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p Private commodity producers have always regarded military supplies as a lucrative business. At the same time, the bourgeoisie continues to use state power for securing fat military orders and for shifting the burden of military spending onto the shoulders of working people. This is characteristic of all capitalist countries but is epitomised with striking clarity by the United States where military production has assumed such a tremendous scale that has never been known in the history of any country during peacetime.

p Manufacturing military goods for the government, the capitalists manipulate all the levers at their disposal to gain a maximum of profit. Whatever false patriotic slogans they may use as camouflage, profit is invariably the main goal of military production. In wartime, it is true, the government exerts considerable regulating influence on the economy, but this fact does not abolish the main laws of the development of capitalist production. The capitalists make concessions only when the prevailing situation and working-class solidarity force them to retreat so as to preserve their rule, their capital accumulated by plunder and their future profits. The book The Pentagon by the American journalist Clark R. Mollenhoff gives numerous historical facts to show how the US capitalists sold the government military goods at 213 extortionate prices, lining their pockets. The machinations of monopolies over military supplies have been repeatedly debated at the US Congress.

p The Temporary National Economic Committee, in its investigation of monopoly power at the outset of World War II, pointed out: "Speaking bluntly, the Government and the public are over a barrel when it comes to dealing with business in time of war or other crisis. Business refuses to work, except on terms which it dictates. It controls the natural resources, the liquid assets, the strategic positions in the country’s economic structure, and its technical equipment and knowledge of processes. The experience of the World War, now apparently being repeated, indicates that business will use this control only if it is ’paid properly’. In effect, this is blackmail, not too fully disguised.”  [213•1  When President Roosevelt appealed for more taxes in 1942, after the United States had entered the war, he was cynically answered by Lammot du Pont with these words: "I say this war doesn’t eliminate the profit incentive. War or peace, profits must obtain. ... This is a sellers’ market! They want what we’ve got. Good. Make them pay the right price for it.”  [213•2 

p In the post-war period, the growth of US militarism spelled an increase of military procurement and development of corruption and all forms of graft, embezzlement, and deception of the government.

p The long-continued intensified arms race and growing militarisation of the economy have led to the emergence of a close alliance between arms-manufacturing monopolies and top-ranking generals. This alliance is based on huge military contracts securing fat profits for corporations and definite gains for the military who assist them.

p To lay their hands on military contracts, the biggest monopolies get in close touch with government agencies, the Pentagon in particular. As a rule, leading executives of the biggest monopolies fill the posts of Secretary and Deputy Secretary of Defence and secretaries of the three military 214 departments. For example, in 1961, Robert McNamara, President of Ford Motor Company, became Defence Secretary. The Texan millionaire William Clements intimately linked with the military industry has been recently appointed Deputy Secretary of Defence. Bribery by military suppliers of highly placed officials of the armed services who help the monopolies to get government contracts has become common practice. What is more, monopolies hire influential retired officers of high rank to take advantage of their connections in the Pentagon.

p The number of former high-ranking military officers employed by industrial firms is rapidly growing. According to Senator Proxmire, in 1959, 100 big companies employed 721 former officers holding the rank of colonel and higher ranks, and in 1969, 2,072. Of their number, 1,065 former officers worked in 10 large military-industrial firms, in particular, 210 in Lockheed Aircraft, 169 in Boeing, 141 in McDonnell Douglas, 113 in General Dynamics, 104 in North American Rockwell, 89 in General Electric, etc.  [214•1 

p The alliance of Big Business and top brass on the basis of multimillion military contracts has provided favourable prerequisites for the use of military expenditures as a source of enrichment of arms manufacturers and some circles of the military. Senator Douglas stated in this connection: "When companies with defense contracts hire former officers of high rank to negotiate with their former fellow officers, some of whom they have promoted, the potential and actual abuses are magnified.”  [214•2 

p The US press reports numerous facts of rivalry and speculative deals over military contracts, in which representatives of the monopolies and the military, congressmen, governors and other official and unofficial personalities are involved. One example of such bitter and lasting rivalry is the struggle over the contract for the F-lll all-purpose fighter-bomber. Initially, ten biggest monopolies vied for this 7,000-million-dollar contract for over two years, but towards the end only two corporations—Boeing and General 215 Dynamics—were at loggerheads over it. The latter took the upper hand. The outcome of this rivalry was the subject of heated debates and inquiry in a special governmental committee.

