View / A military-industrial-financial complex is rising in America

When President Eisenhower warned against the military-industrial complex in 1961, he didn’t imagine that a finely tuned, elite money machine would want in on the action. But here we are: Wall Street banks and private-equity firms, and their venture cousins in Silicon Valley, are racing to bankroll the next generation of warfare.

The military-industrial complex is morphing into a military-industrial-financial complex, where risk capital flows toward increasingly specialized defense bets. It’s a natural evolution of the financialization of everything, spurred on by political expedience, genuine patriotism, the whiff of Pentagon profits, and a belief in Silicon Valley that they can disrupt this, too.

“It’s not appropriate for the government to endlessly fund advanced R&D that may not have an ROI,” David Ulevitch, a general partner at a16z and head of its defense-heavy American Dynamism fund, said on this week’s episode of Compound Interest. Silicon Valley “will take on that risk.”

The emails I’ve received from bankers angling for interviews with the Pentagon’s new investment-banking squad, whose creation we scooped last week, suggests that New York’s financiers want in, too.

The military-industrial complex improved readiness and deterred America’s enemies — and gave us the microwave and the EpiPen. But it also created a permanent lobbying class who pushed for budget increases and nudged the US toward violent interventions when diplomacy might have done the trick.

Now we’re adding another powerful lobby to that equation. Eisenhower’s borg tackled how we build weapons; this new power is changing how we pay for them. If a16z wants to shoulder the risk of a new drone technology, we should absolutely let them. That’s capitalism at work, and a financial win for taxpayers. “Our loss ratio will be reasonably high,” Ulevitch said. “We only need to invest in 20 outsized winners.”

But does venture capital — whose core skillset lies in building capital-light software companies — have a right to play in the hardware-heavy defense world? Will drafting private-equity whisperers into the Pentagon usher in smarter deals?

But Eisenhower warned about the rise of “misplaced power and unwarranted influence.” Wall Street and Silicon Valley have both in spades.