President Trump’s proposed fiscal 2027 budget calls for a 50-percent increase in defense spending, lifting the total to $1.5 trillion. According to economist Barry Poulson, writing in American Thinker, that surge carries a less-discussed risk: a new wave of what he calls “zombie” enterprises — companies that can only survive on government subsidies and protection.
Poulson’s argument is rooted in a simple definition. Zombie firms are businesses that cannot stand on their own in a competitive market and require sustained public support to stay alive. Because they are inefficient and pull resources away from more productive private firms, he writes, they produce “sclerosis,” or a long-term drag on economic growth — a problem made worse when the subsidies are financed with borrowed money.
Zombie firms are already common in the United States, according to Poulson, and the 2027 budget proposal would add more of them.
The Shipbuilding Problem
Poulson points to naval shipbuilding as the clearest example. The proposed budget includes $66 billion for shipbuilding, roughly a 50-percent increase. One of the companies positioned to benefit is Hanwha Group, a South Korean defense contractor that acquired a Philadelphia shipyard in 2024.
The contrast between Hanwha’s two operations is stark, per Poulson. The company’s Korean shipyard produces around 50 vessels a year. Its Philadelphia yard turned out three vessels this year — an improvement over the one and a half produced the prior year, but still a fraction of Korean output. Efforts to transfer technology from Korea to Philadelphia have met with limited success, he writes.
The underlying issue, in Poulson’s view, is comparative advantage. The United States simply does not have one in shipbuilding relative to Korea and several other nations. Mandating that military vessels be built in American yards, he argues, will produce zombie shipbuilding companies that need subsidies and protection for the foreseeable future — and will further slow economic growth.
A Warning From 1981
Poulson draws on personal experience to make his case. In 1981, while a visiting professor at Konan University in Kobe, Japan, he was invited by Mitsubishi to speak to its executives and tour its shipbuilding operation. At the time, most shipbuilding plants worldwide had closed because of a recession. Mitsubishi kept building, backed by government subsidies and financing from Mitsubishi’s own financial institutions.
Poulson warned the executives about the dangers of relying on subsidies and intrafirm financing. His talk, he recalls, was not well received. But he believes events proved him right: Japan has since generated an entire body of economic literature on zombification and the country’s three decades of sluggish growth.
An Alternative Path
The U.S. does not have to repeat that experience, Poulson writes. He points to the White House’s recent National Security, Science, and Technology Strategy, which identifies areas where the United States holds a genuine edge. Undersea and space technology have long been American strengths, he notes, and the strategy calls for “clear superiority” in both domains as well as a “competitive advantage” in artificial intelligence. When U.S. firms concentrate on those fields, he argues, they can develop military products and sell them competitively in international markets.
His prescription is for Washington to work with allies on the basis of comparative advantage — relying on partners for what they do best, just as they rely on the U.S. for technologies where it leads. Concretely, that means letting South Korea build military vessels in South Korea rather than insisting they be constructed in American yards. Such a shift, Poulson acknowledges, would require treating South Korea as a partner rather than a competitor in a zero-sum contest.
When the U.S. forces allies to build in American shipyards, he contends, it creates zombie enterprises and undermines both economic growth and national security.
Follow the Rents
Why, then, would policymakers mandate domestic construction? Poulson offers a blunt answer: rent-seeking. Labor unions and elected officials representing U.S. shipyards wield significant influence over budget decisions, he writes, and ordinary citizens will bear the cost for years.
His preferred approach is to expand enterprises where the country actually holds a comparative advantage. Doing so, he concludes, would avoid creating zombies and a sclerotic economy — strengthening the industrial base and growing the economy that ultimately underpins national security.
The piece echoes President Eisenhower’s farewell warning about the unchecked growth of the military-industrial complex, a parallel Poulson invokes directly. Whether the 2027 budget ultimately fuels that expansion — or whether Congress and the White House heed the comparative-advantage argument — remains an open question. What Poulson wants readers to take away is that expensive defense spending is not automatically strong defense spending, and that the difference can take decades to show up in the growth numbers.
Source: www.americanthinker.com — https://www.americanthinker.com/blog/2026/09/more-zombies-for-our-sclerotic-economy/