US Corporatocracy & Us Defense Industry

To better understand this pricing shakedown, I connected with my colleague, Julia Gledhill, an analyst at POGO’s Center for Defense Information.

“Companies have been price-gouging the Pentagon for decades,” Julia told me. “POGO actually got its start exposing $7,600 coffee pots and $435 hammers in the ’80s, and unfortunately not much has changed for the better. In fact, things have gotten worse because lawmakers have created so many loopholes in the regulatory framework.”

In 1993, in an effort to cut costs for themselves, the Pentagon urged defense companies to merge — an effort that completely reshaped the industry and provided us with the five major contractors that dominate the defense industry today: Lockheed Martin, Raytheon, Boeing, General Dynamics, and Northrop Grumman. Because the industry is so small and consolidated, the Pentagon is often tied into sole-source contracts with these companies. Since these companies are the only ones making certain parts, they’re at liberty to set prices however they’d like, and the Pentagon has no choice but to pay.

Who is the onus on here: maybe the contractors for engaging in such crude business practices, or the Pentagon for failing to do more to negotiate fair contracts?

“The onus is on Congress,” Julia argues. “It’s the lawmakers who’ve made contracting regulations almost entirely ineffective by creating so many loopholes that the law is essentially a shell of its original intent. Sadly, many members of Congress are unwilling to scale back these loopholes and strengthen contracting regulation because of conflicts of interest.

While demanding ever more of our tax dollars, the giant military-industrial corporations are spending all too much of their time simply stuffing the pockets of their shareholders rather than investing in the tools needed to actually defend this country. A recent Department of Defense report found that, from 2010-2019, such companies increased by 73% over the previous decade what they paid their shareholders. Meanwhile, their investment in research, development, and capital assets declined significantly. Still, such corporations claim that, without further Pentagon funding, they can’t afford to invest enough in their businesses to meet future national security challenges, which include ramping up weapons production to provide arms for Ukraine.

In reality, however, the financial data suggests that they simply chose to reward their shareholders over everything and everyone else, even as they experienced steadily improving profit margins and cash generation. In fact, the report pointed out that those companies “generate substantial amounts of cash beyond their needs for operations or capital investment.” So instead of investing further in their businesses, they choose to eat their “seed corn” by prioritizing short-term gains over long-term investments and by “investing” additional profits in their shareholders. And when you eat your seed corn, you have nothing left to plant next year.

Corporations are able to increase shareholder value by taking over congress via campaign contributions in effect turning representatives into employees of corporations.
No wonder the next year’s defense budget will likely exceed $1 trillion dollars.


Both. But the Pentagon can demand the supplier “perform per the contract or else be declared in default”.

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Pentagon contracts on weapon systems with promised capabilities are based on estimated costs. These weapon systems never are delivered on time or as capable as promised. see f-35, Littoral combat ship, or Ford class aircraft carriers.
Due to concentrated defense industry replacement parts many times have only one source. And that source charges what they wish, not what it costs to make the replacement part. And as the article stated the Pentagon has no cost data on replacement parts thus are at a disadvantage in negotiating replacement parts contracts.

And “The cherry on top of it all is that even if contractors are caught price gouging, they are rarely required to issue refunds. From January 2017 to June 2019, TransDigm made at least $20.8 million in excess profits from the Pentagon but refused to refund the money.”


Cheating the Pentagon has been going on as long as the Pentagon has existed. In the 50s, Packard had a contract to build engines for Navy minesweapers. After Curtis-Wright bought Studebaker-Packard’s defense contracts in a government organized bailout, C-W learned that a perfectly suitable engine could have been bought from Cummins, just for what Packard was loading on the engine program in overhead. Kaiser had a contract to build the Fairchild designed C-119, as a second source. Kaiser was charging the USAF far more than Fairchild, for the planes. A DoD investigation ensued, and the USAF cancelled all contracts with Kaiser.

The government was gouged before WWII too. SecNav Daniels, during WWI, greatly expanded the Navy’s capacity to build it’s own ships, because the Navy was being gouged by commercial shipyards. In the 30s, commercial shipyards were still charging the Navy more than what the Navy could build ships for. iirc, in the 60s, the (L&Ses) passed a law forbidding the Navy building it’s own ships, so, now, the US commercial shipyards live off the Navy, as they never worked to remain competitive with European and Asian yards on commercial work. (a few years ago, a company wanted to run a cruse ship between the Hawaiian Islands. Due to the Jones Act, the ship had to be US built. The hull was built by Ingalls, in Mississippi, to satisfy the Jones Act, but then towed to Germany for fitting out)

Harry Truman made his name by investigating defense contractors during the war. One of the worst scandals was the Wright aircraft engine plant near Cincinnati. C-W officials bribed Army inspectors to pass known defective engines, that Army pilots would be betting their lives on. so that C-W could make more profit off the government. Brewster Aeronautical’s aircraft plant was so corruptly run, and the planes produced so shoddy, that the Navy took direct control of the plant and ran it itself.

Defense contractors going the government is “a traditional American value”.



Steve-good examples of sleazy behavior. But in your cases there was perfectly good alternative engines choices. Today the US defense industry touts weapon systems with extraordinary capabilities that haven’t been perfected. Thus they receive cost plus contracts while the defense industry jigger components & redo software to bring the promised technology. Production begins before the wrinkles are ironed out… And the defense spread product of the weapon system over as many states to the respective representatives to push for the weapon system.

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Hi Steve,

I’m a former owner of a beautiful Packard automobile for many years and I’m obviously a pro-Packard kind of guy. From what I’ve read in Packard journals (Packard Cormorant mostly) is that the Company stepped up to provide aircraft and boat engines while stopping all consumer vehicle production. Packard did a good thing when called upon by the Federal Government back then.

