Experts discuss the interaction of developing trends with warfare strategies and planning, taking into consideration the evolving nature of cyberspace and the treats it invites.

Dr. Thomas Enders, CEO, EADS NV
Michèle Flournoy, Senior Advisor, Boston Consulting Group; Former Under Secretary of Defense for Policy, US Department of Defense
Moderated by Steven Grundman, M.A. and George Lund Fellow for Emerging Defense Challenges, Brent Scowcroft Center on International Security, Atlantic Council

The interaction of developing global trends with warfare strategies and planning was summed up by Ms. Flournoy’s remark that the current world demanded a military that is “agile and flexible and full-spectrum.” The increasing congestion of, and growing threats from, cyber and space commons mean that future military challenges will need to be fought using more tools than those furnished by conventional US military dominance. Dr. Enders warned that the West should not be engaging in cyber warfare while it still remains so highly vulnerable to attacks itself. Additionally, Ms. Flournoy cautioned policymakers to consider public opinion more carefully when formulating policy related to the Internet, especially in the context of growing individual empowerment.

After further questioning from Mr. Grundman, the panelists discussed differences in organizational thinking between government defense agencies and the defense industry, particularly on the cultural aversion to failure and turning mistakes made previously into lessons learned for the future. Questions from the audience were particularly concerned with the costs of military modernization or technology advancement and with new tactics like drone warfare, which may be more widely used in future and which the United States has used in a relatively unregulated manner.

Transcript

STEVEN GRUNDMAN: OK, thank you, everyone. This panel is on the changing nature of warfare. And while neither of the two reports that are the basis for this conference, I suppose, directly addresses that question, there is lots in both reports nevertheless from which we might draw inferences about the changing nature of warfare. And so that’s what we’re going to discuss for the next hour.

The first thing I should tell you is who I am. I am neither George Lund nor Chris Williams, both of whom regrettably have been unavoidably not just detained but distracted by important personal business that we learned about over the weekend.

I am instead Steve Grundman, I am the – I am the M.A. and George Lund Fellow for Emerging Defense Challenges here at the Atlantic Council. I’ve been a managing consultant over the last dozen years, before which I served in government in which capacity I first got to know our two panelists here, Michèle and Tom Enders – Michèle Flournoy and Tom Enders.

Let me say a little bit about our two guests. I’ll make a few framing remarks and then I’ll turn to each of them for brief remarks to start what I would expect to be an engaging conversation with all of you. So Tom, to my left – Tom is the CEO of EADS. Again, neither – both of our guests hardly require an introduction but I’ll make a brief one. Tom, as of earlier this year, is the CEO of EADS.

He has, you know, a long career actually now dating around 20 years with EADS and its predecessor companies before which, however, he also had nearly a whole decade of work in and around government, both in the German parliament, in the German ministry of defense and even, God, in think tanks of all such things. So we shouldn’t give him too easy a time if he begs off on these hard political, military questions as businessmen sometimes tend to do because he’s got that think tank lineage in him.

Michèle is a senior adviser right now to the Boston Consulting Group. We would all know her more commonly as the former undersecretary of defense for policy and also as one of the cofounders of the Center for New American Security.

So let me just make a few remarks. Actually, the remarks that I’m going to make to frame the discussion actually are borrowing from the comments you might have heard George Lund offer. George is the vice chairman of the Scowcroft Center. He is the patron of the fellowship that I’m so pleased to hold.

And he’s a private equity investor. He’s a private equity investor. He’s the chairman of Torch Hill Investment Partners. And as he and I talked about his preparation for participating on this panel, we talked about a frame in his mind that was around how what he would call the business model of warfare changing.

And while there are several elements of that that I won’t go through in detail, I will offer a couple of thoughts that I think were in his talking points. So the argument would be that we have been working through a business model of warfare since the end of the Cold War, an inflection point, perhaps. I think the NIC might suggest the last major inflection point in geopolitical affairs beginning in 1989.

That era had the convenience for the purpose of recognizing a model of warfare – had the convenience, if I may put it that way, of the Gulf War of 1991 to serve as some kind of a template for what the future of warfare beyond the Cold War might have been.

And there are at least a couple of features of that model that I would bring into relief here, one of which was so coming off of the Gulf War, the character of conflict was kinetic, most notably. And the particular comparative advantage that the Western armies, or at least the Western-oriented armies, employed to great success in that campaign was precision, right.

So people talk about the 1991 Gulf War as having launched a precision revolution in warfare. And we planned, not exclusively, but around that kind of a template for about a decade. This is when I served in the Pentagon and I know Michèle was the undersecretary for policy at that time as well. Then along came the black swan of September 2011. And the warfare that we’ve been involved in over the last decade has not been without relevance to kinetics and precision revolution.

But there has been a lot of other elements to what’s been successful and also lessons learned from those campaigns that I think now set us up at this inflection point to reconsider that template, maybe formed all of 20 years ago, and try to figure out what the nature of warfare will be in this era. Perhaps it doesn’t have a name yet but beyond the post-Cold War era. If we accept that we are now at a new inflection point, I would characterize the one preceding as the post-Cold War era.

