U.S. Procurement Won the Civil War, Today It Would Lose A War to China


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today’s issue is written by two government procurement experts (and readers of BIG). One is an anonymous currently practicing government contracting officer who has been doing acquisitions for ten years. The other is Lane Becker, who was formerly with the Technology Transformation Services at GSA, where he started and ran the 10x investment program (https://10x.gsa.gov). Before that Lane started a couple of companies in Silicon Valley. These folks are really smart, you are in for a treat.

Their piece is on innovation and war in the 19th century and today, which as it turns out, are conceptually the same. What do the Confederacy, Union procurement, and Chinese development of their air force have in common? More than you think…

But first, my book is out today! Goliath: The Hundred Year War Between Monopoly Power and Democracy. Buy it, read it, and tell me what you think. The first excerpt is out in the American Prospect on one of the great villains of American history, Andrew Mellon.

For those of you near D.C., I will be at Politics and Prose this Thursday at 7pm to do a book talk. More information is here.

And now…

U.S. Procurement Won the Civil War, It Would Lose A War to China

If it wasn’t for a single unorthodox approach to contracting by the U.S. Navy in early 1861, the Confederate States of America would very likely have won the Civil War. 

The story of how the Union kept Washington from falling into the hands of the Confederates by buying smarter is illuminating — as is the reason that such a purchase would be almost impossible to make in the United States today, given the level of dysfunction in our present-day defense contracting system.

Ironclad: The U.S.S. Monitor vs. the C.S.S. Virginia

At the beginning of the Civil War, the Union was able to successfully establish a naval blockade because the Southern states had few ships of their own. A blockade was critical to prevent cotton from flowing to Europe, allowing the South to strengthen its financial, military, and foreign policy position. But the Union’s blockade was tenuous. The U.S. Navy at the time was, according to the assessment of U.S. naval secretary Gideon Welles, “feeble, and in no condition for belligerent operations. Most of the vessels in commission were on foreign service; only three or four, and they were of inferior class, were available for active duty.” 

The Confederacy’s naval secretary, Stephen Mallory, sought to take advantage of the Union’s naval weakness, and crafted a superior fighting ship to defeat the Union on the water. When the South took the Gosport Navy Yard in Portsmouth, Virginia, in April of 1861, the confederates salvaged the hull of the U.S.S. Merrimack, and Mallory ordered his men to rebuild the top half of the scuttled wooden ship with iron — a first for its time. As one historian noted, “Mallory understood that innovation and creativity would be his primary hope in the face of an overwhelming conventional force he could not match.”

Union spies inside the Confederacy sent a steady stream of information about the building of the “ironclad” northward. Union leaders realized that to maintain the blockade, they needed better ships. The Navy issued open advertisements and gave respondents 25 days to submit plans, but, “still hanging on to what they knew best,” the request was laden with requirements that severely limited the range of what could be offered in response while also ensuring the build cost would remain high (a situation that will sound strikingly familiar to anyone involved in government acquisitions today.)

The selection board received proposals for 16 designs and settled on two, but, worried that neither would actually float, asked the finalists to provide mathematical evidence of their ships’ viability. This request stumped the submitter of a design for the U.S.S. Galena, Cornelius Bushnell, until a chance encounter at The Willard Hotel in Washington D.C. with the owner of a major ironworks plant led him to a Swedish born engineer named John Ericsson. Ericsson did the calculations in a night, and then, offhandedly, proceeded to show Bushnell an entirely new design for an ironclad ship he had designed 10 years earlier.

Bushnell later said listening to Ericsson talk about building his ironclad “awoke [him] to the fact that salvation was in store for our Government and country.” Ericsson’s design had no masts, rigging, or sails whatsoever,  and was much smaller than similar fighting ships, more like a modern day submarine. Most importantly, it was made entirely of iron, not wood with iron plating, which meant it would be able to withstand a significantly greater attack.

Bushnell took the model directly to Secretary Welles. Impressed, Welles and Bushnell attempted to convince the more conservative naval officers on the selection board to approve this new design despite its deviations from their list of required features, ultimately enlisting President Lincoln to join them for their presentation.

Even with Lincoln’s endorsement, the design was rejected by the board as too radical. Undeterred, Bushnell convinced Ericsson to come to Washington to present to the board himself. After much debate, the board relented and allowed Ericsson to proceed, convinced by the fact that his $275,000 submission was by far the cheapest, and that he could build his ship in 100 days — the only proposal that would be finished by the time the Merrimack’s conversion into the C.S.S. Virginia would be completed.

