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Sunday Digest #3
The Failing Military Industrial Complex
The reality of warfare is that it is won or lost at home in the factories that make military equipment. The North won the US Civil War because it had more industrial capacity than the agrarian South. WW1, a stalemated European war until the US joined, was decided by the tremendous armament production of America. And in WW2, FDR famously called America “the arsenal of democracy”. US factories went on to produce arms in quantities neither Germany nor Japan could compete with.
More recently, the US has transitioned from fighting the small-scale wars of the Global War on Terror to preparing for war with peer great powers like Russia and China. This shift requires rearmament and a robust defense industrial complex.
Even though the US has a massive economy and bountiful geography, the industrial heart of America has been ripped out by globalization and consolidation. As Ad Astra has previously reported, the US has been unable to provide enough ammunition to Ukraine.
American power and prosperity are destined to decline unless Washington can reverse the decline of U.S. manufacturing capacity and the toxic effects of decades of defense consolidation. In 2022, the Defense Department assessed that it was “increasingly reliant on a small number of contractors for critical defense capabilities” and that current policies and investments were not supportive of a defense ecosystem built for peer conflict. While there is no doubt the United States remains the world’s leading technology innovator, the Pentagon struggles to compete with China’s ability to produce new military capabilities at scale. America’s military edge requires a defense ecosystem and future industrial base that can identify, innovate, develop, and produce at scale new technologies able to change the face of modern warfare. Without competitive options and a resilient production capacity, the U.S. industrial network will lag China’s military-civil fusion, making it more difficult to deter conflict.
Three actions can help correct the current defense sector imbalance and equip the Department of Defense with an industrial ecosystem that can rapidly access and adopt new technologies. First, the Pentagon should diversify the industrial base by incentivizing midsized enterprises to play a critical role in providing innovation, options, speed, value, and competition. Second, the government should create incentives for companies to serve as “innovation translators,” facilitating the scalability of demonstrated commercial prototypes to numbers that can be useful for the U.S. military. Third, the Pentagon should avoid investments in technology already being developed faster and more effectively in the private sector.
The United States had 51 defense prime contractors in the early 1990s, compared to the five it has today. Moreover, even as defense contracting dollars increased over the past five years, the number of defense sector companies seeking those contracts shrank by 17,000 over the same period. However, this imbalance can be reversed. Midsized enterprises, specifically those between $1 billion and $5 billion in annual revenue, represent an important yet underutilized element of the U.S. defense ecosystem.
It has been decades since the United States faced a serious peer competitor, and we need to broaden and strengthen the industrial contributors to the Department of Defense to meet that competition. It is time to better leverage midsized enterprises across the defense industrial base and throughout the acquisition process. While the United States cannot and should not try to duplicate the centralized structures of its peer competitors, it can employ a whole-of-nation strategy that leverages the full range of our commercial sector. To be successful, both the Defense Department and Congress must identify, utilize, and advance every tool and resource in the U.S. defense industrial base to ensure the nation is postured to deter, preferably, and win, if necessary, any conflict with a peer adversary. More importantly, the United States needs to transition from a Cold War–era industrial system to a broader, more dynamic future industrial network that taps into the innovation and production capacities across the U.S. private sector and fully employs the strengths of our free enterprise system.
Oppenheimer is part of the 2023 rebirth of the American box office. It tells the history of the invention of nuclear weapons, a technology that forever changed humanity. The story is worth thinking about at the birth of AI, another technology that will forever change humanity.
There you have it, the third edition of Sunday Digest with a story about the failing military industrial complex. The portrait of a world spinning faster and faster. The good news is you have Netflix, Uber Eats, and running water. Until next time, be a good citizen, quit doomscrolling, and go outside.
Ad Astra Per Aspera!
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