American Enterprise Institute

Web event — A conversation with House Armed Services Committee Chairman : Priorities for the fiscal year 2022 defense budget

Opening remarks: Mackenzie Eaglen, Resident Fellow, AEI

Remarks: Adam Smith, Chairman, House Armed Services Committee

Discussion: Mackenzie Eaglen, Resident Fellow, AEI Adam Smith, Chairman, House Armed Services Committee

Thursday, April 22, 2021 10:00–11:00 a.m.

Event page: https://www.aei.org/events/a-conversation-with-house-armed- services-committee-chairman-adam-smith-priorities-for-the-fiscal-year-2022- defense-budget/

Mackenzie Eaglen: Good morning. Welcome to the American Enterprise Institute. I’m Mackenzie Eaglen, resident fellow here at AEI looking at defense budgets and strategies. It’s a pleasure this morning to welcome all of our audience virtually but the chairman of the House Armed Services Committee here at AEI’s headquarters in Dupont Circle. He has a busy morning with votes, so we’re going to be a little flexible on timing. But welcome to AEI again, Mr. Chairman. Adam Smith: Thank you. It’s good to be here. Mackenzie Eaglen: I am so pleased to see you. We did this about a year and a half ago; it was a lot of fun. We had a good conversation, you’re very candid and forthright, which we really welcome and appreciate. I know — because this is not your first rodeo at AEI, I’ll be very brief in my intro. We all know the chairman quite well. It’s his 13th term of Congress, his third year having the gavel. So he’s now a veteran chairman. And he’s learned a lot, I think, those three years about shepherding the Defense Authorization Bill to final passage each year. And we welcome him to AEI this morning. He’s been on a speaking series at different locations around . And this morning, we’re really going to focus on the FY22 defense budget. And, of course, the year ahead. And I guess we should first start with the lack of a budget, Mr. Chairman. Because, you know, you and I were on a panel last week together, and you were very colorful and saying that you know, you cannot finish your work on time if you don’t get the budget. And again this morning, we were speaking before we came in here that you feel perhaps the White House lacks urgency in getting you that data. So can you give us the latest update? And what you’re thinking about how to move this bill this year? Adam Smith: Sure. Well, I mean, first of all, I think this is an incredibly interesting time in national security, national defense policy. Obviously, with the Biden administration coming in, you always have a change over when you have a new president. But here we have a president with 40 years of experience, who’s been very focused on foreign policy. And a team, you know, from Tony Blinken, Jake Sullivan, all these people, they’ve been working on this for a long time, they have very definitive ideas about where we need to go. And I think we’re at a number of inflection points in terms of national security policy and in terms of defense policy. And I’m really excited about the possibilities in national security policy in our bill and also in the broader policy decisions as we sort of reconnect in terms of focusing on partnerships and allies, as we really look at how we’re spending money at the Pentagon, as we look at adapting to new technology and the new warfare that we’ve seen develop. How do we pivot to be ready for that? And there’s a lot of very exciting things going on. And that gives us a great opportunity to make positive change to my mind. We have some very strong bipartisan team, Mike Rogers, who is my ranking member, you know, he and I are very close on many issues. And we got a real opportunity to do some positive things. We’ve got Jack Reed and Jim Inhofe, who I’ve been working with now for four years. So I think we’ve got a positive opportunity.

But yeah, to start that opportunity, we need the budget. And I think there’s a couple of things that aren’t quite — well, it’s not been made clear to me that folks understand this. If we don’t get the budget by a certain time frame, we can’t mark up the appropriations bills and the defense bill. So and if we slip past the middle of May, my staff tells me, we will not be able to do any of those things before August. And maybe we cancel the August recess and spent August doing appropriations bills I’d be surprised. So we’re into September, post–Labor Day. So we got three weeks for October 1. CRs are not a good thing. Now, I know from a White House perspective — well, we don’t need to pass the budget till October 1. So what’s the rush? There are a couple of things that happen between when you submit it to us and when we send it back to you, a lot of things. We need some time. And the only other thing and I try to be respectful and not hurt anyone’s feelings, but the White House does — the budget doesn’t have to be perfect. OK. In the history of Congress, I don’t think we’ve ever had a situation where Congress has simply taken the president’s budget and said, “We’re good,” passed it, and sent it along. In fact, you remember they used to vote on Bill Clinton’s budget when the Republicans were trying to embarrass him. Yeah, and I don’t think it ever got a single vote. All right, you know, we will make changes. So if there’s something in there that you don’t like, that isn’t exactly the way you want it, there is time to fix it. There is no time to get through the legislative process if we don’t get this thing before May 10. And, you know, that’s all I can say. Mackenzie Eaglen: OK, fair enough. So, let’s assume you get it roughly in time to just squeak by and get your bill done just in time, which I understand is a burden on you. Can you walk us through? And I appreciate you talking about the bipartisan dynamic for leadership of both chambers. Can you walk us through your personal priorities for this year? I know we talked last time about, you know, what you had learned, getting the bill out of committee versus getting it passed on the floor in the House. So what are your priorities and what are the pitfalls, I guess, that you see ahead, assuming let’s just assume for a moment, everything’s sort of moving roughly in time for final passage before the fiscal year? Adam Smith: Well, I think that the four biggest priorities for me, are, in no particular order — first of all, we had our fun F-35 discussion over the course of the last few weeks, getting better at purchasing equipment, both large and small. And in particular, software and technology are keys. Because you know, you think of the big programs like the F-35, littoral combat ship, the tanker, the expeditionary fighting vehicle, all these things that wound up, you know, either being canceled or costing more money than we would have hoped. You know, they have a lot more in common with smaller programs like the JTRS radio, occurred to me. And that the real problem is we don’t make the software upgradable enough quickly enough. And we’re getting into last week, for the first time I heard the phrase “vendor lock.” I think it’s been out there for a while, but the idea the vendors gotcha, OK. Get the contract now, you know, I own the software, you know. And what I want to do is, I want to change the incentives so that we start getting our money’s worth. OK. I think it’s really important.

