Understanding the Revolving Door

 | Sep 13, 2011 | 4:00 PM EDT  | Comments
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Stock quotes in this article:

lmt

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noc

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ba

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rtn

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sai

Everyone is familiar with terms like "the revolving door," "government sachs" and "the corporate state". Few within the media or investment community, however, attempt to define or explain to the public what these terms mean, how they came to be and what their importance is to investors.

This article is a brief introduction to these concept and a column I will refer to in the future.

There are three branches of civilian federal government -- executive, legislative and judicial – that employ about two million people. The executive branch is responsible for "executing" the federal government's operations and employs about 97% of these personnel. The legislative branch, Congress, employs about 1% and the judicial branch about 2%.

The legislature and judiciary branches attempt to ensure that the executive branch has not gone beyond its authority. Congress tries to prevent this from occurring, and the courts can correct any such instance after it has occurred.

Within civilian federal employment, there are four primary types of employees: General Schedule (GS), Senior Executive Service (SES), Executive Schedule (ES) and Foreign Service (FS). The SES and ES systems each employ about 8,000 people and are the focus of this column. 

The Executive Schedule is divided into five levels and represents political appointees of the president. About 1200 of these positions require confirmation by the Senate. Titles such as "Secretary of" and its derivatives "Under," "Assistant," and "Deputy" are employed through the Executive Schedule.

These employees perform their functions through interacting with the Senior Executive Service (SES) employees who oversee the functioning of the federal bureaucracy on a continuing basis.

Both the ES and SES employees come primarily from the private sector. The ES people attained their positions as political rewards/awards for having supported a presidential candidate who was elected.

The SES primarily employs people from the private sector, too. But the method to employing these people is a bit further removed from the political gamesmanship.

And this is where the process gets interesting.

The Office of Personnel Management (OPM) hires and fires SES employees. However, the president may appoint up to 10% of the SES employees, as well. That 10% is typically made up of the entourages/tribes of the senior political appointees.

In theory, the ES political appointees of the president are supposed to represent the interests of "the people". The SES employees are supposed to represent and facilitate the nonpartisan functioning of the federal government.

Theoretically, the relationship between ES and SES employees is where the "will of the people" interacts with the necessity for stable government; devoid of business interests and lobbying.

The reality is the exact opposite.

The creation of the SES system and the expansion of the ES system was a reaction to and borne out of two political disasters: Johnson's Great Society Initiative and Nixon's Watergate Scandal.

Corrective action taken by Congress was to establish a system of federal oversight and functioning distanced from the political process -- this means from the electorate, from the citizens.

Both SES and ES employment is generally on a short-term basis.

As a result, the employees of both systems advocate for their own personal good, knowing that their continued employment viability is outside of government and within the private sector.

The end result is a corporate state in which 16,000 federal employees are the people who are really running the government, deciding what programs should get funded and which contractors get the funding.

The chief beneficiaries of this system are the money-center institutions and the large government contractors and integrators. This is the genesis of the term "government sachs" and, more broadly, of the concept of the "military industrial complex".

The revolving door concept is largely represented by firms in these areas rotating employees through the ES and SES systems on a regular and continuing basis. The five largest firms involved in this process are Lockheed Martin (LMT), Northrup Grumman (NOC), Boeing (BA), Raytheon (RTN) and Science Applications International (SAI).

This is a list of the top 100 firms.

 

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