And so the topic that we are here to discuss maybe not exclusively but centrally is what will be the nature of warfare going forward beyond this inflection point into this next era. So there is lots of impetus in these reports for this discussion. I’ll just point out a handful of them from the NIC report.

So among the megatrends, certainly I note individual empowerment, which was no doubt an important part of the preceding panel’s discussion but also what I think the report calls the food-energy-water nexus, a little bit of the familiar competition for resources but some of those resources maybe having a different flavor than we’ve known in the post-Cold War era.

Among the game changers, the rapid change of power strikes me as having particular relevance to the nature of warfare and also the advent of new technologies is almost the most obvious impetus in the NIC report to a conversation about the changing nature of warfare. All four of the scenarios that the NIC calls out, I think, have some obvious implications for the changing nature of warfare.

I think the last of them – I forget the name that’s given to it – is particularly challenging, I suppose one might say, the world in which perhaps non-state actors become more prominent players in even security than state actors are today. I think that is among the four scenarios that are depicted there, the one that perhaps challenges our preconceptions or maybe simply our post-Cold War conceptions about the nature of warfare most especially.

OK, so with that by way of introduction, I would turn to our two panelists here, perhaps starting with here with Tom, if I may.

THOMAS ENDERS: Thanks, Steve. As I told you behind the scene, I’m still wondering why Fred put me on that panel. Listening to General Cartwright yesterday and the technology discussion, I was thinking that maybe I should have contributed. But I will try my best here. And well, my academic times are more than 20 years back. So I’m really not – (inaudible). Let me make a few remarks on the general context before I bring up a few ideas about changes in warfare.

I would say first of all at least for the last 20 years geostrategic pundits, experts have always failed to forecast future wars. Maybe the second Gulf War, the Iraq-Iraq invasion was the one that was forecasted by most because that was kind of unfinished business. You know, most of the experts – and I think we should be humbled when we look forward, this is why I’m saying it – can only identify the risks.

We can identify certain areas at risk or certain – (inaudible) – that are at risk. And surprise has always accompanied every outbreak of conflict, whether we look at Libya, the Balkan wars starting in ’91, crisis in Africa, a completely unpredictable continent at least I would say in the middle and so on.

Secondly, as regards warfare, and you mentioned that already, the first Gulf War was probably the last war fought according to established doctrines. At the tie, it was the air-land battle concept or doctrine. And ever since then, adapting to the political objectives to asymmetric forces, asymmetric threats, adversaries, new technologies in each of these conflicts I think has been the rule.

Third, we know what techniques will be used in warfare from now to 2030, at least largely. I think most of that stuff is invented already. What is interesting is to look at the framework or future military engagements. And that I think is largely – probably be characterized by three major factors.

Number one, the expansion of battle space from air-land-sea to space and cyber obviously. Number two, some sort of requirement for supranational legitimacy. And number three, commitment to working in coalitions that are not preset. You know, famous terms of coalitions of the willing. I think we’ll see that also very much in the future.

Another feature I think will be the multiplication of actors seeking to play a role in political solutions in conflicts, states but also NGOs, subregional organizations, maybe even – probably even private companies. And given this, the ability to achieve a high degree of interoperability and coordination amongst different actors – and again, not all state actors will be of paramount importance.

Fourth, wars start in an unexpected way and for reasons, usually poorly anticipated, future wars will be fought far from a national basis. Western public opinion will find it hard to justify them. And I think that’s a major thing we need to take into our calculation going forward. Our societies – our Western societies are casualty-adverse, casualty-adverse as far as the deployment of our own troops, putting soldiers into harm’s way concern, casualty-adverse also when it comes to a war, casualty in the wars with the adversaries – so-called, terrible word, collateral damage.

And I think that will remain a feature. I do not anticipate. I’m not an expert. I do not anticipate that that will change anytime soon, in the next 20, 30 years. That means we will prefer to fight wars from standoff distances. We’ll use obviously drones and UAVs and all kinds of robotics. We were talking about robotics yesterday. I found that a fascinating discussion, up to robotic lawyers were predicted. But that was a different story. I found that particularly interesting. And obviously precision and to avoid, to get boots – put boots really onto the ground.

I think NATO will suffer after the drawback from Afghanistan, lengthy period of expeditionary fatigue and that’ll show. And you know, we’ve seen the Libya coalitions of the willing for future engagements instead. I think that is going to be with us. Fifth point, downsizing of Western forces. I think that is – you’d expect an industry man to say that. But it’s a worrying trend because forces are downsized. Look particularly at Europe where the downsizing is done now under the immediate pressure of the financial crisis and the fiscal crisis.

Downsizing – you’re losing – we’re losing traditional capabilities and at the same time not building up the capabilities that we need in the future. I’ll come to that point in a minute and that’s around cyber defense, cyber offense. If we look then for, you know, just a few ideas for future warfare, I think it’s pretty obvious to everybody here in the room that cybernetics within forces and adversaries make cyberspace a very important area.

This is true in all kinds of conflicts, if it’s symmetrical or asymmetrical. And cyber capabilities we all know include neutralizing weapons, disorganizing command and control, disorganizing logistics and, you know, psychological actions.

