The Structural Failure of America’s Defense Industrial Base

Introduction

I have spent the better part of fifteen years preparing for the kind of systemic disruption most people assume will never arrive. Physical metals, a vehicle built for roads that no longer function, a spirits portfolio that appreciates while fiat degrades, potential citizenship optionality for my family in the European Union. The thesis behind all of it has always been simple: the institutions Americans depend on are optimized for conditions that no longer exist, and when those conditions change abruptly, the gap between institutional capacity and actual need will be enormous.

On February 28, 2026, that thesis stopped being theoretical.

Operation Epic Fury — the U.S.-Israeli campaign against Iran — has, in three weeks, exposed every structural failure I and many others have been tracking for years. The military consumed more Tomahawk cruise missiles in its opening days than it purchased over the previous five years (19FortyFive, 2026; TURDEF, 2026). Patriot interceptor stocks, already drawn down to a quarter of required levels by transfers to Ukraine and expenditure defending Israel, were burning through a year’s production in under a week (Military Watch Magazine, 2026; The War Zone, 2026). The Navy’s most advanced aircraft carrier limped out of the Red Sea after nine months at sea and a fire that displaced six hundred sailors (NPR, 2026; USNI News, 2026). The Strait of Hormuz effectively closed, with 77 ships transiting in the first eleven days of March compared to 1,229 in the same period last year (TRT World, 2026, citing Lloyd’s List Intelligence). And across the Pacific, China watched all of it, taking notes.

This paper argues that what is unfolding is not a logistics problem or a planning failure. It is a structural contradiction — one that traces to a specific ownership model that the United States chose for its defense production, and one that cannot be resolved within that model’s constraints. The nation placed its war-fighting capacity inside publicly traded corporations whose legal obligations run to shareholders, not to readiness. Those corporations behaved exactly as their incentive structure demanded: they maximized returns, consolidated production, eliminated redundancy, and returned 98 percent of free cash flow to investors while the industrial base that is supposed to deter great-power war quietly atrophied. The war with Iran did not create this problem. It revealed it, at the worst possible time, with the least possible margin.

The Property Question

The standard critique of the defense-industrial relationship begins and ends with Eisenhower’s 1961 warning about the military-industrial complex. That framing, while politically durable, is analytically insufficient. Eisenhower was worried about political influence — the acquisition of unwarranted influence by defense contractors over policy. What we face in 2026 is a different and deeper problem: not that defense firms have too much influence over the state, but that the ownership structure of defense firms is fundamentally incompatible with the function they are supposed to serve.

Pierre-Joseph Proudhon drew a distinction in 1840 between possession — the legitimate use of productive resources by those who work them — and property — absentee ownership that extracts rent without obligation (Proudhon, 1840). That distinction maps with uncomfortable precision onto the defense industrial base. The shipyards, missile factories, and ammunition plants that constitute American war-fighting capacity were largely built with public investment. They are operated by workers whose skills take years to develop. And they generate returns for shareholders who bear no legal obligation to maintain the capacity those facilities represent. The shareholder of Lockheed Martin has no duty to ensure that Tomahawk production can surge in wartime. Their duty, as American corporate law has been interpreted since Dodge v. Ford in 1919, runs to maximizing value for the ownership class (Stout, 2012; Roe, 2021; Rhee, 2023).

The result is an industrial base optimized for the wrong variable. Maintaining surge capacity — idle factories, warm production lines, excess workforce, redundant suppliers — generates no shareholder return. It is, from the perspective of quarterly earnings, pure waste. So it gets cut. Every time. And because the firms that cut it are rewarded with higher stock prices, the behavior is self-reinforcing. The defense industrial base does not atrophy despite the market working correctly. It atrophies because the market is working correctly, toward an objective that has nothing to do with national security.

This is the structural contradiction at the center of American defense, and no amount of supplemental appropriations, executive orders, or congressional hearings can resolve it without addressing the ownership question directly.

