Economic Security

Neglected Dimension of National Security?

Edited by Sheila R. Ronis

Institute for National Strategic Studies

National Defense University
Economic Security:

Neglected Dimension of National Security?

Economic Security:

Neglected Dimension of National Security?

Edited by Sheila R. Ronis

Published for the 

Center for Strategic Conferencing

Institute for National Strategic Studies

by National Defense University Press

Washington, D.C.

2011
Opinions, conclusions, and recommendations expressed or implied within are solely those 

of the contributors and do not necessarily represent the views of the Defense Department 

or any other agency of the Federal Government. Cleared for public release; distribution 

unlimited.

Portions of this book may be quoted or reprinted without permission, provided that a 

standard source credit line is included. NDU Press would appreciate a courtesy copy of 

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Library of Congress Cataloging-in-Publication Data

Economic security : neglected dimension of national security? / Center for Strategic 

Conferencing, Institute for National Strategic Studies.

p. cm.

On August 24-25, 2010, the National Defense University held a conference 

titled Economic Security: Neglected Dimension of National Security? Selected papers 

from the conference, edited by Sheila R. Ronis, comprise this volume.

1. National security--Economic aspects--United States. 2.  Economic security--

United States. 3.  Energy security--United States.  I. Ronis, Sheila R. II. National 

Defense University. Institute for National Strategic Studies.

HC110.D4E452 2011

330.973--dc23

 2011017236

NDU Press publications are sold by the U.S. Government Printing Office. For ordering information, call (202) 512–1800 or write to the Superintendent of Documents, U.S. Government Printing 

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access.gpo.gov/su_docs/sale.html.

For current publications of the Institute for National Strategic Studies, consult the National 

Defense University Web site at: http://www.ndu.edu.
Contents

Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

Chapter One

We the People: 

Keeping the Economy and the Nation Strong. . . . . . . . . . . . . . . . . . . . . 1

David M. Walker

Chapter Two

Toward a Premise for Grand Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

John F. Morton

Chapter Three

Energy Security Is National Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Keith W. Cooley

Chapter Four

Achieving Energy Security That Feeds the 

Economic Component of National Security . . . . . . . . . . . . . . . . . . . . 75

Louis J. Infante

Chapter Five

A Well-educated Workforce: Vital Component 

of National and Economic Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Myra Howze Shiplett, Wendy Russell, Anne M. Khademian, 

and Lenora Peters Gant

Chapter Six

Innovation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Carmen Medina

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Sheila R. Ronis

About the Contributors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

 v

Preface

Five years ago, I had the privilege of conducting a study as a consultant to the U.S. House of Representatives Small Business Committee. 

Congress asked me, as a systems scientist, to look at a number of defense industrial base issues and their national security implications. The 

Nation is not well prepared to plan for or establish policy or “grand” 

strategy in a holistic or long-term sense, and the national security implications of that shortcoming remain very disturbing. I recommended 

the establishment of a center in the Executive Office of the President 

for “whole of government” and interagency “foresight capability and 

grand strategy development” and execution, along with an interagency 

committee of Congress to have oversight responsibility for the center 

because the Nation has no means to do this.

Then, in my work with the Project on National Security Reform 

over the last few years, the Vision Working Group that I led recommended the establishment of a Center for Strategic Analysis and 

Assessment to provide the mechanism to conduct foresight studies and 

the development of the grand strategies that would follow—the kind of 

studies that would look at an entire system, such as the economy and its 

relationship to national security.

At the end of World War II, General George C. Marshall said, “We 

are now concerned with the peace of the entire world, and the peace can 

only be maintained by the strong.” But how does the United States remain strong? What does that mean in a world of globalization? And how 

do we even define what national security is in such a complex and interdependent world? Can we survive, let alone remain a superpower, if we 

no longer control any means of production? If we remain a major debtor 

nation? If we continue our dependence on unstable countries for our 

energy supplies? If we invest insufficient amounts of our resources in 

research and development, science and technology? Or if we perceive the 

training and education of people as a cost as opposed to an investment?

Recently, I spoke about the national security implications of a 

downturn in the economy and the auto industry to some colleagues 

in Detroit. They said, “What are you talking about? What does the 

economy have to do with national security?” Most people in our country 

equate national security with military readiness, homeland defense, 

and generally protecting American interests at home and abroad. And 

 vii
viii ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

they would be right, but not entirely. National security has other dimensions. It is a broad description of the elements in our society that make it 

“secure,” and that goes much further than providing for “a common 

defense.” It can include anything that adds to the strength of the Nation. 

It is about being strong in the sense General Marshall intended.

Historically, national security includes the strength of our nation’s 

infrastructure, the foundation upon which the continuous growth 

of our society depends. This includes our strong societal and moral 

codes, the rule of law, stable government, social, political, and economic 

institutions, and leadership. Also included are our nation’s schools and 

educational programs to ensure a knowledgeable citizenry and lifelong 

learning—a must for a democracy. Our nation’s strength also requires 

investments in science, engineering, research and development, and 

technological leadership. We cannot be strong without a viable way to 

power our cities, feed ourselves, and move from one place to another. 

Most of all, a strong economy is an essential ingredient of a global superpower. Without it, we will lose our superpower status, and quickly. 

National security must include a healthy market-based economy, 

with a strong base of globally competitive products and services that 

produce jobs. This economy must include sound government policies to 

promote responsible choices and reduce our debt, and grand strategies 

for energy and environmental sustainability, science and technology 

leadership (at least in some areas), human capital capabilities, manufacturing, and the industrial base. And these are not the only components.

National security goes to the very core of how we define who we 

are as a people and a free society. It concerns how we view our world 

responsibilities. 

Economic security is a major element of national security, even as 

borders are less important than ever. No matter how we look at national 

security, there can be no question of the need to include the economic 

viability of our nation. Without capital, there is no business; without 

business, there is no profit; without profit, there are no jobs. And 

without jobs, there are no taxes, and there is no military capability.

