Enjoying a sandwich at a pub in Lansing a few months back, I engaged in a conversation with the man sitting next to me. We learned that we had something in common; I own a small manufacturing company, and he is a general manager for a much larger company in the Lansing area.

He told me that his company went from 300 employees to 1,200 in the past year. Wow! I was impressed. In today’s manufacturing climate, quadrupling your staff is a major accomplishment. I went on to ask him what they do, and what they did to experience such phenomenal growth. As it turns out, they do a lot of welding, and they were building armor for military vehicles. I’m not sure if my sigh was audible.

Some time back, I heard the governor speaking of opportunities in defense contracting and homeland security work – that Michigan needs to focus its vast engineering and manufacturing capability to win government contracts. Today, I received the Michigan Business Report in my mailbox. The cover story is DC3: The Forefront of Defense Contracting: Helping Michigan Business Get Ahead.

This is our growth industry. This is what we’ve become, a nation working for the government to build its war machine and security apparatus to further invade our privacy.

The most important thing to understand is this: Government contracts do not create wealth and prosperity, they destroy it. All of the money the government spends is wealth extracted from the productive private sector. The only source of funds government has is what it takes from us. Therefore, every penny of a $20 billion government contract must be paid for with taxes by those of us who don’t work for the government – those holding the contract are taking the money from the rest of us. Yes, they’re paying taxes, but they’re paying their taxes with money received from our taxes. Nothing is created by supplying government.

The money is wasted. When I was a consultant, I worked in the City of Memphis government for a few years. We had a pre-approved supplier list that mandated a source for our purchases. Once, I sent a software request up to purchasing and then asked to see the bids. All of the bids were at least 200% higher than I could have purchased the item off a store shelf. When I brought this up to the purchasing people, they looked at me like I had three heads. Who questions our cost? We have pre-approved suppliers, and we have to use them. This kind of waste is not the exception, it’s the norm – and this is only at the big-city government level. The bigger the government, the bigger the spending. We’ve all heard of the $4,000 ashtrays.

But this pales in comparison to the billions spent building our war machine, which is subsequently destroyed or destroys the infrastructure of others countries, which we then pay to rebuild. When the US Government blows up a bridge in Iraq using bombs purchased on a $50 million contract, that money has evaporated into thin air. When they rebuild the bridge at the cost of $50 million, that money is again extracted from the productive sector.

And yet, the states are tugging at the shirt tails of the federal government for their share of the booty, and governors stand proud to announce the defense contracts they’ve secured. It’s bad enough that the people are ignorant of economics and cheer the fraud, but government officials themselves do not understand that everything they do is waste. They believe they’re adding value to society. The Michigan governor has hired a retired military general and given him $10 million taxpayer dollars to lobby Washington for contracts. Here is a passage from the press release:

“General Lott’s military and acquisition career experience make him an ideal choice to lead this new initiative,” Granholm said. “The high concentration of R&D and talent in Michigan positions us well for securing a larger share of contracts to the multi-billion-dollar defense industry.”

Granholm noted that homeland security/defense is one of the high-tech, high-growth sectors specifically targeted by the 21st Century Jobs Fund initiative.

When I purchased my company three years ago, I established a set of principles to which we must adhere. One of them is simple: We do not accept government contracts.