ABSTRACT
The gains to General Dynamics' shareholders and managers accrued primarily at the expense of the state, taxpayers, and the company's labor force. The state tried on occasion to protect the interests of labor and communities; in the end, however, it allowed General Dynamics to redistribute risks and rents in a manner that served management's and shareholders' interests. The state held implicit contracts for the maintenance of the defense technological base that were undermined by the hollowing out of the industry for financial gain. General Dynamics did so primarily through five mechanisms: contractual changes, bailouts, government-furnished property, investment subsidies, and accounting tricks. General Dynamics' radical restructuring of the early 1990s raised concerns about the public impact of the Seawolf bailouts. Generous public subsidies and bailouts encouraged underbidding and cost-inefficiency on the part of contractors, who knew that they would be able to "get well" and recoup their costs through change orders.
