Defense Industrialist

John McCain grossly exaggerates the power of defense contractors, and unfairly criticizes Patrick Shanahan.

As Sydney Freedberg covered for Breaking Defense yesterday, Senator John McCain of Arizona was rather tough on the administration’s nominee to be deputy defense secretary. C-SPAN has the video, at roughly the 3:02:00 mark:

    I want to move forward as quickly as I can with your nomination, [but] I am concerned. Ninety percent of defense spending is in the hands of five corporations, of which you represent one. I have to have confidence that the fox is not going to be put back into the henhouse.

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As with steel, it isn’t now, and it won’t be in the future.

National security, the late economist Merton Miller once reminded me, gets invoked to justify all sorts of tomfoolery. Last month, I wrote about the Trump Administration’s Section 232 investigations into steel imports, concluding that they were simply not a threat to national security. Indeed, as the editors of the Wall Street Journal wrote last week, “the case against steel tariffs is so overwhelming that it’s hard to believe even [Commerce Secretary] Ross can find a way to justify it.” The Trump Administration is also considering imposing duties on aluminum imports, and has opened another investigation under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. 1862). However, as with steel, imported aluminum is not a threat to national security now, and it really cannot conceivably be in the future. In the first place, military uses of aluminum are a small portion of American consumption today. In the second place, as I will explain in detail, Canada. Quite to the contrary, cheap imported aluminum has actually been beneficial to American national security, just by driving down the cost of military aircraft.

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Volvo’s sale of Renault Trucks Defense won’t be a test of anything.

The report in Defense News this week on how “Three bidders emerge in battle to buy Renault Trucks Defense” contains a prediction of just who won't win that auction. For some time, Volvo has been aiming to sell RTD, and bids are now in from three firms: the Franco-German KMW-Nexter Defense Systems (KNDS), the Belgian Cockerill Maintenance & Ingénierie (CMI), and the American private equity firm Advent. The article was largely built on two unnamed sources, and provided a quick judgment of the art of the possible:

    General Dynamics is unlikely to be on the short list as it is “impossible” France would accept a bid by a U.S. company, the first executive said. He pointed to the lack of reciprocity due to the Buy America Act and the America First campaign as the reason.

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Don’t ask for audits in the middle of the war on ISIS.

In a report this week, Amnesty International expresses its annoyance that “the US Army failed to keep tabs on more than $1 billion worth of arms and other military equipment in Iraq and Kuwait.” As the human rights group continues, “the [Defense] department’s Golden Sentry program,” carried about by the End-Use Monitoring Division of the Defense Security Cooperation Agency (DSCA), “is mandated to carry out post-delivery checks” to ensure that weapons do not wind up in miscreant hands. After an audit in September 2016, obtained recently by Amnesty through a Freedom Of Information Act request, the US Army acknowledged during that brutal militias had probably gotten hold of some of the guns it had given to the Iraqi Army. That’s not shocking given the chaotic nature of that civil war. According to the Defense Department’s Inspector General, the main shortcoming was that “the use of manually populated spreadsheets increased the risk for human error when inputting and updating equipment data.”

For my part, I don’t think that the Mahdists are just exploiting a mistake in cell C26.

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The DoD IG should craft a broad investigation into the classification of the B-21 bomber program.

For Bloomberg Politics, Anthony Capaccio reports this week that the US Defense Department’s Inspector General (DoD IG) has opened an investigation, at the behest of the Congress, “into whether the Air Force has imposed excessive secrecy on fundamentals of its $80 billion program to develop and build the new B-21 bomber.” The obscurity into which the Air Force has placed one of its top procurement priorities is remarkable: even the estimated unit price is classified. The stated reason is plausible: from such a figure potential adversaries might infer the bomber's rough size, and thus start tuning their radars before the prototype is built. Fairly, were the B-21 a “black” program, whose very existence were obscured, we would know far less. All the same, it’s fair to ask how much secrecy is too much,  and how we might know.