p In this frantic competitive struggle, the bulk of military contracts are seized by a few large monopolies. As illustrated by Table 38, Lockheed Aircraft moved ahead of the biggest contractors of the Defence Department for the value of military contracts won in the period 1960/61-1969/70. In the fiscal year 1970 it accounted for 5.9 per cent of the total value of the Pentagon’s prime military contracts. Lockheed Aircraft specialises mostly in the development and production of aircraft, missile and space hardware. It is the prime contractor in the development and production of Polaris and Poseidon missiles, as well as Agena carrier rockets. It is also the biggest supplier of C-130 and C-141 Air Force transport jets and other aircraft. In 1965, Lockheed Aircraft won contracts worth several thousand million dollars for the development and manufacture of the C-5A transport jet for the Air Force. The firm has also won a large order for helicopters. In the period 1960/61-1966/67, military supplies accounted for 88 per cent of all its marketed products.

p General Dynamics, for the total volume of contracts in the period 1960/61-1969/70 ranked second and in 1967/68, first among the biggest Defence Department contractors. In the fiscal year 1970, its share in the Pentagon’s total contracts was 3.8 per cent. It manufactures F-lll all-purpose fighters, Red Eye and Tartar ground-to-air guided missiles, ICBM launching units, submarines and cargo vessels, reequips B-52 bombers, carries out research and development in nuclear and space technology, etc. Military supplies accounted for 67 per cent of all its marketed goods in the period 1960/61-1966/67.

p General Electric received from the Defence Department between 1961 and 1970 fiscal years 11,176 million dollars’ worth of contracts, placing third in the list of leading DOD contractors. This accounted roughly for one-fifth of all its marketed goods over the above-said period. General Electric supplies aircraft engines, machine-guns and aircraft cannons, control and guidance systems, electronic instruments and communication equipment Moreover, it has a share in
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numerous contracts for space and missile systems and assemblies, as well as for nuclear engines for ships.

p McDonnell Douglas, the fourth biggest contractor of the Defence Department, carries out military research and development, builds F-4 and F-15 aircraft, various missile systems, ground equipment for space systems, electronic equipment, parts for air-navigation equipment; develops and manufactures equipment for radar reconnaissance and information systems, and handles other work for the Pentagon. Military supplies accounted for 75 per cent of all its sales in the period 1960/61-1966/67.

p Boeing ranks fifth in the list of the Pentagon’s biggest suppliers. This company is its main contractor in the development and production of the Minuteman-II intercontinental ballistic missile, and is the biggest supplier of transport jet aircraft. NASA placed with Boeing 25 contracts worth a thousand million dollars for the production of the first stage of Saturn-5 carrier rockets. In the period 1960/61- 1966/67, military supplies accounted for 54 per cent of all its market sales.

p United Aircraft is the biggest supplier of engines for combat and civilian aircraft. It manufactures helicopters, airplanes, radar systems, control and guidance systems, and is involved in military research and development. Military supplies account for 57 per cent of its total marketed products.  [218•1 

p The rivalry of the monopolies over military contracts is mostly due to their chase after" high profits. As a rule, the profit rate of arms manufacturers, even according to official statistics, is notably higher than the average profit rate of the 500 large US industrial companies combined (see Table 39).

p In this table the average rate of profit is calculated as the ratio of net profit (after taxes) to invested capital. These data notably understate the actual rate of profit, particularly of arms manufacturers. The point is that the latter, by various machinations and, in particular, taking advantage of shortcomings in the operating system of payments for military supplies, largely overstate their production
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219 Table 39 Average Rate of Profit of the Biggest Military Contractors and the Biggest Industrial Corporations 1657 1960 1962 1964 1965 1967 15 biggest military contractors .......... 17.2 11.0 13.1 13.9 16.2 15.3 500 biggest industrial corporations ......... 11.4 9.1 8.9 10.5 11.8 11.7

Sources: Fortune, July 1958; July 1961; July 1963; July 1965; July 1966; July 1968.

