By Lawrence J. Korb, Robert Ward, and Alex Rothman

With sequestration set to happen in early 2013 if Congress fails to make a deal on deficit reduction, the defense industry has mobilized in a major way to stop the cuts to the Pentagon budget. The main thrust of the offensive has been a huge public relations campaign aimed at convincing Americans that the cuts would devastate defense contractors and the broader economy, causing the loss of about a million jobs. To be fair, the cuts that would be made under sequestration are far from trivial. But, when viewed in their proper historical context, they start to look much less threatening –- and the largest contractors appear to be well positioned to weather them.

The last ten years have seen massive growth in defense industry profits. In 2002, the combined profits of the five largest U.S.-based defense contractors were $2.4 billion (adjusted for inflation); by 2011, that figure had increased by a whopping 450 percent to $13.4 billion (according to net Income TTM data from ycharts.com for five largest U.S.-based defense contractors). This success applied both to companies with large civilian sections of their businesses and to those almost wholly dependent on defense funding. In short, the largest defense contractors have prospered to a degree that would have looked very unlikely just eleven or twelve years ago.

Unsurprisingly, this growth in profits has been fueled in part by massive increases in the U.S. defense spending. In the decade since 9/11, the total Department of Defense budget (PDF) increased by about 55 percent in real terms, from $460 billion in FY 2002 to $715 billion in FY 2011. And the portions of the budget most relevant to military contractors -– the money allocated to procurement and to Research, Development, Testing, and Evaluation –- kept pace, growing 55 percent from $139 billion in 2002 to $216 billion in 2011.

The defense industry has continued to enjoy this prosperity during a recession that has had a devastating effect on both businesses and families across the country. For example, median household income, a broad indicator of economic prosperity, was hit hard by the recession, with more than a decade of growth being wiped out between late 2007 and 2011. Defense profits dipped slightly at the recession’s start, but unlike household income, they rapidly recovered, rising over 40% between 2008 and 2011 and nearly returning to their 2007 peak.

Sources: U.S. Census Bureau, DaveManuel.com, Sentier Research

In other words: after ten years of exponential growth in profits, defense contractors are much better positioned to weather prospective budget cuts than they claim to be. And they are certainly in a better position to deal with the cuts than the millions of hardworking American families who would be impacted by domestic sequestration and its cuts to health care, education, child care, food stamps, and other programs.

This does not mean that defense sequestration is a good policy: the automatic, over-broad, and sudden cuts that it mandates are not a smart way to reduce defense spending. But against this historical backdrop, apocalyptic claims like those of House Armed Services Committee Chairman Buck McKeon, who has argued that sequestration would “cripple our economy and our defenses in a single blow,” look painfully exaggerated. Defense contractors seem to be in a good position to withstand the coming cuts, whether they come through sequestration or a Congressional deficit-reduction deal like that recommended by the Simpson-Bowles Commission. The defense industry can and should absorb its fair share of the spending reductions that will be necessary for this nation to get its fiscal house in order.

Since the January 2010 earthquake in Haiti the demand for private security in Haiti has surged, says a new report [PDF] from the Centre for International Governance Innovation, a Canadian think tank. The study finds that while many countries rely heavily on private security companies to protect people and property, Haiti stands out for its heavy use of private contractors while providing little effective government oversight.

Indeed, the security companies’ biggest clients include international organizations like the U.N., Western embassies and NGOs. But while international efforts have emphasized building and strengthening the Haitian infrastructure, the police force remains under staffed with 10,000 officers in a country of 10 million. About 12,000 guards work for private security firms.

The report, “From Private Security to Public Good: Regulating the Private Security Industry in Haiti,” observes that the growth in private security has been driven by “the critical lack of public police personnel,” leading to a 7 to 8 percent anticipated annual growth rate for private security firms. And while private security guards, often armed with shotguns or handguns, are now a commonplace sight in Haiti’s capital of Port-au-Prince, private security firms are a surprisingly recent presence in Haiti.

