Top Dogs and Top Brass: An Inside Look at a
All of these companies are among the 100 largest military contractors in the U. S. Each of the top fifteen military contractors have been represented on IAC at one time or another, serving on a rotating basis. In 1972, for example, 9 out of the top 15 were represented on IAC. Together they won more than $6 billion in prime military contracts that year, or one fifth of the year's total contract awards. These military manufacturers, whose names are often household words like Westinghouse Goodyear, and Honeywell, produce a variety of military equipment from nuclear-powered destroyers to bomb fuses.
Not all members of IAC were weapons manufacturers, but all of the corporations represented there provided services vital to the military. The IAC has included the chairmen of the largest banks in the country, such as First National City Bank and Morgan Guaranty Trust Company, as well as one of the largest accounting firms, Arthur Andersen & Company, oil companies (Exxon and Cities Service), and transportation companies (Penn Central and Rock Island & Pacific Railroads). These firms represent the wider scope of American corporate capitalism, whose functions and fortunes are intertwined with the military and its client industries.
The members of IAC were usually the highest-level executives of their companies, the Top Dogs so to speak. Meetings of the Council were chaired by the Deputy Secretary of Defense, who is considered industry's top representative in the Pentagon. The Secretary of Defense himself attended IAC meetings regularly, along with the military's highest generals and admirals, the Top Brass. No high-level executives or officials such as these would waste time on such a committee if it were not to their significant advantage. These are extremely busy men and they would normally send vice-presidents or lower-ranking officials and technical personnel to sit on other government advisory committees. The fact that the Top Dogs and Top Brass would meet regularly on this Council is one indication of the importance of military business even to the largest corporations in America.
Several Pentagon officials who served as chairmen of IAC turned up later as business representatives on the Council. Roswell Gilpatric, for example, was chairman of IAC in 1962-63 when he was Deputy Secretary of Defense under Robert McNamara. He became a member of IAC again in 1967 as a corporate lawyer from the prestigious law firm of Cravath, Swaine & Moore in New York. Another former Deputy Secretary of Defense, David Packard, re-joined his colleagues on IAC in 1972 after returning to his own electronics company, Hewlett-Packard, a major military contractor in California. These men are examples of the musical chairs played by business and the military, where retired officers become lobbyists for military industries and corporate executives serve as Pentagon officials who formulate government policies over their former companies.
According to its charter, the IAC' s official function was to provide a. the Secretary of Defense and his principal management assistants a forum for the presentation of logistics and other general management objectives, problems, and accomplishments to a representative cross-section of U.S. industry, and b. representatives of industry a forum for discussing directly with the principal executives of the Department of Defense their suggestions and constructive criticisms of logistics and other management policies and practices, particularly insofar as they may affect industry.
Members of IAC did not officially have a hand in all military policymaking. They focused mainly in the specific realm of logistics, that is, the process of providing weapons and equipment to the military. In that context, the underlying function of IAC was largely to relate military objectives to the capitalist system of production.
Congress and the Pentagon have repeatedly maintained that advisory committees such as IAC have no decision-making power, that they act purely as discussion groups, with all decisions left in the hands of government officials. But as we shall see, the IAC was not simply a pro forma advisory group to the Secretary of Defense. On the contrary, it served as a priority- setting council with many of the methods, purposes, and appearances of a corporate board of directors. Indeed, Pentagon cost analyst A. Ernest Fitzgerald has called IAC "the board of directors of the military-industrial complex" (Personal interview with A. Ernest Fitzgerald, June 14, 1972; Fitzgerald's book, The High Priests of Waste, New York, Norton, 1972, offers a first-hand description of the waste and corruption in military procurement).
What did these people actually talk about? Why is it so important? What follows is a detailed content analysis of the minutes of IAC meetings for the ten years from its inception in 1962 to its demise in 1972. Unless otherwise noted, the quotes in this text are taken directly from the Minutes, as compiled by the Department of Defense. Although the minutes do not offer much in the way of dialogue and are admittedly water-downed generalities, they nevertheless offer a rare inside look at the history and functions of advisory groups.
