Remember the leaner, faster, high-tech military promised by Defense Secretary Donald H. Rumsfeld? It now looks like the cold realities of waging war on the ground may push those dreams -- and big paydays for defense contractors -- further into the future.
As 2004 ended, defense stocks were reeling due to the prospect of Pentagon budget cuts in the new year. Shares of Lockheed Martin Corp., Northrop Grumman Corp., General Dynamics Corp. and Boeing Co. all fell as reports spread that fighter planes, Navy ships and even advanced technology programs face funding reductions in the fiscal 2006 defense budget that President Bush will issue a month from now.
Some analysts blame the current costs of wars in Iraq and Afghanistan for the cuts in future military hardware programs. But that's only part of the story.
The expense of supporting Army, Marine, Navy and Air Force personnel -- including repairing their equipment and putting money aside for their pensions and long-term healthcare -- clearly is crowding hardware programs out of the budget.
But this is not a one-time hit. It is the beginning of a new pattern in which supporting large U.S. military forces and extensive commitments around the world will slow the flow of money to weapons and research programs on which defense companies make their living.
And it's not a new story either. "The cost of retention and recruitment of military personnel over the last 10 years has taken more each year from procurement and research and development," says Robert Haffa, head of Northrop Grumman's Analysis Center in Washington.
In the upcoming defense budget, basic personnel costs would run to at least $110 billion, and expenditures to train, equip and maintain those forces would add an additional $150 billion. Weapons procurements are projected at $75 billion in fiscal 2006, according to official Pentagon estimates, but it is likely that the final figure would be lower because payments for some programs are expected to be stretched out for years.
These budget demands weren't planned for in 2001, when the Bush administration envisioned a transformation of the military into smaller, more mobile units. The Pentagon was supposed to substitute technology and machinery for employees -- cutting the workforce and boosting output, just as U.S. industry did in the 1980s and '90s.
But military reality intervened. The U.S. is in a war on terror and the need is for more, not fewer, boots on the ground in Iraq and other places. The 150,000 troops in Iraq -- and the total of 200,000 in the Middle East -- will be there for a couple of more years at least, most experts believe. And beyond that, the fight against terrorism allows no reductions in the present 2.2-million-strong active and reserve armed forces.
"The mission of our military is to be the world's policeman," says Gordon Adams, a former national security expert at the Office of Management and Budget who teaches at George Washington University. "We will fight the war on terror with forces dispatched to trouble spots around the world. You can't do that with technology alone."
Instead, the U.S. has to pay recruitment bonuses and fairly good pay and benefits to keep the ranks filled. Military compensation is better than it used to be, but is by no means extravagant. A master sergeant with 10 years of service can make about $60,000 a year, including a housing allowance. A major with 10 years of service can make about $86,000 a year.
And budgeted personnel costs are just the beginning. Today's military also has social obligations, such as pensions, day care, and healthcare for retired military personnel. Defense experts estimate that the healthcare bill alone is running $20 billion a year and bound to grow.
"Contractors and Congress alike will be stunned" when they see how profound the shift from investment in weaponry and technology to support for personnel will be in the Bush administration's second term, says Loren Thompson, director of Lexington Institute, a research firm in Arlington, Va.
And so a buildup of weapons and technology that began with defense budgets in the late 1990s is entering a new phase of funding reductions.
The services have already adjusted their plans. The Navy will cut its carrier force from 12 to nine, the Army has already scrapped the Comanche helicopter and the Crusader artillery caisson. The number of FA-22 fighter planes will be cut almost in half. And the F-35 Joint Strike Fighter program, calling for 1,800 planes for all the services, will be reduced, says Steven Kosiak, director of the Center for Strategic and Budgetary Assessments, a Washington think tank.
A phrase heard frequently in Washington in recent years has been that "Sept. 11 changed everything." Evidently, it's also true that Iraq is changing everything too.
James Flanigan can be reached at firstname.lastname@example.org.