And then the way I always explain this, and, you know, I know how important the F-35 is; I do. And for all those people out there trying to educate me on it, I have been to the classified briefings, I know what the Chinese have as well as anybody. I know all of that. But at $38,000 an hour to fly with an availability rate sub–50 percent in an engine that is apparently going to become very difficult to fix past about 2030, so that even fewer of our planes are available, I think we can do better, OK. I think we can get it below that number. However, if you are either Lockheed or any one of their subs that is getting paid this money, and I come to you and I say, “Look, we got a problem. I’m paying you $38,000 an hour, I would rather pay you $25,000 an hour. Can you please help me with that?” They’re ging to go, “Let me think about it. Yeah, I don’t understand the question. OK. I would rather — why wouldn’t I rather have $38,000 than 25,000?” If we don’t have some incentive in place, to push them to make that change, that hurts defense, OK. And staffer reminded me of the B-2 bomber situation, where we had a similar problem in terms of maintenance costs. And you know, we couldn’t get it fixed. And finally, I don’t know if this was a bluff or if it was just a genuine assessment by the Department of Defense, they said, “You know what, let’s just get rid of the plane, you know, we will mothball it, we’ll move on to something else.” And then all of a sudden, the contractor is going, “You know, now that I think about it, I think maybe we can bring those costs down a little bit. But why don’t we talk?” All right. It’s all I’m talking about is getting those. So that is huge in what we need to do. The second thing is along the same lines — warfare is changing. It is about information as much as it is about large platforms. The best, most sophisticated platform in the world can be shut down like that if you can’t get the information from where it comes to who needs to use it. We need to have more robust command and control systems, we need to have more diffuse information systems so they really shift the focus to that. One story that’s really stuck out with me recently is, you know, the ability of swarms of very small, cheap drones to deliver lethal firepower. Swarms are these — I don’t know what they cost, they cost next to nothing, let’s just put it that way. You know, as soon as they can deliver more firepower than an F-35, they can’t get into the zone because of the surface-to- air missiles that are guarding it. You know, stealth, sadly, does not mean that it’s Wonder Woman’s airplane and it’s invisible. You can still kind of see it if you got the right missiles in the right radar and the right infrared. So we’ll have a situation where maybe we’ve got $100 billion worth of airplanes that can’t get in after our adversaries, but they can kick the crap out of us with $75,000 worth of drones. I’d like to avoid that. So those two there’s a huge personnel thing that is very important that I’ll get into in more detail because I’ve gone on too long. And the other thing I want to mention is, in terms of the challenge — the biggest challenge is this is the conversation right here about how to give us the best possible national defense. I also have a long thing about how our national defense strategy is overly ambitious and therefore making it very difficult for us to actually accomplish anything. Because it just envisions a world that is impossible. So we’re constantly chasing our tail and unable to do

what it says we’re supposed to do. That needs to get more realistic. But right now, the biggest challenge to all of this is for all of what I’ve said there, the public fight is, well, how much are you spending? The topline is not high enough; it’s got to be 3 percent to 5 percent. It’s got to be 3 percent to 5 percent. And then I’ve got the people on the left saying, “You know, we’re wasting all this money on defense, you got to cut it by 20 percent.” All I want is — let’s talk about what we’re spending the money on. What are the capabilities? Right now the fight is, you know, if you like defense spending, well, it’s got to be higher. If you don’t like defense spending, well, it’s got to be lower. All right. I think if we keep a flat, roughly, defense budget. And let me just be kind to the Biden administration, since they may not like the fact that I said that out as soon as the budget, I think the number they picked is absolutely right. Very well thought out, they’ve got a great plan, a great strategy. And if we in Congress waste an enormous amount of time fighting over whether or not we had to add a few more dollars or cut a few more dollars, we’re really missing the boat. That’s the money. Let’s go figure out how we can spend it in the best most cost- effective way possible. And I think there are a lot of things we can do in that regard. Mackenzie Eaglen: Fair enough. That’s a lot to unpack. Adam Smith: Yes. Mackenzie Eaglen: Thank you. And I appreciate it. And, you know, the point of the vendor lock, you know, particularly capital assets, right, and where sustainment is the majority cost of the weapon system over its lifetime, as you’re pointing out. And that’s a challenge with the incentive structure. On the other side, you had mentioned particularly software. But the current PPBE, the Planning and Programming Process inside the building, and the authorization appropriations process, it’s not designed for, I would argue, big, ambitious software programs, right. So I mean, more than a pilot, right? So something like the Air Force’s Battle Management System, it’s going to span multiple programs, possibly, eventually, even multiple services, right. So are you and your counterparts — and I know I’m always asking about the appropriators, but you know, they’re a huge part of this conversation. Adam Smith: Absolutely. Mackenzie Eaglen: I feel like there are times where Congress is stomping their foot that there’s a problem, but they’re also a roadblock. How do we get — I mean, because you’re right, you have to change. But that also requires some change on Capitol Hill. How are we going to win these technology races like AI and better command and control when it’s not going to be one single program element, line-item number, or program of record? Adam Smith: Yeah, I mean, simply, but first of all is, you will know, the deep dive that Bob Work and Eric Schmidt did on AI is a really instructive thing, not just in terms of what we need to do to get better at AI and also how important AI is going to be to the future of national security, but also more broadly how to better purchase technology and how to better implement technology. So I recommend that to everyone to take a look at, you know — here’s what we need to learn in terms of how we move forward on it. But the impediments

