The Bad Economic Incentives Behind the U.S. Arms Industry

Despite the size of the  U.S. domestic arms export industry, arms sales receive very little media attention. Reporting on the cronyism within the industry for The American Conservative, William Hartung writes that “the U.S. share [of the global arms trade] has fluctuated between one-third and one-half of the global market for the past two decades.” Additionally, in 2011 70 percent of all weapons sold were from the United States.

Hartung claims that “government promotion of major arms sales becomes part and parcel of domestic politics” because weapons production facilities are spread around the country in different constituencies. This ensures political resistance to any attempts to cut the flow of weapons. As a result, elected officials have a strong incentive to protect spending on these facilities in their districts, even if such spending is not in the best interests of the country as a whole.

Furthermore, as Hartung writes, the Pentagon is heavily involved in these arm export deals, “from brokering, facilitating, and literally banking the money from arms deals to transferring weapons to favored allies on the taxpayers’ dime.”

Yet many of the arms go to countries like Saudi Arabia, which has brokered more than $50 billion in weapons sales with the United States. Saudi Arabia is undoubtedly using some of these weapons in its war in Yemen, an intervention that has deliberately violated human rights and international law.

Another concerning aspect of this situation is the troubling misaligned incentives at work. The Pentagon is actively concerned with quelling wars, but defense contractors benefit from increased weapons sales when the world is more volatile.

For example, Hartung explains that one government agency, the Defense Security Cooperation Agency, “is funded from a 3.5 percent surcharge on the deals it negotiates. This gives it all the more incentive to sell, sell, sell.” He concludes by lamenting that there is “unlikely to be a genuine public debate about the value of the arms business and Washington’s place in it if it isn’t even considered a subject worthy of more than an occasional media story.”

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