From 51 to 5: The Consolidation That Hollowed the Base

The current monopoly structure did not emerge organically. It was engineered. On July 21, 1993, Secretary of Defense Les Aspin and Deputy Secretary William Perry hosted approximately fifteen to twenty-five CEOs of major defense firms at a Pentagon dinner that became known as the “Last Supper.” Perry presented a chart showing sixteen categories of military equipment and how many companies the post–Cold War budget could sustain. In seven categories, the answer was one. Perry’s message was blunt: the Pentagon expected defense companies to go out of business, and it would stand by and watch it happen (NPR/WBUR, 2023; Grokipedia; Wikipedia).

The consolidation that followed was the most dramatic in American industrial history. Between 1993 and 1997, the Department of Defense received over one thousand merger notifications. Defense merger activity rose from 300 million dollars in 1991 to 14.2 billion in 1993 and topped 20 billion in 1996 (ABA, 2025; Air & Space Forces Magazine, 2005). Major military aircraft suppliers shrank from eight to three. Tactical missile producers went from thirteen to three. Bomber manufacturers consolidated from three to one. By 2022, ninety percent of missiles came from just three sources, and over 74 percent of major acquisition programs featured at least one of the Big Five as prime contractor (CRS, R47751; CSIS, 2023).

Defense employment cratered from 1.1 million aerospace workers in 1990 to 673,000 by 1995, with approximately 1.5 million defense-related jobs eliminated by 1997 (Grokipedia; Brookings). Perry himself would later concede the error. In 2016, he reflected that the country would have been better off with more, smaller firms than with a few large ones (NPR/WBUR, 2023). By then, the Big Five were receiving more than 121.5 billion dollars annually in Pentagon prime contract obligations (CSIS, 2023).

The Shipyard Monopoly

During World War II, 81 American shipyards built oceangoing vessels. By 2026, only six private yards handle major naval construction, and critical capabilities reside in single facilities. Newport News Shipbuilding is the sole builder of aircraft carriers — a monopoly the U.S. Naval Institute documented as having been deliberately created, not arising naturally from physics or geography (USNI Naval History Magazine, 2022).

During the Cold War, the Navy procured three to five Los Angeles-class submarines per year, building 62 boats over two decades. Today, despite Congressional authorization of two Virginia-class boats per year, the actual delivery rate is 1.13 annually — a 70 percent shortfall. Over 65 percent of remaining submarine and carrier suppliers are single- or sole-source. Build times have deteriorated across every class: destroyers and submarines that took five to six years now require eight to nine (CBO, 2025; USNI Proceedings, 2021; GAO, 2024).

Shareholders First: The Financial Structure Behind the Crisis

In 2024, seven major defense primes generated 21.2 billion dollars in free cash flow and returned 20.8 billion — 98 percent — to investors through dividends and share buybacks. They collectively returned 4.6 billion dollars more to investors than they spent on internal research and capital expenditure combined (Breaking Defense, 2026, citing McAleese & Associates).

The Pentagon’s own April 2023 Contract Finance Study documented the pattern over a full decade: from 2010 to 2019, cash paid to shareholders increased by 73 percent while spending on independent R&D and capital expenditure declined. The top ten contractors disbursed 17 billion dollars more to shareholders than they generated in cash flow (CRS, R47751; POGO, 2024). In 2022 alone, Lockheed Martin spent 7.9 billion dollars on share buybacks versus approximately 1.7 billion on capital expenditure. From 2021 through 2024, the four largest primes collectively directed 89 billion dollars to buybacks and dividends, of which an estimated 58 billion was financed with taxpayer-derived revenue (The Big Newsletter; Taxpayers for Common Sense; Sanders, 2024).

Secretary of the Navy Carlos del Toro identified the pathology directly in 2024, accusing shipbuilders of goosing stock prices through buybacks and deferring capital investments rather than making the fundamental investments the industrial base required (War on the Rocks, 2024). Lieutenant Colonel Eric Suits of the Air Force framed the structural mechanism: large firms are penalized by their shareholders for maintaining excess capacity beyond contractual demand signals. This is the core dilemma making surge production difficult, if not impossible (DAU, Defense Acquisition, 2024).

