We are certainly headed that way. Over the last 20 or so years there has been a sorting out, where major corporations have largely shed their defense / federal government divisions, which have then been bought by the major defense contractors who do business almost exclusively with the feds.

IBM, for example, sold its "federal systems division". The auto manufacturers sold off their defense manufacturing divsions to the big contractors.

The bottom line is that if the Commerce Department needs an web based application to handle its employees' vacation scheduling, it's probably being written by Northrop-Grumman, or at least SAIC or Booz-Allen Hamilton (which has gotten out of private sector management consulting and does all federal work now).

This is not true for firms selling cheap commodity items, like desktop PCs or toilet paper or filing cabinets -- the PCs for example are Dell boxes running MS-Office, connected to Cisco routers, just like you'd see at any business.

But for complex things that require "system engineering", or especially for ongoing technical services, the big name defense contractors are almost always the providers now. Quite seriously, for things like an employee vacation scheduling web app or to run a helpdesk assisting clerical workers with Microsoft Word, you'll see names like Northrup, Lockheed, General Dynamics, or thinly veiled subsidiaries. Conversely, most of the names you'd normally think of in IT services do relatively little work for the federal government.

The comparative advantage of Lockheed, of course, is not that it knows how to write a web-based vacation scheduler, but that it knows the federal procurement and contract management. Most of their employees are retired military or retired civil service -- they know the system (and the people in the system). And your small, nimble web design shop in Silicon Valley wants nothing to do with mind-numbingly dull federal procurement regulations.

You'd be amazed even how many policy-making roles are filled by such contractors. Even when Assistant Secretaries go testify before Congress, their testimony might well have been written by a contractor rather than a federal employee.

One problem we had in Iraq was giving contracts for things like creating a new Iraqi TV network to SAIC. Just imagine the culture of a US based firm that specializes in federal IT system management, and it's suppose to rapidly create a cool, popular, edgy new TV network with entertainment and news programming that appeals to Iraqis. Why not Viacomm or Rupert Murdoch, for God's sake!

I think it's entirely fair to think of Northrup or Lockheed as extensions of the federal government at this point, totally symbiotic.