Crony Kleptocracy
Matthew D. Mitchell writes at Mercatus of a shocking level of contractor fraud and abuse that went on during American operations in Afghanistan and Iraq -- costing taxpayers an estimated $31 to $60 billion:
Economist Luigi Zingales explains in his book, A Capitalism for the People, governments contracting with private interests has its own set of risks:"The problem with many public-private partnerships is best captured by a comment that George Bernard Shaw once made to a beautiful ballerina. She had proposed that they have a child together so that the child could possess his brain and her beauty; Shaw replied that he feared the child would have her brain and his beauty. Similarly, public-private partnerships often wind up with the social goals of the private sector and the efficiency of the public one. In these partnerships, Republican and Democratic politicians and businesspeople frequently cooperate toward just one goal: their own profit."When President Dwight Eisenhower warned against the "unwarranted influence" of the "military-industrial complex," he was concerned that certain firms selling to the government might obtain untoward privilege, twisting public resources to serve private ends. It is telling that one of those contractors, Lockheed Aircraft, would become the first company to be bailed out by Congress in 1971.
For many observers, the George W. Bush administration's "no-bid" contracts to Halliburton and Blackwater appeared to exemplify the sort of deals that Eisenhower had warned of. It is true that federal regulations explicitly permit contracts without open bidding in certain circumstances, such as when only one firm is capable of providing a certain service or when there is an unusual or compelling emergency. In any case, a report issued by the bipartisan Commission on Wartime Contracting in 2011 estimated that contractor fraud and abuse during operations in Afghanistan and Iraq cost taxpayers an estimated $31 to $60 billion. This includes, but is not limited to:
"requirements that were excessive when established and/or not adjusted in a timely fashion; poor performance by contractors that required costly rework; ill-conceived projects that did not fit the cultural, political, and economic mores of the society they were meant to serve; security and other costs that were not anticipated due to lack of proper planning; questionable and unsupported payments to contractors that take years to reconcile; ineffective government oversight; and losses through lack of competition."Governments may also award contracts to perform a service that has more to do with serving a parochial interest than with providing a benefit to the paying public. For example, Congress may order the Pentagon to procure more tanks even though the Pentagon itself says the tanks aren't needed. Paying General Dynamics hundreds of millions of dollars to produce unneeded tanks in order to protect jobs in particular congressional districts may be an abuse even if the underlying process by which the contract was awarded is legitimate.
Mitchell calls the path to these contracts "government favoritism." He writes about multiple forms of it (and the consequences) in The Pathology of Privilege: The Economic Consequences of Government Favoritism, free in PDF.
Use and abuse of the tax code -- like tax breaks for movie producers or stadiums -- is one of these. He rightly calls these "subsidies in disguise."
I usually call them welfare for big business.
Why do we call out Bush, when these sweetheart deals started with Clinton?
Radwaste at July 16, 2018 10:58 PM
There is also an incredible an incredible amount of medicaid/medicare fraud in this country.
It dwarfs any problems with sole source contracts in the middle east.
https://healthresearchfunding.org/stunning-medicaid-fraud-statistics/
Government is very poor at getting their money’s worth, and is an easy target for fraud.
Isab at July 17, 2018 3:38 AM
That sounds horrible. But over what time frame and compared to how much was spent?
The Iraq war supposedly cost $757.8 billion. And supposedly $714 billion in Afghanistan. For a total of $1472 billion. So $60 billion is only 4%.
Based on that analysis I don't believe the $60 billion number. It is far too low for both US government work and especially for the regions that money was spent.
Ben at July 17, 2018 5:21 AM
Much to say here. But I'll touch on one: the Lockheed bailout. People who are screaming about the lack of competition in the commercial airliner sector would do well to remember that what got Lockheed in trouble was a commercial airliner project, the L1011. Part of the blame can be fairly laid to Lockheed; they were an inefficient organization at that time, and they both over-designed the L1011 and failed to miss design bugs that they had to spend a lot of money correcting.
