Changing the rules

Today's Wall Street Journal contains in an in-depth analysis of the ongoing US Air Force procurement scandal

Changing the rules

Today's Wall Street Journal contains in an in-depth analysis of the ongoing US Air Force procurement scandal, involving Boeing's leasing of tanker planes for refueling US jets. At the center is the “revolving door” that led the principal purchasing officer for the deal to land a major job offer shortly after the enormously profitable deal was signed.

According to the article, “How Two Officials Got Caught By Pentagon's Revolving Door” (12/18/2003) , it wasn't just Boeing that was interested in hiring the insider knowledge and connections of the government procurement officer. Lockheed-Martin and Raytheon, two other defense industry giants, were also jockeying to buy her services.

Such ethically dubious transitions from the underpaid public sector to the high-salary private sector and the opportunities for corruption they bring up have been around since the colonial army ordered muskets. But the oligopolization of the defense industry in recent years and the complexity of weapon development have made the potential for abuses greater than ever, as the WSJ notes:

Post-Cold War consolidation melded dozens of smaller defense contractors into a handful of giants. As the government modernizes its armed forces, it has become increasingly reliant on contractors such as Boeing to pull together sophisticated weapons systems with products and services from different companies; military officials admit they lack the technical expertise for the job. And because weapons programs cost billions and can take a decade to come to fruition, their official overseers often find their interests closely aligned with the companies they are supposed to police.

As we have seen before, the bigger and fewer the competitors, the more the nominally free market gets distorted. The bigger companies feel the need to, and have the power to, quietly change the rules of the game in their favor. One way to do this is to make their counterparts on the purchasing end realize that a compliant attitude is far more in their interest than an antagonistic one.

In the Boeing case, they went beyond the boundaries of prudence and invited public scrutiny. The extravagance of the lease arrangement was not sufficiently complex, so that the bad deal it represented was all too apparent. But normally, the distortion in the system is less easily discovered; here they just went qa bit too far in bending the rules.  [Oligopoly Watch]

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