Realities of the Defense industrial base.

• Author: McKinley, Craig R.
• Position: President's Perspective

* In my first column in April, I made reference to President Eisenhower's 1961 farewell address that coined the phrase "military-industrial-complex." What the president was describing in 1961 was true. Because of the Cold War, the nation had developed a large military industrial base, and it had significantly shifted its ownership from the public to the private sector.

I pointed out that while the notion of a large defense industrial base persists, the reality is much different, and policymakers in the government must focus on this reality rather than the outdated image.

A former senior Defense Department official recently noted that in his view, not only were most policymakers unaware of how compact the contemporary defense industrial base had become, but most thought it was "bigger than ever." There are, of course, numerous ways that one can measure size, and comparisons over a lengthy time frame are always heavily dependent on economic data conversions, but it might be worth considering a rather direct comparison using a well-known and nationally noted database.

Fortune Magazine recently released its annual "Fortune 500," the listing of the top companies and corporations in the United States. It tells an interesting story about the shape and size of the defense industry over time.

Just to establish some broad context, the companies on the Fortune 500 generate about $ 12 trillion in annual revenue. In other words, they account for about two-thirds of the U.S. GDP. The top 100 companies on the list--led by Wal-Mart--comprise more than 60 percent of this $ 12 trillion. The question is, how many defense companies are there and how have they fared over time?

In 1961, there were 16 aerospace and defense companies in the Fortune 100. Today there are four, and only 11 in the entire Fortune 500. Of those four, the highest ranked at 27 is Boeing, followed by United Technologies Corp. at number 45, Lockheed Martin at number 64, and General Dynamics at number 100. Combined, these companies have annual revenue that is less than 3 percent of the top 100, and less than half of Wal-Mart standing alone.

This may paint a rather somber picture, suggesting the diminished size of the defense industrial base. However, there is a more positive picture than actual circumstances suggest, for two reasons.

First, in 1961 General Dynamics was the largest of the defense firms and ranked number 15 on the Fortune 100. So although still one of the widely acknowledged...