The point I’d like to draw attention to, again, nothing original, is our – is our increasing vulnerability in advanced societies to cyberattacks. Just flying over here, I read a good article by Joe Lieberman in the Herald Tribune was ringing the alarm bell that was very much about, you know, not being able to get the proper legislation into force in this country here.

I think you can simplify it. Almost everything nowadays contains a microchip. In the ’70s and ’80s, we were concerned about electromagnetic pulses, detonation of nuclear weapons high in the atmosphere that could do harm. That was one thing. But today our vulnerability to cyber-attacks is much – is much bigger because everything – almost everything is connected to the Internet. And if it isn’t connected to the Internet today, it surely will be tomorrow.

So if there’s a trend, vulnerability I think is increasing. The vulnerability of the IT-based society and economy is a fact and I think it’s still largely ignored. And that will increase dramatically. And that will also increase you to certain fashionable trends in our societies that make things worse: reduced cost, increased efficiency, make everything user-friendly, make everything interoperable, standardized and according with norms. And the fifth point, the rest you outsource. So that’s a kind of – the kind of things that make our vulnerability much worse.

Now, one thing – I mean, we’ve seen – we’ve seen cyber used in offense, particularly obviously against the Iranians. It seems the Iranians are now striking back and targeted banks over here and stuff like that. I’d warn very much to use cyber as an offensive weapon by the West as long as we have these strong vulnerabilities and as long as we have no real plan how to defend our societies.

Today there is a huge asymmetry. I mean, our society I would say is far more vulnerable than, let’s say, the Iranian society against cyber-attacks and to use these weapons without thinking about our own vulnerability I think is very, very dangerous. Well, basically I’ve got a couple of more points, Steve, but I’d leave it here and we can elaborate on some other things in the discussion, I guess.

MR. GRUNDMAN: Thank you, Tom. I think you belie your self-deprecating suggestion that this was the wrong panel for you. Thank you very much. Michèle?

MICHÈLE FLOURNOY: Great, thank you. Well, I just wanted to say thanks for the kind introduction. But you left off the most important qualification for being here, which is I’m a new board member of the Atlantic Council. So I know that Fred would be happy if I mentioned that.

MR. GRUNDMAN: Thank you. (Chuckles.)

MS. FLOURNOY: And I assure you we actually did not coordinate our comments. But you’ll hear a lot of similarity and echoing between us. But since you covered a lot of the same ground, I’m going to be very brief. Let me just start by adding my two cents to the context.

I think the NIC report does a very good job of highlighting some of the key contextual factors that will help define the future of warfare – things like an increasingly congested and contested global commons – you know, air, space, maritime, cyberspace domains with particularly emphasis on cyber as a new domain of warfare, urbanization which means that in some cases warfare will be among – in and around and among civilian populations, the proliferation of a host of new technologies, everything from, you know, various IT technologies, the use of big data, robotics, automation, autonomy, the rising of new powers like China and India and the fundamental changes to the balance of power particularly in Asia alongside increasingly empowered individuals.

So I think, you know, all of that reminds us of the context. I would add that I agree that given the United States and the Western militaries’ conventional dominance, when we find adversaries in the future, when we encounter them in the future we can be – we will certainly see them using asymmetric approaches to undermine our strengths and exploit our vulnerabilities. In addition to what was laid out in the report, I would add that there are some impacts that the last decade of war has had on the U.S. in particular that is worth considering.

First of all, I do think particularly in the wake of the Iraq war increased public scrutiny and I would say skepticism about both the intelligence foundations of our cases, if you will, and also casus belli, that any path to war is going to be even more closely scrutinized than in the past. I think it’s fair to say that both in the U.S. and in Europe there’s a pretty high degree of public fatigue based on the last decade.

And that will create a higher bar for putting boots on the ground. I think there’s also a more sober and perhaps chastened view of nation-building and, you know, whether we know how to do it, whether it’s possible to do well, the costs of doing so and so forth. And of course, we see a number of resource constraints in the current climate of budgetary austerity which will likely last for a while that will also, I think, reduce public support for prolonged campaigns.

All that said, I think we have to be very careful not to fall into the sort of post-Vietnam type of thinking of, well, we’ll just never do that again because, as Tom said, we don’t get to choose. We’re horrible at predicting where we go to warfare – where we go to war. And we don’t always get to choose where we fight. So that should – that should give us all pause, assuming a way – some of the scenarios that we might want to.

So given all that context, I think frankly that the department of Defense, and you know, I’m biased since one of my last acts was helping put together the strategic guidance that’s currently in place. But I do think that calls for a military that is extremely agile and flexible and full spectrum.

But again, I think we’re very unlikely to find ourselves fighting a conventional adversary head-on. rather, I think what we will face is highly asymmetric forms of warfare at both ends of the spectrum, both at the high end in terms of technologically advanced rising powers using technology to try to prevent our access, deny our ability to operate freely and also at the very low end, the use of techniques or approaches like, you know, IEDs, suicide bombers, terrorism and so forth.

