Advantages and disadvantages of a theoretical nationalization of defense contractors in the US

[EmoBirb]

I figured that given the fact that there are users among us who have a background in economics, it might be worthwhile to ask what the advantages and disadvantages would be if the US government would nationalize the likes of Lockheed Martin, General Dynamics, Boeing, Northrop Grumman etc.

If we look at the international landscape we see that it actually isn't quite as uncommon either, so are virtually all of China's aerospace manufacturers part of the state owned AVIC conglomerate, same for Russia and their UAC. While the Indian government owns over 70% of HAL. Even in Europe there are similar cases, as Italy's Fincantieri is majority owned by the Cassa Depositi e Prestiti, which is in turn owned by the Ministry of Finance. Same with Leonardo S.p.A where the Ministry of Finance holds with 30% the largest shares for a single entity.

So why is the US such an outlier, compared to it's peers/near peers from Eastern Europe and Asia? And what possible advantages (or disadvantages) would arise if the US were to nationalize their biggest defense contractors?

 

[helmutkohl]

I would imagine salaries for employees at a nationalized could be lower, pushing them to go elsewhere.
Direct government influence over these weapon systems might also turn some potential customers away, the same way some don't want Chinese aircraft due to the heavy presence of the CCP.

on the other hand, strategic interests fall under direct US control, and there could be better coordination between the various systems.

 

[Byeman]

Boeing gets most of their money from commercial airliners, USG is only 36%

 

[Byeman]

on the other hand, strategic interests fall under direct US control, and there could be better coordination between the various systems.

or worse due to bureaucracy.

 

[Seragina]

nationalize:
* more bureaucracy
* unified standards and tests; better quality unless corrupted
* more efficient in decision making
* established hierachy/connections won't benefit employees

not-nationalized:
* industrial-military complex; costlier or rather more profit
* even more profit if things are leaked because then the government has to spend money otherwise it's their own money spend for R&D
* better job choices
* established hierachy/company ethics could be problematic and nepotism

The main differences are cost and efficiency or effectiveness.

 

[Byeman]

Most

nationalize:
* more bureaucracy
* unified standards and tests; better quality unless corrupted Not true. unified standards and tests currently apply (See MIL-STD). Government works does not equate to better quality.
* more efficient in decision making Not true, governments are bad on making quick or good decisions
* established hierachy/connections won't benefit employees

not-nationalized:
* industrial-military complex; costlier or rather more profit. No, there opposite, government produced is costlier
* even more profit if things are leaked because then the government has to spend money otherwise it's their own money spend for R&D
* better job choices
* established hierachy/company ethics could be problematic and nepotism Same applies to government run

The main differences are cost and efficiency or effectiveness.

 

[Byeman]

Most of the list (except Boeing) perform 20-40 percent nongovernment work.

 

[Seragina]

Not true. unified standards and tests currently apply (See MIL-STD). Government works does not equate to better quality.

So do you believe Elon Musk'S Starship is safer than NASA's old orbiter?

 

[1635yankee]

Before the end of places like Springfield Arsenal, the new design capabilities of the naval dockyards (Rickover was an advocate getting rid of the naval dockyards. As a possible coincidence, he was getting high value gifts from EB during that time), and the NAF, government-owned weapons production was common.

 

[Orionblamblam]

Look to Britain. Before their aerospace industry was nationalized, they had a bunch of companies and a bunch of wildly successful and diverse aircraft, from the Harrier to the Vulcan. Since BAe became a thing, I don't know that Britain has developed a single meaningful aircraft program on their own. Consolidation and nationalization destroys innovation.

What the US aerospace industry needs is *more* market forces. Boeing should be broken up to at least Rockwell, McDonnell and Douglas.

 

[Orionblamblam]

So do you believe Elon Musk'S Starship is safer than NASA's old orbiter?

The Shuttle killed 14. Starship hasn't killed anybody.

 

[Foo Fighter]

The Shuttle killed 14. Starship hasn't killed anybody.

Yet........

 

[Sferrin]

I figured that given the fact that there are users among us who have a background in economics, it might be worthwhile to ask what the advantages and disadvantages would be if the US government would nationalize the likes of Lockheed Martin, General Dynamics, Boeing, Northrop Grumman etc.

