Targeting the Poultry Conspirators

High food prices have been one of the most contentious issues of the past few years, causing many people to remain negative about the U.S. economy even as other indicators have improved. Grocery inflation has several cases, but one that does not receive enough attention is the ability of large corporations to set prices at will.

Price escalation is possible because of the enormous amount of concentration in the food sector. Not only can major producers hike up prices on their own, they conspire with their few competitors to do so in tandem. This is known as price-fixing, and since the passage of the Sherman Act of 1890 the practice has been illegal under federal law. States bring prosecutions as well.

One state that has been particularly aggressive in this arena is Washington. Its Attorney General, Bob Ferguson, has targeted the poultry industry, which is believed to be a hotbed of anti-competitive practices. In 2021 Ferguson’s office sued 19 companies said to account for 95 percent of the broiler chickens sold in the entire country, alleging they conspired to restrain production, manipulate price indices, rig bids and exchange proprietary information with one another. The defendants included familiar names such as Tyson Foods, Pilgrim’s Pride and Perdue Farms.

Over the past two years, Ferguson has racked up an impressive record. Last April, 14 of the corporate defendants agreed to pay settlements totaling $35 million. The largest shares came from Pilgrim’s Pride ($11 million), Tyson ($10.5 million) and Perdue ($6.5 million).

Since then, Ferguson has kept up the pressure on the other defendants. Most recently, House of Raeford Farms agreed to a $460,000 settlement. The two remaining holdouts, Foster Farms and Wayne-Sanderson Farms, are scheduled to go on trial later this year.

They may change their minds about going to court. All of the settling defendants have agreed to cooperate with Ferguson’s office in producing evidence that can be used in that trial. Those defendants have also signed consent decrees under which they commit to changing their practices and acknowledge that the AG can seek additional fines if they fail to do so.  

Ferguson wants to have even stronger tools at his disposal. Recently, he joined with several state legislators to propose legislation that would increase the maximum penalty for price-fixing and other anti-competitive practices.

At the same time the big poultry companies work to keep prices high, they have been accused of conspiring to keep pay low. The U.S. Justice Department has been targeting the industry for the improper exchange of compensation date, a practice that amounts to wage-fixing. One company, George’s Inc. agreed last year to pay $5.8 million to DOJ. The feds are seeking other settlements.

There has also been private litigation on this issue, resulting in large settlements such as a $29 million payout by Pilgrim’s Pride and $12 million by Simmons Foods.

It remains to be seen whether the federal and state prosecutors, together with plaintiffs’ lawyers, can get the poultry industry to stop colluding on prices and wages. Yet these cases should serve as a reminder of the extent to which food inflation is the result of corporate power and greed.

The Other Problem with Airline Mergers

A proposed acquisition of Hawaiian Airlines by Alaska Airlines would be bad news for those traveling between the U.S. mainland and Hawaii. The combined company would have a huge share of that market and would thus be in a position to keep fares sky high.

Another negative feature of the deal is that it would enhance the position of a company with a checkered regulatory compliance record. As shown in Violation Tracker, Alaska Air and its subsidiaries have been cited more than 200 times by the Federal Aviation Administration for a variety of safety violations involving issues such as maintenance, hazardous waste and security practices.

All the airlines have such violations, and the larger carriers have been fined more times, reflecting their wider operations. But in relation to its size, Alaska Air’s record is worse than that of its counterparts. Its total of 220 FAA violations is not far behind that of Southwest’s total of 270, even though Southwest carries about four times as many passengers.

Alaska Air’s violations also tend to be more serious. Its 220 cases have generated more than $10 million in fines (the FAA’s penalty structure is not very onerous), while the total from the 539 fines paid by the much larger Delta Air Lines is below $9 million. (All the FAA statistics are limited to cases with fines of at least $5,000.)

