The U.S. government may be learning a lesson in dealing with monopolies that smaller nations such as Canada and the Netherlands have known for years. That is if the opinions of Air Force Secretary James Roche make it past the military mercantilists in Congress.
In a recent interview in the Financial Times, Roche called for European firms such as Airbus to get more access to Pentagon weapons procurement contracts, arguing that, “It’s the only way we’re going to discipline the big airframe makers in the United States.”
The secretary referred to Boeing and Lockheed-Martin, the two major firms left for most military aircraft since Boeing absorbed McDonnell-Douglas a few years ago. His strategy is correct.
When a nation faces monopolistic power in some domestic sector, it has two common alternatives. It can outlaw certain anti-competitive acts or practices and then use a police approach to determine if monopolistic firms violate the law. Or it can limit the power of domestic monopolies by opening access to foreign firms.
With the Sherman and Clayton Anti-trust acts, the United States has taken the first path. Canada and the Netherlands historically took the second. Their option probably is better for future U.S. defense procurement.
The different paths taken by the United States and Canada in dealing with monopoly power in farm machinery provides a good historical analogy. A century ago, International Harvester dominated farm machinery manufacturing in the United States. Massey-Harris was the largest firm in Canada, though its degree of market dominance was smaller there.
IH appears repeatedly in U.S. anti-trust case law from the first suit filed against it in federal court in St. Paul in 1912 until its once-smaller competitor J.I. Case took it over 20 years ago. A succession of judicial decisions forced divestiture of parts of the company or limited its sales practices.
Canada dealt with its own machinery monopolist by raising and lowering tariffs on imported farm equipment, largely from the States. When it seemed Massey was unduly raising prices, Canadian farmers’ calls for relief would lead to lower tariffs on imported machinery. If imports threatened the survival of Massey and other Canadian firms, they got higher tariff protection.
After World War II, several U.S. firms were capable of building large aircraft. Now, only two remain and only one — Boeing — has experience building large bombers or tankers.
We could manage aircraft procurement in a bilateral monopoly setting just as we do with aircraft carriers and nuclear submarines where we are down to one manufacturer of each. But when a viable competitor exists outside the United States — and Airbus is becoming a viable competitor in the specific area of refueling tankers — abolishing old taboos on foreign sourcing is an important option.
Congress members from states where U.S. contractors have plants will raise a fuss, but citizens and taxpayers benefit from as much competition as possible even when purchasing military hardware.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.