**The Military-Industrial Stock-Buyback Complex**

The Military-Industrial Stock-Buyback Complex

_Authored by Matt Stoller via 'BIG by Matt Stoller' Substack,_ (https://mattstoller.substack.com/p/the-military-industrial-stock-buyback)

_**Why is the US military ceding ground to China? As a new DOD report shows, big defense contractors are middlemen whose main purpose is stock buybacks and dividends.**_

?itok=naOxjqVm (?itok=naOxjqVm)

Today I’m writing about an astonishing report (https://www.acq.osd.mil/asda/dpc/pcf/docs/finance-study/FINAL%20-%20Defense%20Contract%20Finance%20Study%20Report%204.6.23.pdf) that came from the Pentagon this week on how Wall Street has wrecked the defense industrial base. This chart, which shows stock buybacks are up while research and development is down, is the key finding.

?itok=u7i560ws (?itok=u7i560ws)

_“Despite improving profit margins and cash generation for defense contractors in 2010-2019 vs 2000-2009, the share of contractor spending on Independent Research and Development (IR&D) and capital expenditures declined while cash paid to shareholders in dividends and share_ repurchases increased by 73% _” \- DOD Contract Finance Study Report, April 2023_

Before I get to that, I have a few announcements. First, there’s some good BIG-related news. Montana Congressman Ryan Zinke is demanding an investigation (https://zinke.house.gov/media/press-releases/zinke-calls-investigation-recreationgov-contract-glacier-national-park) into Booz Allen’s Recreation.gov contract and the consulting giant’s control over national parks. As you may recall, I broke the story (https://mattstoller.substack.com/p/why-is-booz-allen-renting-us-back) about Recreation.gov late last year, and the Wall Street Journal did a follow-up (https://www.wsj.com/articles/national-park-fees-booz-allen-68d4d6d8) on it last week. There’s also a class action complaint against Booz Allen. So yay.

Second, I’ll now be sending occasional shorter missives to paid subscribers. On Wednesday, I sent out a shorter quick read (https://mattstoller.substack.com/p/quick-read-good-news-on-drug-price) on how Wall Street expects action against drug middlemen. Don’t worry, I’ll still be writing the longer stuff. If you want access to all the writing and the BIG Discord server, you can subscribe here (https://mattstoller.substack.com/subscribe).

And now…

?itok=Pr7U8OvG (?itok=Pr7U8OvG)

On the eve of Germany’s invasion of Poland in 1939, America was woefully unprepared for a conflict that everyone thought would come. Most strategists knew the nation that could produce more with its industrial base would probably win, and yet even so, the American business world was oblivious. 85% of U.S. factory machinery dated from the 1920s or earlier, and some predated the Civil War.

And the deeper one looked the worse the situation seemed. The next war would be fought at the cutting edge of technology, which is to say, with airplanes. And an air force required the technological marvel of aluminum, which you could only get from the longest-lasting industrial monopoly in U.S. history, the Aluminum Company of America, or Alcoa. Aluminum, light and strong, was also immensely energy-intensive to create, and Alcoa organized production of 100% of it.

The President of Alcoa, Arthur Davis, a hoarder of talent, tools, and inputs like bauxite, wasn’t worried. He had promised there would be no shortage, that Alcoa, modern and sophisticated as it was, could fulfill all military and civilian demand, and then some. Yet even before the entry of America into the war, Davis was proven wrong. Aerospace firms just couldn’t get their hands on enough of the wonder metal.

After America joined the fight, the shortage got worse. “Prime Minister Churchill said of the Royal Air Force that never in history did so many owe so much to so few,” wrote investigative journalist I. F. Stone. “It might be said of us that never did a people do so little with so much,” he added. Politicians were furious at Alcoa, as were military leaders. FDR demanded 50,000 airplanes a year, and the U.S. delivered that, and more. But to do so, the national security apparatus, which has always lurked in the background of monopoly power questions, had to help break Alcoa’s power, through a mammoth antitrust su…

https://www.zerohedge.com/geopolitical/military-industrial-stock-buyback-complex