The viability of a nation’s industrial infrastructure, which provides 

jobs for its people, creates and distributes wealth, and leverages profits, 

is essential. Without jobs, the quality of peoples’ lives deteriorates 

to a point where society itself can disintegrate. It can also lead to strife 

on many different levels. As a nation, we need to find a strategy to deal 
PREFACE ix

with this, and we will discuss the ideas of expeditionary economics. 

But poverty is not only a problem in Third World countries. It can 

occur at home, too—especially during a deep recession. No community, 

local or global, can sustain indefinitely whole populations of “haves” 

and “have nots.” And that gap is now growing within the United States. 

There is no question that a part of the infrastructure of a nation 

must include a sound economy. It was the relative deterioration of the 

Japanese and German economies that led those nations into World War 

II. Poverty around the world is a global systemic issue that frequently 

can and does lead to political instability. But we cannot help others if 

we cannot help ourselves, and our current economic crisis is a warning.

National security is societal, political, and economic strength. In 

today’s world, national security for a superpower is meaningless without 

a strong military capability as well. The sovereignty and security of the 

United States, and the protection of its citizens and property around the 

world, remain the bedrock of national security. The execution of U.S. 

national security strategy is conducted in a highly volatile global environment characterized by quantum changes in technology; unprecedented 

social, economic, and political interdependencies; broadened opportunities to foster democratic principles; and allegiances and alliances 

frequently founded on interests other than traditional nationalism. 

Understanding the complex systems nature of national security 

and why the economy is a part of the equation is crucial. The world 

is a very small place, and world peace may depend upon our ability to 

understand and articulate these issues—and in particular to recognize 

the importance of the economic element of national power. 

—Sheila R. Ronis

Introduction

We must renew the foundation of America’s strength. 

In the long run, the welfare of the American people will 

determine America’s strength in the world, particularly at 

a time when our own economy is inextricably linked to 

the global economy. Our prosperity serves as a wellspring 

for our power. It pays for our military, underwrites our 

diplomacy and development efforts, and serves as a leading source of our influence in the world.

—The National Security Strategy of the United States, 

May 2010

On August 24–25, 2010, the National Defense University held a 

conference titled Economic Security: Neglected Dimension of National 

Security? The conference explored the economic element of national 

power. Often ignored and misunderstood in relation to national security, the economy has been taken for granted for years, but its strength is 

the foundation of national security. Over 2 days, several keynote speakers and participants in six panel discussions explored the complexity 

surrounding this subject and examined the major elements that, interacting as a system, define the economic component of national security.

As the Nation begins to understand the imperative of putting its 

problem-solving apparatus into a global systemic context, that framework was used to explore the topic because, as Albert Einstein said, “We 

cannot solve problems by using the same kind of thinking we used when 

we created them.” And the linear solution sets we once used to solve 

simplistic problems are of little value in a world of complex systems. 

This conference was designed around a systemic framework that 

could be used to develop a grand strategy surrounding the Nation’s 

economy as a subsystem of national security. The panels and keynote 

presentations looked at the economic element of national power from 

different system views. Those views—including the role of debt, the government, industrial capability, energy, science, technology, and human 

capital—create a systemic view of what could be done to improve an understanding of the economic element of national power. Selected papers 

from the conference that represent these views comprise this volume. 

 xi
Chapter one is a transcript of the comments made by opening 

keynote speaker David Walker. He contends that if the economic 

element of national power is neglected and misunderstood, nothing 

will be more dangerous to the Nation than the national debt and its 

unintended consequences for generations to come. His arguments are 

alarming and are critical for policymakers and every citizen to understand. He provides a common-sense approach to getting the Nation’s 

financial house in order.

America’s role in the world is based on its military and economic 

prowess and capability. In chapter two, John Morton traces the historical 

roots of the economy and its role in enabling the superpower status of 

the Nation. He also proposes that the United States needs an economic 

grand strategy and describes the road ahead.

No 21st-century economy can be secured without a steady supply 

of energy. Without adequate energy to power contemporary civilization, there is no security at all. In chapter three, Keith Cooley explains 

his approach to an energy plan, which includes a grand strategy that, if 

enacted, will support the Nation’s future.

In chapter four, Louis Infante offers his approach to energy 

security. His National Energy Security Initiative describes a specific 

model that the Nation could use to manage the complexities of its entire 

energy system. This initiative would include mechanisms to improve the 

research and development policymaking decisions and strategies to 

make them real.

How can a nation be an economic or military superpower without 

a plan to ensure it has people with the right knowledge and capabilities 

throughout its society? In chapter five, Myra Shiplett and her team 

eloquently address this complex set of issues and how the United States 

will be well served only if its schools can produce individuals who can 

compete in a sophisticated and globally competitive 21st-century world.

It is probably impossible for the United States to have a robust 

economy and remain a superpower if its companies lose their ability to 

be innovative. In chapter six, Carmen Medina explores the many issues 

that surround what it means to have innovation as a major element of a 

nation’s economy.

xii ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?
Chapter One

We the People: Keeping the Economy 

and the Nation Strong

David M. Walker

When I became the seventh Comptroller General of the United 

States, I was shocked to find out when I assumed office in 1998 that the 

agency that I headed, the Government Accountability Office (GAO), 

had been in business since 1921 and had no integrated, forward-looking, 

and outcome-based strategic plan. Now, there are some Federal 

agencies that are in the same category today that have been in business 

a lot longer. But what I was even more shocked to find out is that the 

United States, which has been in business since 1789 as a constitutional 

republic, still has no strategic, integrated, forward-looking, and outcome-based strategic plan. It is an outrage and an issue we must address. 

As a result, we spend a lot of time dealing with immediate needs. 

We also spend a lot of time focusing on how much money we are going 

to spend and how much in tax preferences we are going to give. We do 

not focus enough on what goals and objectives we are trying to achieve, 

what works, what does not work, what is affordable, and what is sustainable. This exercise has to consider not just today but macro trends and 

challenges that are affecting us and everyone else in the world and their 

implications for tomorrow.

