Council on Foreign Relations: To Protect U.S. Economic and National Security, Biden Should Address Concentration in the Defense Sector

August 25, 2021 Media

On July 9, the Biden administration issued an executive order intended to boost competition within the American economy. Targeting inefficiencies like non-compete clauses and directing federal attention towards mergers of large technology companies, the order should be applauded as an important step towards building a vibrant U.S. economy.

In the order, the Department of Defense is directed to review the state of competition within the U.S. industrial base and develop recommendations for improving the U.S. defense contracting process.

Since the 1990s, the defense sector has undergone an intense period of consolidation. Currently, just five firms capture more than thirty percent of defense contracts.

Combined with competitive pressures on domestic manufacturing and the secular growth of mergers and acquisitions, the 1990s drawdown helped produce a defense-industrial base dominated by a few large firms. During the early years of the Trump administration, the American Economic Liberties Project reports that nearly two thirds of large-scale weapons system contracts had just one major bidder. A 2018 report issued by the Defense Department states that “the U.S. shipbuilding industrial base consists primarily of seven shipyards owned by four companies and their suppliers.” The consolidation of the defense sector has also led to an increased reliance on “cost-plus” contracts and higher rates of contract termination.