are clear. And I’m perfectly honest with you, I have no idea if we can overcome set impediments. But I think we should at least identify them and understand the depth of the problem. You know, in descending order, you’ve got m or ascending order — you’ve got the Pentagon. The culture at the Pentagon needs a lot of work. In the first place, you know, they don’t encourage individual decisions; they encourage process. Process takes time. Individual decisions can be made more quickly; you can more quickly understand, “OK, I know how the system, that’s what we need.” Well, if you got to go up 10 levels of command before you can make that decision, by the time you get up there, software has changed and you need something else. I could go on. But the culture of the Pentagon needs to be changed. I will just say that I have never in my 24 years been in a situation where there seemed like more hope, more urgency to make those changes. You see what the Marine Corps is doing under Commandant Berger, reenvisioning how they’re going to do that. You see the blank slate views that Secretary Esper started. Even what Ash Carter and Bob Work started when they were there was really far — I had breakfast a couple of days ago with the new chief staff, the Air Force General Brown, and you know, he gets it, and they’re really beginning to make — so you got that. Then, of course, you got the contractors. But I’ve already said about consultants — and normally I say this about political consultants — is there is one thing that all political consultants are really good at, and that is getting you to pay them. OK, they’re really good at that. You have to find the ones that are good at that and also good at actually delivering services. There are quite a few but yeah, I mean look, you know, figuring out how to get paid is part of how you succeed, and contractors are really good at figuring out how to get paid. And we’re going to fight that battle. You know, and I’ve already gone through some of the ways we’re going to do that support. And then the third thing is the one that I think is perhaps the most difficult to overcome. And that would be, well, me and the members of Congress. You know, past a certain point, this is actually not that complicated a job. You represent roughly 700,000 people, your job is to make them happy. OK, your job is to represent them. Now, I think the job is a little bit more complicated. There are other things we’re trying to accomplish in terms of preserving representative democracy and making the country work. But at the end of the day, you know, I’m the voice of the people in the 9th district of the state of Washington, and, you know, I need to listen to what they want. And similar to defense contractors, you know, if they’ve got 1,000 jobs in the district, because of the defense contract, you know and you come along and say, “Well, I’ve got this new way of looking at the defense; it’s going to make those 1,000 jobs go away.” That’s a problem. And typically, a lot of the programs — the Pentagon may get there, we may be able to get there. And then you come up against the member of Congress who says, “Well, wait a second, what program are talking about? Oh, there’s 250 jobs in my district; we’re not getting rid of that.” Now, how do we overcome that? You know, I believe I’m that guy; I think your district wants you to spend their money wisely, not just spend it in their district.

Mackenzie Eaglen: Great. Adam Smith: You know, and when I first got elected to Congress, one of the decisions was whether or not to build another 20 B-2 bombers. A huge chunk of it was made in the northern end of my district. I looked at it; I didn’t think it was a good investment; I voted against it. Eventually, forgave me, and we’re actually pretty good friends. You know, but my constituents actually appreciated it. I think there is more value in making those right decisions than your average member of Congress understands. I think there was a shift in that opinion. I don’t think it’s as old school as it used to be, where you simply tried to bring home the bacon every day. But it’s tough, you know. So those are going to be some of the impediments to making the changes we need to make. Mackenzie Eaglen: Well, I am excited about your hopefulness. I feel that energy. My AEI colleagues are working also behind the scenes. They’re sensing that even from appropriators, which I feel like is lightning in a bottle to want to try and even on Capitol Hill do things differently. Adam Smith: Let me just say in defense of appropriators — by the way, I don’t think this is peculiar to that. I mean, they’re the ones who are in the seats that actually have to make the decisions, OK. And that makes it more difficult, and they’re the ones that are more visible. But I think perhaps appropriators understand these challenges better than — it’s the average member of Congress who’s maybe not on the Appropriations Committee or not on the Defense Committee who’s just got the thing in their district that’s going up and saying. So I think appropriators have a firm understanding of this, and I’m hopeful that we’re trying to get to the same place. Mackenzie Eaglen: I’m actually really excited to hear that; that makes me optimistic, then, if you’re here thinking it. So you mentioned you had breakfast with General Brown, and you mentioned the commandant as well. And, of course, they’ve been writing together and thinking together, and they’re are two men in a hurry for big ideas, big change, big vision. And, you know, a common theme in that I pick up is, obviously, you know, redefining readiness, getting approval from you and your colleagues to actually retire significant fleets and inventories of capital assets. Not necessarily to free up money for modernization, because it doesn’t always work that way, as you know. But just to be able to do different things with their money that they are given, you know, thinking of modernization differently. It’s not just the here and now and what’s available and can be purchased. But you know, just over the horizon, the medium term. And risk, right, sharing better balance and share of risk among stakeholders, which, of course, you’re one, combatant commanders would be another group. To your points earlier, the central commander was testifying before your committee earlier this week. And he talked about that small drone swarm threat, small UAS, I should say, that’s — not that it’s a small threat. He actually said he was pretty worried about it. Adam Smith: Exactly. Things are small, the threat is large.

Mackenzie Eaglen: Threat is large. And it sounded like that’s one that’s keeping him up at night. So I guess my question is: Are you finding receptiveness to those ideas, right? That readiness isn’t just what’s available and know, the commanders, you know, that maybe there doesn’t need to be a demand signal diet to think about the health of the force over the five- year planning horizon that the department operates under. Is there a receptivity to what those chiefs are thinking about and telling you? Adam Smith: Yeah, absolutely. No, and I again, in the 24-plus years I’ve been in Congress, I think the talent level in Congress has actually gotten a lot higher — the diversity of backgrounds on my committee alone; we have people who have served. And certainly, we have a lot of veterans, people who serve in the military. But we have people who’ve served in the State Department, people who served in the CIA, people who have run successful tech businesses. And that diversity of experience has really made it receptive to this type of thinking. Now, you’ve got the impediments that I mentioned that you know, are there. But I think you have people who are adapting to the world around them to a more competitive, technologically based, rapidly changing world. I think you see that the members of Congress — and the sad thing is, you know, the members of Congress who get the most attention are the ones that, you know, shout the loudest. OK, America, that is not reflective of the body. I know, you’re a little worried about that and I understand that. There is just a ton of talent in Congress right now that’s trying to figure out questions like this and trying to get to the right answer. And a lot of is in some of the new newer members. And some of the most successful things we did is I really tried to empower the newer members on our committee to sort of balance out the influence, because you know, those of us on the top row have strengths. But so does everyone down through there. And the formation of these task forces that we’ve done, the Future of Defense Task Force that and led last year. And then and Mike Gallagher are working on the supply chain — a lot of good stuff coming out of that. So yeah, I think there is an understanding that what people like Brown and Berger are talking about over in the Pentagon — we’re excited about it; we want to make this work. It’s not easy; it’s complicated. But I think there is quite a bit of support for that. Mackenzie Eaglen: So it sounds like you have a framework for perhaps, you know, the chairman’s mark. You know, you have the future of cherry-picking the best ideas in the Future of Defense Task Force, the Gallagher-Slotkin work on supply chains, the future of AI. Adam Smith: AI, yeah. Mackenzie Eaglen: Right, so you have these three, you know, deep dives, and I think a lot of good ideas of where to go. Do you expect those three will inform this year’s NDAA? Adam Smith: Absolutely. Yeah. Mackenzie Eaglen: Good. Wonderful. So if we could just, you know — it’s, as you mentioned, spending the money that you have, that the department has, helping them spend their money better, using it smarter and more wisely, focusing on capabilities, check. I think

