When Trump nominated private equity billionaire (and campaign donor) Stephen Feinberg to be the deputy secretary of defense, critics pointed out that his sprawling business ties represented obvious conflicts of interest. But in an administration that enthusiastically embraces nearly unimaginable levels of corruption, it was just a matter of time before we would read stories about how the military would be working with the private equity industry.
Sure enough, that news came via an October 21 report in the Financial Times, “US Army Taps Private Equity Groups to Help Fund $150 Billion Revamp.” According to that report, the army convened a meeting with leading PE firms to discuss how they might help fund a major overhaul of military infrastructure. The Pentagon, as the story tells it, only has $15 billion budgeted for such work. A Pentagon official said they were seeking “clever financing models or unique financing models” from the private equity bosses. The ideas that were floated included building data centers on bases and possibly entering into various lease agreements. The Financial Times dubbed it “an unprecedented effort to enlist some of Wall Street’s biggest investors directly in US national security.”
Coincidentally, one of the companies participating in the meeting was Feinberg’s own Cerberus Capital Management. The company is heavily involved in military contracting – perhaps most notably, it owned contracting giant Dyncorp for almost two decades. Cerberus is also well known for its role in managing the collapse of Steward Health Care, which became a poster child for the ways that private equity ownership threatens our health care system.
There is already considerable private equity investment in the defense industry and related fields, so it may not come as a big surprise that the Trump administration would be eager to expand the industry’s involvement. There is still uncertainty about what precisely the Army or the private equity industry is considering here; during the first Trump administration, Feinberg was reportedly weighing in with military leaders about a plan to rely on private contractors and paramilitary units in Afghanistan. But recent discussions of private equity’s role in military spending has more to do with allowing private companies to take the lead in developing new technologies.
The increasing convergence of commercial and defense technologies makes the Trump administration’s plan to privatize the development of new, high tech weapons systems appealing to private equity and venture capital firms. Dual use technologies assure that their portfolio companies will not be dependent on the vagaries of future Pentagon budgets for sales. Aerial drones and other unmanned weapon systems are examples of technologies that serve military and commercial markets, as are advanced cybersecurity systems, AI and robotics. The private companies will own the intellectual property (IP) of the high tech weapons of destruction they spent to develop, and can sell or license them to other countries – including authoritarian regimes aligned with US foreign policy.
The Pentagon, meanwhile, benefits from making the development of potentially reprehensible means of death and destruction a private sector undertaking with a lot less public awareness, accountability, and transparency. This is especially true of companies with significant PE or venture capital backing, as these private investment firms are notoriously opaque. The companies will likely claim trade secrets and refuse to respond to inquiries from members of Congress or to reveal what they are up to in Congressional hearings, even though they will be working closely with the military – a public sector entity that is hardly a model of financial transparency.
The Palantir Model
The model for this may be Palantir, the company headed by billionaire Trump supporter Peter Thiel that has already reaped substantial benefits from the Trump administration. Palantir has developed the surveillance technology the US, Israel and many other countries use to predict behavior and flag ‘risky’ individuals – and potentially invade the privacy of ordinary citizens or surveil organizations and individuals on an administration’s enemies list.
When development of surveillance technology involved the Defense Advanced Research Projects Agency (DARPA), there was public outrage at the possibilities of misuse of the technology. New York Times columnist Willam Safire’s November 2002 column, in which he claimed the DARPA program was creating surveillance reports on 300 million Americans, triggered a backlash that led Congress to cut its funding in October 2003.
But the outrage mostly disappeared when development of such technology was turned over to Palantir, a private sector company. Palantir Technologies was founded in 2003 with seed funding from the CIA to develop a government surveillance platform. By 2008, without further government funding, it had developed the Gotham system, and by 2013 it was in use across many of America’s intelligence agencies. The documents leaked that year by NSA whistleblower Edward Snowden included evidence that Palantir’s massive surveillance system was being used to monitor the US population. Similar controversies would continue; In June of this year, Senator Ron Wyden (D-Oregon) and Rep. Alexandra Ocasio-Cortez (D-New York) sought to discover if Palantir was creating a database on Americans using IRS records. But their efforts might not amount to much in the way of transparency or accountability — especially because the information they are requesting could be deemed the private trade secrets of companies developing the technology.
Palantir soon recognized that the technology behind Gotham could be used for commercial applications; it now counts some of the largest healthcare companies and financial institutions as its customers. In 2024, Palantir’s revenue reached about $2.9 billion, with approximately 55 percent coming from government clients and 45 percent from commercial enterprises.
Like the relationship between defense and intelligence agencies and Palantir that enriched Peter Thiel, the newly announced relationship between the Pentagon and private investment firms is set to enrich the private equity investors who backed the Trump campaign.
This first appeared on CERP.
