'Money as a Weapons System' : The Promises and Pitfalls of Foreign Defense Contracting

The U.S. government spends billions of dollars every year on goods and services from foreign countries. Most of this spending is for military purposes. Over $1 billion a year in overseas defense spending is “strategic,” meaning that it is designed to support both global military operations and foreign policy objectives, usually through limited‐​competition contracting with foreign firms. In recent years, government procurement has become one of the U.S. military's most used—and least scrutinized—foreign policy tools for rebuilding states after war, buying military access, and pacifying insurgencies. The problem is that no one knows whether this spending is achieving its intended effects—or producing unwanted consequences.This paper argues that this strategic spending comes with risks that could erase benefits, create new problems, and complicate achieving desired goals. The first risk is that injecting money into local economies could harm recipients: too much spending can skew markets and create unsustainable dependencies. The second risk is to U.S. interests: the U.S. government is often unable to control where the money goes and with whom it does business, which can lead to political blowback and security risks. The third risk lies in hidden costs: contract spending is not necessarily cheaper than other types of inducements (e.g., arms or aid), and it is sensitive to bidding wars with competitors such as China, which also wields government‐​directed spending as a policy tool.The U.S. government needs to better assess the costs of doing this sort of business. The Department of Defense should improve data collection and reporting on the economic and political effects of preferential procurement policies. For its part, Congress should require impact evaluations as a condition for continued authorization of these policies and improve oversight on vendor vetting requirements. Finally, the U.S. government must examine the foreign policy goals driving the use of preferential procurement. No foreign policy tool is perfect, and in some cases spending might be the best option, but doubling down on spending in pursuit of flawed goals is a sure way to throw good money after bad