December 18, 2019
The government’s current review of the proposed merger between defense contractor Raytheon and United Technologies (UT) may not seem to be terribly relevant to the average U.S. consumer, but as the recent wave of technology mergers has proven, Americans who value the innumerable benefits of the innovation economy should be cheering vigorously for its approval.
The Department of Justice (DOJ) is leading the review of the merger, with the Federal Trade Commission (FTC) and Pentagon weighing in as well. If all goes to plan the merger will produce a company with greatly expanded capabilities to innovate in precisely the manner that most benefits our economy, consumer interests, and ultimately the security of our nation.
As we’ve seen repeatedly, when tech companies merge or engage in cooperative efforts, the net effect is greater than merely tying two horses to the same carriage. Economies of scale play a tremendous role in creating efficiencies that focus limited resources on innovation itself, while complementary synergies of invention push through previous barriers. The end result is the creation of more relevant and robust industries that produce a more advanced economy that gets newer ideas to market sooner, and at less cost. Fulfilling this national priority of continued economic innovation is at the heart of the Raytheon, UT merger.
And far from being speculative in nature, the consumer and commercial benefits of cooperative innovation are all but axiomatic. In the past year we’ve witnessed Google, Apple, Disney, T-Mobile, and dozens of other companies set their sights on the future by joining forces with other successful companies engaged in digital innovation. In a global economy where failing to innovate can lead to instant irrelevance, we can only expect to see the pace of mergers and cooperative efforts increase.
Of course, what consumers typically don’t see is the manner in which the marvels of tomorrow are realized, how they are born through sparks of insight that then pass through the rigors of research and development to find a commercial or military application. This process is typically a costly endeavor that puts the best minds to the test, an often precarious undertaking that can be the difference between a company succeeding and shutting its doors. Giving the innovation sector of our economy every chance to succeed must remain a national prerogative.
But there is no more vital priority than our national security, and in this area the merger is especially relevant.
America’s adversaries are making tremendous strides in their military capabilities, while not being very shy about pronouncing their intentions to match the U.S. in any combat theater. China is expanding its naval capabilities and may have surpassed some of our technologies in hypersonic aircraft and missile weaponry. Meanwhile Russia has developed its own hypersonic missile that is expected to be combat ready by next year. Reports that it flies 27 times the speed of sound and can attack while evading detection are especially concerning.
The renewed vitality of Russian and Chinese military technologies was realized through heavy investment in research, at a time when the U.S. has plans to scale back spending at the Pentagon. Private-sector contractors like Raytheon and UT, and the technology they can develop and deliver on a budget, will be the deciding factors in whether America can keep pace and remain out front in an escalating tech-centered arms race. This again highlights the importance of how key merger components such as economies of scale and combined synergies of innovation can deliver the technology America needs to remain secure in an increasingly dangerous world.
The merger’s few detractors fall into the predictable buckets of self-interested shareholders looking to cash-in on a short-term profit, but they should be summarily ignored. They will claim the merger should fail on antitrust concerns, which is a preposterous position given less than 25% of UT’s business is defense related. Given our current military needs and the merged company’s ability to combine the know-how of military and aerospace technology, the long-term outlook for the company and its shareholders remains strong.
Constant innovation is now something we have come to expect, but ensuring that America remains the world leader in commercial and military technology does not happen by accident or in a vacuum. It happens by fulfilling a national imperative that we will do what is required to see to it that our best minds, organizations and companies are able to meet the challenges of the future. If the merger between Raytheon and UT is given the green light as it should, America’s consumers and our very security can meet that challenge with greater confidence.