the department is still, you know — I think there’s they’re trying to shift — you mentioned culture, you know, I think. But for the most part, it’s still a threat-based budget process primarily. Capabilities are important, but there’s also, you know, some lingering questions that have to get answered by civilian policymakers, right. Like, if we need duplicity and redundancy, say in long-range fires, and is that affordable. That’s something I think that the secretary himself has to answer. And right now, that’s unclear. So, but I wanted to talk about the threat list for a moment; I don’t want to get too much into it, because you’ve already spoken so much about this. But I guess I really want to understand your thinking about, you know, more realistic defense strategy, you know, sort of reining in the ambitious nature of it, which I actually, you know, I think that’s a fair point. Although I interpreted — let’s just focus on just China briefly for one moment. And I promise this will be my only question on this subject. I think that the 2018 document was an admission that we can’t dominate everywhere, particularly in simultaneous conflicts. It’s a deterrence-by-denial approach. Adam Smith: It wasn’t — it was an admission to it, but then as you read through it, it was like we admitted. But yeah, we’d still like you to build all this stuff so that we could. It was an admission, but it wasn’t a transition into an actual policy that recognized the true implications of that admission I would say. But go ahead. Mackenzie Eaglen: So I guess I want to understand your thinking. I think you have received some briefings or one in particular that stood out to you. Can you tell me — I mean, we don’t know anything classified, of course, but can you just give me a sense of what you learned and why that didn’t shape your thinking so much? Adam Smith: Yeah, not entirely, except to say that, you know, its deterrence, not dominance, is what I’m really kind of looking at us being able to do here. And I guess I’ll answer the question differently if I could. Mackenzie Eaglen: Sure. Adam Smith: What I’m sort of looking at is, what exactly is it that you want to stop China and Russia from doing? Mackenzie Eaglen: Yes. Adam Smith: You know, and then have that, you know, be the focus. And certainly, you know, if you’re in a position to tell another country that here are our red lines, and we’re so big and so bad that if you do it, we will crush you in the blink of an eye. That’s a good position to be in. It doesn’t always work out because you know, problem. But there were other ways to deter adversaries from doing — you have to figure, what are their interests? How do we make sure that it’s not in China’s interest to invade Taiwan? Well, I mean, China’s number one interest is in trying to figure out some way to feed and take care of 1.4 billion people, you know, so that’s their economic incentive. Plus, you know, if their entire neighborhood is mad at them; that creates a problem. So we can build — there

are other ways to do it than just having enough F-35s and enough aircraft carriers so, you know, that we can overwhelm them. OK, so that’s point one. Point two, which is more to your thing, is what really struck me — was, well, it really comes back to this swarm of drones versus the F-35. OK, it’s not so much that — well, it’s very difficult to dominate in this world. Very difficult. Mackenzie Eaglen: I agree. Adam Smith: OK. Because, you know, I mean, just speaking as an incumbent politician. I mean, 20 years ago, when I first got into this, how many competitive races were there each year in Congress? Thirty-five, maybe? You know, now, everybody, the barrier is the entry — way low, which, by the way, I think is good for democracy. It’s a good thing. All right. But you can’t just be so big and bad that no one’s going to take you on, because they can take you on with a tiny little drone. OK, so it’s more acknowledging the reality of it. Actually, I used this analogy at the Reagan Defense Forum. I apologize. I don’t think they have my IP on this one so I can go ahead and say it. You know, it’s like, when the University of Connecticut Huskies, you know, every year — well, who’s going to win the women’s basketball chair? Yeah, I think it’s going to be Connecticut. And I think they’re going to win the championship by, I don’t know, 20. They dominate, all right; that’s cool. Now they don’t — now more competition; that’s the world we are living in. So what that means is you have to be more clever about how you win; you have to be able to use cheaper, less obvious things to achieve your objectives. And that’s part of this transition. What really struck me about that thing was we can’t dominate because of how height, you know, competitive. Look at what Russia has been able to do, you know, the cyber capability and the other disinformation campaigns on the cheap. OK. That’s — what really struck me was in the world we live in today, no one person is going to dominate, because the barriers to entry are so low. So you’ve got to be a lot more nimble, a lot smarter, and a lot more diversified in how you achieve your national security objectives. Mackenzie Eaglen: So the commandant has spoken about, you know — back again to the concept of, sort of, these, you know — being on the wrong end of the cost imposition strategy with the drones forming, right. So you talked about the price of a fighter jet program versus what a swarm could potentially cost and do great damage. Previous secretaries of the Air Force have also sort of talked about that we need more treatable, expendable, cheap weapons, right. So kind of like how when you go to the picnic, you take your plastic silverware, and you’re just going to pitch it at the end. And that’s the thing. I guess you could take it home and wash it, but like, most of the time, you’re going to pitch it. Adam Smith: Isn’t this, like, Earth Day or something? Mackenzie Eaglen: It is Earth Day. Adam Smith: I’m — not think that I don’t think that’s the best analogy for this particular day, but I appreciate the sentiment, yes.

