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Hidden Effects of the Sequestration Cuts to Defense

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Unread 07.27.12, 10:53 AM
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Hidden Effects of the Sequestration Cuts to Defense

On 07.27.12 07:15 AM posted by Steven Bucci

One of the interesting and disturbing aspects of the ongoing debate about how the sequestration cuts will gut the defense budget by nearly $500 billion over the next 10 years has been the stance of the major defense contractors. Their position has started to shift.

As the battle in Washington cranked up, the major defense contractors were all aghast. They pointed to jobs lost, damage to the defense industrial base, and, worst of all (as unemployment persists at 8.2 percent), the release of pending layoff notifications to thousands of workers just ahead of the November elections.

That last one got a lot of attention in Washington and in every state capital in America. Now, however, the contractors’ staunch position has begun to change. The Hill reports:
While these companies remain firmly against the cuts, they are not offering doomsday scenarios of what sequestration would mean to their industry in closed-door meetings with senior decision-makers on Capitol Hill.

What explains the shift? Why would the defense giants back off even a little on such a potentially effective argument against sequestration? One only needs to read their comments to see it: “When you look at this situation, I understand the danger, but there’s also an opportunity,” Raytheon CEO Bill Swanson told Defense News recently. “And the smart companies, smart leaders, smart businesspeople know how to take advantage of opportunities.” Translation: The big guys can weather this storm, and the little guys—i.e., those who are not “smart”—will not.

The sad part is that Swanson’s words ring true. America already has a shrinking number of contractors that support the defense community. The big incumbents dominate the business landscape. Today, however, they are still dependent on numerous small- and medium-size firms that perform much of the real work as subcontractors to the big federal integrators. It is in this group where the most damage will be done if the sequestration cuts occur. When contracts are cut, the big companies will adjust and the little ones will disappear.

Let’s be clear: This is not a jobs argument. Small and medium subcontractors do not merely provide bodies; they provide key component parts to systems that are not made by others. They provide unique proprietary services and applications that no one else has available. Lastly—and this is key—they often provide the innovative, out-of-the-box solutions that the big companies miss. If the nation loses the small and medium companies, we lose an enormous asset and one of the real strengths of our industrial base.

This new shift by a handful of the biggest defense contractors should not be a surprise; their aim is to survive, and they have now seen a way to squeeze out more of those who might bid against them for the next government contract.

Ironically, President Obama and Senate majority leader Harry Reid (D–NV) see themselves as the champions of the little guy. Yet their unwavering, ideology-driven refusal to compromise on this threat to national readiness will hammer small business and drive them out of the defense business arena. They should instead acknowledge the real solution: prevent sequestration without raising taxes on the America people.

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