Would you happen to have some links or facts to back the claim that Packard was goosing the Pentagon in the engine deals? I’d be very interested in sharing that with fellow Packard enthusiasts. Thanks in advance!


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That episode was recounted in “Master Motor Builders” by Robert J Neal.

As for Packard “stepping up”, by ending production of civilian cars, the end of civilian car production was by government edict in early 42. Being prevented from making any profit from building cars, while being offered guaranteed profit war contracts, the choice was pretty simple for Packard management.



Nope. The engine produced at that plant, the R-2600 was used in the SB2C dive bomber, TBF torpedo bomber, and the B-25. There was zero surplus aircraft engine production capacity in the county. The Navy and Air Corps needed every plane that could be built, and those planes needed every engine that could be built.

Here is a short article about that scandal.


Thanks for the info @steve203. I looked it up on Amazon - Price = $490.00

I guess I’ll have to take your word for it. :rofl:


That is a rip. iirc, I paid less than a Benjamin for my copy. I have offered my copy on eBay a few times, but no takers. Must be too specialized.

The piece on the diesels spans two pages. This is the first.

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And the second page. Do the math. A Cummins sold for about $20/hp, making a 600hp engine cost roughly $12,000, vs the $44,000 Packard was charging the Navy.


Thanks @steve203 !!

Interesting find! Lots of variables there as well. Packard had a lighter engine which was to their advantage. It looks like the biggest disadvantage was that Packard relied on outside vendor components instead of making those components in house which elevated their costs. I wonder if that was primarily due to the fact that the government needed the engines so quickly that Packard just could not build the jigs and other necessary machining tools to build them fast enough.

Thanks for taking the time to scan those pages for me! I appreciate it!


The material in those snips is from a letter written by a Packard engineer on the program, that came over to Curtis-Wright, when C-W bought S-P’s defense contracts. Yes, the engine had some design advantages, and apparently it proved reliable and durable in service, but, as the letter says, that does not, in any way, even begin to justify what Packard was charging the Navy for them.

Metro Detroit, at that time, had scores of tool and die shops. Packard could have had the tooling made just as easily as anyone else. As the letter says, the route Packard went was problematic, in terms of cost, and ability to control cost. Additionally, the amount Packard was charging for overhead was exorbitant.

My takeaway is Packard did not care about costs, because it was the Navy. They were guaranteed a profit, no matter how badly they mismanaged the program, or used “innovative” techniques to bulk up the overhead charges.

Somewhere along the line, I read of the revenue/profit split at Packard in the early 50s. Can’t remember the exact numbers but it was along the lines of 90% of revenue came from selling cars, but 90% of the profit was from defense contracts. When the J-47 contract was cancelled at the end of the Korean War, Nance was begging the government to keep at least a pilot line going, because the company was making so much loot off the program, vs the trickle it made from selling cars in a competitive market.


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I’d agree that would be about right for the early 50’s. By then Packard had merged with Studebaker (1953) and was really hurting when competing with GM, Ford and Chrysler who had cars with more gadgets and other consumer-oriented features.

I once read that Packard’s biggest mistake was to not lower their engineering standards to meet those of Cadillac. Cadillac was able to make automobiles with features that the consumer wanted, at a consumer friendly price because they skimped on the components that the consumer could not see.

@steve203 - Are you located anywhere near the former Packard manufacturing plant? I’ve been watching the demolition of the massive plant over the past few years. When the walkway over the main street was taken down, that was a killer. I guess the plan is to level the entire block that Packard was situated on and then look for a developer.


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Packard merged with Studebaker in late 54. That fiasco was Nance’s hubris. He went in with no due diligence. Previously, Ed Barit had approached Packard about a merger with Hudson in 53, and he was brushed off, in spite of the fact that Hudson was a better fit. Mason’s proposal would have had Nance as only the President of the Packard division, so Nance rejected it. Studebaker had the virtue of Harold Vance and Paul Hoffman being willing to step aside, and let Nance be the big dog.

The 55-56 models were a disaster. Packard must not have done much testing with that new V8, or else they would have discovered the oil aeration issue, that led to failed engines all over the place. Nance hit on the idea of trying to sell the V8 to the Army as a truck engine. Army said, “fine, here is the required schedule of durability and reliability tests it needs to pass”. They never got past the first test, a long run on a dyno. Every engine Packard tried, failed (recounted in Master Motor Builders)

They must not have tested the revised Ultramatic either. The high gear clutch smoked, repeatedly. In 56, they went to a push-button gear selector. But, if the driver parked on an incline, without setting the parking brake first, there was so much pressure on the “Park” pawl that the electric motor could not release it, so the fuse would blow, leaving the owner marooned.

They didn’t seem to do any QC at the plant either. Cars were shipped to dealers festooned with red tags, leaving the dealers to get the cars operational. In short order, the dealers stripped the service parts network of parts, and had to resort to cannibalizing other cars in inventory, to get one functional enough to deliver to a customer (Fall of the Packard Motor Car Company, by Ward)

Nance was an idiot. I don’t think much of Hugh Ferry either.

I live at the opposite end of Wayne County from Detroit. That bridge over E Grand was not taken down. It collapsed. The city has torn down a couple of the buildings it owned. A speculator from Peru had bought some of the complex with big ambitions, but, after doing quite a bit of site cleanup, he ran out of money. The city foreclosed, again, for non-payment of taxes.

The main buildings of the old proving grounds in Utica have been preserved as a historic site. The place hosts events through the year, including two or three car shows.

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They even preserved the old water tower.


This is what remains of the test track. The rest has been taken over by condos. I have been inside that timing tower. The last few years, the tower has been shrink wrapped.

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