Alaska Air has also racked up a series of penalties from the Transportation Department’s Aviation Consumer Protection Division. Including matters involving Virgin America, which Alaska Air acquired in 2016, there have been 13 of those cases with total fines of $777,500.

Then there is the issue of employment practices. Earlier this year, a federal judge in California ordered Alaska Air to pay nearly $31 million to a class of flight attendants who had sued Virgin for failing to pay proper overtime pay and failing to pay for break time as required under California law. The workers originally won $77 million in damages, but the company appealed and got part of the award overturned. Alaska Air also tried to get the U.S. Supreme Court to throw out the rest of the award but the high court declined to hear the case. The matter thus went back to the trial court, where the judge settled on the $31 million payout.

Hawaiian Airlines has a somewhat less egregious regulatory track record. It has been fined 31 times by the FAA and five times by the Transportation Department’s consumer division. There is every reason to suspect that if the merger goes through, its compliance practices would come to look more like that of its new parent.

When antitrust regulators review a proposed merger, they have to give primary consideration to the potential market impacts. Yet it is also worth keeping in mind that as companies grow larger, they often tend to become less mindful of safety matters and other regulatory obligations. Or if they already have a lax approach to compliance, that problem is likely to become worse. All this is just one more reason bigger is usually not better.

Targeting the Price Fixers

The Justice Department and the Federal Trade Commission have been promoting the adoption of new guidelines that would give them a greater ability to block anti-competitive mergers. Now DOJ may also be taking a tougher stance with regard to the other main branch of antitrust enforcement: prosecuting price-fixing conspiracies that harm consumers.

DOJ’s Antitrust Division has just announced the resolution of a case brought against generic drug giant Teva Pharmaceuticals and a smaller Indian producer called Glenmark Pharmaceuticals for conspiring to fix the price of pravastatin, a cholesterol medication. Teva was also charged with anti-competitive behavior with regard to two other drugs. Teva was compelled to pay a criminal penalty of $225 million and to donate drugs worth $50 million to humanitarian organizations. Glenmark was penalized $30 million.

Along with the fines, which in Teva’s case is well above the norm in DOJ Antitrust Division actions, the agency imposed a novel penalty: requiring the two companies to divest their pravastatin business line. And although the criminal charges were softened by allowing Teva and Glenmark to enter into deferred prosecution agreements, the DOJ included a blunt warning that “both companies will face prosecution if they violate the terms of the agreements, and if convicted, would likely face mandatory debarment from federal health care programs.”

Forcing a company to leave a business in which it has engaged in misconduct can be a more effective punishment than monetary penalties, which large corporations can usually absorb with little difficulty. This is an especially appropriate approach in prosecuting companies that have shown themselves to be repeat offenders.

Among the more than 240 companies shown in Violation Tracker to have faced criminal charges brought by the Antitrust Division since 2000, there are about half a dozen which have been penalized more than once. One of those is the Swiss bank UBS, which in 2011 paid $160 million to resolve allegations of engaging in anti-competitive practices in the municipal bond market but was offered a non-prosecution agreement. The following year, UBS was accused of manipulating the LIBOR interest rate benchmark and paid penalties totaling $500 million. While a subsidiary had to plead guilty, the parent company was offered another non-prosecution agreement.

Antitrust enforcers should leave the use of financial penalties to private litigation. As I showed in a report called Conspiring Against Competition published earlier this year, class action lawsuits brought by the victims of price fixing have yielded $55 billion since 2000, more than twice as much as the penalties collected by federal regulators.

Among the most frequently sued companies were Teva and its subsidiaries, which paid out a total of $1.4 billion in 19 different class actions. Most of these involved an indirect form of price fixing in which companies collude to delay the introduction of lower-cost generic alternatives to expensive brand-name drugs.

Government regulators should use their power not just to put a dent in an egregious price-fixer’s bottom line but to force the company out of a market in which it failed to follow the rules.  

