Study: Yes, a strategy could save the defense biz
A day after we asked the question, one of DC’s top defense think tanks gave its answer: Yes, according to a new report by the Center for Strategic and Budgetary Assessments, a DoD “industrial policy” could help protect and sustain key areas of the U.S. defense industrial base. How likely is it? Well, that’s another matter.
Defense analysts Barry Watts and Todd Harrison briefed reporters Wednesday on their study, which is packed with information and analysis and comes to this conclusion: If the Pentagon identified, say, six to eight key areas that it knew it must protect to have them around just in case of a major war, it could plan and program accordingly to be sure it never lost what they contribute to American national power. But if Washington persists with its official illusion that the defense game is a traditional free market and should be permitted to behave as such, the U.S. could lose essential skills forever, or face enormous costs to regain them down the road.
Watts gave some examples of where this has already happened: The U.S. has effectively given up its ability to make nuclear weapons, he argued. Although two national labs keep functioning, much of America’s former ability to design and build new nuclear weapons has eroded. Now the nuclear triad is equipped with a cache of aging weapons, whose Cold War designers assumed would be replaced after 10 or 15 years, although that’s probably not going to happen. Farther from home, Watts cited the Royal Navy’s difficulties in building its Astute-class attack submarines. The British government and its vendors began their program and then realized they’d lost the technical know-how to build new nuclear boats, Watts said. They asked for and got help from the U.S., but that cost time and billions more pounds.
If the Pentagon lets key areas of its industrial base wither too much, that could happen here, Watts and Harrison warned. You read here about Loren Thompson making this same case not long ago, and he cited examples of where it’s already happening: DoD today relies on imported steel plate, rare earth metals and other “globally sourced” materials, in the parlance of our times. Now imagine the U.S. wants to build a new fighter jet or a new submarine, appeals to its defense sector, but Boeing and General Dynamics both shrug: “We’re for-profit companies, bro,” their executives might say. “Our advanced fighter-design and sub-building divisions were losing money, so we laid everybody off. Sorry ’boutcha.”
Right about here is where we’d normally write something such as, “Problem is, all this depends on the elusive flying unicorn known as The Strategy — the guiding document everyone in the defense game wants, but which modern Washington may not be able to produce.” But we put that to Watts and Harrison and they said they thought the Pentagon could execute an industrial strategy at a lower level. Even without one of these National Discussions people are always calling for, DoD leadership could say, well, we know we want to always be able to build the following things: Combat aircraft; nuclear submarines; satellites and other space stuff; and how about advanced cyber stuff. Each year’s budget could make clear that DoD was going to protect those areas in perpetuity, with the explicit goal of preserving them as a “strategic asset” of the United States.
That’s because Watts and Harrison agree with industry advocates that Washington should recognize the industry as a “strategic asset” and reorient its philosophy accordingly. The Pentagon and Congress cannot go on operating under the myth that the defense game is a free market, and is susceptible to classic forces such as competition, the analysts argue. That has never been the case since the end of World War II and it certainly isn’t the case now, they say. In a real free market, many consumers are free to choose from many vendors, and buyer demand influences companies’ decisions about what to make and how. This is why your cell phone today operates on Star Trek levels compared to the one you might’ve had five or ten years ago; the same goes for your car or your personal computer. The decisions of consumers like us, in aggregate, prompted electronics-makers to deliver the features we wanted. The ones that did, e.g. Apple, succeeded; the ones that didn’t, e.g. Nokia, are struggling.
But in the defense game there is only one customer — Uncle Pentagon — which dictates the products its vendors make and also regulates the way those vendors behave. This dynamic has only been compounded, Watts and Harrison write, since 1993’s infamous “Last Supper,” at which then-SecDef Les Aspin invited the big defense contractors to dinner and said, hey, guess what, there’s not enough work for you all anymore. Even so, congressional lawmakers and Pentagon officials still cling to their mystical belief that the lifeblood of capitalism … competition! … will get better deals for taxpayers. Watts and Harrison’s study cites several cases where this is not true. To pick just one, they describe how the Evolved Expendable Launch Vehicle program, which was supposed to get a good deal on rockets, turned into a monster:
DoD awarded contracts to Boeing and Lockheed on the theory they would “compete,” thus driving down costs and spurring each to out-innovate the other. But the commercial space market everyone was counting on disappeared; the companies came back and reported cost overruns and delays; and they eventually merged their operations into what we now know as the United Launch Alliance. This effective monopoly meant it was harder for newcomer SpaceX to get into the game and “compete” for DoD launches, but as Watts and Harrison write, by then the Pentagon had changed its mind. Officials’ biggest priority was now being certain they’d have a predicable and safe space-courier in ULA– not “competition” or value.
All right, fine: We could spend all night and run up quite a bar bill reeling off the many … imperfections … in the history of DoD’s acquisitions. But is there a practical way forward for Watts’ and Harrison’s industrial strategy? Probably not. Even they acknowledged it would be a real struggle. “I guess Todd and I probably aren’t holding our breath on this,” Watts admitted.
Problems: We’ve mentioned this before, but here it is again — is an “industrial strategy” really socialism? Maybe it is, maybe it describes what’s already happening and maybe the realities of the defense game make that necessary. However, the political realities in Washington mean that no elected official will be the first to stand up and say: “Hey friends, let’s impose a planned economy on a big part of the private sector!” DoD would go from a de facto jobs program to a de jure jobs program for skilled aerospace engineers, nuclear shipbuilders and whatever else it set aside, and it would have to make work for them as it also tried to buy everything else — all with shrinking budgets. You can imagine Boeing or Northrop’s advanced combat aircraft teams submitting design after awesome design for new fighters or bombers, but no aircraft ever actually materializing.
Although defense advocates are some of the biggest proponents of an “industrial strategy,” on the theory that it would at least guarantee firms’ survival, even that might not be true. Suppose the Pentagon issued a no-bid “survival” contract to Raytheon for a new batch of radars, for which it would pay exactly X price — no request for bids, no negotiation, just a planned fixed award. The Pentagon might be pleased with the deal it was getting, but Raytheon’s board and shareholders might not. If being a defense contractor meant companies were dependent on fixed, flat payouts, without opportunities for the kinds of profits they’ve made in the past, investors could abandon them and they could be swallowed up or broken apart. Thompson has warned about this as well. Would that mean DoD would have to absorb Raytheon’s essential functions? Where would it end?
Watts and Harrison said there is one example in which sane planning made a portion of the defense world “rational:” Naval nuclear reactors. When then-Adm. Frank Bowman was the all-powerful director of Naval Nuclear Propulsion, Watts said, he went to the small nuclear industrial base and said, look here, fellows: Here’s our program for submarines and aircraft carriers going forward, here’s what we’re going to need from you, now let’s figure this thing out. (True nuke-style.) But by law, the boss of Naval Reactors is responsible for nuclear propulsion from plants’ birth till their death, Watts said; there are no commissions or bureaucratic rivals or any other of the realities of the larger defense acquisition world. So until the entire acquisition process can be run by this kind of benevolent dictator, it’ll likely remain noisy and slow and complicated.
“If there was an easy answer to make all this a little more rational, we would’ve put it in the report,” Watts said.