Institutional ownership reinforces the dynamic. State Street, Vanguard, and BlackRock collectively control roughly 30 percent of Lockheed Martin’s shares. Total institutional ownership exceeds 74 percent across the major defense stocks (Yahoo Finance; WallStreetZen; CNBC, 2023). These index-fund managers optimize for returns across portfolios, not for whether the nation can reload its missile batteries in wartime.

The Executive Order That Proved the Point

On January 7, 2026, the Trump administration issued an executive order titled “Prioritizing the Warfighter in Defense Contracting,” declaring that defense contractors are not permitted to pay dividends or buy back stock until they produce a superior product on time and on budget (White House, 2026; Morgan Lewis, 2026).

Seven weeks later, the same administration launched a war that would expose every production deficit the order purported to address. The executive order is not a rebuttal to the structural critique — it is evidence for it. The administration understood the problem well enough to issue a press release about it in January, then started a conflict in February that the industrial base they had just diagnosed as broken was structurally incapable of sustaining. The order lacks a statutory enforcement mechanism, proposes no alternative capital formation model, and leaves the underlying ownership structure entirely intact. It is the political equivalent of posting a sign that says “please stop extracting value” on the door of a system designed from the ground up to extract value.

If the administration genuinely believed that defense contractors were incapable of producing superior products on time and on budget — and the executive order says exactly this — then launching a war seven weeks later that depends entirely on those contractors’ output is either an act of extraordinary cognitive dissonance or a calculated bet that the stockpiles would hold. They did not hold.

The Drawdown Before the Crash: Ukraine and the Hollow Stockpile

Operation Epic Fury did not deplete a full magazine. It depleted one that had already been drawn down for three years by the largest security assistance program since World War II. Between February 2022 and January 2025, the United States committed approximately 66.9 billion dollars in military assistance to Ukraine. Roughly 31.7 billion flowed through Presidential Drawdown Authority, pulling weapons directly from existing U.S. stocks across 55 separate drawdowns (U.S. Department of State, 2025; GAO-25-107475; CRS, IF12040).

The transfers included more than three million 155mm artillery rounds, over 10,000 Javelin anti-tank missiles, more than 3,000 Stinger anti-aircraft missiles, 40-plus HIMARS launchers, and three Patriot batteries with associated interceptors (DoD Fact Sheet, December 2024; State Department; Atlantic Council). Each of these systems was drawn from stocks that the industrial base could not replace at the rate they were being consumed.

The Stinger case is illustrative: the United States sent approximately 25 percent of its Stinger inventory to Ukraine despite not having purchased any since 2003. The production line was dead. Raytheon brought retired engineers in their seventies back to teach hand-assembly techniques for seeker components. A 624.6 million dollar replacement contract will not deliver until June 2026 (Defense One, 2023; Defense News, 2022). Javelins followed a similar pattern: roughly one-third of inventory transferred, with a 32-month delivery lead time and full replenishment estimated at five to twelve years (CSIS, 2022; The Hill, 2022).

National Security Adviser Jake Sullivan acknowledged in December 2024 that in eight weeks of war in 2022, Ukraine burned through a year’s worth of U.S. 155mm production. The Pentagon raided the War Reserve Stock Allies-Israel — 300,000 rounds staged specifically for Middle Eastern contingencies — and borrowed another 300,000 from South Korea (Sullivan remarks, December 4, 2024; Stars and Stripes; CNN, 2023; Defense One, 2023).

By September 2025, the Pentagon’s Global Munitions Tracker showed Patriot inventories at roughly a quarter of required levels. Denmark’s planned 8.5 billion dollar Patriot purchase was blocked; Switzerland was told its five-battery order would be delayed (The New Voice of Ukraine; The War Zone; Axios, 2026). INDOPACOM Commander Admiral Samuel Paparo delivered the most candid assessment at Brookings in November 2024: “It’s now eating into stocks, and to say otherwise would be dishonest” (Breaking Defense, 2024; Defense News, 2024).

