Defense Contractors in the Matrix

In this week’s lecture, Professor Jackson once again used the famous 2x2 matrix the class has become familiar with. He used it in order to better examine the types of forces and actors taking part in global economics. The use of the matrix was interesting in its ability to define those in the economic realm and it raised questions about which kind of businesses and organizations should fit in each section of the matrix. Specifically, I started to think about major defense contractors and how they should be placed in the matrix.

When I talk about defense contractors, I’m referring to the large ones who likely would not have a reason to exist (or at least on such a large scale) if it weren’t for the Department of Defense. Companies like Raytheon, Boeing, and Lockheed Martin are among those that come to mind. All these companies do sell to the civilian world, but an enormous portion of their revenue comes from selling to the nation’s largest buyer, the DoD.

In terms of where our large defense contractors fall in Professor Jackson’s matrix, I could see differing viewpoints. If you asked members on the board of directors of any of the top defense contractors, they may see themselves as belonging to the bottom left block in the matrix. They may claim to be in business because of a sheer obligation to help keep our military strong and to protect the nation. They see themselves as a “social enterprise,” as Jackson puts it. However, I certainly don’t think those outside of the defense industry would see these contractors as being in business simply for the greater good. If there wasn’t money to be made from selling to the DoD, these companies certainly would not be doing it. Thus, they don’t belong in the bottom left block.

In my opinion, I see our major defense contractors falling in the bottom right box of the matrix. I say this because at times their relationship with the government almost resembles vertical integration. Granted, there is often more than one contractor competing for government dollars, but once a billion dollar weapons system contract is awarded the government and the contractor are essentially on the same “team.” Both need the product which was ordered to do its job in the field.

The DoD is highly dependent on the success of its main contractors and it certainly cannot allow them fail. It’s in the government’s best interest to keep its contractors running and compensate them with a reasonable level of profit. More profit encourages them to invest in R&D which allows for the development of the next generation of weaponry.

The DoD’s relationship with its contractors is very unique. Both sides are so highly dependent on each other and have few options when it comes to working with other suppliers/buyers. It will be interesting to see if the relationship ever changes. With the DoD experiencing massive budget cuts in the coming years, defense contractors will no doubt feel the pain. Hopefully, they can weather the storm and adopt new business practices which allow them to survive in a world where government contracts may become fewer and far between. If defense contractors can’t survive in a world with less defense spending, there is no doubt the nation’s military strength may be in jeopardy.