On March 8th, 1862, the Confederate ironclad left port, headed to the northern side of Hampton Roads, Virginia, where the James River meets the Chesapeake Bay, and where the U.S. Army was stationed at Fortress Monroe with several wooden ships enforcing Lincoln’s blockade. 

Panic set in. Should the blockade fall, as Secretary of War Edwin Stanton said to Lincoln, “it was not unlikely we shall have a shell or cannon-ball from one of her guns in the White House before we leave this room.” Fortunately, Ericsson had finished his ship, the U.S.S. Monitor, two weeks earlier. The crew of the Monitor sailed 51 hours straight to get to Hampton Roads, arriving six hours after the fighting had begun and several Union ships had already been lost. 

The two ships were evenly matched and battled for several hours, but in the end, the Monitor prevailed, entirely because of Ericsson’s design. The classically ironclad design of the Virginia — the top half of the old Merrimack now covered in iron plating but the bottom still exposed wood — meant that, as the battle wore on, the Virginia used up so much ammunition that the ship began to lighten, eventually rising high enough in the water that it was about to expose its wooden underbelly to the all-iron Monitor. The Virginia steamed off before that could happen. The Union had won.

War without Competition

It is as true today as it was during the Civil War that bringing new ideas into old institutions is a daunting task. But whereas in 1861 it was difficult for someone like John Ericsson to get his idea for a new kind of ship into the hands of the U.S. Navy — requiring a combination of talent, connections, persistence, and sheer luck, all very American traits  — today it would be impossible.

That’s not to say that similar threats desperately in need of inventive responses don’t exist. They’re everywhere, whether it’s the Government Accountability Office (GAO) noting that every major weapons system is riddled with cybersecurity vulnerabilities that could neutralize them entirely, warnings from top level commanders that the military needs to adapt, or experts outright declaring that as things currently stand America will likely lose a war against “near-peer” rivals Russia or China. But we’ve professionalized and obfuscated the practice of government contracting to such a degree that it’s become nearly impossible to penetrate by normal industry, let alone dogged patriots like Ericsson. Eisenhower’s warnings about the military industrial complex 50 years ago have truly come to fruition.

Healthy competition encouraging new entrants and smaller players are critical to the successful development of any new technology. This is especially true for military technology, where historically it has been outsiders who bring the biggest changes, like Patrick Blackett essentially creating modern day operations research during World War II. The ironclad board in 1861 got 16 bids and awarded to three different companies, but that level of competition is unheard of for today’s major weapons systems, where 67% of major government defense contracts are now awarded to companies without any form of competition

What’s even worse is the distribution of these dollars. Big business and big defense go hand in hand. The top ten contractors receive 3 of every 10 dollars spent. 

Who comprises the remaining companies that get what’s left? It’s a club of 50 or so corporations that not only supply the U.S. military but all of its major allies — a monoculture that leaves very little room for competition or innovation. It’s dangerously close to a de facto monopoly state.

Cash before Country

When Bushnell approached Ericsson to help him secure his proposal to the Navy ironclad board, Ericsson did so out of pure intellectual interest and didn’t ask for any kind of remuneration. Bushnell, in turn, put patriotism ahead of capitalism, taking Ericsson’s model and plans and presenting them even though it risked the years of work he had put into his own design of the Galena.

This wouldn’t happen today, either. The idea that potential competitors would set aside differences and interests in furtherance of the nation’s interest is laughable. Instead, government contractors are constantly at war with each other, jockeying for oligopolistic advantage via constant lawsuits such as those between “fourth estate” firms like Deloitte and Booz-Allen or long, drawn-out protests and charges of rigged bids, as in the saga currently playing out over the DoD’s JEDI cloud contract

The only party that truly loses is the government. The ultimate goal for profit-minded suppliers is not solely a strong fighting force but an addicted one. As CGI — the company best known for taking the lead in the disastrous rollout of Healthcare.gov — baldly stated, “The ultimate aim is to establish relations so intimate with the client that decoupling becomes almost impossible.” Relying on suppliers for raw materials, like the Union during the Civil War, is one thing, but when the very nature and strategy behind how we wage war rests largely with private corporations rather than a democratically elected, accountable government it truly is a “disastrous rise of misplaced power.”

Ironclad Redux: the F-35 vs. the J-20

Nothing captures the current predicament more than the F-35 — the most expensive government acquisition ever undertaken, colloquially known as the “Air Dominator.” The parallels to the ironclads of the civil war are striking — except that, as it stands right now, it’s the Chinese who appear to be on the winning side.

