The ‘Shrinking’ Defense Industrial Base
The Defense Industrial Base (DIB) is defined by the Congressional Research Service as “all organizations and facilities that provide DoD with materials, products, and services” (Congressional Research Service, 2023, p. 1). The DIB is considered a strategic advantage for the U.S. military and currently includes roughly 50,000 prime contractors and a substantial number of subcontractors and suppliers. It is predominantly comprised of small contractors, but it also includes medium-sized contractors, large multinational corporations, academic institutions, nonprofits, and global organizations. Contractors from all 50 U.S. states and dozens of international countries participate in the DIB. The DIB includes contractors from nearly every major industry that provide products and services across the economic spectrum, ranging from complex or highly specialized services unique to the military to commercial products and routine services necessary to support general operations.
Although some of these studies have indicated that the rate of contractor decline in the DIB is merely reflective of shrinkage in the overall federal contractor base, its potentially deleterious impact through reduced competition and DoD’s ability to operate effectively is still a concern.
A phenomenon that has garnered attention in recent years is a persistent decline in the number of prime contractors that comprise the DIB. This trend has been observed by several studies and policy documents, almost exclusively relying on secondary data (Adjei & Hendricks, 2022; Bresler & Bresler, 2020; DoD, 2022; Hyatt, 2023; National Defense Industrial Association, 2023; Sanders et al., 2022, pp. 1–39; Schwartz & Johnson, 2023; United States Government Accountability Office, 2021). Although some of these studies have indicated that the rate of contractor decline in the DIB is merely reflective of shrinkage in the overall federal contractor base, its potentially deleterious impact through reduced competition and DoD’s ability to operate effectively is still a concern. Beyond national security concerns of retaining a robust supply base for defense needs, a declining DIB is concerning because prior research suggests that fewer contractors can lead to higher market concentration, which in turn can result in higher prices, lower quality goods and services, and lower rates of innovation (Hensel, 2010). (See Council of Economic
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Defense ARJ, Summer 2025, Vol. 32 No. 2: 194—223
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