Now, the challenge is that, you know, in terms of thinking about the implications for our force structure, for our capabilities investment, for our operational concept development, our training, that’s going to pull our forces in two very different directions to be able to deal with both the high end asymmetric warfare and warfare at the very – at the low end of asymmetry.

So let me take each of these in turn. I think at the low end this means that the U.S. will continue to focus on working by, with and through key partners, particularly in dealing with things like terrorism and insurgency in the future, preferring approaches where we have a relatively light footprint but we’re enabling and building the capacity of indigenous forces.

That’s going to put a particular emphasis on our alliances, on building partnerships, on building the capacity of those partners both to assert their own sovereignty and protect their interests but also be able to contribute to collective action towards common interest. At the high end, I think that you will see, again, you know, high technology-enabled approaches to deny access and area to the United States and its allies. And this will cross domains – maritime, space, cyber and so forth. Those counters will be designed to impede or inhibit our freedom of action.

And I think it will mean that we have to think long and hard about new operational concepts for dealing with that and here, you know, things like what the Air Force and Navy are doing on air-sea battle is very important. It means investing in technologies and capabilities that give us greater resilience. And it also means potential changes to how we train and fight. I was very interested – had a chance to talk with some folks in the Air Force recently.

And they were talking about how they’ve reintroduced in their training the scenarios in which you basically take away GPS, take away comms, take away all of the things that we’re so – you know, all of this whole generation – last two generations of pilots have been trained to just expect and take for granted and basically take all of that away and say, you’re operating now in a very contested and denied environment. What are you going to do? And you have to rebuild skillsets, you know, the sort of – you know, if you think – the pen and pencil, kind of pen and pencil kind of skillsets that we used to have.

So that’s going to require a lot of us. It also means resilience in the sense of thinking about backups to the systems when they go down. You know, the space strategy that was put together recently talks a lot about relying more on commercial, more on international capabilities and a diversified framework in case we lose key critical space capabilities in warfare. So one of the things I would like to foot stomp is the likelihood that cyber will be a major tool in the future.

Obviously many different approaches and functions here, everything from intelligence gathering, information operations to shape the battlefield and the environment all the way up to isolated offensive strikes to use of cyber as an assist or as an enabler to broader – a broader conventional campaign. I would agree that this certainly poses some very significant policy issues that we have only begun to think through.

We really lack a conceptual frame. I like to think that we’re in a period analogous to, you know, the early nuclear period before Herman Kahn and Tom Schelling, you know, when we didn’t have a conceptual frame for even thinking about this properly. I do think that the growing importance of cyber will mean a number of things. Obviously the ability to evolve our tools very, very rapidly given how quickly, how dynamic the offense-defense interaction is and how fast the tools change.

But more importantly, the importance of investing in the human capital, really developed cadres of people who can operate effectively in this domain. And then training even beyond the cyber cadre, training our war planners in the integration of cyber. How do you even think about cyber when you’re planning and conducting a broader campaign?

The last point I just want to highlight is that in so many cases I think in future warfare, it will challenge our framework which we tend to think of warfare as geographically rooted. And so we have the COCOM construct where you have a supported COCOM who’s got the geographical responsibility and then supporting people – other people supporting him. But whether you think about warfare in which there are also cyberattacks going on on the United States or on Europe at home or whether you think about a loose nuke situation where you have a country – you know, a region of origin, a transit region and some other region that’s the target.

There are many – most of the scenarios that I think are plausible in the future will challenge our traditional concepts in ways of organizing ourselves and cause us to have to think about how do we conduct operations on a global basis with very dynamic relationship changes in time where in one – you know, in some areas someone is – one COCOM is supported and the other – the next moment another one is being the supported.

So I think a lot of that will challenge how we organize ourselves. So bottom line, lots of change anticipated, big implications in terms of the capabilities we’re protecting and investing in, the force structure that we choose to shape, concept development ,really thinking about new approaches, training and the development of our human capital.

MR. GRUNDMAN: Thank you very much. So while all of you are queuing up your questions, I wanted to pose one that is just slightly admittedly off-topic but for which the two of you I think offer a unique perspective. And it springs from what I thought was one of the most compelling comments of yesterday’s conference. And that is that in a period of rapid change, foresight and long-term planning is a higher imperative.

There’s a little irony there which I find quite compelling. I think I heard this in the last panel yesterday. And so therefore, you know, rather than the headline of this NIC report being where for the U.S., I might have preferred a headline, although as unlikely as this is, to be planning really matters, planning now matters, right.

OK, so each of you, one in the corporate world, the other in the department of Defense has a firsthand and leading role in complex organizations’ planning. And I’m just wondering if I could interrupt the flow of our attention to the nature of warfare just to draw that out. I’m interested in how these big complex organizations that each of you has been a leader in actually attends to the planning and the foresight issue yourselves. Could you?

MR. ENDERS: Sure. Well, look, I work in an industry where you have aerospace, you have product cycles of 20 or more years. So inevitably you have to think a little bit longer term, particularly when you invest into technologies – (inaudible) – technologies but we invest today or we have invested today. We know them, other ones but hopefully coming to fruition in 20 years from now. They’ll be part of that scenario.