The Big and the Bad

Proposed new guidelines on merger enforcement just released by the Federal Trade Commission and the Justice Department are a welcome development. In many industries, takeovers have put U.S. consumers at the mercy of a small number of mega-corporations all too willing to use their market power aggressively.

DOJ and FTC have put forth 13 guidelines under which the agencies could block mergers that eliminate substantial competition, increase concentration, entrench or extend a dominant position and so forth. Mergers that substantially lessen competition for workers could also be targeted.

Along with the market benefits that would come from slowing consolidation (reduction in the number of firms in an industry) and concentration (increase in the share of business activity controlled by a small number of large firms), this new aggressive posture could also help to restrain the growth of corporate misconduct.

The reason is that as corporations grow larger and more dominant they seem to become more inclined to break the rules—not only the rules against price-fixing but also those concerning labor standards, environmental protection, transportation safety and much more. Evidence for this can be found in the data collected in Violation Tracker.

A prime example is the financial services sector. The country’s four largest banks—JPMorgan Chase, Bank of America, Citigroup and Wells Fargo—account for $180 billion in cumulative penalties since 2000. This is nearly half of the penalties paid by all of the 330 parent companies in this sector covered by Violation Tracker.

Penalty concentration is even greater in the petroleum industry, where the top five oil companies—Exxon Mobil, Shell, Chevron, BP and ConocoPhillips—are responsible for cumulative penalties of $42 billion. That is three-quarters of the $55 billion paid by all the companies in the sector.

Big Tech giants Meta Platforms, Alphabet and Microsoft have cumulative penalties of $9 billion, which is 60 percent of the total paid by entire the information technology sector. (This excludes Amazon.com, which is categorized in Violation Tracker as a retailer, and Apple Inc., which is put in the electronics category.)

Tyson Foods, JBS (the Brazilian parent of Swift and Pilgrim’s Pride), and WH Group (the Chinese parent of Smithfield Foods), which dominate meat and poultry processing, account for $1 billion in penalties, while leading packaged food companies PepsiCo, Mondelez International, Kraft Heinz and ConAgra account for another $435 million. Together they are responsible for about 40 percent of the $3.7 billion in penalties paid by the food products sector overall.

In other industries such as motor vehicles and airlines there are few significant companies, so penalties are also highly concentrated among them.

This is not to say that mega-corporations have a monopoly on misconduct. Many of the more than 500,000 cases documented in Violation Tracker involve small firms.

Yet their misdeeds usually have a limited impact, whereas the transgressions of the godzillas of the business world cause the most harm to workers, consumers and communities. Preventing large companies from becoming even larger and more dominant will help limit these harms.

Conspiring Against Competition

A federal judge in Minnesota recently granted final approval to a $75 million settlement between Smithfield Foods and plaintiffs alleging that the company was part of a conspiracy to fix the prices of pork products. This came a week after the Washington State Attorney General announced $35 million in settlements with a group of poultry processors.

A couple of weeks ago, a federal judge in New York approved a $56 million settlement of a class action lawsuit in which two drug companies were accused of conspiring to delay the introduction of a lower-cost generic version of an expensive drug for treating Alzheimer’s Disease.

All these court actions are part of an ongoing wave of illegal price-fixing conspiracies by large companies throughout most of the U.S. business world. The scope of the antitrust violations is revealed in a report I just published with my colleagues at the Corporate Research Project of Good Jobs First. The report, entitled Conspiring Against Competition, draws on data collected from government agency announcements and court records for inclusion in the Violation Tracker database.

We looked at over 2,000 cases resolved over the past two decades, including 600 brought by federal and state prosecutors as well as 1,400 class action and multidistrict private lawsuits. The corporations named in these cases paid a total of $96 billion in fines and settlements.

Over one-third of that total was paid by banks and investment firms, mainly to resolve claims that they schemed to rig interest-rate benchmarks such as LIBOR. The second most penalized industry, at $11 billion, is pharmaceuticals, due largely to owners of brand-name drugs accused of illegally conspiring to block the introduction of lower-cost generic alternatives.