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It hasn’t been, it isn’t now, and it probably won’t be in the future.

Last month, President Donald Trump promulgated a memorandum on “Steel Imports and Threats to National Security,” directing Commerce Secretary Wilbur Ross to consider whether “steel is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” Prices are too low, he wrote, because the world is awash in excess capacity. The memo notes that Ross has already initiated an investigation under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. 1862). If he finds a problem, he may recommend “steps that should be taken to adjust steel imports so that they will not threaten to impair the national security.” Governments mostly “adjust” trade with inefficient and unexpected results, so before taking “steps,” we should ask three questions. When have steel imports been problematic to national security in the past? Is the situation presently getting worse? And what circumstances might exacerbate the presumed problem in the future?

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Will the renewed American enthusiasm for hypersonic weaponry pay off?

Last month, Guy Norris reported for Aviation Week & Space Technology on how the Chinese government has revealed a national plan for hypersonic aircraft research. On this side of the Pacific, people have been getting stressed. Norris's earlier report in February covered a classified assessment within the US government that warned of possible breakthroughs in Chinese hypersonic technology, and of how American efforts were “lacking urgency.” Norris, Joe Anselmo, and Graham Warwick even produced a Check Six podcast episode on the issue. But during the previous administration, the Army, Navy, and Air Force Departments did all seem to be talking up new ideas for fast-moving weapons. So does the Pentagon need to be putting more money there? Does any other defense ministry? Perhaps, but sometimes necessity is truncated by feasibility. For with hypersonics, the tactical advantages are great, but so are the technical challenges.

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Thoughts on corporate strategies in the military aircraft industry 

Last week, I provided a guest lecture at the Eisenhower School for National Security and Resource Strategy, that graduate college of the National Defense University formerly known as the Industrial College of the Armed Forces. The school was founded in 1924 as the Army Industrial College, on a recommendation from Bernard Baruch, the noted financier and chairman of the former War Industries Board. In 2012, it was renamed after its most famous graduate, Dwight D. (1933). For almost a century, the school has been intended as the brain trust for matters of logistics, resourcing, industrial mobilization, and military-economic policy. The issue posed to me was how corporate strategy in the business has evolved over the past five years.

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Trump’s recent executive order on federal procurement could restrain the flow of good ideas into the American armed forces.

Donald Trump’s executive order on buying American and hiring American has been both ballyhooed and verbally bombarded this week. On Breaking Defense, Colin Clark provided a spirited if partisan defense of free trade, even in armaments. For Defense News, Aaron Mehta and Joe Gould took in comments from analytical luminaries Andrew Hunter (CSIS), Byron Callan (Capital Alpha), and Jeff Bialos (Eversheds Sutherland) to draw a classic conclusion: ceteris paribus, buying American could increase costs in the armaments supply chain. I must agree in this matter of static efficiency, but I have a point as well about dynamic efficiency and innovation. As befits this column, I will avoid questions of Mexican cement in Texan highways, and will instead stick to evaluating the military effects of the order. In the end, this dictum may not matter a great deal, as the military already does basically buy American, but what it will do for immigration won’t be helpful.

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Separating technology from procurement in the Pentagon may provide important organizational incentives for innovation.

It’s old news by now, but in February 2018, the Pentagon’s under secretariat for acquisition, technology, and logistics (AT&L) will be split into two separate under secretariats, one for research and engineering (R&E, rather a chief of technological innovation) and another for acquisition and sustainment (A&S). Acting Navy Secretary Sean Stackley—who perhaps should just be given that portfolio permanently—has the task of implementing the change. As we’ve heard repeatedly, recently departed Under Secretary for AT&L Frank Kendall doesn’t like the idea. As I recently heard from an official late of the Obama Pentagon, Kendall considers the objectives of the reorganization non-problems that had already been mostly solved. But how much has been accomplished is less obvious. As Anthony Capaccio of Bloomberg wrote late last month, the “report shows savings have flattened” as Kendall’s reforms have taken effect. So is something bigger required to continue to make progress?

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