Economically Unsustainable Spending Requires a Thorough Rethinking of Defense-Industrial Strategy

SoftwareJosh Marcuse told us, is eating the war. An advisor on innovation to the under secretary of defense for policy, Marcuse was speaking at the 2014 Defense Entrepreneurs Forum (DEF), held from 24 to 26 October at the University of Chicago. Echoing Marc Andreessen’s 2011 essay in the Wall Street Journal on “Why Software is Eating the World,” he was reminding us of how demand for new electronic capabilities has been killing affordability. He might have said that costs are eating the war. The problem per se is not that missile defense costs too much, or that aircraft carriers cost too much. It’s that everything costs too much. For as my Atlantic Council colleague Harlan Ullman wrote in this morning’s Washington Examiner, “the soaring cost for pay, allowances, healthcare, retirees and the gamut of weapons and supporting systems,” cannot survive even inside military budgets that are “economically unsustainable.” The question is what we are going to do about it.

The long-run danger, after all, is that the US is pricing itself out of conventional conflict. As Byron Callan of Capital Alpha Partners commented to me last year,

     My concern with a smaller force built on F-35s and LRS-Bs is that it’s a glass slipper—very fragile. It may prevail today, but will it in 2025? And it’s not going to be scalable given lead times under that level of complexity. It preserves a narrow sliver of the defense industrial base that won’t support a larger build back if and when that occurs.
Fairly, the problem is not endemic to the United States. Industry analyst Richard Aboulafia argued to Defense News last December that the Rafale has always been too expensive for Dassault’s long-time customers outside Europe—and perhaps for France as well. But as Sandra Erwin wrote in National Defense that October, today’s American fighter aircraft cost so much that even comparatively low-cost Boeing may be pricing itself out of the market. And we have not begun to discuss those F-35s, with their 25 million lines of code, and sustainment costs projected to be half again as much as the aircraft they replace.
Perhaps we would think that “there is nothing good about budget reductions and turmoil,” as outgoing Pentagon procurement chief Ashton Carter remarked to the Wall Street Journal last November, “but it does make you rethink everything you are doing.” Redressing the imbalance in the national portfolio seems to be what Textron has had in mind with its Cessna-derived Scorpion reconnaissance-attack jet. It appears to be part of what Boeing had in mind when teaming up with Saab to offer a new supersonic trainer jet to the US Air Force. It is certainly the strategy of more than a few companies developing new drones, or clever upgrades to present-generation aircraft.
This gets to the first part of Ullman’s preferred solution, a strategy of “regeneration and reconstitution, meaning preserving and paying for certain manufacturing capabilities at minimal production rates, especially research and development, that can be expanded if or when legitimate threats emerge.” The other part of the solution, he advises, “is to shift conceptually and practically from a defense industrial base to a defense intellectual property base in which producing military hardware and software is secondary to preserving IP, technology and manufacturing assets.”
That is bold defense industrial strategy. For years, a host of enthusiasms in the Defense Department—total quality management, lean six sigma, enterprise architecture, service-oriented architecture, and now Better Buying Power—have aimed to rework the margins of the price-for-value envelope. In response to some similar military tinkering, and echoing Potter Stewart’s famous line,  Sean Maday remarked at the 2013 DEF that “I can no longer define innovation, but I know it when I see it, and that is not it.” In contrast, Ullman’s proposed solution at least aims for a long-term solution to a long-running problem.
James Hasík is a senior fellow at the Brent Scowcroft Center on International Security.

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