STRATEGY FOR THE LONG H AU L The US Defense Industrial Base Past, Present and Future BY BARRY D. WATTS II CSBA > Strategy for the Long Haul About the Center for Strategic and Budgetary Assessments The Center for Strategic and Budgetary Assessments (CSBA) is an independent, nonpartisan policy research institute es- tablished to promote innovative thinking and debate about national security strategy and investment options. CSBA’s goal is to enable policymakers to make informed decisions on matters of strategy, security policy and resource allocation. CSBA provides timely, impartial and insightful analyses to senior decision makers in the executive and legislative branches, as well as to the media and the broader national security community. CSBA encourages thoughtful partici- pation in the development of national security strategy and policy, and in the allocation of scarce human and capital re- sources.ABOUT CSBA’s CSBA analysis and outreach focus on key ques- tions related to existing and emerging threats to US national security. Meeting these challenges will require transform- ing the national security establishment, and we are devoted to helping achieve this end. About the Author Barry D. Watts, Senior Fellow, is an expert on a range of topics, including air power, Air Force transformation, net assessment, and the military use of space. He headed the Office of Program Analysis and Evaluation in the Defense of Department during 2001–2002. Following retirement from the Air Force in 1986, Watts worked for, and later directed, the Northrop Grumman Analysis Center. His recent publications include US Fighter Modernization Plans (with Steve Kosiak), Six Decades of Guided Munitions and Battle Networks, and Long-Range Strike: Imperatives, Urgency and Options. He holds a Bachelor of Science in mathematics from the US Air Force Academy and a Master of Arts in philosophy from the University of Pittsburgh. THE US DEFENSE INdustRIAL BASE: PAst, PRESENT AND FutuRE STRATEGY FOR THE LONG H AU L By Barry D. Watts 2008 AbOUT THE STRATEGY FOR THE LONG HAUL SERIES This report is one in a series comprising CSBA’s Strategy for the Long Haul intended to inform and shape the next administration’s defense strategy review. THE CHAllENGES TO US NATIONAL SECURITY. Translates the principal challenges to US security into a representative set of contingen-cies in order to determine what resources will be required, and how they should be ap-portioned among forces and capabilities. US MILITARY POWER AND CONCEPTS OF OpERATION. Provides the connective tis- sue between the threats to US security and the capabilities and force elements needed to address the new challenges confronting the nation. THE DEFENSE BUDGET. Overviews the budget environment and explores a range of options to make the Services’ plans more affordable. THE DEFENSE INDUSTRIAL BASE. Addresses the US defense industry’s role as a strategic asset, and how it can best serve in that role. MANPOWER. Examines recruitment and retention of quality people in sufficient numbers at an ac-ceptable cost. TRAINING, OpERATIONAL ART, AND STRATEGIC COmpETENCE. Assesses the need for an overhaul of training and education of America’s service person-nel and the im- portance of strategic thinking in senior leaders. RESTRUCTURING THE US AllIANCE PORTFOLIO. Considers the nature and type of alliances the United States needs in order to meet exist-ing and emerging security challenges. GROUND FORCES. Explores how the US Army and Marine Corps might best be or- ganized, structured, mod-ernized, and postured to meet existing and emerging chal- lenges to US security. SPECIAL OpERATIONS FORCES. Addresses the expansion and growing role of US Special Operations Forces. MARITIME FORCES. Addresses how US maritime forces might best be organized, structured, modernized, and postured to meet existing and emerging challenges to US Security. AIR AND SPACE FORCES. Explores how Air and Space Forces might best be orga- nized, structured, modernized, and postured to meet existing and emerging chal- lenges to US Security. STRATEGIC FORCES. Examines the circumstances under which nuclear strategy and force posture decisions must be made today. MODERNIZATION STRATEGIES. Explores potential modernization strategies that can best support the US defense posture in an era of great geopolitical uncertainty and rapid technological change. ORGANIZING FOR NATIONAL SECURITY. Assesses how the United States Govern- ment can best organize itself to ensure effective strategic planning and execution of strategy. A GRAND STRATEGY FOR THE UNITED STATES. Synthesizes the findings and in- sights of the study series. CONTENTS vii Executive Summary 1 Introduction 9 Chapter 1. Future Funding Levels for Defense 45 Chapter 2. Defense Industry Performance 63 Chapter 3. Influencing the Future US Defense Industrial Base 81 Conclusion. Strengthening the Industrial Base FIGURES 10 Figure 1. DoD (051) TOA by Major Appropriations Categories, 1948–2007 12 Figure 2. DoD (051) RDT&E, Procurement, and Remaining TOA, 1948–1960 21 Figure 3. DoD (051) RDT&E, Procurement, and Remaining TOA, 1961–1990 28 Figure 4. DoD (051) RDT&E, Procurement, and Remaining TOA, 1991–2007 31 Figure 5. The Consolidation of US Defense Manufacturing, 1993–2007 33 Figure 6. 