So we have to do this long-term thinking. I mean, operationally that doesn’t mean we’re drawing up plans for 20 years. The best we can do is to look forward for five years. but we regularly run, you know, scenario exercises where we try to capture, like here, the major trends, not going out to 2030 but 2020, 2025, et cetera, because that’s important for where we invest our scarce resources.

And in many companies, the focus has to be on commercial and less and less even in aerospace and defense companies on defense. By the way, that brings us into a nice conflict with the investor community. Companies like ours who have to look a little bit over the horizon or at least towards the horizon, 10 years out, 20 years out have a conflict with the investor community in the sense that investors – long-term – so-called long-term investors usually look out three years, five years. These are very long-term investors.

So to meet their expectations when you do your long-term planning or to get a certain match here in coordination is not an easy thing, not really.

MR. GRUNDMAN: I think there may be an analogue between that tension and the tension the Department of Defense experiences with Congress, if I may dare say so.

MS. FLOURNOY: Yeah, yeah.

MR. GRUNDMAN: Please, Michèle.

MS. FLOURNOY: So you know, DOD has some very defined approaches for doing long-term force planning, so projecting yourselves 20 years, 30 years out, assuming that you’ll have certain technology and capabilities, looking at – you know, using a scenario-based approach to looking at that and drawing conclusions about investment strategies and so forth.

But you know, forgive me to anybody who’s deeply involved in that process. But I have always found it less than satisfying. It’s fairly stale and mechanistic. And I think, you know, from my – what I think what we really need is a much greater emphasis on the development of new operational concepts and a true willingness to experiment.

Now, given the focus of the last decade and the overwhelming emphasis and energy that’s been put into two real wars that we were fighting, obviously a huge amount of innovation at that low end of the spectrum in terms of counterterrorism and counterinsurgency. We’ve learned a lot. We’ve incorporated a lot. We’ve innovated a lot. But in terms of the high end, I think that we’re just beginning down that road again with the air-sea battle work.

And I think we have to overcome some cultural impediments inside the military. The military – U.S. military, anyway – has a certain intolerance of failure. It’s a very – there’s sort of a zero defects culture. And anybody in industry or outside knows that if you’re really going to do useful experimentation and innovation, you have to be willing to fail. And so creating an environment and the incentive structure to allow people to really experiment conceptually and with new ways of doing business is important.

And again, I was heartened to find out that I think there’s some – beginning to be some creating of safe space for that. I think some of this Air Force training that’s going on – the whole thing is designed to make people fail. It’s designed to make you fail if you try to do things the way that you’ve been taught to do things. So you have to innovate. You have to try a different way given the challenges they’re throwing at you.

So that’s a hopeful sign. But I think we need to more consciously ensure that we’re incentivizing that more broadly to be able to ensure that we adapt appropriately for the future.

MR. GRUNDMAN: I appreciate that. I’m going to roll the questions up from the back, starting right there on the aisle. We have about 20 minutes to take questions and engage them. Please, stand up. Please do identify yourself.

Q: Yeah, Mike Mosettig, the PBS Online NewsHour. I want to get into the question of how we’re planning – particularly the United States and the West are planning to finance future conflict. The last two we’ve borrowed for. And when I think back to Suez, Eisenhower brought a halt to two bankrupt empires trying one more fling at this by turning off the money. And I think in terms if we get involved via our security commitments to Japan, in some sort of conflict with China, is China really going to loan us money to carry out this endeavor. In other words, where’s the money going to come from to fight these future wars?

MR. GRUNDMAN: OK, indeed if I may even slightly broaden that challenging question, we obviously are crossing this threshold in an age of austerity. And so, while it would be great to have the degrees of redundancy and complex varieties in our force structure and other things, we’re probably going to have to trade some things off, which I’ll just pile onto the question – the general question about how we’re going to finance this, if you will, transformation or recapitalization of the defense establishment either in the U.S. or in Europe. Michèle, you want to start?

MS. FLOURNOY: Well, my hope is that one of the lessons we’ve learned in the last decade is that we should –we should be financing our wars as we go. We should not be reducing – you know, reducing taxes as we engage in a decade of prolonged warfare, given the financial – you know, the economic impacts that’s had for us. That said, you know, we are in a much more, as you say, interdependent world where our ability to borrow, our ability to raise funds is, you know, obviously dependent on a broader global financial system and so forth.

The only thing I would say is that, you know, it is – there are – the interdependencies are so strong that, you know, there would be very difficult consequences for China to try to break that interdependency in any kind of, you know, decisive manner. And so, you know, the particular scenario you have had real implication – that you laid out has real implications for China as well.

But you know, in terms of financing the transformation, I do think this is an area that needs to be a priority. It means that we have to even as we tighten our belts in some areas really protect our investment in science and technology, research development, experimentation, operational concept development, some of the newer capabilities that will really define the cutting edge of our future and that we need to take cost out elsewhere.

My own view is that rather than trying to solve the austerity challenge on the back of the force in terms of modernization and force structure and readiness, we should be looking at parts of the department where we know there’s excess investment that has been politically difficult to get at but we really – responsibly we need to get at it, whether it’s in excess infrastructure, whether it’s in excess overhead, whether it’s in the way we deliver health care which I would argue if we took some lessons from the private sector you could keep or improve quality and reduce cost. So there’s just a lot of money to be gotten there before we restrict our investment in the future.

