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Wall St. and Business Wednesdays: The Booming Defense Business by William Hartung

It's not every day that the chief executive of a major defense contractor steps down because of ethical wrongdoing on his watch, as Boeing CEO Phil Condit did Dec. 1. But let's be clear about one thing: This mounting scandal, which centers on whether Boeing improperly offered Pentagon procurement official Darleen Druyun a job while she was negotiating the terms of a $20-billion deal to lease 747s from the company, goes well beyond a few misguided executives at one corporation.

In fact, under the guise of reforming Pentagon business practices, President Bush and Secretary of Defense Donald Rumsfeld have created an ethically challenged environment at the Pentagon that is an open invitation for contractors like Boeing to engage in waste, fraud and abuse.

As soon as he took office, Rumsfeld set out to recruit a core group of corporate executives to run the Pentagon in what one commentator described as "Department of Defense Inc." Nowhere was Rumsfeld's vision of a corporate-dominated department more evident than in his initial choices to run three military services: Secretary of the Air Force James Roche, a former vice president at Northrop Grumman; Secretary of the Navy Gordon England, a former executive at General Dynamics; and former Secretary of the Army Thomas E. White, who came from Enron.

In its first year and a half in office, the Bush administration named 32 appointees to top policymaking positions who were former executives, paid consultants or major shareholders of top defense contractors.

It's not just the number of military-industry hires that distinguishes the Bush administration from its predecessors; it's how they have conducted themselves in office.

Take Roche. He was a driving force behind the plan to have the Pentagon lease and modify 100 Boeing airliners for use as aerial refueling tankers - which would have cost $4 billion more than buying them outright. Sen. John McCain (R-Ariz.) described this no-bid deal as "war profiteering." Roche's former company, Northrop Grumman, was a major partner with Boeing on programs like the F-18 combat aircraft. His backroom dealing on Boeing's behalf carries a strong whiff of conflict of interest.

Roche's role pales in comparison with longtime Rumsfeld crony Richard Perle. Perle stepped down as chairman of the Pentagon's Defense Policy Board last spring after it was revealed that he was using his position on the board to solicit investments for his firm, Trireme, and consulting contracts on defense-related matters from companies like Loral and Global Crossing.

Perle's evasive maneuver - stepping down as chairman while remaining on the board - is testimony to his long-standing friendship with Rumsfeld. In fact, Perle has frequently cited his role as a close advisor to Rumsfeld in seeking investments for his firm and consulting contracts for himself.

Perle also has a Boeing connection. The company is the biggest investor by far in Trireme. Perle has been a staunch advocate of the Boeing tanker lease, writing and speaking out on behalf of it - a year after Boeing committed to invest up to $20 million in his company. Was the Boeing investment in Trireme a recognition of Perle's investment savvy or a not-so-transparent ploy to curry favor with a close Rumsfeld confidant?

Does it bother Rumsfeld that two of Perle's colleagues on the Defense Policy Board, retired Adm. David Jeremiah and retired Air Force Gen. Ronald Fogelman, have simultaneously been working as paid consultants to Boeing, also promoting the lease deal?

The ethical rot at the Pentagon goes further. Rumsfeld has reduced independent testing and budgetary reporting requirements on pet projects like the Pentagon's $9-billion-per-year missile defense program. He has given Undersecretary of Defense for Policy Douglas Feith, an ideologue with no track record at running large projects, primary responsibility for managing the secretive, privatized rebuilding of Iraq. He has empowered companies like Boeing to be lead program managers on major initiatives like the Army's Future Combat Systems, supplanting the government in the role of picking who gets multibillion-dollar contracts involving major weapons systems.

Taken individually, some of these initiatives might make sense as ways to cut red tape or promote innovation. But taken together, in an environment of mushrooming budgets, decreased accountability and a level of cronyism that is more reminiscent of Indonesia under Suharto than anything Washington has seen in recent memory, the Bush/Rumsfeld "reforms" are a budgetary disaster in the making. Boeing's misdeeds are undoubtedly the tip of a very large iceberg.

It's time for a bipartisan coalition in Congress to hold real hearings - with subpoena power - on how to reinstitute accountability at the Pentagon. Otherwise, we'll be paying for Bush and Rumsfeld's Pentagon follies for generations to come.

William Hartung is the World Policy Institute's President's Fellow. He can be contacted via e-mail at:

Wednesday, December 17, 2003

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