The Wardman Wire

This is Dave Cole’s second “Politics Decoded” Guest Column.

As we all know, America is the home of the free market. Right? Wrong.

A story little-noticed outside the trade and financial press is an exception that proves, by the shock and anger it has caused, the general rule for US procurement to be a good distance away from the free market.

Air to Air Refuelling Tankers

The United States Air Force wanted to buy some new air-to-air refuelling tankers and have awarded the contract to EADS, who own Airbus, over Boeing; a European company over an American. Boeing were expected to win the US$4bn contract and, it seems, Boeing expected Boeing to win the contract. However, the EADS bid was technically superior, outscoring on just about every area on an evaluation. The deal was also conducted to the letter so that it would be hard to challenge on grounds of impropriety.

Here is where the tale starts to become a little twisted.

The Back Story

Back in 2003, the USAF decided to lease some Boeing tanker aircraft as a stop-gap to replace its ageing fleet with an option to purchase after ten years. It turned out that a Pentagon staffer had been passing information to Boeing about the opposing EADS bid; said staffer had started working for Boeing by the time this was discovered. None of this is new, but it suggests that Boeing weren’t playing by the rules. One of the charges made against EADS is that it is receiving illegal subsidies, which seems pretty rich given Boeing’s actions.

The Front Story

Now, various congresspersons are mightily annoyed by the decision because, unsurprisingly, a contract for four billion dollars carries a lot of jobs with it.

Senator John McCain was the driving force behind the investigation of Boeing over the lease-purchase deal. Moreover, he would want to see both best value for money and best equipment for troops and so would want to step on corruption in general and, in this case, get the better piece of kit.

On the other side, Democrats are wanting jobs to stay in their areas rather than move overseas or to Arkansas, as will happen with EADS. Both Senators Clinton and Obama have criticised the deal and there is now to be a congressional inquiry.

The Key Questions

Two questions are being raised.

The first is how to make judgements over big contracts. The US economy seems to be ailing and there is pressure on military budgets; the US is committed to two significant overseas missions. Price and efficacy would seem to be the major considerations, but ‘Buying American’ means that the troops - for whom everyone declares their support - will have to make do with equipment that was
chosen to help Congressman X’s re-election campaign.

The second is the local effects of national spending. It is almost impossible for the US government to take an action that benefits the whole if it damages an important locality to any significant extent. For example, when it became apparent that military bases would have to be closed in the mainland US, it took a huge amount of wrangling before the BRAC (Base Realignment and Closure) process was set up in the eighties and, even now, decisions are contested. When decisions such as these are going on at election time, they are that much harder to make; with near-perpetual elections and particularly long presidential cycles, it becomes a wonder that any deals are signed, particularly given the blinding effects of the need in America to proclaim one’s love for the military.

International Implications

It is often said that the US preaches free markets to the third world while not opening up its own markets, to the detriment of developing countries. The same is true, in some areas, for the first world. Until the EU, Europe, Australia and so on are prepared to insist that the knife cuts both ways in America, it will be hard to insist on it anywhere else. That will not happen until Europe gets its own house in order.

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