MR. GRUNDMAN: Did you want to add anything there, Tom?

MR. ENDERS: Sure. I would say the absolute prerequisite to be able to finance the necessary investment in the future is to – we reduce our old debt. This is not necessarily – this is not at all in contradiction to what you say. But we can’t go on like that, accumulate debt on debt, be it in the U.S., be it in Europe. While in the U.S. you still have the luxury you can loan money for pretty acceptable interest rate, not so in Europe because if we go on like that we also produce the next bubble. And that will disrupt our financial and societal system even more.

Being European, I foresee that for Europe at least there’s probably a decade ahead of consolidating budgets, going back to balanced budgets, reducing cost, hopefully also generating new growth. But I think this is – this is a very difficult decade ahead. And I see that defense budgets who were never very impressive in Europe in the first place are coming down even further.

And you see governments – let’s take the British government and Prime Minister Cameron, who I think is really a great leader but, you know, they’re trying to design an austerity strategy or policy where they safeguard not defense. They safeguard social security because the electorate is particularly sensitive to that. So if you put a fence around that, you have to reduce expenditures on defense, on transport, on infrastructure even more. That’s a very worrying – that’s a worrying sign.

So if you look into this decade or try to anticipate what’s going to happen, I think ironically European governments might be – might be even more rather than less reliant on U.S. power projection and U.S. forces even to deal with fringe conflicts and wars around the Mediterranean. We’ve seen in the Libyan conflict that the U.S. was leading from behind and France and Britain were doing – were doing their best. German opted out immediately. That’s a very difficult proposition for the armed forces.

By the way, high ranking German Air Force official told me later thank God our politicians didn’t get us into that because I was afraid we’d get embarrassed a week or two into a conflict because logistically and ammunition-wise we wouldn’t have been able to fight any longer. So this is how thin the military capability is. And you know, you can maybe – maybe things brighten up and we’ll see more rapidly growth in Europe.

I don’t see it. I think we have a very difficult decade ahead particularly for the defense posture and the investment into defense and security more broadly. As I said before, we see declining traditional capabilities and no investments or not enough investments into the new capabilities that we need.

MR. GRUNDMAN: All right. I’m going to pivot to the front of the room and ask Barry Pavel to offer a question, with a microphone please.

Q: Thanks to both panelists. I thought it was a very, very strong rendition of what the future of warfare is like. But when I went through Mat Burrows’ report and tried to sort of glean the defense agenda from there, I saw a pretty scary world that included more higher chance of interstate conflict, more nuclear weapon states. I saw sort of the story of proliferation of a lot of capabilities not just to states but to some new actors that act on sort of – that are smaller scale actors that nonetheless can act on a strategic scale.

And I think the report repeatedly identified three sort of main areas that were a concern in this regard, often parenthetically but they repeated it. They said precision strike, use by individuals, cyber, which I think is well-covered and we’re investing a lot in there. We’re not where we need to be certainly. But there’s a lot of attention on it now. But the third area is the one I’m really the most worried about. And that is bio. And I wonder is bio the next cyber.

I mean, with all of the capabilities that the NIC report identified in areas regarding human augmentation, in areas regarding nano scale, use of medical devices. Well, if you can – if you can make people better using nano delivery, then you can certainly make people ill or kill them using nano delivery. So I wonder if warfare is not going to – if there’s not going to be another – if we’re sitting here in 10 or 15 years and doing this conference, will bio sort of at the scale of almost he molecular level, will that be the new domain that we’re at least as worried about as we are about cyber now.

And just sort of taking this whole picture together, I don’t think our defense establishments are ready for this – for this world. And I think there’s a good chance of strategic surprise in some of these areas. So I’d like your emphasis on surprise and flexibility and adaptability. I’m really worried, though, about some of these new things that we’re nowhere near being prepared for.

MR. GRUNDMAN: Would either of you want to respond to Barry’s point?

MS. FLOURNOY: I would just say I agree with you. And I think that we have only begun to scratch the surface in terms of even thinking about how this could be used in very discrete individual kind of ways for, you know, very focused, targeted, you know, whether, you know, assassination or sort of terrorist type of uses or – and let alone the sort of other end of the scale is how do you use this in a way that basically incapacities, you know, an entire force.

So I would agree with you. And I don’t think we’ve given enough attention to thinking through both the applications of how we could use it as an instrument but also how it might – more importantly, as importantly – how it might be used against us.

MR. GRUNDMAN: Tom?

MR. ENDERS: I’m not denying that there’s a major challenge. On the other hand, we’ve heard warnings about bio for decades now. I remember that in the ’80s the fear about the use of bio Soviet-style, about when if it gets out of hand then. I was part of the exercise at the end of the ’80s, around 1990, and when I was in the government, the prediction was, oh my goodness, the 1990s are the most dangerous decade ahead for bio because there was the expectation this was getting out of hand. The Soviet Union is dissolving. You know, a lot of these experts are on the loose. Didn’t happen.

