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An Ugly Case Study in Washington Defense Contracting

An Ugly Case Study in Washington Defense Contracting
(AP/Hasan Jamali)

By    |   Wednesday, 08 June 2016 06:33 AM

Anyone who reads this column knows I believe that businesses and corporations should stand on their own two feet without reliance on the forced-generosity of the American taxpayers to survive. 

Too many industries have become reliant on government giveaways to pad their bottom line, making it appear a company is profitable when, in fact, things would look much different if Congress and the bureaucracy shut off the spending spigot. 

From green cars to the solar industry, I have long argued that if these industries are truly offering radical life-altering technologies that will change the landscape for decades to come, they should be able to do it without a crutch from Uncle Sam.  SpaceX is one of those companies.

Founded by Elon Musk, SpaceX is part of a triple header of companies reliant on the state for its profit.  Musk’s Tesla’s and SolarCity is almost purely reliant on the state to survive.  A snap change in tax law and both companies would be potentially teetering on bankruptcy (and SolarCity might be there without any change in policy).  The Los Angeles Times reported last year that Elon Musk’s Solar City,  SpaceX and Tesla Motors (TSLA) have received $4.9 billion in government subsidies as of May of last year.

Don’t get me wrong.  Elon Musk is a free market success story with his work to revolutionize how consumers pay for goods with his co-founding of the successful online payment system PayPal.  According to a Los Angeles Times story from 2003, Musk developed a “reputation as an entrepreneur with a golden touch.” 

His goal ultimately with SpaceX was to “revolutionize the space industry, with the ultimate goal of enabling people to live on other planets.” 

According to Forbes, Musk’s net worth is about $12.8 billion, therefore he has the cash to invest and make good on his goal with his own money.

The problem comes when the self-made billionaire becomes a crony of D.C. politicians. Musk’s influence over policymakers will come to the front, once again, as the Senate begins debates on the Defense Authorization Bill, the measure that maps out America’s defense spending priorities for the next fiscal year. 

During consideration of that bill, it is expected that Arizona Senator John McCain (R-Arizona) will push for a special earmark that will grant Musk monopoly power to be the sole distributor of rockets to launch America’s satellites into space.  Today, these rockets are provided by the United Launch Alliance, a joint-venture of Lockheed Martin (LMT) Space Systems and Boeing (BA) Defense, Space & Security.

The United States Defense Department and other government agencies should purchase rockets with the objective of purchasing the best rockets at the greatest for the benefit for the taxpayers.  Under the McCain amendment, that concept could be tossed aside.

Mr. McCain’s amendment, under the guise of punishing Russia, would provide Mr. Musk, whose company SpaceX is listed as a contributor to the McCain Institute for International Leadership, compete dominance over this area of government contracting.  The McCain Amendment would void existing contracts with United Launch Alliance and forbid them from competing.  This scheme is bad for taxpayers and not in the interest of America’s national security.  The government should not be handing billionaires' exclusive contracts.

The United States military and spy agencies are expecting to launch as many as 34 rockets over the next half decade.  The payloads of often highly sensitive intelligence communications satellites, the same satellites that have been put into space by Boeing, Lockheed and others for decades.  Handing the keys to the castle to a company without a long, proven history of success in this space, is a mistake.

Competition brings about better goods and services at better prices.  Crony government earmarks to reward donors does a disservice to the American people.  The McCain amendment is a bad idea.  Elon Musk is a true free market success story, yet when he has dipped his toe into the cesspool of Washington contracting, he is getting away from the entrepreneurial spirit that made him one of the wealthiest individuals on this planet. 

Christopher (Chris) Versace is the editor of the newsletter The Growth & Dividend Report and is a featured columnist to The Street.com as well as a contributor to FoxBusiness.com and Forbes.com. To read more of his blogs, CLICK HERE NOW.

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Anyone who reads this column knows I believe that businesses and corporations should stand on their own two feet without reliance on the forced-generosity of the American taxpayers to survive.
washington, defense, contracting, taxpayers
Wednesday, 08 June 2016 06:33 AM
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