Private security services were not even permitted during Jean-Claude “Baby Doc” Duvalier’s dictatorship which ended in 1986. President Prosper Avril issued a decree two years later permitting for such businesses to set up shop. The report’s author, Geoff Burt, writes:

Haiti’s extreme economic inequality and fears of kidnapping for ransom have left wealthy Haitians anxious to protect their property and their homes. The presence of armed security personnel in the streets — whether public or private — may give some citizens a greater sense of security and order. At the same time, the most vulnerable populations — those living in refugee camps — do not benefit equally from private security provision.

The report urges the Haitian government to impose laws stipulating the roles of private security companies, create strict guidelines for the licensing and storage of firearms, and provide mechanisms for the state to oversee the industry.

Military contractors are eager to promote the theory that cuts in military spending — and the resulting decrease in government contracts for their businesses — will slow the economic recovery. A large part of their strategy has focused on promoting statistics showing the oversized effect of cuts in military spending on economic growth.

But statistics about the role of military spending in the U.S. economy are often used to misrepresent the importance of military contractors. Yesterday, USA Today ran an article titled, “Defense Cuts Starting To Pinch Economy.” It said:

Military defense spending fell by about $12 billion, or 3%, from October through May compared with the same period in the previous federal budget year, according to the Congressional Budget Office.

The Bureau of Economic Analysis, which measures defense-related spending more broadly, said last week that weaker defense spending shaved half a percentage point off first-quarter growth. Instead of growing 2.4%, the economy grew 1.9%

Instead of turning to an objective source, USA Today turned to Lockheed Martin to interpret the data. “Already, defense contractors are feeling the effects. Lockheed Martin CEO Robert Stevens said recently that his company’s workforce is 18% smaller than three years ago, and “‘the pace of our hiring has slowed considerably,’” the article says.

Indeed, war spending has gone down slightly as the U.S. completed its withdrawal from Iraq but the Pentagon’s core budget has actually gone up. Furthermore, the article fails to address the fact that had war funding not decreased, revenue would have to be raised through taxes, cutting other programs, or increasing the deficit. All three options would have negative effects on the economy.

But what goes unmentioned is that the Pentagon’s budget for contractors, like Lockheed, actually increased over those three years. Lockheed’s reduction in work force is far more easily explained by the company’s mismanagement of the Joint Strike Fighter program which has been delayed for five years and labeled “acquisition malpractice” by the Defense Department.

What military contractors fail to address is the fact that defense spending is not a jobs program. Defense spending “is a collective effort to address the facing the country, assure our national security, and secure our interests abroad,” write the Center for American Progress’ Lawrence J. Korb, Alex Rothman and Max Hoffman. “Therefore, the level of defense spending should be dictated by our national strategy and fiscal capacity, both of which point towards a drawdown.”

If job creation is the desired outcome, as outspoken proponents military spending now argue, then far better returns can be enjoyed from funding domestic priorities such as education health care and clean energy. Those sectors create at least 50 percent more jobs per dollar of public spending.

Back in 2009, private security company Blackwater changed its name to “Xe” in an effort to rebrand itself after controversial work in Iraq tarnished its image. But the company had difficulty shaking the “company formerly known as Blackwater” moniker and late last year changed its name again, this time to “Academi.”

But it turns out that the re-re-brand to “Academi” is bringing about a whole new set of problems. The Virginian-Pilot reports today that a Texas-based sporting goods store Academy, Ltd is suing the company formerly known as Blackwater because it thinks “Academi” is hurting its own image:

The security company, which rechristened itself Xe in 2009 and Academi last year, is being sued for trademark infringement by Academy Ltd., a Texas-based sporting goods chain.

The lawsuit, filed last week in U.S. District Court in Houston, says the similarity of the two names will sow confusion in the public mind and cause Academy “irreparable harm” given Academi’s corporate history and “the negative media coverage stemming from its security operatives in Iraq.”

Blackwater security guards opened fire on unarmed Iraqi civilians in Baghdad in 2007 that left 17 dead. In December, 2009, a federal judge dropped charges against five former Blackwater guards involved in the shooting — a move that drew the ire of many Iraqis — but in April of last year, a federal appeals court reopened the case against four of the contractors. Last month, the Supreme Court refused to review that ruling and rejected an appeal by the four guards who argued prosecutors made improper use of their statements to investigators in charging them with 2007 killings in Baghdad.

