for radical efficiency at the Pentagon, the advisory board, composed of corporate executives, was supposed to help run the place like a business, with constant focus on costs and productivity.

After the September 2001 attacks, however, efficiency was made to seem unpatriotic. The Defense Business Board, whose Punaro-led task force recommended cutting the 100,000 Pentagon jobs last month, has been making cost-control suggestions for years, with little effect.

Terrorism remains a threat, however hyped by politicians. U.S. forces will probably be in Afghanistan and Iraq for years, if only clandestinely. The virtual war on terror will continue from Maryland computers and satellite receivers long after the real ones abate. And Rumsfeld's idea of a lean and nimble U.S. fighting apparatus is more of a pipe dream now than ever.

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