Price-fixing happens most frequently in business-to-business transactions, though the higher costs are often passed on to consumers. Apart from finance and pharmaceuticals, the industries high on the penalty list include: electronic components ($8.6 billion in penalties), automotive parts ($5.3 billion), power generation ($5 billion), chemicals ($3.9 billion), healthcare services ($3.5 billion) and freight services ($3.4 billion).

Nineteen companies (or their subsidiaries) paid $1 billion or more each in price-fixing penalties. At the top of this list are: Visa Inc. ($6.2 billion), Deutsche Bank ($3.8 billion), Barclays ($3.2 billion), MasterCard ($3.2 billion) and Citigroup ($2.7 billion).

The most heavily penalized non-financial company is Teva Pharmaceutical Industries, which with its subsidiaries has shelled out $2.6 billion in multiple generic-delay cases.

Many of the defendants in price-fixing cases are subsidiaries of foreign-based corporations. They account for 57% of the cases we documented and 49% of the penalty dollars. The country with the largest share of those penalties is the United Kingdom, largely because of big banks such as Barclays (in the interest-rate benchmark cases) and pharmaceutical companies such as GlaxoSmithKline (in generic-delay cases).

Along with alleged conspiracies to raise the prices of goods and services, the report reviews litigation involving schemes to depress wages or salaries. These include cases in which employers such as poultry processors were accused of colluding to fix wage rates as well as ones in which companies entered into agreements not to hire people who were working for each other. These no-poach agreements inhibit worker mobility and tend to depress pay levels—similar to the effect of non-compete agreements employers often compel workers to sign.

Despite the billions of dollars corporations have paid in fines and settlements, price-fixing scandals continue to emerge on a regular basis, and numerous large corporations have been named in repeated cases.

Higher penalties could help reduce recidivism, but putting a real dent in price-fixing will probably require aggressive steps to deal with the underlying structural reality that makes it more likely to occur: excessive market concentration.

Pay for Delay

Forty years ago, federal policymakers thought they had found a solution to the problem of escalating prescription drug prices. The Hatch-Waxman Act of 1984 made it easier for generic manufacturers to bring to market lower-cost alternatives to brand-name medicines whose patent protection was expiring.

Fast forward to 2023. Recently, a federal judge in New York approved a $54 million class action settlement between plaintiffs led by a police union health plan and two drug companies accused of participating in an improper agreement to delay the introduction of a generic version of the Alzheimer’s drug Namenda. In 2020 another group of plaintiffs in a related case received a settlement of $750 million.

Once hailed as heroes that would restore consumer-friendly competition to the pharmaceutical industry, many generic producers instead became conspirators in what are known as “pay for delay” schemes to extend the market domination of costly brand-name products.

The extent of this degeneration is documented in data I have been collecting for an expansion of Violation Tracker and that will be analyzed in a report to be published next week. That expansion covers class action lawsuits designed to combat illegal price-fixing by large companies in a wide range of industries. This private litigation often follows actions brought by federal and state prosecutors.

Cases involving pay for delay, which amounts to an indirect form of price-fixing, make up a substantial portion of the litigation challenging anti-competitive practices. I was able to identify more than 100 settlements over the past two decades in which generic and brand-name producers paid out nearly $8 billion. Cases brought by federal agencies or state attorneys general resulted in another $2 billion in fines and settlements.

The company that has paid out the most is generics giant Teva Pharmaceuticals, whose 19 settlements (including those involving subsidiaries) total $2.5 billion. AbbVie’s total is $1.5 billion in 21 cases. Five other companies—GlaxoSmithKline, Sun Pharmaceuticals, Pfizer, Novartis and Bristol-Myers Squibb each have totals between $500 million and $800 million.