Mackenzie Eaglen: That is the one they use. Is Congress really OK with expendable, cheap weapons? Adam Smith: If it works, you know — but that’s sort of the question you’ve got to get into — is what works, and how do you get there, and to be flexible, and all of that. And I think that the position we’re in, as I was thinking about it, is, you know, as, sort of, that we used to be the dominant power, and, you know, history is replete with stories of “the empire is falling.” You know, I think of, you know, when Microsoft and Apple, you know, rose up against IBM. And so why does that happen? I mean, part of the reason it happens is because the incumbent power likes the rules as they are — these are the rules, and under those rules, we win — that’s cool. OK. And so they kind of become obsessed with the idea that these must be the rules. You can’t do that. That’s unfair, you know, the way you avoid that is you pivot. OK, if the rules have changed, and I — again, back in the campaign structure — I hadn’t run a difficult campaign in years and years and years; when 2018 came up, gosh, the world had changed. Mackenzie Eaglen: I remember. Adam Smith: You know, and everyone was freaking out, like, “Well, you know, we got to — they are going to be on social media; they’re going to do this.” And mine simply was, “OK, we can do what they do. OK. Anything they’re doing, there isn’t any reason why we can’t figure it out. All right, so let’s figure it out. And let’s not be trapped in the way we used to do things. It’s a new world. OK. I’ve got reasonably intelligent people around me; I’m paying some of those consultants I mentioned earlier. We can figure this out.” And similarly, you know, if some small power is going to come at us with a swarm of small drones or if Russia is going to start trying to disrupt through cyberspace, no reason on God’s green earth that we can’t figure out how to compete in that world. We are the United States of America, for crying out loud. You know, we got the largest economy in the world, we got the best universities; we got a heck of a lot of smart people; we got the best military in the world. Let’s figure it out. Where you get in trouble is when you’re like, “No, I don’t want to figure it out. This is my — I’m dominating this world over here, you can’t take this world away from me. I like this world. Let’s keep this.” No, no, no, no, no, you cannot have that world, OK. This is the world; you can compete in it. It’s going to be a little bit different. That’s why I like to have fun with them. OK, it’s entertaining. You know, if everything was the same every day, and you won every day, that would be boring. My wife totally disagrees with my point — by the way, she’d be perfectly happy if nobody ever ran against me and I just was automatically reelected every year. I honestly wouldn’t. You got to keep thinking; you got to compete; you got to update; you got to figure out what’s going on. And the companies that do that larger, smaller, are the ones that succeed, and the countries that do that larger or smaller are the ones that succeed. And I want to be in one of those countries.

Mackenzie Eaglen: So, it’s interesting, you know, you said the P-word, “pivot,” and it got me thinking about, you know, the Pacific Deterrence Initiative, the last pivot to Asia, and the Obama administration. And not much has changed in our posture and presence in the Indo- Pacific area of operations. Really, since the pivot, you know, we have an additional littoral combat ship in Singapore; I wouldn’t say that’s really threatening. So I guess, are you also trying to think when you talk about spending the money better. Are you thinking about posture and presence and wanting to support the department, the Pacific Deterrence Initiative? It’s led by Congress, resisted by the department now the department I think is getting their eyes more on board. But for now, that’s sort of like the equivalent of an unfunded priority list, right. And you also have those so. Adam Smith: We did fund it a little bit. Mackenzie Eaglen: Yes. Adam Smith: Not as much as some people wanted to, but it was funded, yeah. Mackenzie Eaglen: You did. It’s a five-year plan, right, I believe. And, you know, there’s lots of other additional priorities in there. So how are you thinking about how you’re going to make those trade-offs in the committee if the department doesn’t make them? You know, the unfunded lists, the Pacific Deterrence Initiative, and a forced posture and presence changes? Adam Smith: Yeah, actually, this is a good example of sort of the broader issue that I’m talking about when you talk about, you know, the pivot to Asia. We said we were going to pivot; nothing really happened, or our presence hasn’t changed that much. A whole lot did happen, OK. Because in focusing on Asia, military force presence is not the only issue or even the most important issue in terms of what it means to pivot to Asia. What we have done — Ash Carter started this — first of all, India. We have really tried to strengthen our relationship with India, and in particular, our mil-to-mil relationship. You know, we had the whole quad thing that just came out with, you know, Japan, Australia, India, and us. You know, we are reengaging in these relationships in a whole series of countries. You know, Japan, South Korea, Vietnam — you know, we’ve really strengthened our relationships there. We’ve had an ongoing relationship with Thailand, we’re building up. So I think the pivot has happened. Now, and part of my disagreement with some on the left who want to see dramatic cuts to the defense budget is, you know, they continue to argue — why does America have 800 bases, or whatever it is, we suppose, like, why are we all over the place? You know, we’re not fighting in Korea anymore. We’re not fighting, you know, Japan; we’re not. You know, presence does matter. Presence is part of how we build relationships, how we build partner capacity so that it’s not just us. Those bases, those interactions that we have, whether it’s a small special forces team, you know, like I don’t know 15 guys in a small country in Africa building relationships. Or whether it’s, you know, 28,000 folks in — the military members in South Korea, you know, that presence helps, but it’s not it. That’s not the only thing you do in order to reemphasize a region, the partnerships, the alliances, the diplomacy, the development projects. And we’re doing that. And I think we have, you know,

