Mr. Chairman, I believe we are in a de facto situation of nationalized high technology industry. All that is left is to formalize the arrangement. There will be some who will argue that to go ahead and nationalize selected segments of industry will produce Federal spending efficiencies, find reduce the taxpayers’ burden. I think it is pretty well agreed to, that competition between contractors does cost money to maintain long enough so that benefits can accrue to buyers, both in product values and prices. These costs of competition could be eliminated by a political decision to nationalize.
Why competition is so easy to reject because downstream buyer benefits are hard to put numbers on. So, it is more expedient to save money in the short run by eliminating competition than stand the expense of financing competition and hope for long-term imprecise benefits. I believe this trend toward formal nationalization should be reversed. I also believe that implementation of tile Commission’s system recommendations will go a long way toward accomplishing this…
In fact, what industry does is mainly locked in by earlier Government expenditures performed by in-house laboratories, technical centers, and Government’s predilections about what kind of product should be developed. This lock-in occurs because the Government. In the main, decides which system approaches and technologies to finance, which to reject, regardless of where performed, private or public sectors. These decisions are made in a noncompetitive environment, not a competitive one…
The seeds of formal nationalization are there, centralized technical decision-making, and for many programs, centralized control of both private and public resources. In my opinion and in the opinion of several others, we have been in a situation of “state-planned technology” for over a decade. The obvious outcome of this is “state-planned products and services.” If this situation continues, the private technologist, scientist, and engineer will lose their freedom to conceive of new products and he responsible for their outcome.
That was a stirring testimony from David Soergel to the Senate at a June 1975 hearing. I don’t think it would be too controversial to say that we have been in a situation of state-planned technology for more than 50 years now.
The requirements process and program budget are, in effect, mechanisms for unified resource allocation. They coordinate a set of single buyers in advance of contract solicitations to industry. Oftentimes, the government buyer specifies the technical solution in the solicitation. If a monopoly is clearly against the public interest, then why is not a single buyer (monopsony)?
The government also dictates the contractor’s operations. Murray Widenbaum found that the government has decision power in: (1) make-or-buy practices; (2) selection of subcontractors; (3) purchases made foreign and domestic; (4) internal financial reporting systems; (5) industrial engineering and planning systems; and (6) minimum and average wage rates. All this prohibits competitive pressure from new firm entry.
Ultimately, monopsony leads to the neglect of alternatives, incomplete consideration of costs and benefits, and a bias for “safe” proposals from large incumbents. Until we hear loud complaints from the GAO and other watchdogs that there is unacceptable waste due to too much duplication and overlap in the R&D program, I think that we can safely say that the DOD is under-diversified on its investments.
Leave a Reply