Were we just lucky? I don’t know. I’m not enough of an expert. But I realize that with the nano developments in particular and the possibility to more refine and design, we are no longer talking about the crude biochemical threats that we had in mind in the past.

MR. GRUNDMAN: I think it’s a fair and interesting question as to whether this next stage will realize the advent of some kind of a weapon with the revolutionary significance strategically of nuclear. And it could be bio. But I daresay that’s an open question.

MR. ENDERS: Can I add one thing? One of the dangerous things in this – if it is transition period is for cyber and for the new bio threat probably, that it’s very hard, if not impossible, to identify the attacker. In the olden days when it was nuclear or chemical, we thought at least it was pretty clear who would have been the attacker.

We would have been able to identify that or where a missile is fired from, et cetera. Well, with cyber, you know, if you have a cyber-attack from, let’s say, faraway Asian country, that doesn’t necessarily mean these guys are sitting in this country. They may be sitting in your own country. They may be sitting in a neighboring country.

So I think we need to work particularly hard also if we want to establish down the road some sort of deterrence in cyber to identify the attacker. As long as you can’t do this, it’s far easier for any attacker to go ahead because he has a fair chance to get away with it. And that is the case today. That is the case today.

Our companies – my company is under constant attack. And so are many companies. The difference is just some realize. Some don’t. But it’s damned hard even for the best forensic experts to tell, to find out where it is coming from precisely. We have some ideas, et cetera. But you know, nothing definitive.

MR. GRUNDMAN: Let me take Harlan Ullman’s question and then I’ll pivot again to the back of the room. Microphone here?

Q: Thank you. I’m Harlan Ullman. I would like you both, if you would, to address what I think are two serious and potentially fatal flaws in how America looks at war and military force. The first, in my judgment, has been our failure to have any kind of real cultural understanding. It goes back to Vietnam, but Iraq and Afghanistan really are key. So how do we get around having better cultural understanding? And this is more than just the intelligence question of not having weapons of mass destruction.

And second, we’re getting killed in terms of cost exchange ratios. Let me give you a couple of interesting figures. The United States is still sending bottled water to our forces in Afghanistan. It cost us $800 a gallon. It costs us half a million dollars to field a soldier Marine facing a Taliban that costs 50 whatever. We spent in excess of $50 or 60 billion, as Michèle knows, on counter-IEDs. If you sum up how much money the Iraqis and the Afghans and Taliban have spent on IEDs, it’s pennies. So we have a cost exchange ratio against us of 5(,000) or 10,000-to-1.

How do we deal with both those issues – cultural misunderstanding and a cost exchange ratio which is really perhaps causing us to spend our way into oblivion?

MS. FLOURNOY: I’ll take the first one on cultural understanding. I do – I think it is something that we’re going to have to grapple with more effectively in the future. And in my view, it’s first of all trying to ensure particularly that our ground forces have – that involve more interactions like the special ops tradition in terms of having greater, at least, regional awareness if not cultural awareness of an operating environment. And I know the Army is at least considering how they might move more in this direction.

But I also think it reminds us particularly that the importance of partnering with indigenous forces on the ground and working by, with and through whenever possible because even if you have regionally oriented forces, you’re never going to have someone who has the cultural understanding of a native, someone who’s from the country. And so figuring out how we plan and prepare to conduct warfare in a much more integrated way with indigenous partners is, I think, very important.

On the cost exchange ratios, you’re right. I’m not sure how we – I mean, I think we obviously have to look at this and look at their simpler, cheaper and easier ways to get some of our missions done. But I don’t have an easy answer for you on that.

MR. ENDERS: I was thinking while you were talking. I was thinking history. The Romans had figured that out pretty well. They had the same problem basically of cost exchange ratio. But what they did was in lesser conflicts they employed auxiliaries. They didn’t – they didn’t deploy the heavy legions – the well-armed, well-trained, et cetera.

So but that gets us back to coalitions, not just coalitions between Western forces who are equally disadvantaged when it comes to your cost exchange but to others who can employ forces may be as effective against an asymmetrical opponent with far lesser cost. Other than that, as an industry man I can tell you that these things cost a lot, you know. (Laughter.)

MR. GRUNDMAN: We have time for two more questions. And the first one I would ask from Byron Callan, if you could give him a microphone. And then we’ll come here for the last question, Phillip. Do we have a microphone, please, for – right there.

Q: Thanks. Byron Callan, Capital Alpha Partners. Tom, I just wondered talk about agility in your organization, in EADS and the benefits of being both a commercial company and a defense company. You think about a lean period for European defense spending. How do you maintain your defense capabilities in that kind of environment and remain competitive? Maybe keying off Michèle’s comment about agility and that importance.

MR. ENDERS: That’s a very good – that’s a very good question. Well, I’d say you have the advantage – or we have the advantage of having both in our portfolio. And I’ll give you one very practical example, Byron. I mean, some years ago we seriously deployed a lean philosophy in our commercial sector. That was primarily Airbus. I say seriously because we’d had, you know, lukewarm efforts before time and again that didn’t amount to much.

