The U.S. defense technology and industrial base [1] is defined as the aggregate ability to provide the manufacturing, production, technology, research, development, and resources necessary to produce the material for the common defense of the United States. This definition captures the essence of the defense technology and industrial base as it is, rather than as one might wish it to be. The definition also presumes that there is a market mechanism at work that results from the interaction of government policy, defense budget demand, and corporate decisionmaking. This market mechanism produces the U.S. defense technology and industrial base. This definition of the defense technology and industrial base presumes that any firm that provides-or potentially could provide-goods for the national defense (whether it is commercially owned and operated, whether it is completely or partially owned and operated, or whether it is domestic or foreign based) is part of the U.S. defense base. As a matter of policy choice, what is observed in the analysis of the defense technology and industrial base may not be what is desired in regard to government control over critical defense technologies and production capacity or the amount of foreign intrusion into critical sectors. The definition itself, however, does not presuppose any particular mix of type or source of ownership. The defense technology and industrial base must contribute to strategy in three fundamental ways: peacetime efficiency, technological competitiveness, and crisis flexibility. These form the criteria for assessing the health of the defense technology and industrial base. These contributions are the defense technology and industrial base and for recommended policy solutions for the future. First, U.S. strategy presumes that peace will be the normal state of U.S. relations and that peace will be sustained by demonstrated readiness and willingness to fight to protect national interests. The primary vehicle that demonstrates this intent is the set of programs administered by the Department of Defense that man, equip, maintain, train, and operate U.S. forces around the globe. The defense technology and industrial base must respond to the demands of these programs with cost-effective, reliable, and capable systems. These demands shift over time both in the magnitude of the demand, as expressed in the changing defense budget top line, and in emphases of programs as expressed in the allocation of resources to such defense functions as force structure, manpower, readiness, procurement, and research and development (R&D). The defense technology and industrial base must provide the goods required by the defense budget in an efficient manner. Second, the defense technology and industrial base must provide U.S. forces with technologically superior material. Maintaining a technological advantage over potential adversaries, particularly the former Soviet Union, has been an explicit part of U.S. national security strategy since the end of World War II. Because it would be prohibitive in cost and alien to the U.S. democratic culture, the United States could not match the number of Soviet deployed forces during the cold war. Recognizing the danger to U.S. national security from the massive Soviet military machine, the United States opted to respond to quantity with quality. This required the United States to maintain a significant margin of superiority over the Soviet Union in its ability to develop high performance, high quality, and cost-effective products and processes so that the United States did not have to match the Soviets soldier-for-soldier or gun-for-gun. Unquestionably, it was in the U.S. defense technology and industrial base that this lead was developed and maintained. Finally, because deterrence may not always preserve the peace and because there is the risk that low-level threats may bring the United States into conflict, the defense technology and industrial base must retain some flexibility to convert from peacetime R&D and production to expanded levels of production and development required for anticipated forms of future conflict. If post-World War II history is a guide, then the defense technology and industrial base must be capable of short-term surge, long-term expansion, and postwar recovery. The surge requirement was demonstrated in the 1973 Arab-Israeli War when U.S. war reserve stocks in tanks and antitank guided missiles, for example, in a very short time were so severely depleted that weapons in the hands of U.S. active forces were taken and given to the Israelis to prevent the utter defeat of a valued U.S. ally. The Vietnam War required U.S. industry to develop gradually a production capacity for many combat items not stocked in sufficient quantity in peacetime, such as small arms and artillery ammunition. Achieving these three criteria is problematic because efforts designed to achieve one goal may be counterproductive in preserving another. For example, if the United States spends large sums of defense budget dollars to build excess production capacity for anticipated surge requirements, it would be building an inherent economic inefficiency into the peacetime production of the military goods. Unit costs for peacetime requirements would carry an exorbitant premium to amortize the investment in the excess-but idle-capacity set aside for anticipated surge production. Indeed, the failure to recognize such fundamental trade-offs and to devote adequate resources and analysis to these issues have led to disarray in current defense technology and industrial base policy. Depending on Technology In the context of the strategic framework for understanding the technology base, there may be an opportunity to maximize the payoff from