The Generals Go Shopping

By Mark Thompson/Washington

President Clinton doesn't mind taking on the Vast Right-Wing Conspiracy, but the last thing he needs just now is to open a second front against the military-industrial complex. And that is what he was facing after the Joint Chiefs of Staff, in a closed-door meeting with him, threatened to go over his head to Congress to get a bigger budget. So, clever politician that he is, Clinton last week signaled his support for an increase in military spending of as much as $15 billion, or 5%, a year.

That reversal evoked smiles not only at the Pentagon but also on Capitol Hill, where Clinton needs any support he can scrounge, and where lawmakers in both parties welcome extra spending in their districts to keep redundant military bases open and weapons contractors hiring. The Joint Chiefs will testify before Congress this week, and despite the inconvenient dearth of serious foreign threats, they will enjoy a warm reception.

These developments have persuaded many Wall Street analysts and investors that battered defense stocks may finally be on their way back up. "The defense-budget drought is over," says Bob Gabele, president of CDA/Investnet in Rockville, Md., which monitors trading by corporate executives in their companies' stocks. Citing such firms as Boeing, Loral and United Technologies, Gabele says, "In 20 years, I've never seen such a concentration of insider buying in defense stocks."

Defense analyst Paul Nisbet of JSA Research in Newport, R.I., cautions, however, that "investors shouldn't expect any dramatic change in the growth or earnings of these companies." Recent appreciation in defense stocks, he says, only marks a climb back from their 10% drop following the Pentagon's blocking of further defense-industry mergers earlier this year.

Back then, the Pentagon was confronting some hard choices. After 14 years of shrinking defense outlays, it faced a $270 billion annual budget that would just keep pace with inflation. The military would have to kill some costly cold war-era weapons programs, slash its 1.4 million-man fighting force or undercut the readiness of U.S. troops to fight. But the tacit alliance last week of President, Pentagon and lawmakers averts any major, post-cold war restructuring of the U.S. military. And postponing that day of reckoning will be expensive for taxpayers.

The top generals this week will insist to Congress that they must be funded well enough to fight and win two Gulf War-size conflicts at once. They will point out (surprisingly, one might think, with spending still near cold war levels) that the number of warriors in U.S. fighting forces--Army maneuver battalions, Navy ships and Air Force planes--has dropped nearly half over the past decade. And some surviving units, according to audits earlier this year, are "ghost squads," without a single soldier assigned to them.

Yet there is no shortage of gold braid: each Army division currently has 30 generals--up from 14 in World War II. The Air Force boasts a general for every 23 airplanes (down from 244 planes), and the Navy has an admiral for every 1.6 ships (down from 130 ships).

The military continues to pour billions of dollars into weapons that may be needed eventually but are not needed at the moment. The Navy wants to spend more than $2 billion a copy for a new class of 30 attack submarines even as it scraps dozens of existing attack subs, many designed to stay at sea another decade. The Air Force is dispatching hundreds of fully functional warplanes to its Arizona boneyard while it pays $188 million apiece for 339 single-seat F-22 warplanes.

Congress, meanwhile, blocks Pentagon efforts to close unneeded military bases, with the result that of every Pentagon dollar, the portion earmarked for bases, housing and other nonfighting assets remains near 60[cents]. The average lawmaker feels that is a small price to pay to ensure his or her re-election. And the President is more desperate than usual to keep Congressmen happy. None of this, of course, is lost on the Joint Chiefs. And you've got to give them credit: they know when to strike.