Prior to the 1990s, defense contracting looked very different than it does today. During the Vietnam War, Korean War, and Cold War, the building of arms remained in the hands of multiple smaller defense contracting companies. By the end of the Cold War as U.S military spending reached over $325 billion annually, lawmakers began to look at methods to cut down on U.S. military spending. And for the numerous highly competitive defense contractors operating at the time, the fizzling of conflict left them with vast amounts of unused inventory and tanking revenue. Moving defense contracting to only a few companies was seen as a means of effective cost control.
In 1993, former Secretary of Defense Les Aspin and former Deputy Secretary of Defense William J. Perry invited CEOs of some of the largest U.S defense contractors to a private dinner at the Pentagon to discuss this plan. Hundreds of small contractors soon merged, after being given an ultimatum, lest they face swift budget cuts and ultimate business failure. Five of those defense contractors that came out of it are some of the largest and most influential today – Lockheed Martin, General Dynamics, Raytheon Technologies, Boeing, and Northrop Grumman.
From a government that had previously practiced antitrust laws and monopoly-breaking, the push for this sector to monopolize was a dangerous one. The Pentagon’s trust in these companies has and will only continue to aggravate our military spending further.
“The gouging that takes place is unconscionable” remarked Shay Assad, retired Pentagon Director of Defense Pricing and ex-Raytheon Executive VP and Chief Contract Negotiator. Assad, a trusted contract negotiator under Bush, Obama, and Trump, argues that the pentagon routinely overpays on military technologies with almost no accountability. The small-monopoly structure of defense contracting often forces the Pentagon into “sole-source” deals, where one contractor controls a needed part or weapon with no alternatives for comparison. Because price justification is only required for contracts exceeding $2 million, contractors have broader freedom to set inflated prices. As the Department of War budget grows year after year, meaningful oversight remains minimal, enabling contractors to exploit the system, ultimately burdening U.S taxpayers.
Though companies like Lockheed Martin emphasize keeping citizens safe in their mission statement, these promises are futile given their business model relies on a state of constant conflict and military escalation. As conflict yields revenue, these contractors seek a state of constant conflict and military escalation. The major contractors spend millions annually in lobbying to sway policy in this direction. Protection of a nation is one thing, but pushing for unnecessary escalation in order to drive profit for shareholders is another.
Then comes the risk of retaliation from other militaries abroad and the threat of that spilling into the domestic. And unlike the military, private defense companies are not subject to the same heavy federal oversight. Cost overruns and price gouging can lead to significant budget gaps in the defense industry with no accountability mechanism in place. So, the budget for the Department of War goes up, leaving financial gaps elsewhere in areas of the government meant to also promote the public good.
Looking at the profile of shareholders for the Big Five contractors, what jumps out is the excess of institutional investment, accounting for over half of their total holdings. Institutional investment refers to professional investors such as pension funds, mutual funds, or insurance companies buying and selling stocks and bonds to generate returns for their beneficiaries.
General Dynamics, for example, has a makeup of about 72.3% institutional investment. For Northrop Grumman, this is 94.31%. The simple rationale behind the investment is that it is profitable. Following the 2022 Russian invasion of Ukraine, U.S. defense contractors showed sharply correlated growth, with Lockheed Martin and Northrop Grumman increasing by 18% and 22% respectively. The same can be seen following the recent Iran strikes. This revenue surge drives up stock prices and dividends, rewarding both the firms and investors.
It’s obvious that this system of revenue generation has been successful in the short-term for financial institutions and investors alike. However, it is ultimately unsustainable and dangerous for human beings’ collective security. When conflict yields profit, peace becomes bad for business. The result is a lethal blurring of lines between national defense and corporate gain.
Rather than stability, these companies seek to gain from societal chaos and warfare pandemonium. This profit motive undermines our nation’s ability to make foreign policy decisions grounded in diplomacy and long-term security. The entanglement of Wall Street and the Pentagon will continue to erode transparency and accountability, as profit-driven politicians engaging in corrupted, bad-faith policymaking has become the norm among institutions meant to promote and protect the public good. It also exposes gaps in our national security, as defense budgets bloat while other key aspects like cyber resilience, domestic infrastructure, and diplomacy receive far less funding and attention.
The financialization of warfare where weapons manufacturers and their institutional investors treat global instability as a profit venture will only continue to distort U.S. foreign priorities, all the while chipping away at public trust and national security. A nation’s safety is not measured by defense stock performance but by its capacity to prevent conflict in the first place. The greatest present threat to the United States is not from foreign adversaries, but the economic interests profiting off the illusion of perpetual war.
What began as a concept of efficiency and consolidation has degraded into a system that prioritizes returns over strategy, and market performance over moral accountability. Until the U.S redefines boundaries between national defense and corporate incentive, it risks losing the authority of foreign policy decisionmaking to corporate figureheads. What the government must do is reintroduce transparency, demonopolize and diversify the defense sector, and reinvest in the crucial nonmilitary instruments of power that sustain peace instead of war. Without this, the nation will remain sealed in a cycle of lucrative instability.