investments in resources for security by an emphasis on technology. A resources strategy which can minimize the needs for efficiency and flexibility can afford to make its major investments in technological superiority. But a strategy whiich pursues technological advancement as a principal end must provide some kind of insurance against the future need for efficiency and flexibility, and that insurance will certainly not be free; it may not be cheap. Efficiency. If the defense technology and industry base is not efficient it will not generate political support for any investment. We need not review the literature of the 1980s on the inefficiencies in the U.S. defense acquisition system; it is replete with documentation on the phenomenon. [2] The American taxpayers paid about a 25 percent inefficiency premium on U.S. defense investment because of the way business was done and, as a result, research, development and procurement programs became favorite targets of political opposition even when support for the defense spending top line was widely favorable. The pursuit of military technology must be perceived to be at least not wasteful in order to elicit broad support in our political system. Efficiency is of course valuable in its own right in support of technological advancement since it can be defined as the greatest value for the least cost. In the systems analysis world of the cold war, efficiency took on a rather rigorous meaning. Ultimately, the justification for an investment in a particular technology for a weapons system was based on measures of effectiveness which related capability to unit cost. The key to the precision of the measurement was that capabilities could be defined in relation to a specific threat-the military capabilities of the Soviet Union, or a Soviet-equipped surrogate. Thus a fleet of 130-some B-2 bombers, for example, was judged to be a cost-effective solution to the need to penetrate Soviet airspace and deliver nuclear bombs to a specific set of strategic targets in the USSR. In the new strategic era, however, the old measures of effectiveness evaporated with the dissolution of the USSR. While we know that there is inherent value in the investment of billions of dollars in the unique military technologies for stealthy, long-range, manned, heavy-payload, precision-bombing aircraft, we cannot be as precise as we once were as to how much capability we can expect from those kinds of investments. Unit cost will no longer suffice as the measure of effectiveness, neither politically, where the costs of few-of-a-kind systems will likely be above the famous "Augustine Curve,"' nor in systems analysis terms where the need will be for measures of scientific advancement rather than battle effectiveness against a definable enemy force. A challenge presently facing the analytic community is to derive new measures of effectiveness with which to judge efficiency for the new strategic era in the absence of an overarching threat upon which to base such calculations. We must begin to learn how to measure capabilities purchased, rather than threats defeated. Even with such scientific tools, however, there is no escape from the fundamental historical experience in military technology; it is not cheap. Alan S. Milward has observed: Even the most ardent economic critics of warfare frequently concede that in one respect war brings economic benefit in its tendency to promote technological and scientific innovation... The tendency of modern fighting is to become increasingly capital intensive. One measurement of this is the amount of capital expended on killing one enemy; this has been estimated as roughly ten times as much in the Korean war as in the Second World war. [4] The dilemma facing strategists in the new era is that while the requirements for investments in new technology will continue to grow, the pool of capital from which those investments can be made-the defense budget top-line-will decline for the foreseeable future. As a result, the public policy consensus supporting such investments will demand a demonstrated level of efficiency out of the technology base, multiplying the need for new analytical measures of efficiency. Flexibility. The other criterion of the strategic effectiveness of the base is the flexibility of the system to respond to changing strategic needs. As U.S. national security strategy comes to rely more on quasi-mobiIization concepts such as "reconstitution," the ability of the base to return to military development and production will be a new need in the system. Market forces will neither preserve defense technological capability for unique military applications, nor maintain production capabilities for rapid, or even deliberate, surge requirements. While some industrial specialists hope for greater integration of commercial and defense technology and production capacity [5] , a full measure of skepticism is in order here based on the post-World War IIexperience of defense firms which have tried to achieve economies of scope by transferring their military expertise into commercial applications. Most such attempts were unsuccessful. In the cold war era the defense technology and industrial base maintained an inherent level of flexibility because of the size and scope of defense acquisition efforts. Separate investments in surge production capacity were not needed when, for example, the Army's tank fleet of over 7,000 vehicles was replaced on the order of once every 20-25 years. Even if production in a given year was below minimum economic levels, the unused capacity did not go away because there was the prospect of future production. On the technology side of the base, promising new applications could generally find a programmatic champion without having to