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outlays, thereby concealing and understating their actual profits. A sizable proportion of investments in arms corporations is made out of government funds. For example, a survey of the activities of 13 big contractors of the Defence Department in the period 1957-61 indicated that they had used government property worth 1,539 million dollars while their own property was worth 1,463 million dollars, i.e., less than the entire functioning capital of these companies.  [219•1  Therefore, when the rate of profit is taken to be the ratio of declared profit to total capital investments (including government investments) this also understates substantially the rate of profits of military suppliers.

p The progressive US economist Victor Perlo, in the book Militarism and Industry, discusses in detail machinations of monopolies over military contracts; he adduces much conclusive evidence that the actual rate of profit of military suppliers is far in excess of its declared rate, and exposes the interest and role of these "death pedlars" in a continued arms race and exacerbation of the international situation.

p According to Perlo’s estimates, the actually reported and hidden profits of military suppliers account for 18 per cent of their total sales.  [219•2  Taking account of this percentage and the total military procurement it may be calculated that in 220 1966/67 the Pentagon’s purchases alone gave military suppliers approximately 6,500 million dollars in profits.

p Table 40 presents the absolute size and rate of profits of the Pentagon’s biggest suppliers.

p The Vice Admiral H. G. Rickover, US Navy, said that "in the past several years I have seen profits on defence contracts go higher and higher”. According to him, profits on military contracts add up to about 4,500 million dollars a year.  [220•1  The US Professor Murray L. Weidenbaum, a known expert in military economics, estimated that in the period 1961-65, the actual rate of net profit of six big arms-manufacturing companies was 17.5 per cent, while that of six equally large companies with no military contracts was 10.6 per cent.  [220•2 

The high rate of profit of arms-manufacturing companies is also evidenced by a special inquiry carried out by the US General Accounting Office. Its findings which aroused a violent reaction within the Pentagon and the aerospace industry were obtained by an examination of 146 recently completed military contracts worth a total of 4,256 million dollars. Given below are the results of the inquiry by the General Accounting Office into the reported and actual rates of profits of arms-manufacturing firms before taxes (per cent).

Actual rate according to Index Reported rate findings of the General Accounting Office Profit to cost ratio .......... 3.9 6.9 Profit to total investment ratio .... 10.2 28.3 Profit to own investment ratio ..... 19.8 56.1

The table shows a glaring gap between the reported and actual rates of profits. In 1969, the rate of profit (before taxes) of all corporations of the US manufacturing industries was 20.1 per cent (in relation to joint-stock capital). The figure for military suppliers, however, was 56.1 per cent.

221 Table 40 Profits of the Biggest DOD Contractors 1964 1965 1967 Company Value of military contracts, mil. dollars Net profit, mil. dollars Rate of net profit, per cent Value of military contracts, mil. dollars Net profit, mil. dollars Rate of net profit, per cent Value of military contracts, mil. dollars Net profit, mil. dollars Rate of net oroht, per cent Lockheed Aircraft Corp ...... 1,455.4 45.1 18.9 1,715.0 53.7 19.3 1,807 54.4 15.5 General Dynamics Corp ...... 986.7 42.6 14.2 1,178.6 49.2 17.4 1,832 57.0 17.0 General Electric Corp ....... 892.6 237.3 12.4 824.3 355.1 16.9 1,290 361.4 15.4 North American Aviation, Inc. United Aircraft Corp ....... 1,019.5 625.4 49.3 29.0 16.7 9 2 745.8 632.1 45.8 49.0 14.4 13 4 689 1,097 68.3 57.3 11.0 12.4 Boeing Co ............ 1,365.2 45.3 14.8 583.3 78.2 21.1 912 83.9 11.2 Grumman Aircraft Engineering Corp. . . .... 395.6 10 7 14 8 353 4 20 9 23 3 488 21 4 16.4 Sperry Rand Corp ........ 373.9 28 2 7 3 318 4 22 0 5 7 484 53.9 11.4 476.2 37.1 10 6 315 6 30.5 10 5 290 36.6 11.6 General Tire and Rubber Co. . . Raytheon Co .......... 364.4 253.6 36.9 8.2 14.0 7.6 302.0 293.4 42.6 11.0 14.2 8.8 273 403 32.1 28.6 9.1 14.2 > 5 o 11 c ’-a so O D O O

p Sources: Fortune, July 1965; July 1966; July 1968.

