You are an accountant tasked with evaluating the world’s largest conglomerate. Its finances are so poorly managed that they have been rendered all but unintelligible each year for the last two decades. Income has nearly doubled over the last ten years, though liabilities are a third larger than assets. It has a massive procurement budget that increases at a brisk annual pace, though it suffers from declining rates of productivity due to skyrocketing manufacturing costs and a dwindling number of contractors. Outlays on staff benefits are rising so dramatically that they are crowding out investment in the group’s main business lines.
If you are wondering why shareholders of this conglomerate have not demanded an emergency general meeting and the heads of its directors, it is because this is no ordinary conglomerate. It is the United States Department of Defense, by far the world’s largest—and by some measures its most dysfunctional—government agency, with an annual budget of more than 700 billion dollars. Even before the September 11 terrorist attacks on the US unleashed a decade of record military spending, the Pentagon’s budget was, along with the national pension and retirement medical programs, regarded as a perpetual trust. Members of Congress supported spending reductions at their peril for fear of being called soft on America’s enemies. Indeed, some lawmakers have opposed the Defense Department’s own proposed cuts in obsolete weapons assembled in their districts.
All that may be changing, at least if a widening alliance of fiscal conservatives get their way at a time when deficit reduction has become a new religion both in Washington and in the American heartland. Over the last few months, several blue-ribbon panels have called for a mix of tax increases and spending reductions—including in defense outlays—to right a public deficit estimated to reach 8.5 trillion dollars in ten years. In October, the Center for Strategic and International Studies scolded the Defense Department and the administration of President Barack Obama for lowballing the future costs of wars in Iraq and Afghanistan and not curbing runway spending mandates. Last month, the US Presidential Debt Commission proposed cutting the Pentagon’s budget by 104 billion dollars. In a report issued in October, it attacked the very foundation of US national security policy as unsustainable. “Instead of protecting us against a clear and determined foe,” according to the report, “Defense Department planning and strategic objectives now focus on stemming the emergence of new threats by maintaining a vast range of global commitments on all continents and oceans. We believe that such commitments need to be scaled back.”
Defining the military’s mission downward is only the first step in what a growing number of strategists and budget experts believe is a Pentagon gone rogue. From 2001 to 2010, the baseline defense budget has grown at an inflation-adjusted rate of 6 percent a year, to more than double its pre-September 11 size. It reports 1.7 trillion dollars in assets, 2.1 trillion dollars in liabilities, and 676 billion dollars in net operating costs, though such numbers are meaningless given the opaque and primitive quality of its balance sheets. Pentagon financial statements have been declared all but un-auditable since 1991—the year it began submitting its accounts to Congress—and it is estimated to have lost nearly 4 trillion dollars since then. In 2002, the Pentagon’s comptroller and chief financial officer found that eight of its nine financial statements were not reliable and issued a disclaimer of opinion on them. In 2008, all but two financial statements were so dodgy as to warrant disclaimers of opinion. In October 2009, the Pentagon’s inspector general found serious inadequacies in its book-keeping standards, including a financial management system that occludes accurate, reliable and timely data collection and accounts management, neglected inventory records, improper reporting of property, plant, and equipment depreciation, and inadequate audit trails.
In 2010, the Senate Finance Committee issued a report that slammed the Pentagon’s “total lack of fiscal accountability” for “leaving huge sums of the taxpayers’ money vulnerable to fraud and outright theft.”
Rather than demand meaningful reform in the way the Defense Department accounts for itself, however, Congress has transferred funds for security-related programs that used to be controlled by the State Department directly to the Pentagon. Nearly 1 billion dollars is now available to the US military to help foreign governments fight radical Islamism in their midst, though some legislators and their aides have expressed concerns about the transparency of these accounts. In August 2009, Senator Russell Feingold responded to the Pentagon’s request for additional counter-terrorism funding with a report that 6 million dollars from the program had been given to the government of Chad, which according to a State Department report is “engaging in extra-judicial killing, arbitrary detention and torture.” Early this year, Carl Levin, the chairman of the Senate Armed Forces Committee, told ForeignPolicy.com that “there are real procedural problems that need to be worked out” regarding the Pentagon’s proprietary funding authority.
Despite the simmering rhetoric, it is unclear whether Congress is willing to put the defense budget under the knife. In November’s mid-term elections, usually Pentagon-friendly Republicans gained control of the House of Representatives, though the success of its Tea Party candidates—self styled libertarians who are not afraid to treat defense spending like they would any other item in the federal budget—could result in significant reductions in spending. Or it may not. No government agency is as resourceful in gathering legislative support for its initiatives as the Department of Defense. To entice lawmakers into approving costly weapons programs, it dangles the prospect of jobs in the states and districts of key legislators, a costly way of manufacturing but an astute political maneuver, particularly given America’s still sluggish economy and high unemployment rate.
Meanwhile, waste, inefficiency and political patronage, no stranger to military-legislative affairs, has grown in extravagance over the years. In April 2008, the Government Accountability Office found that 95 major Pentagon projects exceeded their original budgets by nearly 300 billion dollars. A year later, it concluded that nothing had changed. In 2009, lawmakers larded the Pentagon’s annual budget proposal with 5.4 billion dollars in programs and weapons it did not request.
To reach their deficit reduction targets, budget cutters are also demanding the withdrawal of US troops from large and costly military bases in Europe in Asia, which many strategists consider to be outdated legacies of the Cold War. That would place them on a collision course not only with the Pentagon but also with senior American diplomats loathe to rile key allies. For budget hawks in Washington, the journey to anything close to a balanced budget may be more hazardous than they realized. However deep is American indebtedness, it may turn out that the roots of American militarization run deeper still.
Stephen Glain - Former correspondent for “Newsweek” and he has covered Asia and the Middle East for the "Wall Street Journal" for a decade. Now based in Washington as a freelance journalist and author, Mr. Glain is currently working on his forthcoming book about the militarization of US foreign policy.