The IAC minutes fell into my hands largely by luck and through the agency of a helpful congressional office. More recently, and thanks to Senator Lee Metcalf and his able assistant, Vic Reinemer, the new Federal Advisory Committee Act requires that records of all advisory committees be made available to the public, except for those pertaining to the CIA, the Federal Reserve System, and areas restricted by reason of "national security." To obtain access to specific documents, apply to the advisory committee management office of the appropriate federal agency or department in Washington.
The IAC's work was varied and complex; the minutes show the different levels at which the Council operated and give a general flavor of its work. The minutes also reveal some of the processes by which leaders of American business influence governmental policies and programs even without formal authority.
The main work of IAC, as reflected in the large percentage (over 50%) of agenda items devoted to it, was to institute and regulate mechanisms to ensure the smooth flow of funds from government to industry. The most frequent topics of discussion dealt with the nuts and bolts of military contracts and procurement policies. The meeting agendas are full of technical items such as "Production Equipment Amortization Assurance Plan"; "Contract Cost Principles or Unallowable Costs"; "Source Selection"; and "Rights in Technical Data" (all from the May, 1964 meeting). To laypersons, these procurement matters may seem tedious and unimportant; but to military contractors they are the very staff of life, the rules by which American business supplies war materials to the military and receives enormous sums of taxpayers' money in return,
Of particular interest to IAC members were the Armed Services Procurement Regulations (ASPR). Periodically, the Council would form subcommittees to review and revise various ASPR provisions, from audit procedures to patent rights, with an eye toward reducing industry costs and government controls. In January of 1963, for instance, an IAC subcommittee composed of Pentagon officials and middle executives from Lockheed, General Electric, Raytheon, FMC, and Western Electric (all major military contractors) set out to study and recommend a "realistic profit policy" for noncompetitive military contracts. The Council subsequently proposed a series of changes in ASPR called "Weighted Guidelines" which increased profit rates on negotiated contracts from 7. 7% to 9.47o.
The process of military contracting involves massive amounts of detail and red tape, and these discussions gave corporate executives a chance to cut through it with ease and institute changes favorable to their businesses. The businessmen used IAC sessions to air their gripes about unfair or overburdening contract procedures and unsympathetic procurement officials, while military representatives used them to make announcements and explain changes and reorganizations within the Pentagon. Even the non-military businessmen could benefit from these technical proceedings. In 1970, for example, two prominent bankers, Walter Wriston of First National City Bank and Ernest Arbuckle of Wells Fargo National Bank, joined the Council. In October of 1970, according to the minutes:
"The bankers outlined their suggestions of what should be done to make the financing of defense business more attractive. They expressed the opinion that increased private financing would be difficult to obtain unless there were substantial changes in the present capital-profit-risk relationships which made defense business less attractive than commercial non-Defense type work."
As a result of their suggestions, a subcommittee of the Council was established to offer its advice on increasing the levels of private financing (mainly bank loans), and to recommend appropriate changes in procurement practices. According to IAC's report, the nation's banks may have received $700 million in new loans as a result of the new regulations.
A second major aspect of IAC's work dealt with discussions of broader policy issues. Former Secretary of Defense Robert McNamara made enormous changes in military procurement and management during the 1960s, so he established the IAC in 1962 to rally business in support of his controversial programs. A businessman himself, McNamara had been president of Ford Motor Company and he ran the Pentagon like a modern corporation. McNamara repeatedly assured the executives on IAC that his well-publicized efforts to cut Pentagon costs were not intended to whittle away at industry's profits. To quote the minutes again:
"He said it was very important to the security of the country that a strong Defense industry be maintained and that this could best be done by allowing good profits for good performance. He said it was essential to attract both capital and good management to Defense industry. He does not want the Defense industry to become a low profit industry." (September 1965)
McNamara stressed that profits were "the number one priority" for the Council and asked for the advice of its members on this important subject (February 1966). He initiated a study of military industry profits by the Logistics Management Institute, a Pentagon-funded think-tank headed by Barry Shillito (who was later to become Assistant Secretary of Defense and Alternate Chairman of IAC). With considerable advice and participation from IAC members, the study concluded that profits of military industries were lower than other commercial profits when measured as a percentage of sales. This conclusion was self-serving, for military industries have always insisted that their profits be measured on sales rather than as a percentage of capital investment, because this method reflected lower profit rates and hid the true nature of their high earnings. By measuring profits on sales, the companies appeared to be making lower profits than other industries, thereby justifying their efforts to obtain ever-higher profits.