The largest single penalty came in 2015 in an action brought by the Federal Trade Commission accusing Cephalon Inc. of illegally blocking generic competition to its blockbuster sleep-disorder drug Provigil. The settlement required Teva Pharmaceuticals, which had acquired Cephalon in 2012, to make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, which overpaid because of Cephalon’s illegal conduct.

High drug costs are one of the factors contributing to inflation in the United States. Unlike energy prices, which are highly susceptible to swings in international markets, drug prices are largely under the control of manufacturers, due to patents and the unwillingness (until recently) of the federal government to allow Medicare to negotiate with the industry.

Big Pharma, not satisfied with those benefits, has frequently crossed the line into illegality through these pay-for-delay schemes. The $10 billion in penalties paid by the industry is in all likelihood far less than the economic gains it has reaped by artificially prolonging the market life of overpriced medications. It’s something to keep in mind during the next expensive visit to the pharmacy.

The report, Conspiring Against Competition, will be published on April 18.

Biden’s Catalogue of Corporate Abuses

There was not much soaring oratory in President Biden’s State of the Union address, but the speech was an unapologetic call for a full set of progressive policy initiatives. It was also a bold critique of big business practices affecting workers, consumers and communities. Biden offered what amounted to a catalogue of corporate misconduct.

Although Biden implicitly praised the private sector for strong job creation during the past few years and explicitly hailed companies planning to make big investments in U.S. semiconductor production (with generous federal subsidies), he also spoke of the prior decades during which corporations moved large numbers of well-paid manufacturing jobs overseas and devastated many communities.

Biden chastised Big Pharma for charging exorbitant prices and generating high profits, warning that he would veto any attempts by Congress to repeal new legislation that will require the industry to negotiate Medicare drug prices for the first time.  

Calling the tax system unfair, Biden lambasted large companies that have managed to avoid paying anything to the federal government and praised the adoption of a 15 percent minimum. Addressing those corporations, he stated: “just pay your fair share.”

Citing Big Oil’s record profits over the past year, Biden criticized the industry for not investing more in domestic production and instead using the windfall for stock buybacks that boost share prices. He called for quadrupling the tax on those transactions.

Biden went after insurance companies for surprise medical bills and called out nursing homes “that commit fraud, endanger patient safety, or prescribe drugs they don’t need.” He took credit for cracking down on shipping companies that charged excessive rates during the supply-chain crunch.

Touting a bill called the Junk Fee Prevention Act, Biden lashed out at hidden surcharges and fees imposed by hotels, airlines, banks, credit card companies, cable TV and cellphone providers, ticket services, and other sectors. “Americans are tired of being played for suckers,” he declared.

Biden took aim at large employers that require workers, even in low-skilled positions, to sign non-competition agreements, blocking them from taking a job with a competing company. Saying he is “sick and tired of companies breaking the law by preventing workers from organizing” unions, he called for passage of the PRO Act.

Speaking of the efforts to keep small business afloat during the pandemic, he vowed to double-down on efforts to prosecute corruption in those programs.

Biden also joined the chorus of voices denouncing the tech giants, stating “we must finally hold social media companies accountable for the experiment they are running on our children for profit.” He called for legislation to “stop Big Tech from collecting personal data on kids and teenagers online, ban targeted advertising to children, and impose stricter limits on the personal data these companies collect on all of us.”

There was a lot more to the speech, but this was a remarkable recitation of the sins of unbridled big business. It is significant that Biden delivered this critique without ever using the word “regulation,” which the Right has endlessly demonized. Yet he spoke repeatedly of both administrative and legislative initiatives to address the abuses.

The latter category is dead in the water in the new divided Congress. It will be up to the Biden Administration to show what it can do through executive action to turn his critique into significant change.

Getting Tougher with the Monopolists

The Antitrust Division of the Justice Department has announced that the former president of a paving and asphalt company based in Montana has pleaded guilty to criminal charges of attempting to monopolize the market for highway crack-sealing services in that state and Wyoming.

