Clements Center
Clements Center

Commentary: Political Choices Shape Industry, Not Mergers

Eugene Gholz Oct 27, 2015

Eugene Gholz, Faculty Fellow and Associate Professor at the LBJ School of Public Affairs, discusses how political choices, not mergers shape industry in a piece published in Defense News.

"Over the past several years, Pentagon leaders have warned the big defense industry companies not to merge with each other. In early 2011, Ash Carter, then-undersecretary of defense for acquisition, technology and logistics, acknowledged that firms would likely restructure in response to expected cuts to the defense acquisition budget, but said, “The department is not likely to support further consolidation of our principal weapons systems prime contractors.”

In the last month, the current undersecretary, Frank Kendall, escalated the rhetoric, revealing plans to ask Congress to expand existing anti-trust laws to give DoD more power over defense industry mergers.

Their heart is in the right place. Americans celebrate competition as the best route to efficiency and innovation, and mega-mergers can threaten the possibility of competition. But the defense industry presents a special challenge not typically addressed by anti-trust: Defense contractors influence their buyer’s decisions not just by offering a variety of products in the marketplace, but also through lobbying.

But the authority to regulate mergers will not get the department what it wants. No merger policy can eliminate the substantial political influence that contractors enjoy. Congress often gives in to industry pressures — buying more of the weapons that industry wants to sell — but it does not always do so. Neither mergers nor merger policy can determine what weapons will arm the US military. Ultimately, Congress makes the key decisions."

Click here to read the full article

Photo Credit: Defense News