If we look at the international landscape we see that it actually isn't quite as uncommon either, so are virtually all of China's aerospace manufacturers part of the state owned AVIC conglomerate, same for Russia and their UAC. While the Indian government owns over 70% of HAL. Even in Europe there are similar cases, as Italy's Fincantieri is majority owned by the Cassa Depositi e Prestiti, which is in turn owned by the Ministry of Finance. Same with Leonardo S.p.A where the Ministry of Finance holds with 30% the largest shares for a single entity.

So why is the US such an outlier, compared to it's peers/near peers from Eastern Europe and Asia? And what possible advantages (or disadvantages) would arise if the US were to nationalize their biggest defense contractors?

Aside from driving a stake in the heart of efficiency I don't see how government "help" would improve anything. Hell, they're a big reason things take as long as they do in the US. Why would you want to increase that?

 

[Orionblamblam]

Yet........

Sure. Someday, hopefully soon, the USSF will buy a Starship derivative and designate it the B-25 Mitchell Near Space Bomber or some such, and it will rain holy fire down upon the enemies of the Greater United States.

But that's at least two, maybe even three years off yet.

 

[EmoBirb]

Aside from driving a stake in the heart of efficiency I don't see how government "help" would improve anything. Hell, they're a big reason things take as long as they do in the US. Why would you want to increase that?

I would argue the lack of efficiency and especially the ridiculous prices of US hardware are due to the private nature of the US MIC.

While direct government control enables quicker decision making (in theory) and results are prioritized over money.

 

[EmoBirb]

Look to Britain. Before their aerospace industry was nationalized, they had a bunch of companies and a bunch of wildly successful and diverse aircraft, from the Harrier to the Vulcan. Since BAe became a thing, I don't know that Britain has developed a single meaningful aircraft program on their own.

Does the UK gov still have shares of BAE Systems? (successor of BAe)

Consolidation and nationalization destroys innovation.

While I have seen that sentiment several times, the USSR and now the PRC innovate a lot under direct government control, arguably thanks to it in some instances.

 

[Byeman]

I would argue the lack of efficiency and especially the ridiculous prices of US hardware are due to the private nature of the US MIC.

While direct government control enables quicker decision making (in theory) and results are prioritized over money.

those would be both wrong. Private industry is much more efficient than government operations,.

Government control means slower decision making do to bureaucracy. Saving face and control are prioritized over results.

 

[Byeman]

While I have seen that sentiment several times, the USSR and now the PRC innovate a lot under direct government control, arguably thanks to it in some instances.

It has be proven many times. USSR and PRC are not relevant examples. Consumer products are indications.

 

[EmoBirb]

It has be proven many times. USSR and PRC are not relevant examples. Consumer products are indications.

Lmao, so the two biggest and most succesful examples of nationalization of the MIC aren't relevant???

 

[EmoBirb]

Government control means slower decision making do to bureaucracy. Saving face and control are prioritized over results.

That's definitely debatable, it's heavily dependent on how that government manages development, research and procurement. If an office is set up specifically tasked to manage this business with relatively little bureaucratic input, then it's more than possible to cut down on it.

On the other hand, private companies have goals that do not necessarily line up with the goals of the customer and are always subject to overcharging, underdelivering or creating a terrible environment for innovation and competition through consolidation, like it happened in the US in the 90s. When many contractors were bought by 3-4 large companies. While for example the USSR or China keep their research institutes and manufacturers consciously separate, creating a competitive environment and preventing consolidation into near monopolies of a select few.

Which is, why I made this thread in the first place. There are disadvantages and advantages. But so far few of the disadvantages of nationalization seem valid when weighed against the advantages of such an approach.

Another comparison would be PRC vs US shipbuilding.

 

[sienar]

I would argue the lack of efficiency and especially the ridiculous prices of US hardware are due to the private nature of the US MIC.

And this is the rub most americans wont be able to face; either nationalize an industry that is unprofitable during peacetime or overpay like crazy to make it marginally profitable.

 

[Sferrin]

I would argue the lack of efficiency and especially the ridiculous prices of US hardware are due to the private nature of the US MIC.

You could argue it. Not successfully, but you could argue it. Compare Starship to SLS. That's the cleanest example of government vs private sector. Or we could compare the billions government spent to utterly fail to deliver broadband to rural areas or electric car chargers. . .

