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Defense Restructuring Adding To Michigan Woes

Michigan has been losing jobs at a great clip and now boasts one of the highest unemployment rates in the country. A great deal of this has been due to the decline of the U.S. automotive industry. Over the last ten years some of this has been countered with increased defense spending especially in the area of armored vehicles. Now even this market is starting to change bringing even more job losses to the state.

The Army, Marines and even the Navy and Air Force were showered with money by Congress to buy Mine Resistant Ambush Protected (MRAP) vehicles to protect against what was turning out to be the biggest killer in Iraq and Afghanistan: The Improvised Explosive Device (IED). This meant that several companies were able to win contracts due to the high demand. A secondary market was also created in making armor for the MRAP and other military vehicles such as up-armored HUMVEES.

Now that Iraq is winding down and the current focus in on Afghanistan there has been a change in approach. The Department of Defense is buying a new lighter, more maneuverable MRAP called the MRAP-ATV. A contest was held that involved several MRAP producers but the first two contracts have gone to Oshkosh. This end of the production boom for these vehicles now is leading to job losses and cut backs in the defense money moving to Michigan.

This is a common problem with large defense production contracts. Eventually they will come to an end and the system will either move into sustainment or be replaced by a newer system. This is why contractors prefer a lower level of production over a greater number of years rather then buying a large number quickly. This steady state allows a proper ramp up of production and suppliers and also guarantees several years of income. It also provides stability to the job market in a geographic area. When a program ends that stability and job market is disrupted.

The U.S. has become a nation where a great deal of high end manufacturing is from the defense budget. If the budget contracts or there is a shift in the type of technology being produced and bought that will have a serious negative effect on employment in a concentrated locale. Owego, NY lost 800 good jobs with the cancellation of the VH-71. If Lockheed cannot find a similar contract to locate there that means they are gone for the next several years or for good.

The companies making MRAP parts in Michigan may never be able to get a similar contract which will lead them to eliminate the jobs permanently. They are already laying people off as the current contracts wind down with no follow on ones coming. The ending of F-22 production will have the same effect across the U.S. The increase in the F-35 will do the opposite causing new hiring in the areas where it will be manufactured. Perhaps some of the people involved will just switch contracts, perhaps some will move to Texas to take the new jobs, but this doesn't help the city or state that just saw thousands of people leave with their tax revenue and spending.

This is the major reason that individual Congressmen fight for the contracts to be in their district or just send earmarks back home. It keeps high paying jobs going. Jobs that provide tax dollars or as in the case of Owego, NY propped up the real estate market. Any loss of a contract, or a plant, or a military facility lead to economic disruption that may take decades to recover from. The whole point of the Base Realignment and Closure (BRAC) process was to isolate politics from the closing of dozens of facilities across the country. Unfortunately for defense contractors there is not much they can do beyond lobbying and getting support for the Services.

If Obama and Gate's do make significant cuts to the defense budget over the next four years there will be severe economic effects on parts of the U.S. There may be better ways in some opinions to spend Government money but there is certainly a stimulative effect of this spending.