Study: Preserving defense capacity ‘imperative’ as DOD budgets shrink

The United States is at risk of losing its capacity to build cutting-edge weaponry unless the Defense Department moves to manage the defense sector in an era of budget cuts, a think tank with close ties to the Pentagon warned Wednesday.

The Pentagon is mulling ways to trim about $350 billion over a decade in the wake of the August debt deal. And if a special congressional panel fails to find around $1.2 trillion in additional federal cuts, the Pentagon would be forced to absorb a large chunk of $600 billion in further security cuts.

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Those numbers have intensified worries along the Pentagon’s E-Ring, in corporate boardrooms and on Capitol Hill about the long-term prognosis for America’s arms manufacturers and their suppliers.

“The United States has not pursued an overall strategy for preserving its domestic defense infrastructure since this industry emerged in the 1950s as a permanent sector of the U.S. economy,” the Center for Strategic and Budgetary Assessments (CSBA) wrote in a report released Wednesday.

“In light of the fiscal austerity likely to constrain U.S. spending on national security in the years immediately ahead and the growing complexities and dangers in the nation’s security environment, a long-term strategy seems imperative if the vital sectors of the defense industry are to be preserved.”

That’s because the “simple truth is that for-profit U.S. defense companies are not at all likely to preserve the capabilities the military services will need in areas where they have no defense business,” the nonpartisan think tank wrote in its report. “If the vital sectors of the defense industrial base are to be maintained, the U.S. government will need to develop and implement a strategy of some sort.”

Industry executives are concerned about their firms having enough work to retain their ability — and workforce — to design new combat systems.

For instance, James Albaugh, Boeing’s commercial aviation chief, told reporters last week that there could soon come a time when few weapons manufacturers have the in-house engineering brainpower to design a new combat aircraft from scratch.

The possibilities of industrial design atrophy might not stop there, according to the CSBA report.

“It is not unrealistic to foresee a day in which the U.S. defense industry no longer possesses the design or production capabilities for certain weapons systems,” the CSBA wrote. “Indeed, this has already happened to the United Kingdom in the case of nuclear attack submarines.”

In the late 1990s, the UK’s Royal Navy ran into big problems with a program to develop a new nuclear submarine when it became clear that neither BAE Systems nor any other British firm had the expertise to develop the complex vessels. The Royal Navy ultimately turned to American nuclear submarine-maker General Dynamics Electric Boat.

“But if the Pentagon one day found itself in the same situation with a major weapons system,” the CSBA wrote, “to whom would it turn?”

“You don’t want to end up there,” former Pentagon and Northrop Grumman official Barry Watts, one of the authors of the CSBA study, told reporters Wednesday.

The think tank’s report offers one of the first definitions for what a U.S. defense industrial base management strategy might look like:

“The United States’ defense industrial base strategy should ensure the preservation of those few sectors that are currently critical to American national security, adding over time any emerging sectors that become critical, and ruthlessly under-funding or jettisoning any sectors that cease to be critical.”

Put plainly, such a policy would be the “adaptive sustainment of those elements of the defense industrial base that are truly important to retain,” according to the report.

Watts and his co-author, CSBA budget expert Todd Harrison, said the strategy would require building consensus among Pentagon officials, industry executives and Capitol Hill on the six or eight broad categories of war machines and systems in which the nation needs to invest for years to come.

Would reaching that strategic agreement be easy? Not even close, the duo acknowledged.

Harrison said a broad industrial policy would be more of a guiding principle, because Pentagon officials need to manage different parts of the defense-manufacturing base — such as fighter jets, ships, satellites and cyber tools — differently.

“You would have to [manage] on a case-by-case basis,” Harrison told reporters. “You cannot have a one-size-fits-all approach.”

Watts noted the Pentagon’s much-maligned acquisition system is now a one-size-fits-all process, and is responsible for a considerable amount of the department’s recent acquisition stumbles.

The first step the “defense-industrial-congressional complex,” as Watts called it, needs to take is to recognize that the military manufacturing sector is not run using free-market principles.

“A serious misunderstanding of the realities of weapons acquisition in the United States [is] to think that the U.S. defense industry operates like a normal free market,” the CSBA wrote. “A classic free market involves many small buyers and many small suppliers, and competition among buyers and suppliers drives prices toward stable, economically efficient equilibrium levels. None of these features resemble the way in which the U.S. defense industrial base functions.”