by James A. Bacon
Northern Virginia has long been a leading center of the defense industry, a fact of which I have been aware ever since my dad transitioned out of the Navy by working briefly for a consulting firm in Crystal City. In the defense industry, like in any other, it is critical to maintain a close relationship with the customer. Defense contractors figured out decades ago they had to have a physical presence near the Pentagon.
Defense manufacturing is famously scattered across the country, driven not by the conventional metrics of workforce skills, wage levels, cost of real estate and transportation access but by political patronage. But defense headquarters have clustered in the Washington metropolitan area, where executives can easily access the Pentagon, Congress and, increasingly importantly, other defense contractors as partners, vendors and customers. In sum, Northern Virginia has emerged as the dominant defense-industry cluster in the world, a fact of which I was reminded by reading this article in Forbes.
With the exception of Martin Marietta headquartered in Maryland, every major defense contractor worth noting either has a corporate headquarters in Northern Virginia or a large corporate office. Big names include General Dynamics, SAIC, Computer Sciences Corporation, DynCorp, Booz Allen Hamilton, ITT Defense, and the U.S. arm of BAE Systems. Forbes notes that Boeing will move its senior defense executives to Arlington in two years, and it’s conceivable that the rest of the defense headquarters, now in St. Louis, will follow. Now that the defense cluster has achieved critical mass, every player or would-be player needs to move to Northern Virginia just to be where the action is.
Back in the late 1990s when I was publisher of Virginia Business magazine and paid closer attention to such things, I followed with great interest the activities of the Northern Virginia Technology Council and other groups that labored tirelessly to build Northern Virginia into a world-class center of technology innovation. During the Internet boom, for instance, Northern Virginia seemed to be on the verge of developing a self-sustaining cluster of Internet and telecommunications firms. But the Internet bubble burst, MCI went spectacularly bust and AOL, whose dial-up subscription model proved obsolete, moved its headquarters to New York. The region tried, and failed, to create a venture capital-driven model of growth comparable to Silicon Valley and Boston.
Why, despite its awesomely educated and tech-savvy workforce and its entrepreneurial energy, has NoVa remained an innovation also-ran? What has held it back from making the leap to the big time?
The dominance of the defense industry is the region’s greatest strength and greatest weakness. On the one hand, the military-intelligence-homeland security complex of industries is incredibly information intensive. Consequently, the players in this sector are savvy users of technology. That’s why the concentration of technology skills in Northern Virginia is one of the greatest in the world. On the other hand, the culture of defense procurement is extraordinarily rules driven, and its complexity has only gotten worse every time someone tries to reform it. The procurement process favors incremental innovation over the kind of disruptive innovation that emerges from Silicon Valley.
Northern Virginia’s competitive advantage in defense contracting is difficult to transfer to other industries. Thus, what’s good for defense is not necessarily good for technology companies whose customer isn’t the federal government. The defense-fueled prosperity of Northern Virginia sends rents and other business costs higher, mires the region in traffic jams, and skews technology talent toward systems-integration rather than product development. In effect, I would argue, the defense sector is crowding out small, non-defense technology companies for whom it would be senseless to pay a premium to locate in Northern Virginia.
It’s been invigorating for Virginia to ride the defense boom of the past decade, which has experienced extraordinary growth in spending on defense, intelligence and homeland security. But the nation has reached a tipping point. Defense spending, like all federal spending, will slow — if not go into reverse. The defense sector will experience hard times. The great question is whether, given the fact that the region’s competitive advantage lies in its mastery of the arcane federal procurement process, Northern Virginia can reinvent itself. Let us hope that it can.