The F-35 has been in development since the early 1990s but, weighed down by complicated and onerous management and oversight process, the military is still struggling today to get it to full operational deployment. The cost so far is more than $1 trillion dollars

Compared to the “ironclad batteries of the civil war,” there were only 4 proposals submitted for the Joint Strike Fighter (JSF), the formal name for the program resulting in the F-35. Of the four proposals submitted, the government awarded two contracts to Boeing and Lockheed and provided each with $750 million to develop prototypes — an astounding sum that wasn’t even intended to deliver a final product but instead to ensure the firms wouldn’t bankrupt themselves in order to win the contract.

Beyond the F-35’s functional failings —  if they go too fast, they're no longer stealth, when they go slow they can be tracked, and pilots keep passing out from lack of oxygen — there are two overarching problems with the F-35. First is the fact that it’s basically a “computer that flies”, a fact that advocates of the plane proudly promote but one that rightly terrifies anyone familiar with the government’s track record on computing

The second and more visible problem is that the Chineses already have their own version. Turns out that when your plane is basically a computer, you don’t have to be physically present to steal it. Back in 2007, the Chinese hacked the US and its allies and took everything they needed to get started. They then modified their version to exploit our significant weaknesses — not in the F-35 per se, but in what they know about USAF’s ability to wage war

Peter Singer calls this strategy the “assassin’s mace” approach to defeating a seemingly more powerful, formidable foe. Rather than spend 20 years in protracted, overburdened development, the Chinese leapfrogged us in less than six. And they’re ruthlessly iterating, helped along by the fact that they don’t care about selling the J-20, unlike the F-35. Their fighter is meant to win a war, not a sales quarter.

Because the F-35 is still struggling, the workhorse of the Air Force is the F-22, but overinvestment in the F-35 means that the fleet of F-22’s is falling behind what’s needed to maintain combat readiness. The USAF currently has 186 F-22 Raptor fighters, of which only 123 can actually fly in combat — and 22 of those were recently decimated by Hurricane Michael, meaning that overnight the Air Force lost nearly ⅕ of its combat-capable fleet. 

The parallels between the Civil War and today are hard to miss. We are stationed at Fortress Monroe, our small band of wooden F-22’s manning the blockade as an improved version of a stolen fighter prepares for battle, but this time there’s no Monitor on the horizon to come to the rescue. Meanwhile, the Chinese are about to achieve full production of the J-20

Bring Back Ericsson

How can we avoid this fate? What will it take to bring the full force of American ingenuity back into our military efforts? 

To be fair, Congress tries, mandating a new commission every few years to try and figure out how to fix whatever’s going on. The latest iteration of this is the Section 809 Panel, named for Section 809 of the National Defense Authorization Act (NDAA), the bill that provides the budget and expenditures for the entirety of DoD. 

It’s not that the 809 Panel’s recommendations are bad, exactly, and in fact many of them in the three volume set are actually quite good. But they’re procedural fixes, which are the most frequently tackled element of the overall system. Done well, such changes result in more participants from more diverse backgrounds, who are given fewer resources but are granted greater flexibility to deliver in a significantly shorter timeframe. Parts of the military have had some success making these kinds of fixes. 

But by itself, these changes aren’t enough; they’re chipping away at the edges of the problem in the hope that something will spur the radical change that’s really needed. To truly be effective we need focused, systematic change to the way government funding is distributed via contracts, driven by the military and the executive branch — to how opportunities are publicized, how they’re competed (or not), and how we determine who ultimately receives funding. 

We need to revamp the incentive system that results in ineffective military acquisitions, remove the stagnancy that rules the contracting process, and dismantle the inward-facing oligopoly that has emerged as a result of both. We need innovative contractual structures that reward successful outcomes rather than rigid process, meaningful performance metrics to measure those outcomes, better transparency into what’s available for bid (check out any page on the legally required FedBizOpps if you want to see the current state of the art), and we need to reward the people who deliver on all of the above instead of the people who actively thwart it.

Ultimately, the fix we really need to make all this happen isn’t structural, but philosophical: We need a commitment to a procurement process that not only makes room for the unexpected but actively invites it. It doesn’t need to be — and shouldn’t be — easy. It just shouldn’t be this hard.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my upcoming book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. I am intrigued by the idea of a new “Red Scare” in Silicon Valley. If you’re seeing any fall-out from the recent flare-up with the CCP in your corner of the world, let me know.