The military industries fought off attempts to change this method of measuring their earnings. During the meeting of October, 1968, when Pentagon officials proposed a new profit policy based on capital investments, IAC members objected vigorously. "A heated disruption erupted with some members of the Council threatening to go to the highest level-apparently to the President himself--if there was any attempt to adopt this plan placing profit substantially on contractor investment." We owe this revealing quote to the "Hearings before the Subcommittee on Intergovernmental Relations of the Committee on Government Operations, U.S. Senate, June-July 1971 (Government Printing Office, Washington, D.C., 1971, p. 321). That's because the IAC was used as a case study during these hearings.
The Pentagon backed down in the face of industry's threats, but by 1970 war profiteering had come under increasing public attack by Senator William Proxmire and others. Congress directed the General Accounting Office to make another, more objective study of war profits. The IAC minutes reveal that in February of 1970 the Council devoted considerable discussion to the GAO's study, browbeating GAO officials to "take a realistic approach, confine the effort to general standards, and produce a beneficial result." A year later, the Council was given a confidential report of the GAO's preliminary findings. The report was eventually released to the public amidst a flurry of charges that industry had tried to tamper with its conclusions. Nevertheless, the study revealed that profits on selected military contracts were 56% when measured on capital, compared with 6.9% on sales. The IAC members reluctantly agreed to allow some changes in profit policies based partly on capital investment, but expressed "concern that Defense is moving too fast in this area" (Minutes of February, 1972).
On other broad issues, the IAC worked largely through subcommittees to develop policies favorable to business. The Subcommittee on Military Exports was perhaps the most important. It was composed of businessmen representing nearly every major weapon and aircraft exporter in the U.S., including General Dynamics, Northrop, Lockheed, General Electric, Hughes Aircraft, United Aircraft, Boeing, Litton, and others. According to IAC minutes, "The principal objective of the subcommittee representing a large variety of companies was to increase exports" (February, 1964). The subcommittee's work was secret. According to McNamara, "not much was generally known about this program because it had been necessary to handle it at the very highest levels" (September, 1965). Under the military sales program, Pentagon officials acted as middlemen in making arrangements with foreign governments to buy American military equipment and placing orders with American firms.
The program was run much like a corporate marketing division, with a staff of professionals, each of whom had specific country sales assignments. The chairman of the IAC Subcommittee described its function as "both a planning and operating committee dealing with many day-to-day problems" (Minutes of February, 1964). The Council's role as a whole was to oversee the entire program and encourage profitable sales for industry. The IAC members were given a steady stream of reports on such topics as reducing foreign tariffs, establishing competitive prices, and providing enough credit. The subcommittee helped analyze market studies of developed and underdeveloped countries, and a special industry advisory group was set up in Europe to do business with NATO allies.
Foreign orders for military equipment and weapons began to rise dramatically, from less than $1 billion in 1961 to over $6 billion in 1965. However, from 1969 through 1971, military sales declined and the Subcommittee on Military Exports was inactive because American war manufacturers had their hands full supplying U. S. troops in Indochina. By 1972, though, the war was winding down and these industries were suffering cutbacks in military contracts. In February 1972, IAC members were told by military sales negotiators:
"This activity had a low profile during 1968 and 1969, but the Nixon Doctrine [which called for sending weapons abroad instead of troops] suggested a reassessment of the Defense posture with respect to this activity. Bearing on this are such factors as "security assistance" to other countries, trade imbalance, the balance of payments problem, and unemployment. Attitudes have changed in Washington; the economic (financial) industrial benefits of valid military exports are now recognized."
So the Subcommittee on Military Exports swung into action once again, concentrating its discussion on credit, pricing policies, and efforts to obtain higher levels of foreign military sales credits from Congress. By 1974, military sales had climbed to $12 billion, eight times more than in 1970. (Michael T. Klare, "The Political Economy of Arms Sales, Society, September-October 1974, presents a thorough analysis of the military exports program and its impact on the Middle East.)
