We stand at a crossroads of history. The decisions this new administration makes about how to engage, incite, and rally the full force of American capitalism will determine whether we stand in the backwash of China’s exhaust or we continue to lead.
In the twenty-first century our country’s military and economic power will rely on the rapid development and deployment of new technologies—5G, microelectronics, cyber, AI, autonomy, robotics, access to space, drones, biotech, quantum computing, energy storage, and others yet to be invented.
The technologies we employed to prevail in the Cold War and the War on Terror were largely developed by big defense primes and U.S. government labs, but today most of the advances come from commercial vendors—many of them Chinese. For the first time in the history of modern civilization most of the technologies needed for the military are driven by consumer demand and the potential for profit—not government directives.
China is executing a plan to win with new technologies through its strategy of Military-Civil Fusion—they’ve torn down the barriers between Chinese companies and academia and its military. Its purpose is to improve China’s military technology by integrating Chinese industry and academia so it can develop the Peoples Liberation Army into a world-class military equal or superior to the U.S. Meanwhile, its Orwellian National Intelligence Law mandates that citizens and companies must cooperate with state defense and intelligence work. (Yes you, Apple and DJI.) Simultaneously, the Chinese Communist Party is integrating party leadership in both state-owned companies and private businesses (which account for 60 percent of the country’s output).
The takedown of Jack Ma, founder of Alibaba and Ant Group, is a warning shot to every Chinese CEO that regardless of a company’s size, the party and government are back in control.
China’s Military-Civil Fusion and National Intelligence Law stacks the deck against every U.S. and Western company. You’re not competing against an individual Chinese company; you’re competing against the Chinese government.
What it means for the U.S. military is that our national security is now inexorably intertwined with our success in leading in commercial technology. Developing, maintaining and safeguarding our technological edge will be key to prevailing in great power competition.
Today, the DOD requirements and acquisition systems are driven by a sixty-year-old model predicated on 1) predicting the future (both threats and technology), 2) delivering solutions decades out optimized for lifecycle costs and 3) assuming that government labs and incumbent prime contractors drive technological innovation. Every one of those assumptions are no longer true.
Maintaining our technology leadership will require the DOD to understand that delivering new/disruptive innovation versus execution of existing technologies happen at different speeds, with different people, organizations, culture and incentives. Buying the next incremental version of a gun, tank, plane, ship, means you can (hope to) predict its lifecycle cost, delivery schedule, etc. And you can assume that with enough dollars it will appear. That’s not how innovation actually happens. And we are living in that new world where innovation is happening continually. We don’t need to abandon our methods of buying incremental improvements, but we must have a parallel set of activities—at scale—to keep up with our adversaries who already understand this.
How can we effectively compete? One of the reasons the United States prevailed in the Cold War with the Soviet Union was that total government control of innovation is an inherent weakness. When the Soviets launched ideological purges of their best and brightest and jailed their dissidents, they throttled innovation at scale. There were no Soviet Steve Jobs or Bill Gates. Meanwhile in the U.S., venture capital was funding startups led by iconoclasts, troublemakers and dissidents. The result has been a half-century of continuous and extremely profitable disruptive innovation.
The U.S. military must now invest in new capabilities and concepts to reimagine how it fights. It needs to use rapid/agile innovation, disposable systems that take advantage of innovations in the commercial technology base. We need to couple the $150 billion a year U.S. Venture capitalists (VCs) spend to fund new ventures with the speed and urgency that the DOD now requires. We need to leverage the inherent advantages of a capitalist democracy and align public and private sector incentives to drive technology advances.
We need a Civil-Military Alliance. One that’s driven by incentives, not coercion. By public-private partnerships, not government control. Private industry, from primes to startups incentivized at scale, will ensure our leadership in science, in industry, and in new technologies.
A few suggestions:
For a Civil-Military Alliance the DOD needs new sources of disruptive innovation and ideas. Not as replacements for the valuable prime contractors we have but as complementary partners who are agile, can attract the best and brightest, and are willing to bet their company on new ideas.
In the 20th century most military contractor-built hardware, and software was an add-on. When an upgrade was required, a new contract was needed, which took years. The new generation of military systems will be built around software with hardware as the add-on. Upgrades can happen over the air in weeks not years.
Today, the world’s innovation ecosystem for new technologies are VCs and startups. To make Civil-Military Alliance work the DOD needs to understand that no investor wants a new startup to spend three years going through the existing DOD requirements and acquisition process when there’s a viable alternative in a commercial market. (Today, even if a startup gets an early DOD award of a million dollars it’s not enough to incent the technologies they need.)
Few inside the department of defense understand how the commercial venture capital/startup innovation ecosystem works. Going forward, inside every service acquisition arm there needs to be a deputy who can go to a whiteboard and draw how private investors make money. And more importantly work with them to get the best and brightest of their portfolio companies engaged.
One solution is that the DOD needs to pick new entrants as winners at scale. Today, no DOD acquisition chief wants to be in front of Congress explaining to a committee chair why the incumbent vendor in their district lost. That will happen unless both the DOD and Congress clearly articulate that the process for picking winners for existing incremental changes is different from disruptive ones. And that the default ought to be new vendors. Each service should pick 1-2 startup/scale-up winners and buy heavily.
As part of the Civil-Military Alliance, the U.S. needs to massively reinvest in critical technologies. China has invested over $100 billion in moving its manufacturing base from making low-tech products to rapidly developing ten high-tech industries including electric cars, next-generation computing, telecommunications, robotics, artificial intelligence, and advanced chips. They’ve raised over $50 billion just for building an indigenous semiconductor industry. We need to pick critical industries and do the same at scale. Not only the incumbents but with new entrants.
Another part of a U.S. Civil-Military Alliance would be transforming our existing government R&D Labs. The U.S. spends $15 billion a year on forty-two Federally Funded Research and Development Centers (FFRDCs)—twenty-six R&D labs, ten study and analysis centers, and six system engineering and integration centers. Set up in WWII and scaled during the Cold War, the truth is that most of them are no longer the country’s cutting edge. We need to radically reorient their relationship with the new centers of innovation.
Finally, the existing prime contractors have sat out the innovation game. While many have a token VC arm, today they are not leading in disruptive technology, particularly if the profit incentives are to continue to lobby and build the status quo and get a new contract every time a system needs an upgrade. We need serious incentives to have primes get into the disruptive innovation game. They need to actively invest in and buy startups—at startup multiples—with billions, not millions. Their CFOs need to tell us what incentives (tax write-offs, acquisition preferences, etc.) can be tied to rapid delivery and deployment—not demos—of new technologies and systems.
This is a critical time for our nation. Our adversaries aren’t waiting. The Biden administration can choose business as usual and let U.S. leadership in technology disappear and the country founder in the backwash of the coming China age. Or it can choose to build a Civil-Military Alliance ensuring our leadership in science and in industry, while maintain our core values. Our hopes for peace, security, and self-determination around the world, require us to make this effort.
Messrs. Steve Blank, Joe Felter, and Raj M. Shah co-teach a course at Stanford University titled “Technology, Innovation, and Modern War”.