THE BLOG
10/04/2006 01:43 pm ET Updated May 25, 2011

No Sex, But Still a Scandal

The Federal Trade Commission (FTC) yesterday blessed the creation of a Lockheed-Boeing joint venture that it acknowledges will create a durable monopoly, raise prices and reduce innovation. The client of the joint venture, United Launch Alliance, will be the U.S. government, primarily the Defense Department.

So the government has agreed to let itself be ripped off and price-gouged by a monopoly.

The rationale is that there are national security benefits to the merger, which offset the anticompetitive effects. As described in a letter from Undersecretary of Defense Kenneth Krieg to the FTC, the joint venture will make it possible to maintain two separate launch technologies (which would of course be the case if Boeing and Lockheed did not merge) and speed relaunch after failed launches. This speeded relaunch is due first, according to Krieg, to not having to negotiate a contract with a competitor (!) and because the teams managing the two technologies can create a common interface by using a single engineering team.

This is pathetic.

It reflects DOD's longstanding support for mergers that are supposed to enhance efficiency through consolidation, but which inevitably lead to diminished innovation and intensified waste, fraud and abuse. It also reflects the Pentagon's prostrated position vis-à-vis the defense industry, which pretty much gets what it wants.

It is a safe prediction that the joint venture approval will lead not to speeded-up satellite launches, but further delays. And no one will be in position to do anything about it, because there won't be any competitors.

The background to this ridiculous joint venture is that while they were negotiating the deal, Boeing and Lockheed were simultaneously engaged in a courtroom battle over Boeing's improper acquisition of 25,000 pages of bidding documents from Lockheed. Boeing used the information to set its bids just below those of Lockheed. In May, the Department of Justice cut a non-prosecution deal with Boeing, letting the company off the criminal hook.

Amusingly, perhaps, one condition of the FTC's approval of the Boeing-Lockheed merger is that "Boeing, Lockheed, and ULA must safeguard competitively sensitive information obtained from other space vehicle and launch services providers."

One might very reasonably ask, if the government wants to have a monopoly in this area, why doesn't it just run the monopoly? Say what you will about government efficiency, but problems with government pale in comparison to the performance of the defense industry.