The IAC itself was not solely responsible, of course, for this huge increase in military sales, but it was active in developing and supporting the program. The IAC Subcommittee's leader, Tom Jones, chairman of Northrop Corporation, whose newly-developed F-5E jet fighter plane is one of the biggest sellers on the international market, praised "the success which the Subcommittee has had in bringing the efforts of Government and Industry together in the export field" (Minutes of February, 1964).
A third function of the IAC was as a forum to provide feedback and support for government policies as well as to promote the Administration's point of view on controversial issues. This was especially true during the early years of the Vietnam war. At one meeting in September, 1965, a year after the Gulf of Tonkin resolution, Secretary of Defense McNamara gave IAC members a thorough explanation of
"...the Vietnam situation, explaining how it was the major problem at the moment and how it shaped our policies and planning. He explained why it was necessary for the U. S. to become actively engaged in the Vietnam conflict and that the amount of effort required could not be borne by South Vietnam alone."
Deputy Secretary Cyrus Vance then gave the rundown on technology related to limited wars, and General Wheeler (Chairman of the Joint Chiefs of Staff) added a briefing on the military outlook. Throughout the war, nearly all IAC meetings included similar briefings with top officials, some of them highly classified, followed by question and answer periods. For example, in October of 1969, while anti-war demonstrations sponsored by the Moratorium grew throughout the country, Army officials presented the Council with a slideshow entitled "Operation Washington Green: The Challenge and Rewards of Pacification," depicting U.S. pacification efforts in Vietnam's Binh Dinh province.
The industry executives responded to the slideshow with enthusiasm. According to the minutes of that meeting:
"Discussion centered about the possibility of developing appropriate public relations programs which would tell this story to a greater number of people. There was the clear feeling that the story of U.S. successes--particularly in the Vietnamization program--had not been gotten over to the American public. Suggestions were made that Defense public relations officers make these briefings available through the medium of tape or discussions with the publishers of leading newspapers and magazines in order that they may be aware of the facts and conditions which actually exist in South Vietnam and the role the Defense Department has played and is continuing to play in achieving these successes."
In later IAC meetings, the Top Brass continued to give its "customary briefings" on Indochina and provided members with public relations materials on such issues as Vietnamization and POWs for use in their company publications. Similarly, IAC members were given regular reports on the state of the economy by White House economic advisors. Early on, in 1963-64, the main economic issues worrying the Council were arms control and disarmament. The IAC established a subcommittee to study the problem, next arranged to send industry representatives to the President's Committee on Economic Impact of Defense and Disarmament, and even discussed the possibility of an "early warning system" to give industry an advance notice of anticipated cutbacks in military spending.
By 1965, however, concern about disarmament waned as the Vietnam war escalated. McNamara asked the members of the Council in February of 1966 whether they would favor a tax increase to help solve the country's increasing economic problems. No, they replied, not as a device to control inflation, but they did not rule out taxes as a means to raise money for the war. Later briefings dealt with the nation's long-term economic prospects, focusing on such critical issues as inflation, balance of payments, the international monetary situation, and by 1971, wage and price controls. Each spring the Top Brass reviewed the new military budget with IAC, making a careful analysis of its economic impact on military industries as well as on the economy in general.
Although the IAC was not officially concerned with originating general military policies or administering them on a daily basis, it did serve an extremely important ratifying function. These big businessmen had a chance to review U. S. policies where ordinary people did not have similar opportunities. The IAC did not have formal decision-making powers in these areas, but its influence was considerable. As one U. S. Senator reminded a Pentagon spokesman:
"All of the material, all of the ammunition, to use an analogy down in your Department, of our decision making process is the assembling of information. And when these biggest men in industry are the people that have advance opportunity to give the information to you, that is when the decision is made" (This quote comes the Hearings before the Subcommittee on Intergovernmental Relations of the Committee on Government Operations, U.S. Senate, June-July 1971 (Government Printing Office, Washington, D.C., 1971, p. 341).
In the case of Vietnam, IAC members apparently supported the Administration's policies at a time when more and more people were opposing them. These executives, many of whose livelihoods depended upon military contracts, had the opportunity to get the inside, advance word on vital issues and help shape the policies in which they had an economic interest. These briefings also served indirectly as a public relations tool for the government, tuning business in to Administration rationales and enlisting its help in drumming up popular support.
