The General Dynamics Corporation, one of two weapons contractors that campus group Students for Ending the War in Iraq (SEWI), and now the Wesleyan Student Assembly (WSA), have demanded the University divest from, is the sixth-largest defense conglomerate in the world, with $24.1 billion in earnings last year, according to BusinessWeek magazine online.
For most of its 50-year history, the company has focused on ships. Since the first Gulf War, however, it has also bought up a bundle of smaller information technology and aircraft companies, setting the trend for competing mega-companies such as Lockheed Martin and Raytheon, the other company at the center of the divestment controversy.
Founded in Falls Church, VA, in 1952, General Dynamics began primarily as a ship building company. But things began to change in the 1990s.
“To reach a new expanding market, General Dynamics began acquiring companies with expertise in information technology products and services,” the company’s website reads.
Analysts such as Renae Merle of the Washington Post believe that defense companies such as General Dynamics have been picking up smaller companies as part of the Pentagon’s ambition to make the military more high-tech.
“The nation’s leading defense contractors are gobbling up small technology firms in a consolidation binge driven by the Pentagon’s demand that future military conflicts be dominated by high-tech warfare,” Merle wrote on May 27, 2003. “The buying spree is contributing to a fundamental change in the structure of the defense industry as the top players move away from their roles as mere weapons makers and increasingly cast themselves as ‘systems integrators’ that produce high-tech networks for the battlefield.”
General Dynamics’ four sectors reflect the move towards systems technology: Aerospace, Combat Systems, Marine Systems, and Information Systems and Technology.
Merle holds that today’s largest defense companies, mostly spurred on by the Pentagon and, in 2003, by former Secretary of Defense Donald Rumsfeld, are following the lead of General Dynamics.
“General Dynamics started its push into the information technology business in the late 1990s,” Merle wrote in the same article. “At the urging of the Pentagon, the Falls Church-based company had begun outfitting its tanks, submarines and warships with the latest technology. In 1998, General Dynamics set up an IT unit—a novel concept in the industry at the time. The unit, established almost solely through acquisitions, is now a nearly $4 billion business and one of the company’s fastest-growing sectors.”
Beyond Information Technologies, the company has grown quite quickly in recent years. According to its website, it has acquired and successfully integrated a total of 43 businesses, including three in 2006. Profits have particularly increased since Septemper 11th.
“Defense companies have been on a tear since 2001, when U.S. troops invaded Afghanistan,” reads a March 7 AP report from BusinessWeek. “The stocks of the biggest players—Boeing (BA), Lockheed Martin (LMT), General Dynamics (GD), and Northrop Grumman (NOC)—have all at least doubled in that time.”
Since the War in Iraq began in 2003, General Dynamics profits have skyrocketed from around $30 a share to, currently, over $80 a share, according to BusinessWeek charts.
According to some analysts, the company’s soaring profits from the Iraq War, a basis for both many pro- and anti-divestment arguments heard in WSA divestment negotiations, may not continue.
“Defense spending may be close to peaking, assuming the security situations in Iran and North Korea don’t intensify,” reads the March 7 report. “Historically, defense budgets have dropped dramatically following a major conflict…Add in declining support for the Iraq war, the long-term budget challenges facing the U.S., and a Democratic Congress clamoring for cutbacks, and the Defense Dept. may be on a spending diet in the near future.”
General Dynamics spokespersons would not comment on future profits to Business Week.
“General Dynamics Corp. and Raytheon Co. on Wednesday posted modestly higher first-quarter earnings that beat Wall Street’s expectations,” wrote AP Business Writer Mark Jewell in an April 25 report. “But the two companies were reluctant to raise their profit outlooks for the full year, citing unusually high uncertainty over future Pentagon funding.”
The company, while not as scandalous as its counterpart Raytheon, has faced legal troubles. In 1995, the U.S. Congress and South Korea’s government investigated General Dynamics and Lockheed Martin for possibly bribing the unpopular South Korean President Roh Tae Woo.
“A South Korean legislator alleged yesterday that General Dynamics Corp. paid former president Roh Tae Woo at least $100 million in 1991 in a successful effort to persuade the South Korean military to buy the company’s F-16 fighters,” reported John Mintz of the Washington Post on October 26, 1995. “The Falls Church-based company strenuously denied the allegation.”
Congress’ subpoena did not lead to charges.
Beyond the scandal in South Korea, General Dynamics has had a few accusations of scandal. In 2004, a New York Federal Attorney subpoenaed the company for not properly testing submarine parts that it sold to the Navy. General Dynamics is currently testifying before a Senate committee because of problems with ships sold to the Navy.
This year, according to an AP wire printed in the April 6 International Herald Tribune, Netherlands pension fund ABP divested from General Dynamics.
“[ABP] divested from U.S. companies Textron Inc., General Dynamics Corp., Alliant Techsystems Inc., and from Singapore Technologies Engineering Ltd. after receiving hundreds of complaints,” the wire reads. “The company [is] ‘reviewing’ its other military investments.”