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p In the opinion of the General Accounting Office these high profit rates are largely due to the system of advance payments, which are, in effect, interest-free loans. In the period 1964-70, the total sum of advance payments grew from 3,300 million dollars to 10,000 million. Advance payments enable contractors to use their clients’ money to compensate up to 90 per cent of total outlays. The high rate of military profits is also secured by the use of government enterprises and equipment put at the disposal of contractors. In 1967, the total value of government industrial property was equal to 2,600 million dollars, 84 per cent of which was used by 15 companies, 9 of them the biggest military contractors.

p The US ruling circles regard the existing organisation of military production as an effective one. And small wonder. Indeed, it is precisely to meet the economic and political interests of the financial oligarchy that the US Administration annually channels huge sums into the development of military production, uses the military budget as a means of implementing state-monopoly measures to accelerate the economic growth rates and mitigate the antagonistic contradictions of capitalist reproduction.

p However, a detailed analysis of the organisation of military production and occasional critical publications on the subject attest to the existence within this system of essential defects, which reduce the efficiency of using the US military-economic potential. These include, above all, the use of military contracts to meet the selfish interests of private corporations, conversion of military production into a source of fabulous profits for the military-industrial complex, which resorts to various machinations to win as many government defence contracts as possible and to supply military goods to the government at exorbitant prices.

p This is illustrated by the findings of a special inquiry into missile purchases held by the Senate Permanent Subcommittee on Investigations headed by Senator John L. McClellan, which came to be known in Washington as the "profit pyramiding" inquiry.  [222•1  In 1945, the Department of the Army signed a contract with Western Electric Company for the development and production of Nike-Aj ax and Nike- 223 Hercules guided missiles that could track and destroy enemy bombers. The company subcontracted much of the research and development involved to the Bell Telephone Laboratories, and more than 70 per cent of the work to 17 different firms which, in their turn, engaged scores of other firms as subcontractors. The total cost of the development (1945-52) and line production (1952-63) of Nike-Aj ax and NikeHercules missiles added up to about 2,500 million dollars, in which production costs accounted for 1,400 million dollars (57 per cent). The McClellan Committee found that Western Electric as the prime contractor had spent from its own funds only 359,300,000 dollars (the remaining sums going to production costs and subcontractors’ profits) and derived profits out of proportion to its actual work, at a rate based on the total value of the contract, including subcontracted work. As a result, its profits equalled 7.9 per cent of the total value of the contract and 31.3 per cent of its own outlays. Its subcontractors acted likewise in relation to their subcontractors. This led to the piling up of profits into a "profit pyramid”. Profits were derived on one and the same work both by the subcontractors and the prime contractors, the latter even having a gain on the profits of their subcontractors.

p It goes without saying that this organisation of military production and payments under military contracts resulted in a considerable overstating of prices of military supplies, thereby reducing the effectiveness of US military expenditures. As stated above, over the past few years, the US Administration has taken vigorous steps to eliminate these shortcomings, but these are hardly to be crowned with full success.

p In a situation where roughly 90 per cent of armaments is manufactured by private corporations, the government, unable to regulate military production directly, regulates it by indirect means (distribution of military contracts, direct subsidies, tax reliefs and other privileges, etc.). Absence of centralised planning of military production and the selfish interests of private corporations add to complicate the problems facing the government in using the existing military-economic potential in peacetime and particularly in wartime. For the same reasons, the Administration is unable to ensure a rational use of the country’s productive forces and 224 to secure an optimum utilisation of the material, manpower, and financial resources employed for military purposes.

p These and other flaws in the organisation of military production result in a decreased efficiency of military activity both from the viewpoint of government finance and the use of economic potential.

Discussing the influence the organisation of military production has on the efficiency of US military development, it should be stressed, that the tremendous economic potential of the USA, and the striving of private corporations to wax fat on military contracts have combined to form a permanent military sector in the US economy which is capable, naturally along capitalist lines, to meet the colossal demand of the US armed forces. Moreover, there is stiff competition between corporations for government military contracts. This points, first, to the existence of a powerful functioning material production basis for an uninterrupted and prompt satisfaction of the increasing military demand and, second, to the US Administration’s ability to pick the best of the rival suppliers.