We put such a plan in place at GAO, and it is the closest thing 

that exists to a strategic plan for the Federal Government, but the GAO 

is in the legislative branch. So we need one for the executive branch. It 

needs to be led by the OMB (Office of Management and Budget), and 

hopefully, eventually it will be.

But I can tell you that when you look at performance, you have to 

look at three dimensions. First, how are we doing based upon our desired 

outcomes and our key objectives? Second, are we getting better, or are 

we getting worse? And third and very importantly, ask a question that 

the United States rarely asks: “How do we compare to our competitor 

groups or comparator groups?”

If we answered these questions, we would find that while we are 

above average in many things, we are below average in too many things, 

 1
2 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

and the things that we are below average in are, in many cases, leading 

indicators with regard to what our future economy is going to be like, 

what our future position in the world is going to be, and what our 

future standard of living at home will be. Things like savings, critical 

infrastructure, investments in basic research, educational outcomes, 

and healthcare outcomes are key leading indicators, and in all of these 

areas, we are below average for an industrialized nation.

We have rested on our past success too long. We have rampant 

myopia, tunnel vision, and self-interest. It has reached epidemic proportions in the halls of Congress and in Washington, DC. We need policy, 

operational, and political reforms, and we need them soon because we 

have a dysfunctional constitutional republic. If we do not take steps to 

keep our economy strong for both today and tomorrow, our national security, international standing, standard of living, and even our domestic 

tranquility will suffer over time. That is the bottom line.

Let me provide you with some context. Today, we have very large 

short-term deficits—$1.4 trillion plus. Debt is mounting at a rapid 

rate, and we now have about $13.4 trillion in total debt subject to the 

debt-ceiling limit. That is a matter of concern, and it is the number-two 

issue among the American people, only behind the economy and jobs. 

While the American people are rightfully concerned about our 

current debt, it is only the tip of the iceberg, but what threatens the 

ship of state and our collective future is the part of the iceberg below 

the water that is represented by off-balance-sheet obligations—tens of 

trillions in unfunded promises that do not represent deficits today but 

will represent deficits and debt tomorrow. They represent the true threat 

to the ship of state.

Even after the economy recovers, even after unemployment is 

down, even after the “wars” are over—and I put that in quotes because 

Congress has not declared war since World War II—even after the 

temporary tax cuts have expired, and even after the financial services 

and housing crises have long passed, this country faces large, known, 

and growing structural deficits due to known demographic trends and 

rising healthcare costs. This enormous problem requires solutions now 

because our foreign lenders are starting to get nervous and the situation 

will only get worse absent meaningful reform actions.

The Federal Government has grown dramatically since its founding. In 1800, 11 years after the founding of the Republic, it represented 
KEEPING THE ECONOMY AND THE NATION STRONG 3

2 percent of the U.S. economy. This year, it represents 25 percent, which 

is above the recent average of 21 percent. But if we do not reform our 

existing entitlement programs and other aspects of government, it will 

represent about 40 percent of the economy by 2040, and that does not 

count state and local governments.

The composition of the budget has changed dramatically in the last 

four decades. Forty years ago, it was dominated by defense at 42 percent. 

Today, it is dominated by social insurance programs, which grow faster 

than inflation and grow faster than the economy even when the economy 

is growing. Forty years ago, when Congress came to town, they got 

to decide how 62 percent of the budget would be spent, of which today 

defense is about half of the discretionary budget. Now they decide how 

about 38 percent gets spent, and if we continue on our status quo, do 

nothing, let-it-ride policy, it will go down to 18 percent by 2040. This 

obviously is an imprudent and unsustainable course.

Interestingly, those of you who are scholars of history and the 

Constitution will find that every enumerated responsibility envisioned 

by the Founding Fathers for the Federal Government under the Constitution is in discretionary spending, every single one, and discretionary 

spending is what is getting squeezed. If you look at what has happened in 

the last 91⁄2 years, our debt has more than doubled, and worse, we do not 

like to count all of our debt. There is a little creative accounting going on.

There are two kinds of debt: the debt held by the public, and that 

debt that we owe to Social Security, Medicare, and other trust funds. 

That debt is also backed by the full faith and credit of the United 

States Government. It is guaranteed as to principal and interest. It will 

be honored, but the Federal Government does not want to call it a liability. It wants to tell people who are covered under Social Security and 

Medicare that they can count on it, and I think you can, but our current 

accounting treatment is wrong and it should change.

This situation has resulted in understating our true deficits and 

our true debt to GDP (gross domestic product) for many years, and as 

far as I know, we are the only country that has so-called trust funds 

because ours are ones that you can’t trust, and they are not funded. 

If you look at the last consolidated financial statements of 

the United States, which were issued earlier this year, as of the end of 

September 30, 2009, the last fiscal year end, you will find that the total 

liabilities and unfunded promises primarily for Medicare and Social 
4 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Security, the total of the liabilities and unfunded promises, have more 

than tripled since the year 2000—$62 trillion—and most of this is off 

the balance sheet.

How much is $62 trillion? It is over $200,000 per person. It is over 

$500,000 per household. Believe it or not, median household income in 

the United States is $50,000 a year. So that means that under our status 

quo, do nothing, let-it-ride path, the typical American household has 

a second or third mortgage equal to ten times their annual household 

income, but there is no house backing this mortgage, and the American 

people do not even know about it.

If you look at deficits and surpluses since 1800, you will find that 

we have had a long-standing tradition in this country of not running 

large deficits unless we were at war, a declared war, or we faced great 

economic challenges, such as the Great Depression or a recession.

But within the last several decades, this country became addicted 

to deficits and debt and conspicuous consumption. Economists changed 

from trying to have a balanced budget over the economic cycle, to a point 

where they said, “Well, let us try to achieve no more than the growth of 

the economy over a cycle,” such that it became acceptable to run deficits 

of 2 to 3 percent of GDP, even in good times, and times of peace.

