Roger Franklin: Just one more scandal on the US road to ruin

Decades ago at the Pentagon, even before Ronald Reagan made the brass happier than kids in a candy store by pouring unprecedented billions into just about any weapon system starry-eyed generals cared to dream up, the actual business of directing contracts to America's weaponsmiths could be a decidedly peculiar affair.

Who would have thought, for example, that America's national security in the latter days of the Cold War had anything to do with a hunting-lodge-cum-love-shack deep in the West Virginia hills?

The story, still told with relish by veteran critics of the US military bureaucracy, insists that a routine audit turned up a series of bills for the lodge's upkeep - bills that included the cost of female hostesses to help uniformed guests unwind after a hard week of issuing big-buck contracts.

By some accounts it was Lockheed that picked up the tab and delivered the girls, by others, Northrop or Boeing.

"What business did those women have in a hunting lodge?" a contractor's representative is supposed to have been asked at a particularly stormy congressional hearing. "Well, Senator," replied the witness, "it is a hunting lodge - and those gals sure were game!"

Sadly, the anecdote isn't true - and not because it is unlikely, which it isn't. Over the years, Pentagon audits of contractor expenses have uncovered barely camouflaged demands to be recompensed for everything from dog-boarding expenses to new mattresses for an insomniac CEO and consultants' fees that greased the way for sales of planes, guns and tanks to foreign governments.

But the strongest indication that the tale of the cabin with hot and cold running girls is a fiction is the suggestion that Boeing might have been involved. Any other contractor, maybe, but not Boeing. The aerospace giant always enjoyed what was, by Pentagon standards, a reputation for playing more or less by the rules.

Even more to its credit, Boeing enjoyed a sportsman's reputation as a good loser. Forty years ago, for example, Lyndon Johnson, wanted a huge contract assigned to General Dynamics, one of the biggest employers in his native Texas. Trouble was, every time the Pentagon weighed the relative merits of the two competing proposals, it opted for Boeing's design.

Johnson's solution: he kept making the appraisal panel go back and start again until, eventually, the decision went the way he wanted. The resulting plane, by the way, was the F-111, which may help to explain its subsequent history of punching expensive holes in the landscape.

Boeing execs uttered not a word of protest. Instead, the company sucked up its disappointment and concentrated on developing the 747, the civilian jetliner that would guarantee its success for decades to come.

That was the old Boeing, however. The new one - the corporation whose scandals are a fixture on America's front pages - appears finally to have adopted the defence industry's standard code of misconduct.

It's a juicy story, with everything from slap and tickle in the boardroom to allegations of rigged deals and the jailing of a top executive for currying favour at the Pentagon by offering a lucrative job to the official responsible for signing off on a multibillion-dollar fleet of Air Force tanker planes.

Last week, everything came to a head when CEO Harry Stonecipher, 68, unexpectedly resigned after sexually graphic emails intended for an underling with whom he was having an affair somehow ended up in the mailbox of another female exec.

She passed them to an in-house ethics panel, which decided they reflected poorly on the CEO's judgment and would impair his ability to lead.

The married and so-far-silent Stonecipher was clearing out his desk before the ink on that ruling was dry.

Apart from the amusing spectacle of a formerly respected corporate chieftain caught with his pants down, why should any of this matter?

The stock market didn't seem to mind, as Boeing's shares hardly moved when the scandal broke. Despite increasing competition from Europe's Airbus consortium, analysts reckon Boeing is sitting pretty. As for US national security, that hasn't been compromised, either. The Air Force will still get its tankers, and no other weapons deliveries have been jeopardised.

Yet for students of the Pentagon, especially those who watched America's other manufacturers of large commercial aircraft go out of business until only Boeing was left, there is cause for concern. It has to do with a road to ruin charted some years ago by the Oxford historian and economist Mary Kaldor in her book The Baroque Arsenal.

Defence contractors, Kaldor wrote, usually start out as civilian contractors, but lose their innovative edge, their ability to compete, as they become addicted to military largesse.

And why shouldn't they? When military contractors mess up, the Pentagon simply writes another cheque to cover the mistakes. Their products no longer need to be capable of competing in the marketplace, because there isn't one.

With the Pentagon as the only customer, and an indulgent one at that, the only incentive is to provide whatever the generals want, no matter how costly and ill-conceived.

One by one, America's civilian aerospace outfits succumbed to temptation and became the military's kept creatures. Lockheed, Convair, McDonnell Douglas - not one of them now makes planes for any customer but the military. In shipyards, too, the same trend has taken place.

In fact, that's how Stonecipher joined Boeing. Formerly the head of Pentagon contractor McDonnell Douglas, he came aboard when the two outfits merged in 1997. Since then, one military deal at a time, financial reliance on the Pentagon has grown.

Americans concerned about their country's long-term viability as an industrial power might want to stop giggling about Stonecipher's indecent exposure and ponder the longer-term implications. Across the Atlantic, Airbus is parlaying a bottomless purse of Government subsidies into plans for the world's biggest airliner, the superjumbo A380, due to fly for the first time next year.

To stay competitive, and to remain one of America's largest employers, Boeing's civilian division must preserve and cultivate the sort of unsubsidised smarts and willingness to gamble that produced the original 747. So far, with plenty of advance orders for its upcoming 777, Boeing is doing just that.

But what if the plane hits problems and unanticipated expenses mount? With the growing dependence on the military inoculating Boeing's bottom line from the consequences of cost overruns, inefficiency, corruption and incompetence, why should it run the risk? Why not cede the civilian skies to the Europeans and focus on the richest and easiest pickings?

As politicians debate the best way to retain America's shrinking pool of industrial jobs, it's a question that needs asking. And a question that, if history is any guide, probably won't get the answer it needs.