x Abu Dhabi, UAEThursday 27 July 2017

US debates military budget as economic authority fades

The last time US financial officials could lecture other countries with any hope of being listened to was in the 1990s.

The last time US financial officials could lecture other countries with any hope of being listened to was in the 1990s, when emerging markets were falling like rotten fruit into the IMF's bailout basket. From Moscow to Manila, foreign leaders were offered emergency credit lines under strict conditions endorsed by Washington, the IMF's largest shareholder. Enhance the transparency of securities markets, they said, lift trade barriers, reduce debt, impose a regulatory framework to keep investors honest, and deregulate banks so they can diversify into new product lines, such as mortgage lending.

Ironic, no? A decade after the financial collapse of the developing world, the US is paying the bill for either neglecting or abusing its own free-market orthodoxy. Now, a handful of powerful US politicians, in their campaign to save the wasteful F-22 fighter jet from the budget knife, is embracing another enemy of capitalism: a national industrial policy. Unable to defend the US$350 million (Dh1.28 billion) Cold War artefact on its merits - it was designed to dogfight long-expired Soviet fighters and has yet to see combat - a cabal of politicians is arguing production should be increased for the sake of 25,000 jobs on factory lines spread out over 44 states. Getting legislative agreement on major arms projects by spreading plant facilities across the country is a favourite tactic of what Dwight Eisenhower, a former president, famously called the "military industrial complex" in his 1958 farewell address.

Lockheed Martin, which builds the F-22, has in the first three months of this year spent $6.5m wooing Congress for support of its most extravagant weapons systems, according to the Centre for Responsive Politics, with considerable success so far. Politicians recently passed a supplemental funding bill for operations in Iraq and Afghanistan that included $600m for four new F-22 fighters. It is now lobbying for an additional $1.7bn to buy seven more planes - aircraft that Robert Gates, the US defence secretary, says the nation does not need.

Barack Obama, the US president, has threatened to veto the 2010 defence spending bill if it contains authorisation for a single F-22. It is a welcome gesture of fiscal restraint from Mr Obama, whose corporate bailouts and economic stimulus packages will deepen the massive deficits he inherited from his predecessor. Members of Congress are treating the F-22, which is as costly to maintain as it is expensive to build, as a public works programme, pure and simple. Until now, Washington has more or less avoided the habit, popular among command economies of the 1970s, of subsidising labour-intensive but uncompetitive industries.

True, its trillion-dollar rescue of financial groups and car makers amounts to de facto nationalisation, but it is committed to unwinding its stake in those sectors, hopefully at a profit to taxpayers. Nor does it plan - yet - to support the car industry by procuring new fleets of Chrysler sedans, or help Citigroup by offering free toasters to federal employees who take out home loans there. Compared to its cosy ties with defence contractors, Washington's approach to other troubled industries is downright laissez-faire. Johnny Isakson, a Republican senator from Georgia, where the F-22 is assembled, warned the White House this week that "continued production of this aircraft is essential to both our national security as well as the many local economies and thousands of workers that would be devastated as a result of these cuts".

Mr Isakson, who according to his party received $17,000 in campaign funds from Lockheed and rival Boeing in the first quarter of the year, apparently never got around to reading a June 2006 government accountability office report that concluded the Pentagon "has not demonstrated the need or value for future investments" in the F-22 programme. It is not as if Mr Obama is skimping on national security. Despite a $1 trillion budget shortfall estimated for next year, he has earmarked more money for the defence department than his predecessor, George W Bush. The Pentagon's estimated $534bn baseline budget, which does not include the costs of the wars in Iraq and Afghanistan, is nearly double its 2001 level. Overall, defence spending accounts for 20 per cent of the national budget.

The decision to bail out Detroit and Wall Street was preceded by a national debate over whether US taxpayers should underwrite companies that built unwanted products or abused the public trust. Deliberation over the F-22, however, is stopped up under the Capitol dome in Congress, the federal sausage factory. If more Americans were aware of how much of their money is being spent by the Pentagon and the manner in which it is being frittered away in a jobs mill for superfluous weaponry, they may start asking the most subversive question of all, one that is barely whispered in Washington: how much more security can America afford when it is neck-deep in debt and already accounts for nearly half the world's combined defence budgets?

sglain@thenational.ae