To Keep Its Military Edge on China, The Pentagon Must Embrace Change
America needs both a qualitative and quantitative edge that only private R&D can provide.
During a debate just weeks before the 2012 presidential elections, then-Senator Barack Obama dismissed Governor Mitt Romney’s observation that the U.S. Navy had less ships at its disposal than it did during World War I. “You mentioned the Navy, for example, and that we have fewer ships than we did in 1916,” Obama said. “Well, Governor, we also have fewer horses and bayonets, because the nature of our military’s changed.”
Both candidates sought to score points against the other but, in reality, they were both right: If the United States is going to succeed, it needs to maintain both a qualitative military edge, and enough equipment and numbers to counter multiple adversaries simultaneously. During the Cold War, politicians accepted the United States should be able to fight two wars or on two fronts simultaneously. Historians may see Defense Secretary Robert Gates’ reversal of that a decade ago as akin to Great Britain’s interwar “ten-year rule” which left the British military unprepared to counter Nazi Germany’s rise. During the Cold War, for example, the United States faced one major competitor. Today, it faces a number of global and regional powers: China, Russia, Iran, North Korea, and Turkey, each of which seek to change the post-World War II liberal order.
There is growing recognition especially about the danger China’s rise poses. The coronavirus pandemic has renewed focus on the vulnerability of supply chains. China also leverages its industrial might in pursuit of military dominance. During his 2016 campaign, President Donald Trump promised a 350-ship Navy. He failed, but China built it.
Defense spending dominates increasing few U.S. industries. In 1965, for example, the Defense Department accounted for three-quarters of all U.S. semiconductor purchases; just under a decade ago, that number had fallen to two percent. Then-Hoover fellow Jeremy Carl (who now sits at the Claremont Institute) and his colleague David Fedor likewise showed in Keeping the Lights on at America’s Nuclear Power Plants the national security implications of ceding to China the commercial gravity of nuclear power. “We know that our country’s dominance in civilian nuclear power has been a key part of America’s ability to set norms and rules not just for power plants in less stable places around the world but also for the control of nuclear weapon proliferation,” they wrote.
The erosion in military investment comes against the backdrop of China, Russia, and other potential adversaries upgrading capabilities and even surpassing the United States in some like hypersonic missiles, anti-satellite missiles, and perhaps some autonomous systems. America’s declining advantage reflects two problems: The first is the Pentagon’s broken procurement system and the second is suffering innovation as the Pentagon both stifles efficiency and continues to focus too much on fighting the last war rather than the next one.
Congressional overregulation has undercut Defense Department acquisitions. Efforts to cut and limit the profitability of the industrial base has led to new bureaucracies and regulations which add complexity, cost, and confusion to the acquisition process. The slow pace of procurement also takes a toll. It can take five to six years—sometimes longer—to build a new Navy ship. Moore’s Law, meanwhile, for decades successfully predicted an almost exponential increase in computing. In practice, this meant that between contract awards and ship completion, many ships are already behind-the-curve technologically when they are christened.
The solution both to procurement and innovation problems lies in recognizing and acting upon the changing landscape of research and development (R&D). Whereas once, the military and NASA drove R&D, today business and industry spend more on R&D than the U.S. military. The military maintains the Defense Advanced Research Projects Agency (DARPA) but its budget of around $3.5 billion is just a drop in the bucket of what is needed if the United States is going to maintain its technological advantage.
With debt soon to surpass gross domestic product for the first time since World War II, it is not realistic that Defense Department investment will again dominate research and development. The question then becomes how can the Pentagon more effectively tap private industry?
In order to reduce costs in the long-run without compromising access to private sector innovation, the Defense Department should allow defense manufacturers to achieve competitive profit margins. Those providing oversight have had their attitudes shaped by the mid-1980s scandal of a $436 hammer and $640 toilet seats. Accountability was necessary, but the pendulum has swung too far in the other direction. The basis for negotiating price should be value to government, not artificially low or non-competitive profit margins.
This is not a give-away for the private sector. The United States military and its contractors have lost hundreds of billions of dollars-worth of R&D and proprietary knowledge technology to Chinese hackers. Cyber protection is expensive, however. Companies in poor fiscal health cannot invest in robust cyber-security capabilities. To bid on a contract with illogically low profit margins is to win the battle but lose the war.
Rather, a well-capitalized private defense technology and industrial base is critical to maintaining the Defense Department’s long-term technology and industrial base. A poorly capitalized industrial base, in contrast, is more susceptible to disruptions such as those recently experienced with the coronavirus pandemic. A thriving private sector would also mitigate risk caused by bankruptcy, foreign acquisition, and low rates of internal R&D investment.
It would also jump-start innovation. The onerousness of Defense Department contract bidding disincentivizes both new firms, no matter how cutting-edge, from competing, as well as many companies with commercial capabilities that have defense applications. If the potential for profit were higher, more entrants would enter the defense market which in turn would bring more competition and perhaps even lower costs in the long-run. Simply put, if companies believe military-related R&D can bring robust returns, they are more likely to innovate. If military-related R&D are not lucrative because of a suffocating Pentagon process and parsimoniousness, then companies might simply turn to other sectors where they are more likely to profit and grow.
The United States grew to be a superpower based on its embrace of free market capitalism and competition. Congressional regulations and the Pentagon bureaucracy itself now stifle both. As C. Northcote Parkinson demonstrated in 1942 when he described Parkinson’s Law with tongue-in-cheek, bureaucracy does not breed efficiency. As the United States faces challenges to its power on the global stage, it behooves both Republicans and Democrats to remember how freedom and capitalism rather than bureaucracy and regulation made the American military the envy of the world.
Michael Rubin is a resident scholar at the American Enterprise Institute.