Earlier this year, Harper’s Magazine published YouTube videos of Blackwater contractors’ erratic behavior in Iraq. One video shows a Blackwater guard randomly and “enthusiastically” firing an AK-47 from the turret of an armored vehicle and another shows a private guard yelling obscenities at passers-by and other armored cars smashing into civilian vehicles. (HT: Politico)

After a pair of USA Today journalists started investigating wasteful spending in the Pentagon’s propaganda operations, one of the contractors singled out by the investigation struck back. Camille Chidiac, who owns nearly half of Leonie Industries, eventually admitted to setting up fake websites and online accounts to call the reputations of the USA Today journalists into question.

Chidiac’s actions earned a spot on the list of people who are not allowed to earn federal contractor dollars on May 30. But that doesn’t seem to be enough for Rep. Hank Johnson (D-GA), who already took up defending the journalists and callied for an investigation.

Johnson, USA Today reports, sent a letter to the Pentagon renewing his calls for a full investigation into the matter and for Leonie Industries — not just minority owner Chidiac — to be barred from receiving contracts. The letter said:

[The contractor's actions] suggest a pattern of malice, dishonesty, and incompetence that renders Leonie Industries unsuitable for continued service as a federal contractor. The intimidation of journalists, in particular, is unacceptable. The notion that taxpayers’ dollars would go to such a company is abhorrent.

The original USA Today feature investigative story that sparked Chidiac’s online retaliation laid out the level of money involved in the contracts — and exactly how unfit Leonie is to receive federal tax dollars. Chidiac and her brother and business partner Rema Dupont had more than $4 million dollars in liens for failing to pay their taxes. Their company nonetheless received gargantuan contracts:

Leonie Industries has Army contracts that could surpass $130 million; the Army has already paid them more than $90 million.

Those deals were to plant information in news items in Afghanistan and throw events that reflected well on the U.S. and the military with the aim of “bending the will of civilians and combatants to U.S. aims.”

On the rarest of occasions in Washington, the oft-derided “publicity stunt” tactic serves not to raise a politician’s profile or pet cause, but a worthy goal of highlighting possible wrongdoing. Such was the case yesterday when, debating the Pentagon budget bill in the House, Rep. Hank Johnson (D-GA) introduced an amendment to cut off all funding for Pentagon information operations — a euphemism for propaganda. Johnson used the opportunity to speak on the amendment to get into the Congressional record and recount a disturbing case suggesting Defense Department contractors retaliated against investigative journalists looking into their work.

Johnson was referring to USA Today Pentagon reporter Tom Vanden Brook and editor Ray Locker, who were smeared in a so-called “reputation attack” designed to flood the internet with information discrediting them just days after they made calls to defense contractors about possible waste and abuse. Johnson cited one of the companies they exposed — Leonie Industries — for having no military or propaganda experience. Last year, the Pentagon spent $202 million on such propaganda endeavors intended to target U.S. enemies like Al Qaeda and the Taliban — but those tactics and that money may have been used against the USA Today journalists.

Speaking during the House Armed Services Committee hearing, Johnson said:

As incompetent as this reputation attack campaign appears to have been, it raises the deeply disturbing possibility that a federal defense contractor that specializes in information operations may have targeted American journalists. It may have done so using taxpayer dollars and tactics developed to counter the influence of advresaries such as Al Qaeda and the Taliban.

Mr. Chairman, although we don’t have compelling evidence that this money is well spent, I recognize that some of these investments may be effectively supporting our men and women in harm’s way. So I intend to withdraw this amendment. But I call upon the Department of Defense to launch an immediate investigation of this matter, to refer any evidence of criminal activity to the Attorney General, and to consider suspending all contracts with Leonie Industries until such investigation is complete.

Watch the video:

Johnson doesn’t want to harm U.S. troops, so he ended up withdrawing the amendment. But he took the time to shed light on an important case of Pentagon waste and what he rightly calls a “deeply disturbing possibility” that Pentagon propagandists retaliated against journalists doing nothing more than their jobs. Despite the “stunt” of introducing an amendment, Johnson did the country a service by highlighting possible waste and abuse by the Pentagon and its contrators.