identify a so-called "bill-payer" to take funding from. In the new strategic era, not only will maintaining flexibility require new investments to replace robust acquisition programs, but it will require new bureaucratic approaches. The entire defense program and budget process has become a negative-sum game. New program initiatives must not only provide justification on the merits of the military capability purchased, they must also convince decisionmakers that other programs already slated for cuts should be cut further or terminated. As new technologies are created, new military flexibilities can be gained, especially if the innovations are in process technology as well as product applications. But to the extent that technology competes for declining budget resources, flexibility may be sacrificed to technology development priorities. A lack of flexibility becomes a calculated risk in pursuing a technology- based strategy. That risk can be minimized by maximizing the response time available to apply new resources to technology development and production expansion, given necessary political decision making under conditions of sufficient warning. The record of the past in making such decisions and in obtaining such warning time illustrates the kinds of policy choices that face strategists today. Prior to World War II, the manufacture of weapons systems was limited primarily by the structure of the machine-tool industries among the combatants. The United States and Germany were the world's leaders in machine tools, but they followed opposite technology strategies. German industry had been manufacturing so-called "universal" machine tools during the reconstruction of Germany heavy industry after World War I. Such tools were able to be switched rapidly from commercial production to military production because they had built-in adjustability features. During the war, Germany therefore had no need to surge production of new machine tools, as did the United States. Of course such machines were more complicated and expensive than with the special-tools approach followed by the United States, the other machine tool giant of the 1930s and 1940s, again illustrating the inherent trade-off between efficiency and flexibility. During World War II, Germany did not increase its machine tool capacity utilization; it mostly switched from one type of production to another. But the United States--with Great Britain and Japan following suit--had to go through a period of innovation and expansion in the machine tool industries to develop new kinds of tooling to make new weapons and to create new capacity for manufacturing. [6] The inherent size and potential strength of the underlying American heavy industries provided the flexibility to shift into wartime technology and production while German industry had purchased that flexibility by investing in a more adaptable industrial structure. Given the strategy adopted by the Roosevelt Administration of steady expansion of military industrial capabilities beginning as early as 1939, the American industrial approach proved to be quite effective indeed. Acting on sufficient warning, the U.S. defense industrial and technology base became the "arsenal of democracy," producing 296,000 aircraft; 1,201 major naval vessels; 64,546 landing craft; 86,333 tanks; and 41.585 billion rounds of small arms ammunition between July 1, 1940 and JuIy 31, 1945. [7] But this great feat was accomplished by government action initiated well before the outbreak of the war. The process began with the United States providing material to allies under various assistance programs and ultimately required direct government control over large segments of the economy. It included the outright construction of 1,600 new defense plants and direct financing for the expansion of many others. It is highly unlikely that future regional contingencies of the types anticipated by strategists today would engender a public consensus for mobilization of the magnitude achieved for World War II. Thus we will have to provide for industrial and technological flexibility as a hedge against the risks that the base force will not be able to handle the short-term situations we anticipate, or that we will have insufficient warning time to act on the emergence of greater threats, or that political leaders will equivocate or err in judging the nature of future threats. These risks will require investments in some near and mid-term flexibility as an insurance policy beyond the need to invest in the flexibility needed to secure industrial and technological capability to reconstitute the base to meet the unforeseen global threat we expect to have 5 years or more to plan for. Again, investments in flexibility will compete with investments in technology in the defense draw-down. So the first element of risk inherent in a strategy that depends on technology is that the application of resources guided by that strategy, an inherently imprecise process compared to the systems analysis approach of the cold war era, may result in insufficient investment in the two other dimensions of industrial and technological capability, namely efficiency and flexibility. There is a second element of risk at work as well. The technological superiority approach may be wrong. More Prospects and Risks of Technological Dependence Introduction Defense Technology and Industry Base Quantity vs. Quality Risks of Foreign Technology Strategy and Technology in the New Era Back to Table of Contents Prospects and Risks of Technology Dependence Back to SSI List of Issues Back to MagWeb Magazine List © Copyright 2001 by US Army War College. This article appears in MagWeb (Magazine Web) on the Internet World Wide Web. 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