A final facet of IAC's importance emerges from its social functions. The Top Dogs enjoyed ample opportunities to meet their military counterparts in informal, personal sessions--over cocktails after a Council session, or at luncheon in the Pentagon's Blue Room. Frequently the Top Brass would treat their guests to an "Informal Stag Buffet and Cruise" along the Potomac aboard the Presidential yacht Sequoia. There these executives and officials could relax after Council meetings, drink together, and talk shop for a few hours away from the formal procedures and constraints of their normally busy schedules.
The social gatherings at IAC meetings helped form a basis on which to build mutually beneficial working relationships. By meeting and talking and drinking together, IAC members could size each other up, learning the strengths and weaknesses of their colleagues so they could effectively deal with each other as friends. As stated by the aide to Senator Metcalf who played a key role in making these committees more visible to the public at the time, "Camaraderie between industry and government blooms into soft policy" (Vic Reinemer, "Budget Bureau: Do Advisory Panels Have an Industry Bias?" Science, July 3, 1970. Reprinted in Advisory Committees, 1970, op. cit., p. 483).
Members of the Council received a open invitation from the Secretary of Defense to call on him or his key aides for an exchange of ideas on mutual problems whenever they were in Washington. This opportunity was not overlooked. In 1970, for example, Lockheed Aircraft Company, the nation's largest military contractor, was almost bankrupt. Lockheed's chairman, Dan Haughton (a member of IAC) and his banker, Walter Wriston of First National City Bank (also an IAC member) decided to visit Deputy Secretary of Defense David Packard (chairman of IAC). Wriston led a contingent of bankers to Washington to meet with Packard, and shortly thereafter the Administration proposed a $250 million loan guarantee to bail out Lockheed and its creditors.
The work of the IAC was generally unknown because its meetings were cloaked in secrecy. Members were cautioned not to talk to the public about matters that came before the Council, although they were free to discuss the same topics with their business associates. The press was excluded from IAC meetings and the minutes were labeled "For Official Use Only."
In 1971, hearings on advisory committees were held by the Senate Committee on Government Operations. Senator Lee Metcalf asked a Pentagon spokesman whether IAC meetings could be opened to the public and was told, "I am inclined to believe that if we were to move in the direction that you are suggesting, we would be well advised to consider the logic of even continuing the Industry Advisory Council." (As quoted in Advisory Committees, 1971, op. cit., p. 317; the Senate now holds yearly oversight hearings on the Federal Advisory Committee Act (Public Law 92-463).
In other words, the Pentagon would abolish the IAC rather than open its meetings. As a result of these hearings, Congress passed the Federal Advisory Committee Act which required advance public notice of all meetings, open admittance, and publicly available records of all advisory committees. And sure enough, the IAC never held another meeting after the law took effect in 1973. The Pentagon officially "disestablished" the Council in February, 1974, explaining that it was no longer serving its original purpose. According to my interviews with Pentagon and Congressional staff, the IAC simply could not live within the requirements of the new law.
Of course, the demise of IAC does not mean that its functions will go unfulfilled. "We can still invite a group of businessmen for lunch," the former executive secretary of IAC told me, "as long as they aren't the same people every time." According to the Justice Department, the new law does not apply to a group of persons who seek a meeting with Federal officials to present their views an specific subjects. Nor does the law prohibit closed, off-the-record briefings or the use of businessmen as consultants.
At the Pentagon, industry trade associations now do IAC's former work on matters of procurement and management policies. These lobbying associations represent specific groups of military industries, such as the Aerospace Industries Association or the National Security Industries Association. Through these longstanding trade associations, industry executives and their staffs still can work closely with the military on a daily basis, preparing reports and making recommendations about the business side of the Pentagon.
Paradoxically, the IAC was originally established to replace and coordinate the work of the industry associations. Former Secretary of Defense McNamara once commented that "he had been anxious to have the Council established in the first place because of the problems in dealing with Associations on so many divergent problems" (Minutes of August, 1963). Now that the IAC has gone full circle from establishment to disestablishment, the industry associations have resumed their earlier functions and merit further study.
In conclusion, the minutes of the IAC stand as clear evidence that federal advisory committees can have an important impact.