Supply Chain

The Biggest Customer of Them All

Feb. 16, 2011

Lost in the nauseating rhetoric about budget deficits is the fact that the U.S. government will spend nearly $1 trillion in the private sector this year.

This includes products and services like paperclips, Chevrolets, hotel rooms, the latest MS Word version, tanks, condoms, and almost anything else you can imagine.

As a point of reference, the total sales at Wal-Mart, the world’s largest private company in 2010, were a paltry $405 billion.

Although the Fortune 500 firms and their leaders are regularly fond of railing against the incompetence of our elected officials, ask most of these same CEOs who their biggest customer is and the answer will likely be the same: Uncle Sam.

Now before you think this is centered on the usual suspects at the Pentagon, think again.

Sure, contractors like Boeing, Lockheed, Halliburton, General Dynamics, Bechtel, and Raytheon always get a big chunk of the national defense budget each year. (One wonders if they could exist at all without government largesse.)

But we forget the military was also instrumental in helping start-ups like Oracle, whose first project was subsidized by the CIA; and Hewlett-Packard, whose humble beginnings were rooted in army radar contracts.

In fact, the Silicon Valley “miracle” was only possible in the first place because of the huge amount of military spending centered there during World War II, the Korean Conflict, and thereafter.

Still, outside the Pentagon, the spending and reach of Uncle Sam are even greater. Medicare and Social Security are the biggest single buyers of technology and IT services in the world. The federal government is also the largest purchaser of pharmaceuticals and medical treatment.

Moreover, the direct purchases are only a portion that gets kicked back to the “private sector”. Right now, 14% of the American population receives food stamps – more than 42 million folks! Where do they redeem those stamps? Certainly not at government-owned stores…

Add in state and local government’s private sector spending to Uncle Sam’s cool trillion, and we’re talking about some serious economic impact…

So, before we start freaking out regarding runaway deficit spending and the burdens we are leaving to our grandchildren, ask what the unemployment rate would be if Uncle Sam really pulled it back? Or, how quickly our nascent recovery would turn into a real depression?

Maybe this is why the new Republicans in the House are already backtracking on their “Pledge to America”.

About the Author

Andrew R. Thomas Blog | Associate Professor of Marketing and International Business

Andrew R. Thomas, Ph.D., is associate professor of marketing and international business at the University of Akron; and, a member of the core faculty at the International School of Management in Paris, France.

He is a bestselling business author/editor, whose 23 books include, most recently, American Shale Energy and the Global Economy: Business and Geopolitical Implications of the Fracking Revolution, The Customer Trap: How to Avoid the Biggest Mistake in Business, Global Supply Chain Security, The Final Journey of the Saturn V, and Soft Landing: Airline Industry Strategy, Service and Safety.

His book The Distribution Trap was awarded the Berry-American Marketing Association Prize for the Best Marketing Book of 2010. Another work, Direct Marketing in Action, was a finalist for the same award in 2008.

Andrew is founding editor-in-chief of the Journal of Transportation Security and a regularly featured analyst for media outlets around the world.

He has traveled to and conducted business in 120 countries on all seven continents.