Global Warning 30: Markets, Malware, Militias

First, to compete in the future, the U.S. military needs to learn an important economics lesson.

Tip Myers, writing in the U.S.

Naval Institute's Proceedings, argues that to remain geopolitically competitive, the U.S. military needs to learn an important economics lesson, market competition.

Market competition pits companies against each other within their market.

The greater the competition, the more value, with value here meaning better capabilities and lower prices.

In the business world, companies need to compete for consumers' dollars for goods and services, out-competing others in the process.

Generally, the more sellers there are, the stronger the competition.

At perfect competition, a purely academic construct where no firm dominates its peers and everyone knows all the details, prices are competed down to an equilibrium equal to the cost from the manufacturers.

Now, there was certainly competition, at least at the end of the Cold War.

In 1993, the defense industry witnessed the axe falling with their last supper.

This was when Deputy Secretary William Perry informed the defense industry leaders that the defense budget was about to contract massively and they would need to consolidate or essentially die.

Major defense firms went from 37 to just 5.

The U.S. defense budget contracted from 6.6% of GDP in 1986 to 3.1% of GDP in 1999.

If you ever wonder why I say there is no such thing as a military-industrial complex, that's why.

This consolidation resulted in a massive decrease of firms competing with each other on contract, with the government effectively deciding that it couldn't afford free market competition in some areas.

And this was seen as an acceptable cost at the time.

In a world without any major geopolitical enemies, it made absolute sense.

The problem was that after the end of the Cold War, innovation slowed down.

You didn't need to innovate when you were essentially the world's only superpower.

Anyway, competition cuts into profits, especially profits of big name defense contractors.

It's actually really hard to compete with large defense contractors because it's hard to become a defense contractor in the first place.

I should know this.

I became a defense contractor with a startup company.

And one example that we had to encounter was ATL or authority to operate, which you need to access a DoD or Department of War computer system.

And this can cost thousands of dollars to receive the authority to operate.