The result of that is, you changed the standard. Then what happens 

when you are in a recession? What happens when you are at war, whether it is declared or undeclared? What happens when you have a national 

emergency or non–business cycle challenge, a crisis like the housing and 

financial services meltdown? Deficits of 10 percent of GDP plus. We 

have lost our metrics. We have lost our way. We have strayed from the 

principles and values that this country was founded on, including thrift, 

savings, limited debt, and stewardship, and that needs to change.

Now, what about Social Security? Well, it was running surpluses 

for a lot of years, and every dime of that surplus was spent for other 

government operating expenses and replaced with a nonmarketable 

bond, but those days are over. Social Security is running a deficit now, 

primarily because of the recession and more people retiring early, and 

it is going to be in a permanent deficit position within about 5 years, 

adding to our fiscal challenges rather than reducing them.

What about the future? If we tax at historical levels, 18.3 percent 

of GDP, which is the green line, and if we do not reform government, 

this is what the future will look like: the fastest growing expense will be 

interest on the Federal debt; the second fastest growing Federal expense 
KEEPING THE ECONOMY AND THE NATION STRONG 5

will be out-of-control healthcare costs, which are still out of control 

despite the latest healthcare bill. And they are eating everybody’s lunch, 

including the Defense Department’s.

And what about debt to GDP? The only time in the history of the 

United States that we had public debt over 60 percent of GDP was at the 

end of World War II. But guess what? We got something for that. We 

defeated the Axis powers, we saved the free world, we avoided attack 

on the continental United States, and after World War II, we were over 

50 percent of the global economy, demographics were working in our 

favor, and the dollar was as good as gold.

So what did we do? We did a number of things to try to help 

rebuild the Axis powers and other nations that had experienced mass 

destruction, in order to stimulate global demand. We did a number of 

things to invest in our people through the GI Bill and our infrastructure 

through the highway system. We did a number of things to try to help 

maintain sound fiscal policy, and we obviously grew the economy very 

fast, because we dominated the global economy.

Those days are over. We are still a superpower, but we will not 

be the only superpower forever. That status is temporary. We are still 

the leading nation on Earth, but we are one of a number of important 

nations on Earth. And we have to recognize reality, not continue to live 

on our past successes. We have to start focusing on the future and on 

results. Guess what? Today, our debt to GDP is above 60 percent for only 

the second time in the history of the United States, and it’s rising rapidly. 

If you counted the debt that we owe to Social Security and Medicare, it 

is over 90 percent of GDP. 

And what about Greece, Italy, Portugal, Spain, Ireland, the United 

Kingdom? If you look at appropriate metrics, which are total Federal, 

state, and local debt held by the public—again, ignoring the trust 

fund debt—if you just look at that, according to a 2010 International 

Monetary Fund report, we are already worse than Spain, we are already 

worse than Ireland, we are already worse than the United Kingdom, and 

we are within 10 years of being where Greece is today.

What about that debt that we owe to Social Security and Medicare? If you count that, we are within 3 years of being where Greece is 

today. We are not Greece, but Greece used to be the greatest civilization 

in the history of mankind. Greece is the cradle of democracy, and ruled 

most of the world during Alexander’s time. Unfortunately, we have more 

rope because we have over 60 percent of the global reserve currency, but 
6 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

we do not have unlimited rope, and we are not exempt from the laws of 

prudent finance.

We are a safe haven in times of uncertainty, but that is temporary. 

We need to wake up; we need to recognize reality. We need to start making tough choices before people lose confidence in our ability to put our 

own financial house in order, because if we don’t get our act together, 

we will have our own debt crisis. The result would be something much 

worse than what we saw a couple of years ago during the financial 

services meltdown.

Believe it or not, the four factors that caused the financial services 

meltdown exist for the Federal Government’s own finances, but nobody 

is going to bail out America! We have to solve our own problems. 

This is where we are headed regarding debt to GDP, and this is 

optimistic, because this is the latest projection from the CBO (Congressional Budget Office) that assumes we are going to get a lot of savings 

with regard to the latest healthcare bill. Those savings are unlikely since 

the Medicare Chief Actuary gave an adverse opinion on the latest trustees’ report for Medicare. That is unprecedented.

And what about self-reliance? At the end of World War II, we 

had the highest debt to GDP in our history, but we had no foreign debt. 

Americans saved, Americans invested in their future, Americans invested in their country’s future, but unfortunately, such is not the case today.

We have, therefore, had to become reliant on foreigners for two 

things: oil and capital. We are reliant upon oil, and we are reliant upon 

foreign lenders to finance our escalating deficits and debt. That is not in 

our long-term economic, foreign policy, national security, or domestic 

tranquility interest. It is also imprudent. Don’t forget: You must pay 

attention to your foreign lenders. They have more leverage on you; you 

have less leverage on them. They have already flexed their muscles.

One of the reasons that all of us now guarantee over $5 trillion 

in Fannie Mae and Freddie Mac debt is because Japan and China 

demanded it. They had significant holdings in those securities. They 

were not previously backed by the full faith and credit of the United States 

Government. They got their way, and the taxpayers will pay the price.

Now, what are our foreign lenders doing? They are going short 

on their investments in U.S. Treasury securities. There is very little 

purchasing going on of 30-year treasuries. People have also cut back on 

10-year treasuries. Why? Because in times of uncertainty, the United 

States is a safe haven, and therefore, people are willing to buy Treasury 
KEEPING THE ECONOMY AND THE NATION STRONG 7

securities because of our rule of law, political stability, the fact that 

we have over 60 percent of the world’s global reserve currency, and 

uncertainties regarding the stock market. As a result, investors are 

willing to compromise returns in order to preserve their principal. How 

do you do that? In the short term, it is Treasury securities.

But the real question is what are interest rates going to be over 

time, under our present path, and the other thing that the credit rating 

agencies do not even consider is what is the dollar going to be worth 

over time. That is why it is very understandable that foreign players are 

going short on the duration of their Treasury portfolios. As a result, 

we have the shortest average maturity of our debt of any industrialized 

nation. That means when interest rates go up, after the economy turns 

around and unemployment goes down, when there is more competition 

for capital, we will feel it much faster than others will because we have 

not locked in these low interest rates for the long term.

