Insiders: Pentagon Should Not Bail Out Defense Contractors

February 14, 2012

National Journal's National Security Insiders said the Pentagon should not offer bailouts to keep defense companies or capabilities afloat, despite defense-budget cuts and shrinking military markets.

The Defense Department's top weapons buyer said last week that defense companies feeling the pinch of budget downsizing could receive a Pentagon bailout to keep some key weapons-development and manufacturing capabilities alive. Frank Kendall, the acting undersecretary of Defense for acquisitions, technology, and logistics, did not explain how the government would assist failing defense companies, but said, "We have to be prepared to intervene where it makes sense, where we have to."

Yet 73 percent of Insiders said this was a bad idea. "A little Schumpeterian creative destruction will be good for the moribund Cold War-era defense-industrial base," one Insider said, referring to the theories of economist Joseph Schumpeter.

If the Obama administration is serious about preserving the industrial base, one Insider said, it will protect critical parts of defense industry even if it means touching "the third rail" of entitlements. "We should not engage again in 'bailing out' another industry," the Insider said. 

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