The Department of Defense (DoD) recently introduced its first-of-a-kind industrial strategy, raising the point that the U.S. is no longer the arsenal of democracy, and our adversaries know it. Not only has our industrial base eroded over the past decades but our most important long-range missiles (Harpoons, Tomahawks, JDAMs, JRAMs and others) cannot be made without dozens of Chinese suppliers. This comes on the heels of the PPBE Commission, the Atlantic Council’s report on defense innovation adoption and new organizations like the Defense Innovation Unit that have been created in part to augment our industrial base.
More important than any new strategy is the market signal to suppliers through meaningful contracts. According to data from Govini, $406 billion of defense contracts were awarded to traditional defense companies while only $4 billion was awarded to venture-backed companies last year. Contracts are the capitalist signal to current and future suppliers that we need more production and more production capacity. Non-traditional suppliers like venture-backed companies can be an important part of the solution but not if they must wait years for an antiquated Pentagon process to develop requirements and assign contracting responsibility followed by a multi-year budgeting process. The U.S. Army, Navy and Air Force—who do most of the buying at DoD—must issue large-scale and multi-year contracts to a larger base of suppliers if we want to grow the defense industrial base.
The new strategy acknowledges the increasing risk to national security from a shrinking supplier base of 6 vendors who receive two-thirds of all procurement dollars, down from 50 vendors in 1990. A key part of the strategy is to ”expand relationships with companies and technologies not traditionally in the defense industrial base.” I would go farther in saying that the practical way to expand these relationships is with production contracts to new entrants, leveraging how capitalism works in private industry.
While we still need to improve capacity for more traditional defense items like munitions and weapons platforms, increasingly we must prepare for the digital transformation on the battleground that parallels what’s happening across our economy. In fact, 11 of the 14 technologies critical to U.S. national security, outlined by the Pentagon’s CTO, are being developed first by commercial companies rather than defense contractors. This includes AI, cyber tools, synthetic biology, autonomy and microelectronics where commercial demand far outstrips military needs.
Break The Uniqueness Paradigm
In buying more commercial technology, we break the paradigm that the military can only use specialized gear produced in low volumes at high prices. Much of what the military does—short of kinetic effects—can be done with commercial technology. Additionally, commercial technology enables our allies to field the same solutions as the U.S., making solutions interoperable and creating export markets for U.S. suppliers.
Buying The Latest Tech And Expanding the Supply
Buying commercial solutions means getting the latest technology which potentially gives our warfighters an advantage over adversaries because commercial products iterate rapidly to improve performance, cost and functionality—especially in software. The reverse is also true, if we field lagging tech, we give our adversaries the advantage.
DIU, which I led for four years until 2022, focuses on integrating commercial technology for defense applications, most often from new vendors, and often fielding capability in less than 24 months. DIU has helped the DoD add more than 100 new vendors but there are not enough follow-on production contracts to significantly grow the defense supply base.
Buying more from non-traditional vendors is one of the fastest ways to expand warfighter capabilities and expand our industrial base. With this simple change, we provide the market-based demand signal that allows suppliers to invest in more production capacity and investors to provide more capital. We also make defense markets more competitive, supply chains more resilient, stimulate expanded capacity and encourage more companies and more investment in solutions enhancing national security. We influence capital markets to provide more solutions for our warfighters instead of more dating apps or better ad-targeting.
Prioritizing Speed Because Commercial Solutions Are Often Faster
Commercial solutions can typically be fielded faster and at greater scale. Some will argue it’s not possible to buy commercial technology for military purposes. That is true for munitions, tanks and submarines but for a large part of what the military needs—fusing information from sensors to AI tools for better decision making to resilient communications—commercial solutions exist. Skeptics can look to Ukraine to see powerful commercial technologies such as near-real-time satellite imagery, secure communications, and small drones for weapons delivery. Will there be push back from Congress? Actually, Congress gave direction to buy as much commercially available technology as possible 25 years ago with the Federal Acquisitions Reform Act of 1996. It hasn’t happened yet. Let’s reinforce this directive from a quarter century ago and leverage capitalism to deliver more production orders to commercial vendors and modernize defense faster. Adding additional capabilities to complement today’s large defense platforms creates a much stronger deterrent to continued aggression by Russia and China.