When I was Comptroller General, we recommended the Treasury 

Department go to 50-year bonds, and not only did they not go to 50-year 

bonds, they eliminated the 30-year bond. Now they have brought it 

back, but it is not a real attractive investment. More and more, people 

are going into the TIPS (Treasury inflation-protected securities), which 

in the short term you do not make much on but which is a good hedge 

against what the future may hold.

And if interest rates end up going up a mere 200 basis points, 2 

percent, it will have a dramatic effect on the Federal budget. Healthcare costs are eating our lunch. And if you look at the Federal budget, 

Medicare and Medicaid represent our primary healthcare challenges, 

but escalating healthcare costs exist throughout government. Social 

Security is not the big challenge, and it does not face an immediate crisis. 

It is not the biggest challenge; however, it is the biggest opportunity in the 

entitlement reform area. 

Healthcare grows much faster than inflation, in part due to 

demographics, and because we have an equivalent of an arms race for 

medical technology. Our fee-for-service system also results in perverse 

incentives. As a result of these and other factors, we spend double per 

capita on healthcare and we get below-average societal results. We spend 

double per capita on kindergarten through 12 education, and we get 

below-average results. It is not a lack of money. We are spending too 

much money. The system is broken. We have to look at incentives, 

transparency, and accountability changes to make these systems more 
8 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

successful and sustainable. They need to be dramatically reformed in 

order to get different results.

You cannot get different results by throwing more money at a 

system that is dysfunctional, inadequate, and unsustainable. Even in 

the United States, there is tremendous variation between how much 

procedures cost, even in the Medicare program, because of differences 

in practice, and that is why we have to go to evidence-based approaches. 

Almost 30 percent of Medicare’s cost is in the last year of life—and a lot 

of that makes no sense and is not in the patient’s interest. 

And what about defense? We spend more than the next 14 countries combined on national defense. Now, in fairness, the dollar goes 

further in some places than others. Some people do not pay what we do 

for labor. Secondly, some places are more transparent about their costs 

than others. But the simple truth is, we take on a disproportionate share 

of the global security burden. We are doing too much, others are not 

doing enough, and we cannot sustain what we have right now.

And who pays for all of this? Well, most of the revenue comes from 

payroll taxes and individual income taxes, only 7 percent from corporate 

taxes. Who pays taxes? At least 42 percent of Americans pay no income 

tax. Let me restate that: At least 42 percent of Americans pay zero income 

tax, and a significant percentage of those get rebates through the Earned 

Income Tax Credit. Why is that a problem? Because every express and 

enumerated responsibility under the Constitution of the United States 

is funded either solely or primarily by income taxes. So that means that 

these individuals get a free ride on the constitutional role of the Federal 

Government. That is a dangerous disconnect in a democracy.

These individuals pay payroll taxes, and, in fact, most people pay 

more in payroll taxes than income taxes, but those payroll taxes are not 

adequate to fund the programs that they are supporting. There are tens 

of trillions in unfunded obligations for Medicare and Social Security. 

And yes, corporations get special tax preferences, and they need to be 

on the table for reconsideration as well.

We have a progressive tax system. When you consider payroll 

taxes and income taxes, both, all Federal taxes, the top one-half of one 

percent of Americans earn 15 percent of total income, and they pay 23 

percent of total taxes. But depending upon what their source of income 

is and how creative they are with the tax system, they can have a low 

effective tax rate. 

Now what about state and local governments? We have discussed 

the numbers for the Federal Government. Our national challenge is 
KEEPING THE ECONOMY AND THE NATION STRONG 9

worse than our Federal challenge. Under current policies, state and local 

deficits are projected to more than double as a percentage of GDP, even 

after the economy recovers. We are all in the same boat, and bad news 

flows downhill. We have greater interconnectivity and interdependency 

along with a number of common challenges that we have to face together.

And what about savings? Our personal savings rate has declined 

considerably since World War II, and our net national savings rate was 

negative in 2009 for the first time since the Great Depression.

What are the drivers of government deficits at all levels? They 

include the factors we have described: expansion of government, healthcare costs, retirement income costs, disability and welfare systems, 

critical infrastructure, education costs, outdated and inadequate revenue 

systems, and myopia, tunnel vision, special interests, and self interest. 

And what are some of the things we need to do at a high level? First, 

when you are in a hole, what is the first rule? Stop digging. One of 

the first things that we have to do is reimpose tough statutory budget 

controls that address discretionary and mandatory spending as well as 

tax preferences in order to stabilize our debt/GDP at a reasonable level.

Secondly, we need to reimpose tough but reliable discretionary 

spending caps. We need to impose mandatory reconsideration triggers 

for spending and tax preferences that would take effect when unemployment hits 8 percent. We should not undercut the recovery, but we have 

to recognize the reality. When you look at leading indicators, structural 

unemployment is probably going to be about 2 percent higher than it has 

been historically. We have been eating our seed corn for too long, and we 

are going to pay a price for it. Long-term economic growth is probably 

going to be about 1 percent less than it has been because we have been 

living on the past rather than investing to create a better future.

We should reform Social Security to make it solvent, sustainable, 

secure, and more savings oriented. Why? It represents our biggest 

opportunity to exceed the expectations of all generations of Americans. 

We can show our foreign lenders we can do something and be able to 

gain some credibility with the American people by demonstrating that 

Congress can actually get something done.

We need to look at our healthcare costs. As a result of the latest 

legislation, healthcare is going to increase as a percentage of GDP: You 

cannot reduce costs by expanding coverage. It is an oxymoron. You have 

to make tough choices.

Believe it or not, we are the only major industrialized nation that 

does not have a budget for healthcare. We have a fee-for-service system, 
10 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

which is part of the problem. We have a proliferation of technology. 

