How Corporate America Cashed in on the Post-9/11 Pentagon Spending Surge
The costs and consequences of America’s twenty-first-century wars have by now been well-documented — a staggering $8 trillion in expenditures and more than 380,000 civilian deaths, as calculated by Brown University’s Costs of War project. The question of who has benefited most from such an orgy of military spending has, unfortunately, received far less attention.
Corporations large and small have left the financial feast of that post-9/11 surge in military spending with genuinely staggering sums in hand. After all, Pentagon spending has totaled an almost unimaginable $14 trillion-plus since the start of the Afghan War in 2001, up to one-half of which (catch a breath here) went directly to defense contractors.
The political climate created by the Global War on Terror, or GWOT, as Bush administration officials quickly dubbed it, set the stage for humongous increases in the Pentagon budget. In the first year after the 9/11 attacks and the invasion of Afghanistan, defense spending rose by more than 10% and that was just the beginning. It would, in fact, increase annually for the next decade, which was unprecedented in American history. The Pentagon budget peaked in 2010 at the highest level since World War II — over $800 billion, substantially more than the country spent on its forces at the height of the Korean or Vietnam Wars or during President Ronald Reagan’s vaunted military buildup of the 1980s.
And in the new political climate sparked by the reaction to the 9/11 attacks, those increases reached well beyond expenditures specifically tied to fighting the wars in Iraq and Afghanistan. As Harry Stonecipher, then vice president of Boeing, told the Wall Street Journal in an October 2001 interview, “The purse is now open… [A]ny member of Congress who doesn’t vote for the funds we need to defend this country will be looking for a new job after next November.”
Stonecipher’s prophesy of rapidly rising Pentagon budgets proved correct. And it’s never ended. The Biden administration is anything but an exception. Its latest proposal for spending on the Pentagon and related defense work like nuclear warhead development at the Department of Energy topped $753 billion for FY2022. And not to be outdone, the House and Senate Armed Services Committees have already voted to add roughly $24 billion to that staggering sum.
The benefits of the post-9/11 surge in Pentagon spending have been distributed in a highly concentrated fashion. More than one-third of all contracts now go to just five major weapons companies — Lockheed Martin, Boeing, General Dynamics, Raytheon, and Northrop Grumman. Those five received more than $166 billion in such contracts in fiscal year 2020 alone. To put such a figure in perspective, the $75 billion in Pentagon contracts awarded to Lockheed Martin that year was significantly more than one and one-half times the entire 2020 budget for the State Department and the Agency for International Development, which together totaled $44 billion.
While it’s true that the biggest financial beneficiaries of the post-9/11 military spending surge were those five weapons contractors, they were anything but the only ones to cash in. Companies benefiting from the buildup of the past 20 years also included logistics and construction firms like Kellogg, Brown & Root (KBR) and Bechtel, as well as armed private security contractors like Blackwater and Dyncorp. The Congressional Research Service estimates that in FY2020 the spending for contractors of all kinds had grown to $420 billion, or well over half of the total Pentagon budget. Companies in all three categories noted above took advantage of “wartime” conditions — in which both speed of delivery and less rigorous oversight came to be considered the norms — to overcharge the government or even engage in outright fraud.
The best-known reconstruction and logistics contractor in Iraq and Afghanistan was Halliburton, through its KBR subsidiary. At the start of both the wars in Afghanistan and Iraq, Halliburton was the recipient of the Pentagon’s Logistics Civil Augmentation Program contracts. Those open-ended arrangements involved coordinating support functions for troops in the field, including setting up military bases, maintaining equipment, and providing food and laundry services. By 2008, the company had received more than $30 billion for such work.
Halliburton’s role would prove controversial indeed, reeking as it did of self-dealing and blatant corruption. The notion of privatizing military-support services was first initiated in the early 1990s by Dick Cheney when he was secretary of defense in the George H.W. Bush administration and Halliburton got the contract to figure out how to do it. I suspect you won’t be surprised to learn that Cheney then went on to serve as the CEO of Halliburton until he became vice president under George W. Bush in 2001. His journey was a (if not the) classic case of that revolving door between the Pentagon and the defense industry, now used by so many government officials and generals or admirals, with all the obvious conflicts-of-interest it entails.
Once it secured its billions for work in Iraq, Halliburton proceeded to vastly overcharge the Pentagon for basic services, even while doing shoddy work that put U.S. troops at risk — and it would prove to be anything but alone in such activities.
Starting in 2004, a year into the Iraq War, the Special Inspector General for Iraq Reconstruction, a congressionally mandated body designed to root out waste, fraud, and abuse, along with Congressional watchdogs like Representative Henry Waxman (D-CA), exposed scores of examples of overcharging, faulty construction, and outright theft by contractors engaged in the “rebuilding” of that country. Again, you undoubtedly won’t be surprised to find out that relatively few companies suffered significant financial or criminal consequences for what can only be described as striking war profiteering. The congressional Commission on Wartime Contracting in Iraq and Afghanistan estimated that, as of 2011, waste, fraud, and abuse in the two war zones had already totaled $31 billion to $60 billion.
A case in point was the International Oil Trading Company, which received contracts worth $2.7 billion from the Pentagon’s Defense Logistics Agency to provide fuel for U.S. operations in Iraq. An investigation by Congressman Waxman, chair of the House Government Oversight and Reform Committee, found that the firm had routinely overcharged the Pentagon for the fuel it shipped into Iraq, making more than $200 million in profits on oil sales of $1.4 billion during the period from 2004 to 2008. More than a third of those funds went to its owner, Harry Sargeant III, who also served as the finance chairman of the Florida Republican Party. Waxman summarized the situation this way: “The documents show that Mr. Sargeant’s company took advantage of U.S. taxpayers. His company had the only license to transport fuel through Jordan, so he could get away with charging exorbitant prices. I’ve never seen another situation like this.”
A particularly egregious case of shoddy work with tragic human consequences involved the electrocution of at least 18 military personnel at several bases in Iraq from 2004 on. This happened thanks to faulty electrical installations, some done by KBR and its subcontractors. An investigation by the Pentagon’s Inspector General found that commanders in the field had “failed to ensure that renovations… had been properly done, the Army did not set standards for jobs or contractors, and KBR did not ground electrical equipment it installed at the facility.”
The Afghan “reconstruction” process was similarly replete with examples of fraud, waste, and abuse. These included a U.S.-appointed economic task force that spent $43 million constructing a gas station essentially in the middle of nowhere that would never be used, another $150 million on lavish living quarters for U.S. economic advisors, and $3 million for Afghan police patrol boats that would prove similarly useless.
Perhaps most disturbingly, a congressional investigation found that a significant portion of $2 billion worth of transportation contracts issued to U.S. and Afghan firms ended up as kickbacks to warlords and police officials or as payments to the Taliban to allow large convoys of trucks to pass through areas they controlled, sometimes as much as $1,500 per truck, or up to half a million dollars for each 300-truck convoy. In 2009, Secretary of State Hillary Clinton stated that “one of the major sources of funding for the Taliban is the protection money” paid from just such transportation contracts.