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The Pentagon's Invisible Hand in U.S. Manufacturing Success

Dec. 13, 2012
If the government slashes spending on new military technology to reduce deficits, it won't just be warfighters who suffer.  

One of the most pervasive myths in modern economics is the belief that the free interplay of supply and demand always will produce optimum results.

The reality is that government intervention in the functioning of so-called market forces often accelerates progress and prevents excesses.

That isn't just due to the government's role as a regulator. Government funding frequently leads to the development of new technologies that benefit the broader economy.

Jet engines, lasers, computers and the Internet are just a few of the innovations that began as government programs -- typically programs aimed at meeting military needs.

Viewed from this perspective, the Pentagon isn't a market distortion; it's a powerful stimulus to economic growth.

A Dec. 3 Wall Street Journal contained an interesting example of how the military's "invisible hand" sometimes creates unexpected economic benefits. A story by reporter James Hagerty sought to explain why America continues to lead the world in the production of big-ticket capital items like locomotives, airliners and excavators even though other segments of U.S. manufacturing have withered.

It argued that one reason was the steady flow of Pentagon funding to research that benefits those product lines such as advanced-engine technology and material sciences.

The story suggested a link between Pentagon industrial programs and the success of Peoria, Ill.-based Caterpillar Inc. (IW 500/21), despite the fact that the world's biggest maker of heavy equipment isn't usually thought of as a defense contractor.

There are plenty of other examples where the linkage is more obvious.

For instance, Boeing's first jetliner, the 707, was based on the same airframe developed to provide the Air Force with an aerial refueling tanker and flying command posts.

Electronic computers were funded in their infancy by Army and Navy offices concerned with improving the accuracy of artillery fire.

The Internet originated in Pentagon labs as a way of sustaining federal communications in a nuclear war.

The more you look at patterns of technological progress in the postwar era, the clearer it becomes that America's military has provided much of the seed-corn to grow today's technologically advanced economy.

That fact is seldom acknowledged in the political system, because it violates basic precepts of left-wing and right-wing ideology. Nonetheless, it leads to an obvious conclusion: If the government slashes spending on new military technology to reduce deficits, it won't just be warfighters who suffer.

Innovation also will slow in such unlikely places as Peoria, because the ripple effects of Pentagon research efforts reach far and wide.

Loren B. Thompson, Ph.D., is chief operating officer of the Arlington, Va.-based nonprofit Lexington Institute and chief executive officer of Source Associates, a for-profit consultancy. Prior to holding his present positions, he was deputy director of the Security Studies Program at Georgetown University and taught graduate-level courses in strategy, technology and media affairs at Georgetown. He also has taught at Harvard University's Kennedy School of Government.

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