tried to shore up in the last how many years it’s been since President Obama put out the pivot idea. I think we are doing that. Mackenzie Eaglen: OK, fair. Great. So. Adam Smith: And so did President Trump, by the way. Well, sorry, President Trump’s people did. He kept trying to pull them all out of everywhere but they just sort of said, “OK, OK.” And they sort of built on that, kept going forward with it. Mackenzie Eaglen: Speaking of the former President Trump — that is, you know, and this came up again a lot before your committee this week about, you know, the pullout from Afghanistan. It’s going to include contractors, which I think, you know — Iraq was done a little differently. You know, there was a lingering presence with contractors after the mil. You know, we have so many intelligence and diplomatic personnel on the ground. And it sounds like the last administration had sort of set the boundaries for the ability to negotiate for this White House or what they felt was their ability. So Central Command commandant talked about, you know, basically, you know, we’re going to continue to conduct robust counterterror operations, but not from inside Afghanistan. And basically saying if we had to fly nine hours from Al Udeid or Al Dhafra, that’s what we’re going to do. But as you know. Adam Smith: That’s tough. Mackenzie Eaglen: That’s tough. Adam Smith: Yeah. Mackenzie Eaglen: So how do you show your constituents if they are worried about the threat of terrorism and the US pullout, say? Adam Smith: Well, a couple of things about that. First of all, I would never be so bold as to assure my constituents that nothing bad will happen. I never would do that in a million years. And I think that’s actually something part of the struggle we have is, as we’ve learned in COVID, we manage risk poorly — Mackenzie Eaglen: Yes, I agree. Adam Smith: — as a society. And in part, that’s because we’re used to not having as much risk as human beings used to have; we don’t seem to acknowledge that. But, you know, in America, we’ve built a relatively safe society in terms of disease and all manner of different other things. So we get used to having less risk, and we want to eliminate it. At that point, it doesn’t work that way. You got to make choices in terms of how do you manage that risk. So what we need to do in this case is look at the terrorism risk, and say, “OK, the reason we were in Afghanistan was because we did not want transnational terrorist groups to be able to strike against us in the homeland most dramatically but also against our interests elsewhere.” So do we need to spend $15 billion a year and have 10,000 troops and 15,000 contractors in Afghanistan in order to mitigate that risk? And when you ask the question that way — no, are you kidding me? You know, we’ve got this amount of money. We’ve got ISIS and al Qaeda and a variety of different offshoots in Somalia, and Libya, and Syria, other places in

the Middle East, throughout Africa. We’ve got all these groups everywhere, and we’re spending $15 billion a year, 25,000 personnel in Afghanistan to try to manage that risk? Not a smart investment, OK, in terms of managing the broader transnational terrorism threat. So you know, and right now, what any expert will tell you, you know, where’s the threat most likely to come from? It’s most likely to come from Africa and the Middle East — 100 percent — and not Afghanistan. So yeah, we will not be as able to hit threats on a day in and day out basis in Afghanistan with a new posture. But if the threats rise up, there are options, and we will continue to work the bill. We don’t have other options in the region right now. But part of the reason we don’t have other options in the region right now is we don’t need them. We’re spending $15 billion in Afghanistan; why would we go up to Kazakhstan and say, “Hey, we need a base”? We don’t, OK. So we’re going to look at other options in that regard and do it in a more cost-effective way than the current presence. It’s also worth noting that the Taliban and ISIS hate each other, and they are fighting each other, alright. And so they’re going to have problems in there that are totally different than it was in the mid-90s when Osama bin Laden showed up and said, “Hey, can I stay here?” It was, you know, a much more symbiotic relationship. So I think my analysis, the risk of a transnational terrorist threat coming out of Afghanistan after we leave, is relatively low and can be much better maintained in a more cost-effective manner than the current force posture that we have. Mackenzie Eaglen: I regret — at the beginning, I forgot to note the hashtag. I believe, if you’re on Twitter, it’s #ChairmanSmithatAEI if you want to submit questions for the chairman, and then also via email, of course, online. Really quickly, I want to just talk about — you’ve referenced that figure in last week; you’ve talked about 14 billion — it’s 14 and 15 billion, you said, about, you know, our costs of operation. Adam Smith: And by the way, that’s the cheapest year we’ve had in a long time. That was the FY21 money. Mackenzie Eaglen: There’s this notion taking hold in Washington, like wildfire, that there’s going to be a windfall of savings because of the drawdown. What we found in Iraq in particular was that it’s so unpredictable and actually it’s not the number of forces, it’s the location of the country that matters more. And so, for example, you know, we can haul everything out from trucks out of Iraq and into Kuwait. Whereas in this case, everything’s basically going to move by ship or airplane, and of course, you got to get it to the ship first. So it’s just a different scenario. It’s more complicated and expensive in some ways than a lot. Adam Smith: In the short term, sure. Mackenzie Eaglen: In the short term, sure. So I guess are you banking on this kind of savings? I mean, the OCO budget for it was just a placeholder anyway, 20 billion. Adam Smith: I’m not banking on it. The OCO was not a placeholder, we — Mackenzie Eaglen: I met the 22 number. Adam Smith: — get with, yeah, short term.

Mackenzie Eaglen: That’s what I meant. Adam Smith: No, no, in the short term, I’m not banking on the savings in the sense that, you know, I don’t know. It’s like, I have a $10,000 vacation plan. I’m not going now. I clearly have $10,000 in my bank account; I could go do something else. But it is logical to assume that if we don’t have that specific $15 billion expense on a year in and year out basis, then that is going to give us greater flexibility — certainly over a five-year period. You know, not in the first six months or — but I mean, we still got a little ways to go. We can still spend some of that 14 billion from FY21 as we’re pulling them out of there. But you know, not in a dollar-for-dollar sense. But absolutely, because if in FY22, if come October 1, we’re not in Afghanistan anymore, that is going to save some amount of money. Mackenzie Eaglen: Now, the challenge here, of course, is that there was so much base budget priorities in OCO. Is it not just going to get absorbed and consumed when it comes over? Adam Smith: Well, not all of it. Yes. No, I mean, look, by the way, the $14 billion figure for FY21 is not the OCO figure off the top of my head I forget what the OCO figure was then. Mackenzie Eaglen: Twenty-one. Adam Smith: But it was larger than that. Quite a bit larger than that, actually. The $14 billion is the money we actually did spend in Afghanistan. Yes, the OCO became sort of a — “slush fund” is such an ugly phrase. But it became a way to spend money on things that weren’t necessarily those priorities. But the estimate is it’s — yeah, I mean, how much is there? I mean, if you got a brigade that spends, you know, six months in Afghanistan, six months back home, how much of it was Afghan? Yeah, I mean, it’s not simple, but again, I will stand by the notion that we will save money by not being in how much. Well, we’ll figure it out. But it does free up — free us up long term for further options. Mackenzie Eaglen: I see what you’re saying. The total, appropriated OCO last year was $69 billion, and of that, I think roughly 21 was marked for Afghanistan. And to your point specifically, 14 billion was roughly spent; I haven’t looked into that myself. So, great. Now, I’m getting a bunch of questions on Taiwan and China again, so you know, I said I’d only throw you one. The audience seems to want you to dig a little deeper on if we’re prepared to help Taiwan fend off Chinese aggression in the next half decade, which the Indo- Pacific commander now confirmed by the Senate has said — and his predecessor, of course, said the same — similar they — that, you know, this is a now problem, it’s not like a 2035 problem. And how comfortable you are militarily doing that. And then, of course, along the same lines, another question that if you really believe it’s unachievable for us to maintain that capability to do it. Like, what amount of deterrence is sufficient, in your mind, based on how you’re interpreting the Adam Smith defense strategy? Adam Smith: I don’t know for sure, OK. But what I do know is that we need to start asking the right question. And I guess what I’m saying is that I believe the way we have built our defense strategy around China has been asking the wrong question. And that question is, “How can we make sure that we dominate China?” That’s the question we’ve been asking,

