The argument of defense companies like Lockheed Martin, which employs thousands at its Fort Worth plant, is simple: Don’t force us to lay off workers when you know the economy can’t afford it.
That’s what the defense industry says will happen if Congress allows across-the-board budget cuts scheduled for January. Known as sequestration, the cuts are the result of last summer’s partisan gridlock over how to reduce the federal deficit. They’re expected to hit the Defense Department especially hard.
A recent report from a government watchdog group, however, shows that the defense industry has already trimmed workers despite receiving bigger and bigger slices of government cheese.
In 2011 the country’s five largest defense contractors –– Lockheed, Raytheon, Boeing, Northrup Grumman, and General Dynamics –– received $17 billion more government money than in 2006, yet employed 56,000 fewer workers. Put more plainly, they got 10 percent more money while ridding themselves of 10 percent of their workers.
To threaten layoffs when you’re already doing it –– there’s a word for that, said Ben Freeman, who authored the report for the Project On Government Oversight.
“That’s very hypocritical,” Freeman said. “It’s hypocritical to say that it’s going to be doomsday [if the budget is cut] when they’ve been laying off employees while we’ve been giving them billions of dollars more.”
Economic and government experts provided lots of different answers for why the defense industry might be trimming workers despite an increase of federal spending. Chris Preble of the Cato Institute suggested that perhaps the remaining workers were receiving better benefits.
“There could be a positive spin on this,” he said.
Thousands of Lockheed’s Fort Worth machinists might disagree. They spent two hot summer months striking over the contractor’s plan to reduce pension plans. The company said it could no longer afford the benefit.
If benefits aren’t growing, there’s something else that is: CEO compensation and corporate profit margins.
“It doesn’t take a D.C. nerd like me to figure out that that’s where a big chunk of this money is going,” Freeman said. “It’s going to profits, to the shareholders of the company.”
Lockheed, the nation’s largest defense company, received $10.4 billion more contract dollars in 2011 than it did in 2006, but cut 17,000 jobs –– even though 2011 was the second consecutive year of record profits for the aerospace industry.
During the same period, the average pay of CEOs for the top five defense contractors rose to $21.5 million. Lockheed CEO Robert Stevens got $25 million, more than all but two Wall Street CEOs received last year, while his company raked in another $4 billion.
Lockheed spokespersons declined to answer questions about why it was necessary to cut jobs, but Stevens seemed to offer an explanation at a July congressional hearing. Despite the evidence of good times, he suggested that his company had cut those jobs because of “the fiscal pressures our nation faces.”
“We are three years into an aggressive effort to reduce costs and better align ourselves to these budget realities,” Stevens said. He went on to suggest the company would lay off another 10,000 employees if Congress goes through with the $500 billion in planned defense cuts over the next decade.
Stevens is not alone in sounding that warning.
Though the defense industry has experienced 15 straight years of growth, there’s one message that Lockheed and the rest have been trumpeting since the budget cuts were announced: doom.
The Aerospace Industries Association (AIA), the major trade group for defense contractors, first commissioned a study last year that suggested a million jobs would be lost if sequestration becomes law. Then in July, AIA commissioned another study, now suggesting that two million jobs were at stake.
“This report shows that sequestration is not just a defense problem, it’s an American problem,” said AIA President Marion C. Blakey in a news release. “Unless our leaders in Washington take action, massive cuts have the potential to devastate our economy.”
In a hardball pre-election threat, Lockheed announced it might send notices to all 123,000 of its employees warning that the “vast majority” of them are at risk of being laid off.
“Don’t believe the hype,” said a June column co-authored by William Hartung of the Center for International Policy, a foreign policy think tank, and Stephen Miles of Win Without War, a progressive advocacy group. “There is absolutely no reason that any major Pentagon contractor needs to send out massive numbers of pink slips … . Pentagon contractors have decided their workers are the pawns.”
It’s not clear whether the cuts would affect Fort Worth. Congress hasn’t specified yet what programs would be targeted, though it seems possible that production of the F-35 Joint Strike Fighter, the focus of Lockheed’s Fort Worth plant and a costly, widely criticized program, could be trimmed.
“If the [F-35] program isn’t affected, sequestration probably wouldn’t be a big hit [for Texas],” said Ray Perryman of the Perryman Group, a Texas economic analysis firm. “Right now, nobody knows.”
There are “a couple of cities in the country” that would feel the effects of sequestration more than others, and Fort Worth is probably one of them, said Preble, who added that the defense industry’s threats of widespread job losses are hugely exaggerated.
“You have to rely on some highly inflated stats to predict the kind of job losses that AIA and their friends are predicting,” he said.
Defense companies’ “Chicken Little routines” over the proposed budget cuts undermine their argument that investing in defense is good for jobs, said Chris Hellman of the National Priorities Project, a nonprofit that analyzes the federal budget.
“There are numerous studies out there that show that while investing in the military does create jobs, it’s a fairly poor return on investment in terms of the number of jobs,” Hellman said.
And Freeman’s report suggests the defense cuts due to sequestration would still leave defense spending overall at 2007 levels –– when defense contractors were raking it in during the two wars in Iraq and Afghanistan.
So why did the companies lay off all those employees over the last few years?
Well, corporations are always looking for ways to streamline costs, Hellman said, and that means using as little manpower as possible by relying more on automated systems and/or outsourcing many jobs overseas for cheaper labor. There’s nothing wrong with that, except that the U.S. government ends up paying the same amount or more.
The five major defense companies receive the vast majority of their money from the government. Part of the problem is there’s little incentive for them to try to compete in the private sector.
“Why would you go out and compete when you have a customer with the deepest pockets imaginable?” Hellman said.
Lockheed is taking steps to make sure the government contracts keep flowing. In 2011, the company upped its spending on lobbying by nearly 20 percent, to a total of $15 million.