We do not have evidence-based standards. We have not reformed our 

malpractice system. We have subsidized very lucrative healthcare plans 

for the well off, and we provide taxpayer subsidies for billionaires who 

voluntarily sign up for Medicare Part B and Part D. Those are just a few of 

the things that we are going to have to take a look at, among many others.

We should have universal coverage, but we have to have an honest 

discussion and debate with the American people about what level 

of universal coverage is appropriate, affordable, and sustainable. I would 

respectfully suggest that that is coverage that supports preventative 

medicine and wellness programs and provides protection against catastrophic accidents and illness for the entire population while providing 

more protection for the poor and disabled. We can afford and sustain 

that. The government has promised way too much more in healthcare 

than they can deliver, including for defense and veterans. There is no 

way that the current system is sustainable.

We need to do comprehensive tax reform to make our system 

more competitive, streamlined, simplified, and equitable while generating enough money to pay our bills and deliver on the promises we 

intend to keep.

We need to reprioritize and reengineer the base of government 

to make it future focused and results oriented, including the Defense 

Department.

There is unbelievable waste in many parts of government including defense. The problem is there is no line item that says waste, and 

when I was at GAO, nobody had even defined waste. Waste is taxpayers 

as a whole not receiving reasonable value for money, both today and 

over time. 

Waste is different than fraud. Waste is different than abuse and 

mismanagement. Fraud exists, especially in healthcare because that is 

where the money is, but waste is the biggest problem. Unfortunately, 

you cannot get to it because it is not as transparent. There are a lot of 

vested interests. Frankly, Congress pushes a lot of the waste by forcing 

the Defense Department to buy things that it does not want and we do 

not need. 

And so we have to have some special processes to be able to 

re-baseline government to make it more future focused and more results 

oriented. We have a National Commission on Fiscal Responsibility 
KEEPING THE ECONOMY AND THE NATION STRONG 11

and Reform that is going to report by December 1. We need a new 

Hoover II Commission that will start focusing on the government 

to re-baseline and re-engineer it. We need to focus on the future and 

to generate more results in an affordable and sustainable manner. 

A lot of people are talking about doing a lot of things with regard 

to the defense budget and a lot of cuts will happen because we are in a 

$62 trillion hole, and that hole grows by several trillion dollars a year by 

doing nothing, and defense is about 20 percent of the Federal budget 

and about 50 percent of discretionary spending.

The government has grown too large, promised too much, not 

delivered enough, and has waited too long to deal with these problems. 

As a result, we are going to have to renegotiate the social insurance contract, while providing a sound, secure, and sustainable social safety net. 

We are going to have to re-engineer and reprioritize and re-baseline 

government, including cutting discretionary spending and constraining it over time. We are also going to have to re-engineer our tax system 

and raise more revenue.

Our fiscal challenge is primarily a spending problem, but taxes 

will have to go up. And they will go up on a lot more people than those 

making $200,000 or more. Why? There is a new four-letter word in 

Washington, and it is not “debt.” No, it is “math.” The numbers just do 

not work. You have people on the far right who say, “We will grow our 

way out.” It would take double-digit, real GDP growth for decades to 

grow your way out. It has not happened; it will not happen.

You have people who say, “We can inflate our way out.” You cannot inflate your way out because while inflation will reduce the burden 

of the current debt, the problem is not the current debt; it is the tens 

of trillions in unfunded obligations that will be future debt that grows 

faster than inflation and faster than the economy grows.

You have the liberals who say, “Well, we can tax our way out.” You 

would have to double Federal taxes by 2035. The American people will 

never allow themselves to be taxed at that level. We are going to have 

to do a number of tough things, and we need to do them sooner rather 

than later, because the miracle of compounding is working against 

us. When you are a debtor and you delay tough decisions, the miracle 

of compounding works against you. When you are an investor and 

you make tough decisions sooner rather than later, the miracle of 

compounding works for you.
12 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

We must make sure that we have adequate resources to protect 

this nation and to ensure our national security broadly defined, but it 

needs to be based upon credible threats for both today and tomorrow. 

We need to do it with the resource constraints that we think we have and 

are going to have over time. 

It is time that we wake up, recognize reality, start making some 

tough choices in order to make sure that we stay a superpower and that 

we make sure that our future is better than our past, and that we discharge 

our stewardship responsibilities to our children and grandchildren.

The Roman Empire fell after a thousand years for a lot of reasons. 

I will mention four. See if they sound familiar: a decline in moral values 

and political civility at home, overconfidence and overextension 

around the world, fiscal irresponsibility by the central government, and 

inability to control its borders. We need to wake up, recognize reality, 

learn from history, and start looking at future indicators and comparing 

ourselves to our competitors and comparators. And yes, we can make 

these tough choices and make sure that America stays great and the 

American Dream stays alive. We cannot do it until we recognize that we 

are addicted to debt, we are addicted to conspicuous consumption. We 

need to change our ways before it’s too late.

We need the 12-step plan for re-engineering the Federal Government, because we have dependencies, and until you recognize that you 

have a problem, you are not going to solve the problem. And what is 

going to have to happen to solve the problem is, the first three words of 

the Constitution have to come alive: We the People.

I will do my part. All that I ask is that you do yours.
Chapter Two

Toward a Premise for Grand Strategy

John F. Morton

At the close of the nineteenth century, Britain’s leaders 

shared a belief in the importance of “national economic 

power,” but they lacked agreement on exactly what that 

concept meant or how it should be measured.

—Aaron L. Friedberg1

[T]he successful powers will be those who have the greatest 

industrial base

. . . those people who have the industrial power and the 

power of invention and of science.

—Leopold Amery2

The greatest danger to American security comes from the 

national debt.

—Admiral Michael Mullen3

In 1945, the United States became the guarantor of an international political and economic system that, by the end of the Cold War, 

was global. Today, America sustains that position primarily through two 

elements of its national power: its peerless military and its dollar 

currency, upon which the international monetary and economic 

system is largely based. A third element initially enabled that hegemony 

in the 1940s: the national economy—that is, the Nation’s industrial 

might. Much of that element is no longer present today.

