Our Industrial Base Can’t Meet Our Defense Needs. Here’s How We Can Fix That.

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American military superiority is essential, but it is not inevitable.

It is the result of strategic planning, deliberate investment, and an industrial base that is able to anticipate and deliver the capabilities needed to fight and win wars. We've made significant progress in the first two areas: planning and investment. But a new report shows that our defense industrial base is falling behind.

President Trump and his military leaders have issued several strategy and guidance documents demonstrating a serious understanding of the nation’s national security needs, such as this one from the Marine Corps Commandant. (I would also recommend the strategy we wrote at The Heritage Foundation).

Defense spending also reflects improved prioritization, with a topline of $738 billion in 2020. That’s a 16% increase since 2017 that also includes a 41% increase in research and development over the same period. This prioritization is continued in the FY21 budget request, with an even higher R&D budget, totaling $106.6 billion.

Unfortunately, however, the National Defense Industrial Association (NDIA) gives the U.S. defense industrial base a “C” grade and says it is getting worse. “The defense industrial base is increasingly struggling to meet the ‘unprecedented’ challenges it faces,” the NDIA concludes.

In the new report mentioned above, Vital Signs 2020: The Health and Readiness of the Defense Industrial Base, nearly 20 experts reviewed eight different dimensions shaping the capabilities of defense contractors and came away with the following judgments:

  • The overall composite score for the industrial base was 77 points, just over the passing grade of 70 points and a decline of two points from 2018;
  • Scores for three dimensions – production inputs, industrial security, and supply chain – fell below 70 points;
  • Composite scores for four of the eight dimensions declined from 2018 to 2019; and,
  • The lowest scoring dimension was industrial security, with a score of 63.

It is clear that national security leaders recognize the new era of great power competition requires significant and sustained investment in military capabilities, but the nation’s defense industrial base is not ready to meet these challenges.

A decline in innovation is of particular concern. According to the NDIA report, innovation received a score of 74 for 2019, down two points from the previous year.

In a time where emerging technologies will define the battlefield, the U.S. cannot settle for a “passing grade” in developing, acquiring, and deploying these innovations. We have to dominate.

Such domination requires alternative partners, reduced bureaucracy and regulations, and industrial security.

Our current defense contractors are essential for key capabilities, especially marque platforms like aircraft carriers, fifth-generation jets, and modern fighting vehicles. But they are not typically the source of bleeding-edge developments in artificial intelligence, advanced robotics, or quantum computing. These advancements are overwhelmingly developed by companies who do not regularly work with the department of defense and who are not currently trying to solve defense challenges.

These companies’ lack of involvement is not due to a lack of patriotism. It is the result of poor incentives and massive bureaucratic hurdles. It is time to clear the way for these alternative partners so that our national security can profit from their agility, creativity, and expertise.

We can make dramatic improvements by making three key changes.

First, we need to recognize and employ new incentives. The current system does not prioritize the best available technology. Instead, it favors cost accounting, regulatory compliance, and administrative ease. Budgets are programmed years in advance with little ability for companies to realize profits in current fiscal years. And, perhaps most significantly, research and development are often spread across many small contracts instead of investing deeply in key or promising capabilities.

Encouraging a diverse ecosystem of innovation is wise only if it regularly produces the capabilities you need when you need them. Ours is not.

Generally speaking, innovative companies in the technology sector do not need government “investment,” they need government contracts. There is plenty of venture capital in the United States; but, those dollars only follow markets where there is a real opportunity for profits. These companies need real contracts, not one-off awards, and they need to know that these contracts can be scaled into real programs of record. Do this, and the defense innovation market place will boom.

While some progress is being made using “other transactional authorities,” these efforts need to be greatly expanded.

The second critical action is to get rid of the innovation killing regulatory burdens that block the partners we need.

The Federal Acquisition Regulation (FAR) — which governs all federal acquisitions, including those of the Department of Defense — is more than 2,000 pages long and even includes a definition on what constitutes a “copier.” Certainly, rules need to be in place to ensure the U.S. government gets its money's worth and that taxpayers are treated fairly. But this bloated framework is a massive hurdle for companies who want to have more programmers and engineers than they have lawyers and contract officers.

There is ongoing effort to update FAR, but it is progressing too slowly, and it must take the nation's innovation needs as a central concern.

Finally, the U.S. should prioritize the security of our domestic technological and manufacturing capabilities. Do not forget, it was industrial security that was the lowest scoring dimension in the NDIA report.

This is not a call for economic protectionism – U.S. companies are very competitive – it is a call for commonsense security.

In a world where securing nations means securing networks and supply chains, it is unavoidably true that the loyalties and security practices of those creating and building our defense innovations matters.

This is part and parcel of developing and maintaining the American defense base in general. As the ongoing European capitulation to China’s Huawei telecommunications company demonstrates, the lack of a robust and secure domestic technology industry leaves governments in desperate straits with few good options.

The United States should never accept such outcomes.

In the final analysis, American policymakers and citizens should be encouraged. Our industrial base is still the envy of the world, and U.S. emerging technology innovators are second to none. But, if the United States is going to secure its people and its interests going forward, we must do better in blending these engines of innovation.

Klon Kitchen leads technology policy at The Heritage Foundation and is a Senior Fellow for Science, Technology, and National Security.

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