Every major think tank published warnings that read, in retrospect, like operational predictions. CSIS found in January 2023 that the United States would likely run out of some long-range precision-guided munitions in less than one week of a high-intensity conflict (Jones, CSIS, 2023). CNAS concluded the defense industrial base was struggling to simultaneously meet the needs of the U.S. military while supplying its allies (CNAS, 2025). Heritage warned that Patriot and THAAD interceptors would likely be exhausted within days of sustained combat (Heritage Foundation, 2026).

The 155mm production ramp-up, while historically ambitious, consistently missed every milestone. The target of 100,000 rounds per month by October 2025 was not met; actual complete-round output remained closer to 18,000 to 40,000, because the United States has no domestic artillery propellant production and TNT has not been manufactured domestically since 1986 (Breaking Defense, 2025; Defense One, 2025; CRS, R48182; U.S. Army, 2024).

The Munitions Arithmetic Does Not Work

In the five years preceding the Iran war, the United States purchased a total of 322 Tomahawk cruise missiles — averaging roughly 72 per year. In the first 100 hours of Operation Epic Fury, U.S. forces fired 168 Tomahawks. By mid-March, the total reached an estimated 319 to 400 — consuming in days what took half a decade to produce (19FortyFive, 2026; TURDEF, 2026; Breaking Defense, 2026).

The interceptor crisis was worse. Coalition forces fired over 800 Patriot interceptors in the first five days — exceeding Lockheed Martin’s entire 2025 annual output of approximately 600 PAC-3 MSE missiles (Military Watch Magazine, 2026; The War Zone, 2026; CRS, IN12668). These were not fresh stockpiles being drawn down. They were the remnants of stockpiles already hollowed by Ukraine transfers and the June 2025 defense of Israel. The Washington Post reported that the Pentagon was days away from having to prioritize which incoming Iranian missiles to intercept (Washington Post, March 4, 2026; Washington Post, March 9, 2026).

Multiple sources drew the direct line to Ukraine. Former Pentagon deputy senior adviser Katherine Thompson told Fortune that Biden had diminished the stockpile of interceptors by sending them to Ukraine. The American Prospect reported the shortage had much to do with selling off weapons to both Ukraine and Israel (Fortune, March 7, 2026; American Prospect, March 12, 2026; Euromaidan Press, March 3, 2026).

The cost-exchange ratio compounded the crisis: Iran’s Shahed drones cost an estimated 20,000 to 50,000 dollars each; the PAC-3 MSE interceptors used against them cost approximately 3.9 million apiece — an 80-to-1 ratio in the attacker’s favor. The estimated munitions cost for the first six days alone was 11.3 billion dollars. The Pentagon’s supplemental request reached 200 billion (CSIS, Cancian, 2026; NPR, March 19, 2026).

Eleven Carriers on Paper, Three at Sea

Title 10 of the U.S. Code mandates eleven aircraft carriers. As of March 2026, three are deployed, four are in maintenance, and the fleet is about to drop to ten. The USS Gerald R. Ford has been at sea for 266 consecutive days, approaching the post-Vietnam record. On March 12, a fire in the main laundry facility required thirty hours of damage control, displaced over six hundred sailors, and forced the carrier to leave the theater for repairs in Crete (NPR, March 17, 2026; USNI News, March 12 & 17, 2026; CNN, March 18, 2026).

The Ford’s replacement, USS John F. Kennedy, was originally scheduled for delivery in 2018. The date has slipped to March 2027. Cost has grown from 11.3 billion to 13.2 billion dollars (USNI News, July 2025 & January 2026; Stars and Stripes, February 2026). The next Ford-class hull, Enterprise, has slipped 28 months to July 2030 (USNI News, July 2025; GAO, June 2025). USS Nimitz, commissioned in 1975, just had its service life extended to 2027 at a cost of 95.7 million dollars because the sole shipyard capable of building its replacement cannot deliver on schedule (Stars and Stripes, March 15, 2026; Naval Today, March 2026).