 

[Orionblamblam]

While I have seen that sentiment several times, the USSR and now the PRC innovate a lot under direct government control, arguably thanks to it in some instances.

Having a gun to your head can make you think real hard. But that will never be preferable to capitalism.

 

[Orionblamblam]

And this is the rub most americans wont be able to face; either nationalize an industry that is unprofitable during peacetime or overpay like crazy to make it marginally profitable.

Or, and here's a crazy thought, figure out how to incentivize success through measures such as getting rid of barriers to innovation and profit.

 

[Dilandu]

So why isidea the US such an outlier, compared to it's peers/near peers from Eastern Europe and Asia? And what possible advantages (or disadvantages) would arise if the US were to nationalize their biggest defense contractors?

Mostly due to much greater influence of large corporations on American internal politics than in Europe, and due to ideological resistance to the mere concept of nationalization.

 

[Dilandu]

So do you believe Elon Musk'S Starship is safer than NASA's old orbiter?

Its still in development, so its impossible to directly compare. It would be like insisting that that car that went hrough many crash-tests is less reliable that the car that wasn't crash-tested, because, you know, the first car crashed.

 

[SUPER=BUG]

Nationalization is different in different countries, and the specific situation still depends on the specific country. Given the current performance of the U.S. government, it's hard to say.

 

[Orionblamblam]

Nationalization is different in different countries, and the specific situation still depends on the specific country. Given the current performance of the U.S. government, it's hard to say.

It might be nice for the US government to promote, say, foreign purchasing of American farms and real estate... then nationalize it when it'll do the most damage.

 

[scautomoton]

Look to Britain. Before their aerospace industry was nationalized, they had a bunch of companies and a bunch of wildly successful and diverse aircraft, from the Harrier to the Vulcan. Since BAe became a thing, I don't know that Britain has developed a single meaningful aircraft program on their own. Consolidation and nationalization destroys innovation.

There's a lot more nuance to this scenario than just "conglomeration destroyed the British Aerospace industry". By the time of the final merge (BAe was formed in 1977) the cost to develop an aircraft had risen exponentially due to the tech expected and the performance being chased. As a result it was difficult for the UK as a small country to bear the cost of development without having a guaranteed order for 100's each time (as in the USA), especially when the export market had extremely competitive (and far cheaper) US products (due to the obvious economies of scale the USA benefits from).

Then there's the general political time wasting that the UK government is infamous for, the historical "old boys" network that was running all of these companies and the need for them to look after each other before, during & after the merging. Meaning that although the companies merged there was no streamlining or efficiency drive. In general all of the design offices and manufacturing facilities carried on as before for quite some time until it became really non-viable. The duplication and waste was considerable.

If anything, the merge should have happened as soon as the war ended. This would have left Hawker, BAC etc in a better position to integrate their respective companies while working on simpler, earlier generation aircraft. Would this have left the UK with a better industry? We'll never know. Certainly I think the Aircraft and Shipbuilding Act of 1977 was a mistake, and we should have kept a handful of companies separate for competition purposes. With perhaps one being government owned and the rest private in order to control costs and keep everyone on their toes.

The way that all the big American names have merged over the decades seems to have been handled far better (correct me if I'm wrong). That may be due to it being market driven, it may be because they saw how we did it and learned a lesson. I suspect both.

 

[Arjen]

The way that all the big American names have merged over the decades seems to have been handled far better

Which resulted in one US manufacturer of airliners. Boeing.

Boeing gets most of their money from commercial airliners, USG is only 36%

Which is a dog's dinner these days.

 

[Desertfox]

There is an industry in the US that is nationalized, nukes.

Bureaucracy concerns for nationalizing are a non-starter. The bureaucracy is already present and highly integrated into the big three.

The main problem with the big three is that they are beholden to shareholder profits first and foremost, everything else is secondary. And we can see how badly its screwed over Boeing already.

 

[scautomoton]

Which resulted in one US manufacturer of airliners. Boeing.

fair comment.

Its worth pointing out that nationalisation doesn't necessarily mean everything has to become one conglomerate. The USSR had successful separate design bureaus for instance, and they were distinct from one another.

 

[aim9xray]

The Shuttle killed 14. Starship hasn't killed anybody.

Category Error. The Starship hasn't carried anybody. Would you volunteer to be Elon's first crash test dummy? Right now?

