America’s Wal-Martification of War

Records show the U.S. factory crucial for artillery munitions was bought by a defense conglomerate and slowly downsized.

The U.S. and its NATO allies far surpass Russia in wealth, technological prowess, and military might—with a combined defense budget that is a colossal twelve times that of Russia—yet they cannot keep pace on the most vital armament for Ukraine's battlefront.

New reports indicate Russian factories are producing more than three times as many artillery rounds per month as their European and American counterparts., a yawning gap that the newly approved supplemental war funding will hardly solve.

Even with emergency appropriations to expand industrial capacity, Pentagon officials say that production will, at best, reach 100,000 shells per month—still less than half of Russian capacity—by the end of 2025. That leaves Russia with a commanding upper hand as long as the war progresses along grinding trench warfare.

The underlying economic dynamics behind the artillery shortage showcase the short-term financial thinking that has remade much of the American economy over the last quarter century. This dynamic of rapid corporate consolidation isn't unique to the defense sector; similar patterns are evident in hospitals, airlines, and even eyewear, all suffering from monopolistic practices that yield high profits but fragile supply chains.

To understand the shell shortfall and the business decisions that contributed to it, the history of the Scranton Army Ammunition Plant -- which manufactures most of America’s metal casings for 105mm munitions, 120mm mortars, and the heavy-duty 155mm rounds fired by howitzers, the most needed arms on the Donbas front -- is a case in point.

Spun up during the Korean War to churn out artillery casings, the plant, nestled in a coal-rich valley in Pennsylvania that was once home to much of American steel production at the height of the Gilded Age, has since faced decades of neglect and corporate downsizing.

General Dynamics (GD), one of the major defense conglomerates, acquired operational control of this Army-owned factory during a period of outsized and lightly regulated mergers and acquisitions.

GD, the Virginia-based contractor with a market capitalization of nearly $80 billion, started as a submarine shipbuilding concern but has since broadened its reach to information technology, tank and armored vehicles, business jets, and various naval vessels. It has also focused intensely on the ordnance industry and came close to cornering the artillery munitions market.

In 2006, investor records show, the firm spent $2.6 billion acquiring four competitors, including SNC Technology, the largest artillery munitions makers in Canada, and the Chamberlain Manufacturing Corporation's munitions division, the old Scranton arms factory operators.

During this period, tepid regulatory oversight meant the Federal Trade Commission raised concerns that GD would control the entire medium and large munition market but did the bare minimum in terms of preventing it. GD was given a green light to merge, swallowing up most of its competitors in the ordnance and heavy-duty munition market, but was forced to divest its 50 percent stake in a joint venture with Day & Zimmermann, one of the only other firms that produce the 155mm munition.

The cutbacks soon began. In 2010, the local Scranton GD moved to lay off 56 employees at the Scranton factory. Two years later, there were much deeper cuts. The company announced that a quarter of the remaining workforce would be let go, leaving the plant with fewer than half of its employees when GD acquired the facility.

"In raw numbers, 60 or so is not huge, but if you look at the nature of those jobs, their skill level, the technical needs and experience there, it is extremely problematic," Teri Ooms, an economic analyst, told the local Times-Tribune newspaper at the time.

Notably, Day & Zimmermann, which operates the Iowa finishing plant for most 155mm munitions, had shuttered its Kansas munition factory, the main competitor to GD. That closure was only a year before the cuts began at the Scranton plant, leaving little production capacity.

The same story played out around the country as GD, Lockheed Martin, Raytheon, Boeing, and Northrop Grumman, known as the Big Five of defense contracting, increasingly concentrated ownership of the entire defense industrial base and found efficiencies with plant closures and workforce reductions.

Wall Street applauded the financial moves at time. In 2016, Phebe Novakovic, the chief executive of GD, boasted on a quarterly earnings call with investment banks about the company's Ordnance and Tactical Systems division, which includes the Scranton plant. “We had terrific margins out of that business after we consolidated two units," Novakovic said, according to a transcript of her remarks.

Profits from consolidation were largely funneled back to investors. The Defense Department reported last year that major publicly traded defense contractors devoted $240 billion to dividends and stock buybacks from 2010 to 2019. The report added that the companies spent much more money on enriching shareholders than on research and development.

That’s not to say they were sitting idle. During that period, defense giants such as GD also lobbied aggressively for big-budget items with questionable utility. Last year, the New York Times's Eric Lipton chronicled the efforts by a consortium of contractors, including GD, to use lobbyists and allied lawmakers to force the purchase of ten Freedom-class littoral combat ships. The ships have been plagued with design flaws that render them obsolete, yet the political influence of the defense lobby managed to generate renewed multibillion-dollar contracts.

During sequestration, the across-the-board cuts to federal spending were initiated after Tea Party-backed lawmakers were elected to Congress in 2010, and contractors scrambled to save the most expensive budget items. Lockheed Martin mobilized a national campaign to keep funds flowing to the F-35. GD coordinated with key officials to compel the Pentagon to keep buying the tank it manufactures, the M1A1 Abrams – which is now finally in service on the Ukraine front.

However, recent combat experience has proven that the most high-priced items are less than entirely useful. The Abrams cost $10 million to manufacture and transport to Ukrainian forces, yet a recent report shows that the Russian military has deployed $500 drones to destroy them. Meanwhile, the Ukrainian army pleads for more useful and less prioritized artillery munitions.

Left unchecked, the market encourages concentration and monopolistic practices. For nearly 75 years, from the New Deal onwards, the U.S. maintained active measures to prevent only one or two players from controlling any particular industry, with an eye toward ensuring competition and consumer protection.

But a bipartisan push that started in the 1980s and 1990s changed everything. The Reagan administration, dominated by new economic thinking that saw antitrust enforcement as archaic, began unwinding the rules underpinning government authority.

The process continued with the Clinton administration, whose Deputy Defense Secretary Bill Perry, a former defense sector investment banker with the San Francisco firm Hambrecht & Quist, famously instructed defense contractors to meet post-Cold War reductions in defense spending through corporate mergers. Since Perry’s call, over 107 large defense contractors have collapsed into ownership under the Big Five.