GAO found that between fiscal years 2015 and 2019, more than 75 percent of carrier and submarine maintenance availabilities were late, with carrier availabilities averaging 113 days behind schedule. The total maintenance backlog: approximately 1.8 billion dollars (GAO-22-105032; USNI News, May 2024).

Hormuz Closed, Oil Doubled

The Strait of Hormuz carries approximately twenty million barrels of oil per day. Operation Epic Fury has effectively closed it. Lloyd’s List Intelligence confirmed that between March 1 and 11, 2026, only 77 vessels transited — compared to 1,229 in the same period the previous year. A 94 percent collapse (TRT World, 2026, citing Lloyd’s List Intelligence).

Brent crude surged from roughly 73 dollars to a peak of 120. American gasoline prices rose eighty cents per gallon in three weeks. The IEA coordinated its largest-ever strategic reserve release — 400 million barrels from more than thirty nations. Crude prices rose seventeen percent after the announcement (CNN Business, March 11, 2026; Wikipedia, ‘2026 Strait of Hormuz crisis’).

The Federal Reserve held rates at 3.5 to 3.75 percent on March 18, with inflation projected at 2.7 percent and seven of nineteen participants seeing no cuts in 2026. The fed funds rate cannot come down because inflation is rising; it cannot go up because the economy is absorbing a supply shock. This is the stagflation setup — the same trap the 1970s oil embargo sprung, but with a 39 trillion dollar national debt and an active war to fund (CNBC, March 18, 2026; Federal Reserve Board, March 18, 2026).

The Pacific Gamble

Every asset deployed to the Middle East is unavailable for the Indo-Pacific. As of March 20, only one aircraft carrier operates in the entire Pacific. The 31st Marine Expeditionary Unit — the sole permanently forward-deployed MEU in the Pacific — was pulled from Okinawa and ordered to the Middle East. The 11th MEU left San Diego days later on the same vector (Stars and Stripes, March 19, 2026; USNI News; The Garden Island, March 2026).

This occurs within what Admiral Philip Davidson identified as the window of maximum risk — by 2027, China would have the military capability to attempt a Taiwan operation (Davidson testimony, 2021; Global Taiwan Institute, 2024). The March 2026 U.S. intelligence assessment softened the timeline, stating China does not currently plan an invasion in 2027 (USNI News, March 19, 2026). But China does not need to invade Taiwan to benefit from what is unfolding. It needs only to watch the carrier fleet degrade, the munitions stockpile empty, and the force posture rebalance from the Pacific to the Persian Gulf.

China conducted its largest military exercise around Taiwan in December 2025 — 130-plus aircraft, 14 warships, 27 rockets. In the South China Sea, it began major dredging at Antelope Reef, its first significant artificial island-building since 2017 (The Diplomat, January 2026; Global Taiwan Institute; Newsweek; CSIS AMTI). A Chinese military publication explicitly analyzed five lessons from Epic Fury. CNAS concluded that the operation is a military success funded by strategic risk, steadily draining the scarce munitions the United States would need most in a war with China (Newsweek, 2026; Decypher Asia, 2026; CNAS, 2026).

What History Shows

The 1973 oil embargo demonstrated that a 25 percent production cut could quadruple prices and trigger global recession. Oil went from three to twelve dollars per barrel; U.S. inflation hit 12.3 percent; GDP fell 3.2 percent. The current Hormuz disruption removes a larger share of global supply than either the 1973 or 1979 crises (Bill of Rights Institute; U.S. Department of State; TrendSpider).

The Arsenal of Democracy provides the counter-model. Between 1940 and 1945, the federal government invested the equivalent of 3.2 trillion dollars in new production facilities. Shipyard capacity expanded from ten yards to 81. Henry Kaiser built 2,710 Liberty ships from yards that did not exist when he got his first contract. At peak, American shipyards launched three ships per day. The critical mechanism was the Government-Owned, Contractor-Operated facility: during World War II, the U.S. maintained 73 GOCO ammunition plants, retaining public ownership of productive capacity while leveraging private operational expertise (ScienceDirect; Beaten Zone Venture Partners; U.S. Army; DAU, 2024).