American Hegemony and Its Dependence on a 

Techno-industrial Base 

Academics debate the idea that America’s hegemonic role has 

been roughly analogous to that of Great Britain in the 19th and early 

20th centuries, made possible by its Royal Navy and pound sterling. 

The parallels are striking. Yet often overlooked in the colloquy is an 

important distinction. Whereas Britain was an imperial hegemon before

 13
14 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

it was an industrial power, U.S. military and monetary hegemony in the 

American Century was based on its industrial power. British institutions 

for governance—feudal, monarchical, and commercial—long preceded 

industrialization. In America—initially an agrarian and commercial 

republic—industrialization preceded its global role and establishment of 

the present U.S. system of national security governance, institutionalized 

by the National Security Act of 1947. We are thus left with the question: 

Does America have the institutions of governance to manage the strategic 

environment of its apparently “post-industrial” 21st century?

The postwar establishment of the U.S. national security system 

reflected three strategic preconditions specific only to that time: 

■ America’s singular and expansive industrial preeminence, 

which was undamaged by war, and the means through which it 

was able to apply transformational technological advances for 

military use (for example, atomic science) effectively enabled 

the Allies to win World War II and, under U.S. leadership, 

reconstruct a postwar international economy. 

■ At the same time, America and its postwar allies immediately 

had to focus on a geostrategic threat from an ideologically 

driven Soviet Union. Moreover, by the 1950s, this single 

geostrategic adversary had the nuclear weapons capability 

to threaten the survivability of the American homeland—

effectively capturing the national mind.

■ Fortunately, though, mid–20th-century America was a time 

and place when and where a community of interest had arrived 

at the apex of national power in the political, economic, 

social, and cultural spheres. Notwithstanding the manifest 

tensions of the century, this established community of interest 

at bottom shared a common history and as such was able to 

sustain a workable cohesion and continuity at the top in New 

York and Washington, where strategic consensus was generally 

expressed with the term “bipartisanship.” 

Today, however, all three of these strategic preconditions are 

absent. No longer a nation in surplus with an unrivaled, expansionist, 

techno-industrial economic base, America is in debt and arguably 

becoming post-industrialized—or, as some would have it, de-industrialized. No longer faced with a single geostrategic adversary, U.S. 

national security governance attempts to manage strategic challenges 
TOWARD A PREMISE FOR GRAND STRATEGY 15

that neither generate consensus on prioritization nor lend themselves 

to military solutions. Yet diverse events and situations like 9/11, Hurricane Katrina, the ongoing debt crisis, uncontrollable immigration, and 

the BP oil spill in the Gulf of Mexico evince the new and more complex, 

multidimensional strategic vulnerability of America’s heartland “core.” 

Lastly, no longer a nation with an established community of interest 

providing cohesive leadership across all spheres of national discourse, 

America is becoming an unbounded space with multiple communities 

of interest. Most seriously, these communities often reflect conflicting 

borders-in and borders-out priorities and possess the means to effect 

them—through favored executive branch departments and agencies4

and congressional committees with budgetary oversight.

Unfortunately, today’s strategic environment frustrates and 

often daunts attempts to conceive a national economic strategy as a 

dimension of national security. And like the British at the turn of the 

last century, we may recognize the concept of national economic power, 

but we do not agree on what that concept means.

From the beginning of its history, America has pursued to varying degrees three objectives within a national economic strategy, often 

simultaneously. From 1789 to the present, expansion of national 

economic power has been a consistent goal. From roughly 1902 to 

1992, economic strategy included preparedness or mobilization for war, 

whereby its Cold War application translated to government acquisition 

policies characterized as serving deterrence. During the post–Cold War 

1990s, emphasis shifted to economic competitiveness, albeit in a form 

that did not benefit all economic sectors equally. Finally, since 9/11 and 

Katrina, still-amorphous notions of sustainability and resilience are 

taking root that may or may not be fully consistent with expansion. War 

has provided the bookends for each period of evolution, leaving the 

Nation in a different state than it was before. The American Revolution, 

Civil War, World Wars I and II, and Cold War mark those passages very 

clearly. Added to those familiar bookends is the conflated impact of 

9/11 and Katrina, which, in terms of evidencing the need to transform 

American governance, rises to the level of war.

What follows proposes to characterize the evolution of the U.S. 

techno-industrial base and its relationship to finance, governance, and 

globalization in an effort to inform development of a national economic 

strategy for the 21st century that addresses the security and welfare of—

to adapt the concept of the British geographer Halford Mackinder—the 

American heartland core.
16 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

From Colonies to Continental Colonizers

As for the familiar conceit comparing the hegemonic role of the 

United States in the 20th century to Britain’s in the 19th, another distinction relates to so-called establishments. Great Britain is a constitutional 

monarchy, the foundations of which remain on feudal soil to this 

day.5 Its commercial expansion was driven by royal charter; notable 

examples include the British East India Company (1600), Hudson’s Bay 

Company (1670), the Peninsular and Oriental Steam Navigation Company (1837), and Cecil Rhodes’s British South Africa Company (1889). 

British expansion also came through charter, proprietary, and royal colonies. In North America, the New England colonies were mostly charter 

colonies, although Massachusetts had a unique transition from a charter 

with proprietary aspects to a royal colony. Mid-Atlantic and southeastern colonies were proprietary colonies under a governor functioning as 

commercial enterprises under the authority of the crown and answerable 

to shareholders.

Overall, the British expansionist strategy was mercantilist, 

predating and generally continuing through industrialization. British 

institutions of governance provided for and were a reflection of 

establishment—an aristocratic continuity during these centuries of 

expansion. By contrast, the United States as a representative democracy 

pursued expansion in a manner that was led by the private sector and 

supported by government policies. Establishment continuity was thus 

not so obvious in America. With respect to an expansionist strategy, it 

is thus helpful to ask, Cui bono? Which regions, economic sectors, and 

interests benefited?