2007 Sales of DoD’s Top Suppliers 88 Figure 7. The Formal DoD Acquisition Management System TABLES 46 Table 1. Industry Performance Summary EXECutiVE SUMMARY TUSit LEDEFEN > SubtitleSE budGET > Options and Choices for the Long Haul The emergence, during the presidency of Dwight Eisenhower, of a peacetime defense industry of significant proportions was an unprecedented event in the history of the American republic. Two geopolitical developments made its emergence more or less unavoidable for a nation committed to leadership of the Free World after World War II. One was the onset of the US-Soviet Cold War in the late 1940s and the formulation, in response, of the strategy of trying to contain Soviet power. The other was North Korea’s invasion of South Korea in June 1950, which precipitated the large increases in defense spending called for in Paul Nitze’s formulation of containment in April 1950. The standing military-industrial complex that these developments brought into being endures to this day. Since the 1950s, the US defense industrial base has been a source of long-term stra- tegic advantage for the United States, just as it was during World War II. American defense companies provided the bombers and missiles on which nuclear deterrence rested and armed the US military with world-class weapons, including low-observable aircraft, wide-area surveillance and targeting sensors, and reliable guided munitions cheap enough to be employed in large numbers. They also contributed to the devel- opment of modern digital computers, successfully orbited the first reconnaissance satellites, put a man on the moon in less than a decade, and played a pivotal role in developing the worldwide web. Critics have long emphasized President Eisenhower’s warning in his farewell tele- vision address that the nation needed to “guard against the acquisition of undue in- fluence, whether sought or unsought, by the military-industrial complex.” Usually forgotten or ignored has been an earlier, equally important, passage in Eisenhower’s January 1961 speech: A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction. viii CSBA > Strategy for the Long Haul Eisenhower’s warning about undue influence, rather than the need to maintain American military strength, tends to dominate contemporary discussions of the US defense industrial base. While the percentage of US gross domestic product going to national defense remains low compared to the 1950s and 1960s, there is a growing list of defense programs that have experienced problems with cost, schedule, and, in a few cases, weapon performance. In fairness, the federal government, including the Department of Defense and Congress, is at least as much to blame for many of these programmatic difficulties as US defense firms. Nevertheless, those critical of the de- fense industry tend to concentrate on these acquisition shortcomings. The main focus of this report is on a larger question. How prepared is the US de- fense industrial base to meet the needs of the US military Services in coming de- cades? The Cold War challenge of Soviet power has largely ebbed, but new challenges have emerged. There is the immediate threat of the violence stemming from Salafi- Takfiri and Khomeinist terrorist groups and their state sponsors, that have consumed so much American blood and treasure in Iraq; the longer-term challenge of authori- tarian capitalist regimes epitomized by the rise of China and a resurgent Russia; and, not least, the worsening problem of proliferation, particularly of nuclear weapons. In the face of these more complex and varied challenges, it would surely be premature to begin dismantling the US defense industry. From a competitive perspective, there- fore, the vital question about the defense industrial base is whether it will be as much a source of long-term advantage in the decades ahead as it has been since the 1950s. The bulk of this report is contained in three chapters. Chapter 1 traces the evolu- tion of the US defense industrial base since World War II. Chapter 2 offers an as- sessment of the industry’s performance to date. Chapter 3 addresses two questions: first, what kind of defense industry is in the best interests of the United States, es- pecially in the foreseeable future? Second, if the defense industry best suited to cope with the challenges of the early twenty-first century is substantially different from the one which exists today, what steps might be undertaken to begin bringing about the required changes? There do not appear to be easy answers to either question. It is probably not possi- ble, nor would it be wise, for the federal government to set about imposing a purport- edly more efficient or effective structure on the US defense industrial base.