Britain’s naval industrial decline traces the trajectory the United States is now following. The UK held over 80 percent of global shipbuilding in 1892, produced zero commercial ships in 2023 (RUSI Journal, 2023; Construction Physics). When the Falklands War erupted in 1982, Britain discovered it could barely mount an expeditionary operation, finding only one in four requisitioned commercial vessels suitable for military use (USNI Proceedings, March 2024).

Recommendations

The GOCO model — proven across 73 facilities in World War II and still operational for nuclear weapons production — offers the only structural alternative that addresses the ownership contradiction directly (DAU, Defense Acquisition, 2024; U.S. Army). Under GOCO, the government owns the facility and its productive capacity. A private contractor operates it, earning a management fee rather than extracting equity returns. The government retains the ability to mandate surge production, maintain warm lines, and invest in redundancy without shareholder approval. The contractor has no incentive to consolidate production to a single site because the efficiency gain does not flow to their bottom line.

Specific applications follow from the analysis. First, designate Newport News Shipbuilding, the Scranton Army Ammunition Plant, and the Tomahawk final assembly line as GOCO facilities. This does not require nationalization in the traditional sense — it requires the government to acquire the physical plant and lease it back under operating contracts, precisely as it does for the Pantex nuclear weapons assembly facility and the Y-12 National Security Complex today.

Second, establish a second carrier-capable shipyard. The industrial base cannot support eleven carriers from a single facility, and the Kennedy delays prove it. This is a twenty-year investment. It should have started a decade ago. It should start now.

Third, mandate maintained production capacity for critical munitions. The 155mm debacle — three years and five billion dollars to ramp from 14,000 to 40,000 rounds per month, against a target of 100,000 that was never reached — demonstrates that surge capacity cannot be generated on demand. It must be maintained continuously, which means it must be funded as infrastructure, not procurement.

Fourth, break the sole-source dependency chain. TNT from Poland and Turkey. Propellant from a single plant in Quebec. Nitrocellulose from France and the Czech Republic. These are not supply chains. They are single points of failure. Domestic production of energetic materials is a national security requirement that has been unfunded for forty years.

Fifth, decouple defense production investment from shareholder return metrics. The January 2026 executive order attempted this by fiat and failed. The structural solution is to move critical production out of publicly traded equity entirely — not through regulation, but through ownership change. The government should own what the government needs to exist.

Conclusion

The question this paper raises is not whether the current model has failed. The 77 ships transiting Hormuz versus last year’s 1,229 answered that question. The 266-day carrier deployment answered it. The 800 Patriot interceptors fired in five days against a production rate of 600 per year answered it. The single carrier covering the Pacific while two MEUs steam away from the theater they were positioned to defend answered it.

The question is whether the political system can restructure an industrial base whose beneficiaries spend 140 million dollars annually on lobbying and employ over 2,700 former government officials as lobbyists — defending the very arrangements that produced the crisis (Truthout; OpenSecrets).

I am not optimistic. The actors with the authority to restructure the base are the same actors who depend on its current beneficiaries for campaign financing, post-government employment, and the political cover that comes from being seen as strong on defense. The firms themselves will lobby against restructuring because the monopoly is the moat. The shareholders will resist because idle capacity depresses returns. And the public, which bears the consequences when the system fails, owns these same defense stocks in their index funds and retirement accounts — earning eight percent annualized on a portfolio that is strip-mining the industrial capacity that is supposed to protect them.

But the alternative to restructuring is what we are watching now: a nation that spends 886 billion dollars a year on defense and cannot keep the Strait of Hormuz open, cannot keep a carrier at sea without it catching fire, cannot produce enough interceptors to defend its own bases, and cannot deter its primary strategic competitor because every asset it owns is committed to a theater that was supposed to be a secondary priority.

Proudhon would have recognized this instantly. The property relation itself — public equity ownership of the means of national defense — is the structural contradiction. And there is no actor in the system with both the authority and the incentive to resolve it. That is the problem. That is the paper. The rest is arithmetic.

Bibliography