OK. I don’t know what the answer to the question of how do we best deter China is. I’ve got some ideas, as I’ve mentioned. You know, I think the Indo-Pacific Defense Initiative is a huge part of it; our relationship with India is a huge part of it, the partnerships and alliances that we build. Making sure that Taiwan has a reasonable amount of defense systems, which we have sold them over the years. There’s a whole bunch of different things. But at the end of the day, it comes down to a simple equation: How do we build a world in which China does not believe it to be in their interests to attack Taiwan? That’s the answer to it. Or that’s the question, sorry. Previously, the answer to that question was we make sure that we can destroy them in an all-out war, if necessary. That I think is the wrong approach. I think there are a lot of other things that we can do to deter them. And even past a certain point, the ability to win an all-out war with China doesn’t necessarily deter them from invading Taiwan, because China may calculate, yes, they could win that war. But are they willing to fight it? And there’s no way to answer that question in advance. I mean, you can bluff. You can — but people are going to reach different conclusions on whether or not we’re going to do that. Just like there’s no way to answer the question right now, you know, would the US, you know, go in to defend Taiwan if China attacked? I think we need to send a clear message that we would and we would work with allies to do that as well. And you know, that we would raise enormous costs against China if they did that. Basically, make it clear that the price that they would pay for doing that is overwhelming and not in their best interest. I also think part of deterring them — and I’m really worried that people are starting to say that strategic ambiguity can’t last. Why not? OK. And more importantly, your alternative is? All right. You know, yeah, I guess it’s a little uncomfortable that Taiwan has to live in a situation where they’re not truly independent and they’re operating under the idea that, “Look at some point, yeah, we’ll probably be one with China, but let’s not sweat the details, let’s just live our lives and run the economy and move forward” — is really important. And I think one of the big ways to deter China is not to push the whole, you know, Taiwan independence thing. You know, I mean, if we do that, and then you are really poking the bear in a totally unnecessary way. What really worked for the last 15 years Taiwan and China being very intersected, OK. Flights back and forth, the amount of business that’s done between those two countries. And, you know, you got your grand, sort of 30,000-foot, you know, national policy theory and everything. And then you got the businessman in Shanghai who’s like, “Why do I want to invade Taiwan? You know, I’m making a mint. You know, sell them back and forth with them. And we’re going to blow that all up because of what?” Alright, build those ties, create the interest and say, “Let’s just keep things as they are.” You know — and I don’t think it is overwhelmingly helpful for people to go, “Oh, my God, China’s going to invade Taiwan tomorrow. We have to react; we have to react.” And in reacting, we then ramp the tensions up even further and make China feel like, you know. Let’s just calm down, OK. Things are going quite well right now between Taiwan and China, rhetoric aside, in terms of business relations, in terms of the success of both countries. I mean, my goodness, look at the economy of both China and Taiwan and how successful

they’ve been able to be. Let’s try to just keep that where it is and not promote a conflict. I’m really worried about that language getting us into that trouble. Mackenzie Eaglen: Fair. Speaking of — before I get to the sort of nuts and bolts question from the audience. There does seem to be a more near-term threat with Russia massing more forces and Ukraine. Is that something you’re thinking about or worried about, helping the department think through options or plans or the White House or anybody? What’s on your mind? Adam Smith: Yeah, absolutely. I mean, it is so sad and unfortunate that the breakup of the Soviet Union didn’t work out better. And we can walk through that history. But Russia is now determined that the world is a zero-sum game between their power and influence and our power and influence. And they want to try to undermine us by, you know, any way they can, so that they can make themselves appear more powerful and stronger. And that’s really unfortunate, because there was a world in which we could have both lived together and prospered together. But right now, we are facing a threatening Russia that is trying to expand its influence. Do I think that actual Russian troops are going to go pouring into Ukraine? That seems unlikely, but the risk is there. So we have got to work with our partners in Eastern Europe and our partners in the broader NATO to again, you know, deter Russia from doing that, and help drive up the cost of them doing it. I support, you know, giving your Ukraine the lethal weapons we’ve given them to try to deter Russia from doing that. And there’s a whole lot of other diplomatic things we need to do. I worry about Ukraine. What might happen in the Baltics? What might happen in Belarus? So, yes, I am very concerned about that. To my mind, you know, that is a more immediate threat than China pouring into Taiwan. Mackenzie Eaglen: I agree. Let me ask — let’s go back to when our initial interview in our closing moments here. And a question was, “Do you have in mind any short-term options for increasing competition on maintenance contracts?” As we talked about being the bulk of the spending on any sort of major weapon system or platform. And you refer to this new awakening on vendor lock. So one of the issues here, of course, is data, right? And the companies are able to collect that data, and then they own it. And therefore, that’s why competition is — essentially it becomes these monopolies. It’s about the data and the information so they can win the maintenance contracts. So anything that you could do this year or next year or even the year after to change the incentives? Adam Smith: Absolutely. Yeah, this actually is something that I was wrong about 20 years ago, but live and learn. So. Mackenzie Eaglen: Wait, what were you wrong about? Adam Smith: I’ll get to that, just not yet. So the basic issue is the data, the IP, everything involved. Now, when you enter into a contract and are going to develop all these questions, well, who owns it? And I’m actually a big fan of intellectual property. I think it works. And it’s all about incentives, OK. If people have an incentive that says, “If you come up with this, you’re going to make a lot of money,” then they’re more likely to come up with it, OK, I’d