This time we did very seriously, very thoroughly, not just in production but also in engineering, et cetera. And we’re far from perfect because we needed to do that because, you know, we had to – we had to improve our margins and we had to take cost out significantly. Now, I’ve taken the champion of that effort in Airbus – Spanish female colleague who had a lot of experience in automotive before. This is why we hired her in the first place and to put her now on the defense side and say, you do the damned thing also on defense.

Ooh, I mean, you feel a lot of resistance. Particularly defense people will say, you know, everything is completely different with us. You can’t treat us like commercial people, et cetera. But that’s bullshit, you know. You can’t do that. But I think you really need a thorough lean philosophy. It takes years in industry to implement that.

And people need to understand down to the shop floor that they are beneficiaries of that. They’re not victims but they are beneficiaries. So we started to do that really from the bottom up. We started by asking the blue collars: so what is it that bothers you in your day-to-day work, what can we improve, what will make you happy, what will make you faster, et cetera.

You start with that rather than imposing it from the top. You can really change the culture. But you need to stay course for years and keep your credibility. And then, it spreads in the company. And people also understand that lean is the other side of the coin, or should be, of empowerment.

Only an empowered organization can be lean because otherwise, you know, if you have an organization that micromanages, where you have bottlenecks, et cetera, it’s impossible to do fast decision-making and deploy your resources fastly. So it’s a fascinating topic. I’ll stop here, Byron. But this is definitely an advantage if you have both worlds under one roof. You can exchange experiences and people. It’s the people who bring the experience.

MR. GRUNDMAN: Finally, Philip. Microphone right here, please?

Q: Thank you. Philip Stephens from the Financial Times. I wonder if I would ask Michèle Flournoy to address what seems to me is the policy question which hasn’t come up in this session which is how and when do governments use these new capabilities, under what self-imposed, if you like, constraints.

I suppose very briefly, are there any rules? I mean, if you’re an outsider looking at the United States’ use of drones, for example, you would draw – and I’ve certainly heard this in Turkey – you draw the conclusion that it’s perfectly OK to use drones against terrorists based on other people’s territory who are attacking you.

So the obvious case in Turkey would be the PKK. You also pick it up in India, you know, thinking that should those people based in Pakistan who carry out attacks in the name of sort of Kashmir against India. So in the case of what the U.S. seems to have done is taken a sort of tactical decision to hit al-Qaida which has opened a sort of new strategic Pandora’s Box, as it were.

If you look at cyber, it’s in sort of two channels, as it were. There’s cyber which is espionage, a sort of extension – a sophisticated espionage. And then there’s cyber that’s offensive warfare. Again, the U.S. vis-à-vis Iran seems to have crossed the line and said, OK, it’s OK to use cyber in an offensive warfare sense. So are we going to – are we entering a world in which these new forms of warfare are basically completely unregulated?

MS. FLOURNOY: So I think that it’s a very important question, probably one of the most important policy questions we need to grapple with. And I think in thinking it through as a new approach or tool comes into being and is made available, I mean, I think you have to think hard about, you know, the interests that you’re – the importance of the interests at stake, whether there are alternative means available and, to your point, the sort of demonstration effects likely.

You know, where does – if you were to play this out many moves down the road, where does this take you in terms of, you know, how do we need to think about U.S. vulnerabilities in the face of some of these – if others were to use these tools and so forth. You really have to develop not only a sort of operational concept but also a broader sense of strategy with regard to these things. So I do think that, you know, that this is sort of a repeatable part of history. We tend to get down a road before we fully start to digest and understand the big picture implications.

And I think that for – certainly for cyber and a number of the other technologies that are noted in this report, we need to be doing more of that strategic long-term thinking up front. And I do think that there are big both policy and ethical dilemmas associated with a number of these things down range. So it’s an important question. I don’t have an easy answer for you but it’s an important set of questions for policymakers to grapple with.

MR. GRUNDMAN: You want to dive into policy, Tom?

MR. ENDERS: No, thank you, nothing to add.

MS. FLOURNOY: (Chuckles.)

MR. GRUNDMAN: Very good. Well, thank you. This has been an engaging hour. I heard a couple of things in particular that I will call out for what it’s worth. One is the breadth of the cyber dimension of the future of warfare. I guess maybe in caption I’ll simply say it’s well-beyond digits – you know, ones and zeroes. There are policy issues. There are actual engagement issues and others that I think sometimes escape the glib references to cyber warfare.

The other thing I’ll just observe off of the exchange between Byron and Tom is that it suddenly occurred to me – and with my management consultant hat on – the world that’s described here – rapid change, changing market shares of competitors and other things – sounds a lot like some very normal commercial markets.

And so perhaps there is an – maybe there’s more to this analogue, at least in terms of the way business prepares and responds itself to rapid change and plans for and makes investments. Maybe there’s more to that analogue that ought to be pulled – a thread that could be pulled productively. Thank you to both of you. Thank you also to EADS, again, for sponsoring the conference. Tom, thanks very much. Michèle, thanks. (Applause.)

ANNOUNCER: Ladies and gentlemen, please join us for a luncheon conversation with General Brent Scowcroft located in the tent to your right. Thank you.

(END)

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