February 26, 2014
Does the Defense Budget Ignore the Defense Industrial Base?
Not hardly. Jet engines are just its most promising story
By James Hasik
A promising next-generation jet engine technology, which we expect to produce sizable cost-savings through reduced fuel consumption and lower maintenance needs. This new funding will also help ensure a robust industrial base, a very strong and important industrial base—itself a national strategic asset.
Strong words, but not many of them. Does so little talk mean that the department otherwise doesn’t care? We think not.
To begin, Under Secretary Frank Kendall has been endlessly talking about the industrial base since taking office. Recently departed Deputy Assistant Secretary Brett Lambert and his staff spent over two years mapping the industry’s supply chains, in some cases down to literally the tenth tier. And there is an alternative to all this attention. They could let the chips fall without active management, as their Bush Administration predecessors seemed to prefer. Secretary Rumsfeld was famously disinterested in ever talking to suppliers. This Pentagon, though, clearly cares about industrial matters.
But yesterday, the current secretary-of-all-defense was talking to a different audience. To talk about money for contractors in the same speech as he talks about layoffs for troops might not sit well in Congress. That Congress may be dysfunctional, but one thing it does well is rally around annual pay raises. Of course, that largesse has made those troops more expensive, so it’s economically logical now to substitute capital for labor.
Elsewhere, the administration actually is talking about industry. Just today the White House announced $140 million in funding for two new manufacturing institutes: one in Chicago for “digital manufacturing and design technologies,” and one (naturally) in Detroit for "lightweight and modern metals manufacturing.” While the utility of whatever technologies and skills they develop will have application far wider than defense, these are both areas of great interest to the Department of Defense.
Most importantly, talk is cheap. Money matters more than words. Here the budget trades off wasting assets for future ones, keeping industry busy building new kit. Assuming that sequestration remains law, the Navy will layup eleven old cruisers and the carrier George Washington, to keep building new destroyers, submarines, cargo ships, and the carrier John F. Kennedy. Carrier refuelings are a big deal, but otherwise, construction capacity is harder to reconstitute than repair capacity. This budget incorporates that tradeoff in its strategy.
All that said, the budget does not offer all things to all parties. The armored vehicle industry will get essentially nothing but a promise of "realistic visions for vehicle modernization.” A vision of revenue would be more sustaining, but with only so much money to go around, not all industrial sectors will receive equal attention.
Further, the budget signals that some sectors will not be funded to sustain competing suppliers. In the realm of jet fighters, termination of F-18E, -F, and -G purchases may put Boeing out of the business before the end of the FYDP. And those Navy ship orders are entirely for already-awarded programs. Only the study of a new frigate for the out-years will reintroduce a modicum of competition. The trouble is that the economics of aircraft and warship production are what they are. Accordingly, the administration may be comfortable with the idea of long-term preferred suppliers in those industrial sectors with the highest minimum efficient scale of development and production. While realistic, that idea is not readily marketed.
On the other hand, the jet engines business remains competitive, rivalrous, and technologically dynamic—thus, the most salable sector for talking about the strategic importance of industry. The administration is funding, at least on a modest scale, the development of new manufacturing technologies. And the most important production facilities are being safeguarded. The strategy is there; it just didn’t need announcing.
James Hasik is a senior fellow with the Brent Scowcroft Center on International Security.