I don’t know exactly how Washington’s fiscal cliff drama will eventually end, but it’s clear some substantial federal spending cuts are going to be part of the solution.
The details of those cuts — who loses how much and when — will have a big impact on the economy of Massachusetts. The politics of the fiscal cliff may pit two of the state’s biggest economic engines — the defense industry and the Massachusetts health care establishment — against each other.
Defense contractors are at a disadvantage coming out of the gate. Military budgets are targeted for half of the $110 billion in total federal cuts that could go into effect automatically next year — in theory, at least — if Congress fails to come up with an alternative plan by January.
Budget planners looking for other places to spread some of those cuts as an alternative couldn’t possibly miss health care spending as a huge discretionary expense.
The conflict between defense and medical budgets transcends the immediate fiscal cliff theater. Federal spending is a long-term fiscal problem that will demand action over time. Defense companies and health care organizations will be natural targets every time the subject comes up.
Few other industries mean as much to the Massachusetts economy. Sure, there are also education and financial services. Technology companies splinter into so many different industries — defense high among them — that it’s hard to call them a single, unified economic force.
But defense and health care both employ tens of thousands of people and contribute billions to the Massachusetts economy. Anything that happens to them will be felt by all.
Like all big industries, defense contractors and health care leaders have lots of handy facts and figures proving they are essential. Most of those numbers come from reputable places, but a little skepticism is advised.
The defense industry directly employs more than 130,000 people in Massachusetts and affects many more state jobs, according to a Defense Technology Initiative report prepared by the University of Massachusetts Donahue Institute.
That report calculates the total value of Department of Defense contracts awarded to local companies last year at $13.9 billion. That work produces indirect economic activity worth another $11 billion. By way of context, the entire state domestic product in Massachusetts is about $350 billion.
So what would happen to those Massachusetts jobs if automatic federal budget cuts do occur? Massachusetts would lose about 41,000 jobs — the fifth most among states — over the next two fiscal years, according to a study prepared at George Mason University for the Aerospace Industries Association.
Defense contractors don’t rely on job security alone when they defend their government business. The common alternative theme is all about the essential work they do.
Health care executives operate with a similar game plan. They too manage huge workforces but also talk about important things like saving lives and curing disease.
The state’s health care industry is so sprawling — encompassing hospitals, medical schools, biotechnology, and medical device companies among others — it’s hard to get your head around it.
In Boston, medical research touches most of those fields and it, too, is under pressure. The National Institutes of Health will be required to cut its budget by 8.2 percent — or about $2.5 billion — next year without an alternative cost-cutting plan from Congress. NIH spends as much as 10 percent of its money in Massachusetts.
Federal dollars flow through the health care industry in many other ways. Protecting all of them is a tall order.
One simple example: Indirect Medicare support for teaching hospitals — extra payments that help defray the added cost of training new doctors on the job. Those payments were targeted for deep cuts by the National Commission on Fiscal Responsibility and Reform last year.
A report prepared for the Association of American Teaching Hospitals estimated those cuts would cost Massachusetts facilities more than $200 million and 5,000 jobs. Only two other states would get hit harder.
Plans to constrain federal spending will remain on the front burner long after the fiscal cliff approaches in January. Industries that depend on government will try harder to preserve their slice of the pie. The best strategy: Make someone else sacrifice.
In Massachusetts, that could put two of our most important industries at odds with one another.