It is encouraging to see DOJ take aggressive action against an individual executive, especially since this action was the first criminal case to be brought under the Section 2 anti-monopoly provisions of the Sherman Act in decades.

Yet it is difficult to get too excited about the case, given that it involves a pretty small culprit in a minor market. DOJ should set its sights higher.

In doing so, prosecutors may want to look back at a case that shook up the corporate world 60 years ago. In what became known as the great electrical equipment conspiracy, dozens of executives from companies such as Westinghouse and General Electric were charged with colluding to fix prices and rig bids in the sale of transformers and other gear to industrial customers.

The defendants included a variety of vice presidents, division managers and other fairly high-level managers in the companies. Faced with incontrovertible evidence gathered by the DOJ during the Eisenhower Administration, they pleaded guilty or no contest and threw themselves on the mercy of the court. As Time magazine reported in 1961, defense attorneys argued for leniency:

One by one, as the sentencing went on, lawyers rose to describe their clients as pillars of the community. William S. Ginn, 45, vice president of General Electric, was the director of a boys’ club in Schenectady, N.Y. and the chairman of a campaign to build a new Jesuit seminary in Lenox, Mass. His lawyer pleaded that Ginn not be put “behind bars with common criminals who have been convicted of embezzlement and other serious crimes.”

Federal District Judge J. Cullen Ganey was not swayed. He sentenced Ginn and half a dozen other defendants to 30-day jail sentences, while many of the others received suspended sentences for reasons of age or health. A month was not a long stretch, but it was shocking at the time to see prominent businessmen being led off in handcuffs. In fact, it was the first time in the 70 years following the enactment of the Sherman Act that executives of large companies were incarcerated for antitrust offenses.

In the ensuing years, DOJ vacillated in its position on individual criminal charges for cartel activity. In the 1970s Congress revised the Sherman Act to allow violations to be prosecuted as felonies rather than just misdemeanors, but those provisions were not always applied.

Today the Antitrust Division regularly brings charges against individuals under Section 1 of the Sherman Act for price-fixing and bid-rigging, but the case volume is low and the sentences are not much harsher than those meted out by Judge Ganey. Moreover, the defendants in those cases are rarely high-level executives at large companies.

DOJ’s new willingness to bring Section 2 criminal cases is encouraging, but in order to shake up the business world the way the electrical equipment prosecutions did, the Antitrust Division will have to take aim at high-level executives at some of the mega-corporations that dominate our economy.

Poultry Concentration and Collusion

In the debate over the causes of today’s persistent inflation, corporate profiteering tends to get put far down on the list, well below factors such as supply-chain bottlenecks and the war in Ukraine. While corporate practices may not be the primary driver of rising prices, they are something government officials can actually do something about.

In fact, they already are trying to do so. One of the primary arenas is agribusiness, especially poultry processing. For instance, the Washington State Attorney General just announced that Tyson Foods has agreed to pay more than $10 million to settle its role in a lawsuit alleging that a dozen broiler chicken producers conspired to manipulate prices.

The U.S. Justice Department has also been targeting the broiler producers. It has run into difficulty proving its allegations against specific executives and has dropped a slew of individual charges. That doesn’t necessarily mean price fixing hasn’t been occurring. One of the major corporate defendants, Pilgrim’s Pride, pled guilty to criminal charges and paid a penalty of $107 million.

DOJ’s case against the chicken industry is not a response to recent inflation. It is an attempt to address many years of inflated prices resulting from collusion among a small group of companies in a highly concentrated industry.

Whatever happens with the government’s case, the industry is still facing a slew of private antitrust lawsuits that have been consolidated in federal court in Illinois. Last May, the judge presiding over the sprawling case certified three classes of plaintiffs: direct purchasers, indirect purchasers and end-user consumers. The plea by Pilgrim’s Pride in the DOJ case will make it much easier for the various plaintiffs to win substantial relief beyond the several hundred million dollars already paid out in partial settlements.