 

[Hood]

Since BAe became a thing, I don't know that Britain has developed a single meaningful aircraft program on their own. Consolidation and nationalization destroys innovation.

That is not strictly true, BAe was fully privatised by 1985 - 40 years ago.
The last real aircraft programmes like ATP, EAP and Hawker 800 etc. predate privatisation.
After privatisation we get the emergence of side hustles - acquiring Royal Ordnance in 1987, Heckler & Koch in 1991, the Rover Group in 1988, shipbuilding, then getting into telecoms. Rover was disaster and quickly offloaded, but the early 90s began the era of divestments, corporate jets being sold off along with Rover. It was the merger with Marconi Electronic Systems that finished off the company, commercial aircraft building ceased as non-profitable, even flogging the Airbus share just leaving military programmes and BAE Systems became just that - an international conglomerate of electronics and systems armaments while dabbling in UK shipbuilding and military aircraft (BAE Systems of course owns other subsidiaries around the world with similar capabilities), which is kept afloat by the pure virtue of being the last vestiges of British sovereign capability in these areas that the government requires.

Once at the mercy of shareholders, BAe's sole interest was buying and selling companies for shareholder value and profit. They are not particularly interested in developing products on their own, much better to milk US and UK and international government contracts and get paid.

 

[Dilandu]

The USSR had successful separate design bureaus for instance, and they were distinct from one another.

If anything, our problem in Soviet era was too much competition and too much blatant lobbying between bureaus...

 

[Dilandu]

Once at the mercy of shareholders, BAe's sole interest was buying and selling companies for shareholder value and profit. They are not particularly interested in developing products on their own, much better to milk US and UK and international government contracts and get paid.

Basically the core of the problem. As soon as financial operation became more profitable than the real product, the company became less and less interested in real product.

 

[scautomoton]

Basically the core of the problem. As soon as financial operation became more profitable than the real product, the company became less and less interested in real product.

This is true across the world currently I would suggest. Generation of profit for investors trumps delivery of what a company historically specialises in, leading to diversification into markets & sectors they are unsuited/ill-prepared for and which then dilutes the company's capability and profitability.

As an example, in the UK the Veterinary sector has been effectively taken over by large corporations which have hoovered up all the small, trusted, independent firms. They have then bought up all the tier 1 & 2 providers so they can sell supplies to themselves for cheap, and have then artificially raised the costs paid by customers. All to maximise profit for their investors rather than improve the service for their customers. As a result Parliament is investigating the industry for cartel-like practice. The level of footfall in Practices is dropping due to cost, public opinion of Vets is now at an all time low, and the rate of suicide amongst Vets is at an all time high. All because the investors demand more and more profit. Doesn't sound like good business practice to me. And I know all this to be true because my Wife is a Veterinary Surgeon and has watched it all happen over the last 10 years.

But I digress.

I think nationalisation and limited conglomeration can be a good thing when circumstances demand it is in a nation's best interests (wartime for instance) provided it is managed effectively and efficiently. When times are less tough then private ownership is probably the better option, provided outright greed does not impact upon corporate output. After all, having strong competition keeps everyone strong.

 

[1635yankee]

You could argue it. Not successfully, but you could argue it. Compare Starship to SLS. That's the cleanest example of government vs private sector. Or we could compare the billions government spent to utterly fail to deliver broadband to rural areas or electric car chargers. . .

Of course, SLS was entirely built by private contractors.

The problems with SLS were due to requirements creep, especially after the DoD got involved. MIT OCW has a course where the SLS' designers explain the decisions.

------

Historically, a lot of naval ships, artillery, and small arms were built in government facilities. The concept of eliminating government arsenals, in the name of efficiency, didn't become fashionable until after WWII. Why this changed would be a great dissertation topic, but I suspect the main driver was ideology, not economics.

 

[yeetmahboi]

now the PRC innovate a lot under direct government control

Where?

 

[Anduriel]

Or, and here's a crazy thought, figure out how to incentivize success through measures such as getting rid of barriers to innovation and profit.

Gun to your head? USSR's MIC is anything but coercion by govt. In fact, it's vice versa, USSR MIC is epitome of tail wagging the dog, as amount of lobbyism was staggering. Look no further than tank development, instead of one tank USSR produced three different tanks for the same role simultaneously. Because military and govt weren't able to make other plants produce the tank that was "not theirs".