give them an IP incentive that’s going to work. But there’s three basic choices when you enter into these contracts. One: The contractor owns the IP. Two: The contractor shares the IP with the department. And the department actually owns as much of it; I don’t know how that works out, but they own a chunk of it. And three would be that, you know, the IP is open and available to anybody, OK. Now, in an ideal world, I’d love to get to three, but that really doesn’t work. Because the company is going to be very reluctant to do all of that if they know their competitors are going to be able to come in and use their IP to then compete against them. So you’re probably not going to get there. But where I was more focused on — you got to let the company own the IP, because then that encourages them. And you know, it’s wrong, because if DOD owns the IP, then they’re in a better position to — they can, even if they can’t bring in another contract, they can at least train our techni — they can compete with the “Now we got it, we’re not going to pay you to do it.” And there are ways then to and also the way you build systems. Make them more modular, make them more upgradable so that you don’t have that vendor lock. So basically, we need to give the incentives. Now, that’s good for future contracts — and, by the way, the B-21 contract, one of the most positive encouraging things that I’ve had happened to me in the last couple of weeks was a brief I got on the B-21. They learned the lessons from the F-35. They were actually on time, on budget; they’re making it work in a very intelligent way. So for future contracts, that’s what you need to do is m as you know, up front, spend the extra money, you know, to own that IP, so that you can avoid vendor lock long term. OK. The more fun question in my mind — and my staff disagree with me on this is — what about the contracts that you already have? All right. Because in theory, the vendor in this situation is like, “Yeah, we got the contract, we’re good.” So what I want to try to get creative about is how do we incentivize some of those companies to change those contracts in a more favorable way? Mackenzie Eaglen: OK, so you’re thinking — you don’t have answers yet? Or you’re just not ready to unveil them? Adam Smith: I’ve got good ideas, but my staff implored me not to speculate in a public forum. Mackenzie Eaglen: OK. Fair enough. We won’t. Adam Smith: And it would be a hell of a lot more fun if I could speculate, by the way, but I promised, so I don’t. And I’m very dependent upon my staff; I cannot afford to alienate them so. Mackenzie Eaglen: I was just going to say — we know who’s the boss; we don’t go around the staff. Right, OK, I understand that. It’s interesting that our audience said — tune in till the very end to get what I would argue is headline news. And a rare good news story from the chairman of such a consequential committee that there’s actually a procurement program going well.

Adam Smith: Can I tell you a quick joke about that? Mackenzie Eaglen: Yeah. Adam Smith: So I’m walking into this briefing with a colleague, and Derek Kilmer is on the Appropriations Committee — good friend. And I said, “Well, I’m going to this brief,” I said, “Now when I walk in there, I’m certain that they’re going to tell me that it’s on time, it’s under budget, and it’s performing better than they expected.” Because, you know, that’s what always happens when you walk into these briefs. And I, of course, was being a wiseass. But it turned out to be the case. Mackenzie Eaglen: So they convinced you that it really wasn’t a farce. Adam Smith: Not to say that there still aren’t things that can go wrong, there always are, but I think it was very educational in terms of lessons learned from that. Because, you know, we’ve had this terrible two decades of programs. Mackenzie Eaglen: Yes, I know. Adam Smith: You know, but it seems like maybe it shouldn’t have taken 20 years, but — or 50, right. But lessons are being learned, and we’re getting better about how we buy these things. So I really, we’re starting to see the change that I think we need to see. Mackenzie Eaglen: Well, my closing moderator privilege here in our conversation, which I thank you again for, is it wasn’t just the contract structure and negotiation and all of that. It was the Air Force Chief at the time saying, “We’re not going to screw this up.” It was his personal priority. And he said, “If anyone wants to make any change to this program, they got to come to the chief.” Like somebody out in you know, middle of the country, program managers, etc. And that locked everything down, literally. Not the vendor lock sense of the term. But in terms of we’re not going to do things that bolt stuff on — make it the “Ferrari that we can’t take out of the garage,” as the current chief refers to some capabilities. And that was a key part of this — was the senior uniform leadership getting actively involved. And working with your two committees that the Senate included, to keep some things about a classified, which was a big debate at the time with the late Sen. McCain. And I’m actually really pleased here, we almost never end on a good news story in defense policy, Mr. Chairman, so thank you for that. Adam Smith: And I think those comments about the culture and how people change. And one of the big cultural — and this is why I get so obsessed about the budget and the 500-ship navy — and all this other stuff is — you have to be incentivized. And if you think that the money is always going to be there, you don’t have as much of an incentive. You know, it’s the cliché line that I’ve used over and over again, “Gentlemen, we’re out of money. Now we have to think,” OK. And if you come along, and while we’re going to give you 3 percent to 5 percent every year, no matter what, you don’t have to think as hard. Because, OK, if this doesn’t work out, we still got the money. If you’re down to it, and you’re like, “If I don’t get this, right, and it’s gone. I’ve got to get — ”

You know, what I want — what I’ve said over and over again — is I want the Pentagon to feel some measure of physical pain every time they spend a dollar. And I want them to make sure that they do it in the most cost-effective, intelligent way because they just want to get the most out of it. Not because they know Congress will always come along and just throw them a bunch more money and paper over the problem. But let’s make it work in the most cost-effective way possible. And your Air Force example is spot-on to how we get there. Mackenzie Eaglen: Wants the Pentagon to feel pain when they spend money. Mr. Chairman, you have a vote. So I thank you so much for staying on with the full hour and for coming to AEI to talk the nuts and bolts of the budget. I really appreciate it. Adam Smith: Thank you. Great to see you. Appreciate the discussion. Mackenzie Eaglen: You too.