However: a big part of the problem was not foreseeable. Lockheed had chosen an advanced engine design, the Rolls-Royce RB.211, and designed the L1011 around it. Rolls-Royce had a good reputation in the industry, and they set out to produce the first "three spool" engine, which would provide big advantages in fuel economy. But the project turned out to be over their heads; they fell far behind schedule, and that combined with the various demands of the British government had them teetering on the edge of bankruptcy by 1970. The DoD, meanwhile, was getting nervous about losing Lockheed's satellite design and manufacturing capabilities. So the two governments reached a deal: the U.S. government issued secured loans to Lockheed, and the British government outright nationalized Rolls-Royce.
Lockheed didn't manage to deliver the first L1011's to Eastern until 1972, and those were delivered with an early version of the RB.211 that didn't meet the performance or fuel economy targets. They weren't able to deliver the definitive article until 1974, and by that time, Lockheed had missed the competitive window and the U.S. economy, particularly the airline sector, was in a recession. The L1011 is now regarded as having been a good aircraft, with many pioneering technologies, but Lockheed only sold 250 of them. They ended production in 1981 with about a dozen unsold airplanes still on hand.
Incidentally, Ronald Reagan was opposed to the Lockheed bailout, as were a number of both Democrats and Republicans. It passed on a 50-50 tie vote in the Senate, with Spiro Agnew casting the tie-breaking vote. Lockheed finished paying off the loans in 1977. They never produced or offered another airliner.
Cousin Dave at July 17, 2018 6:49 AM
Just be glad you don't get all the government you pay for.
I R A Darth Aggie at July 17, 2018 7:49 AM
"military-industrial complex"
Just remember, Eisenhower's original draft of that speech included the word "congressional" or "political" (the extra word deleted seems to depend on which source you read).
Supposedly, Eisenhower dropped that extra word to appease sensitive congress critters. Which is too bad; because they are at the heart of the problem - and so are the voters who keep voting back in their own congress critters. (one person's pork is another person's bacon)
But, then, I think we also need to add "lame-stream media" to the mix. Along comes a non-politician such as Trump, who promises to clean things up (and seems to be doing so) and those oh-so-clever politicians and the lame-stream media friends bash Trump by trying to de-legitimize him at every chance they get. (and insult his supporters at every chance they get)
Everything from "he is only running as a publicity stunt", "he will never win", "his wife isn't anything but a gold digger", "Melania blink twice is you need to be rescued", "his son Barron is autistic", "more attended Obama's inauguration", "he didn't really win, Hillary got more votes", "Putin helped him win", "he is Putin's cockholster" (what's up with the homophobia of those on the left, and why isn't it called out?), and really the list is endless (and quite tasteless most of the time).
Do they ever have a good word for when he does do something good? Nope, he isn't one of their class (you know, the self-called "elites"); so, of course they don't have kind word to say. Better to have one of their own cheat the taxpayer than have an outsider show them up (and maybe clean things up)
I hope they keep up the bashing - for it will almost guarantee another 4 years of Trump.
charles at July 17, 2018 6:38 PM
"military-industrial complex"
Yeah. In Eisenhower's time, the Defense Department amounted to almost half of the federal budget. Now it's about 18%. And less than half of the military and aerospace contractors from the Eisenhower era still exist. Big success, that military-industrial complex.
Cousin Dave at July 18, 2018 6:12 AM
So let me tell you what a big part of the problem is. The problem is that the government competitive-bit procurement system is broken. It has been for decades. I've sat on source selection committees. It took three months to decide between two competitors on a relatively small contract. There is no good reason why that should be so.
Because the system doesn't work, people look for a way around it, so that they can get their jobs done. If there's any way to justify, on the flimsiest of pretenses, awarding a sole-source (especially when there is an incumbent contractor), people do that. If there is any way to utilize regs that allow bypassing parts of the process under emergency procedures, people do that. We were just having a talk at work here about how the military has been funding all kinds of things via Overseas Contingency Operations funding for the past 17 years. Now that's coming to an end, and we're finding that nobody has any experience with the "regular", by-the-book processes. And it's tying everything in knots.
So there's a reason that procurement regs exist: to prevent corruption. But when the system doesn't work, people find ways around it. Of course, that also bypasses the protections against corruption. Guess what happens next. In a way, I'm surprised that corruption, at least in the DoD, isn't worse than it is. The potential is there for it to be a lot worse. Go back and look at some of the history between about 1960 and 1975 and you'll see what I mean. And this is in spite of all the regs. That's because the regulation system doesn't work.
Cousin Dave at July 18, 2018 6:58 AM
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