Chicken producers have also been accused of anti-competitive employment practices. In July, Cargill Meat Solutions, Sanderson Farms and Wayne Farms agreed to pay a total of $84.8 million to settle a civil antitrust case alleging that they engaged in a long-running conspiracy to depress wages by improperly exchanging information and coordinating their pay practices. A court-appointed monitor will oversee their behavior over the next decade.

The potential for future collusion, however, is now greater. Over the summer, a joint venture of Cargill and Continental Grain, the parent of Wayne Farms, acquired Sanderson and combined it with Wayne to form Wayne-Sanderson Farms. This deal creates another mega-producer alongside Tyson and Pilgrim’s Pride. The three will together control over 50 percent of the chicken market.

Diminished competition by itself serves to push prices higher. The effect is intensified in an industry whose dominant players have shown an inclination to engage in collusion as well. Anti-competitive practices by themselves do not account for mounting inflation, but they are a significant part of the story that deserves more attention—and more intervention by regulators and prosecutors.

The Pentagon Wakes Up to Arms Industry Concentration

Lockheed Martin’s decision to bow to pressure from the Federal Trade Commission and abandon its takeover of Aerojet Rocketdyne is a rarity. Such mergers among weapons producers were long encouraged by the Pentagon and approved by antitrust regulators. Bigger and more prosperous contractors were seen as being in the national interest.

This gave rise to a group of military leviathans. Along with Lockheed Martin, the result of the 1995 combination of Lockheed and Martin Marietta and the later addition of Sikorsky Aircraft, those giants include: Raytheon Technologies, which arose out of the 2020 merger of Raytheon and portions of United Technologies; Northrop Grumman, born out of the 1994 combination of Northrop Aircraft and Grumman Corporation; General Dynamics, formed from the 1950s merger of Electric Boat Company and Canadair; and Boeing, which gobbled up McDonnell Douglas in 1997.

Concentration, however, is no longer seen as a virtue in the arms industry. The Defense Department has just issued a report warning that the sharp reduction in competition among contractors is creating problems for the Pentagon. It points out that the number of aerospace and defense prime contractors is down from 51 in the 1990s to five today, making the military highly dependent on a very small number of producers in all categories of weapons systems.

This reduction in competition, the report argues, creates supply risks, increases costs and diminishes innovation: “Consolidations that reduce required capability and capacity and the depth of competition,” it states, “have serious consequences for national security.”

In place of the old approach of “bigger is better,” the report recommends heightening merger oversight, encouraging new entrants, increasing opportunities for small business, and hardening of supply chain resiliency.

For all its candor, one issue the report does not address is the checkered history of the big contractors in terms of honest dealing. They were all involved in numerous procurement scandals in the 1980s, the 1990s and into the 2000s. These ranged from massive cost overruns to cases of outright bribery.

The misconduct has continued. According to Violation Tracker, which covers cases back to 2000, the big five have paid more than $2 billion in fines and settlements in cases relating to government contracting—mainly violations of the False Claims Act. For example:

In 2006 Boeing paid $615 million to resolve criminal and civil allegations that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the Air Force and NASA.

In 2008 General Dynamics agreed to pay $4 million to settle allegations that a subsidiary fraudulently billed the Navy for defective parts.

In 2014 a subsidiary of Lockheed Martin paid $27.5 million to resolve allegations that it overbilled the government for work performed by employees who lacked required job qualifications.

In 2009 Northrop Grumman agreed to pay $325 million to settle allegations that it billed the National Reconnaissance Office for defective microelectronic parts.

In 2008 Raytheon subsidiary Pratt & Whitney, then part of United Technologies, agreed to pay $50 million to resolve allegations it knowingly sold defective turbine blade replacements for jet engines used in military aircraft.

Now that the Pentagon is trying to reduce its dependence on giant contractors, it should also show less tolerance for corruption on the part of suppliers both large and small.