Seen from a historical distance, following revolution and independence, the 13 original states made a transition from colonies to, 

in effect, continental “colonizers.” The most durable through-line is 

apparent for the New England states, where surplus agricultural 

production generated wealth, and a network of rivers provided access to 

commercial ports and upstream power to run textile mills. Here was the 

Nation’s first integrated industrial and financial base built around Boston 

to enable an American establishment to pursue expansionist economic 

strategy. State and local governments raised capital and issued bonds 

to finance transportation systems—turnpike roads and canals. While 

not all canal projects were successful, the New England cotton-textile 

industry saw in them the opportunity to “export” to the rest of the 

United States. Rapid growth occurred following the War of 1812 to the 
TOWARD A PREMISE FOR GRAND STRATEGY 17

1850s. New York’s underwriting of the Erie Canal dramatically changed 

the dynamics. Completed in 1825, the waterway opened the Great Lakes 

and Upper Midwest to immigration and farming and furthered New 

York City as a preeminent port, giving it the edge over Boston as the 

nation’s commercial and financial hub.6

With advances in steam locomotion technology, railroad construction soon followed throughout New England and the Northeast. 

In particular, Pennsylvania was able to leverage its own integrated base. 

The Lehigh River Valley linked anthracite coal and iron mining with an 

established infrastructure of blast furnaces and incipient manufacturing to generate an extensive regional rail system, all feeding the regional 

port and financial center, Philadelphia.

In the 1860s, President Abraham Lincoln, whose political 

fortunes in Illinois were very much tied to rail interests, threw his weight 

behind Federal support to railroad companies when he signed the first 

Pacific Railway bill. Between 1850 and 1870, 80 railroad companies 

received land grants for over 129 million acres, mostly west of the 

Mississippi River—representing territory totaling approximately 7 

percent of the continental United States. This expansionist strategy 

should be seen as continuing to benefit the industrial-financial interests

of the Northeast and Pennsylvania that were vying in the mid-19th

century with the slaveholding interests of the South and their pursuit 

of an agriculture-based expansionist strategy.7 The Federal Government 

saw its role as organizing the Nation to develop unified commercial 

markets.8 After the Civil War, Federal policy favored manufacturers and 

railroads over farmers through tariffs and those railroad land grants, 

which over time would yield recipients huge profits.

These Northern financial-industrial interests thus benefitted 

and deepened the linkage with Midwestern agricultural processing and 

extractive industries, which began to change the tenor of those heretofore self-sufficient frontier economies. Another through-line emerged as 

the Midwest “colonies” began to rebel. At the turn of the last century, the 

movement was called populism. Later, it was Progressivism. Following 

the Great War, it morphed into isolationism. By the end of the Cold 

War, the term economic nationalism came to the fore.

At the end of the 19th century, the United States was on its way to 

achieving a continental, unified commercial market with a concentrated 

financial-industrial establishment centered in New York City, the crown 

jewel of the Empire State. Yet profound social and economic tensions 
18 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

required resolution via a new paradigm of governance. In the years 

surrounding the Great War, U.S. Presidential leadership embraced a 

now forgotten concept, called associationalism,9 first introduced to 

America by Alexis de Tocqueville. Associationalist leaders—Theodore 

Roosevelt, Woodrow Wilson, and Herbert Hoover10—came from the 

ranks of Progressivism. Yet associationalist precepts, such as central 

planning and collective bargaining, came to define 20th-century 

American governance characterized as the collusion of big business, big 

labor, and big government.

Many commentators point to Franklin Roosevelt and the arrival 

of the New Deal as the moment when the Federal Government and the 

executive branch agglomerated the centralized power through which it 

governs today. However, this process actually began during Theodore 

Roosevelt’s trust-busting and the run-up to the First World War. Indeed, 

it continued through the Great Depression and World War II into the 

1960s, with Lyndon Johnson’s Great Society programs that created large 

Federal bureaucracies to administer entitlements directly to individual 

citizens. Nevertheless, the most profound enablers of all that followed 

dated from the Progressive era. They were the 1913 establishment of the 

Federal Reserve System and institution of the Federal income tax.

From independence until the Civil War, comparatively modest 

Federal revenues had come from excise taxes, tariffs, customs duties, 

and the sale of public land. During the Civil War, the Federal Government instituted an income tax to cover the costs of war. It remained 

in effect until 1872.11 After the Civil War, revenues came from taxes 

on liquor and tobacco, excise taxes, and high tariffs. With Woodrow 

Wilson’s institution of the Federal income tax, the Federal Government 

had real clout for the first time in U.S. history by virtue of what tax revenues could mean for the size of its budget. The numbers make the point. 

Justified by war and largely funded by increased tax rates put into law by 

the 1916 Revenue Act, the Federal budget of 1917 amounted to a sum 

almost equal to the total of all budgets from 1791 to 1916.

Steel as the Foundation of the Early 20th-century 

U.S. Industrial Base

By many accounts, the Federal mechanisms created during 

World War II and the National Security Act of 1947, fueled by the 1950 
TOWARD A PREMISE FOR GRAND STRATEGY 19

National Security Council Report 68 (NSC–68), gave birth to the 

military-industrial complex. These ascriptions obscure a deeper 

understanding of its location in history and how today the classically 

conceived military-industrial base is no longer central to U.S. economic 

and national security. 

The military-industrial complex evolved with accelerating industrialization in the late 19th century. The genesis can be said to have been 

during the Civil War, seeded by the railroad interests that had strong 

representation in Lincoln’s war cabinet. Railroads provided the North 

with a war-winning logistical support capability. After the war, the 

Bethlehem Iron Company introduced the Bessemer process for 

converting iron to steel in 1873, followed by Andrew Carnegie’s steelmaking start-up in 1875 at the Edgar Thompson Works.12 Through 

these developments, rail made the transition from iron to steel.

Cheap steel rails substituted for those of iron, creating a continental market for this new technology, which in turn propelled further 

railway expansion. From railroads, steel made its way into modern boilers, ships, machine tools, heavy chemical manufacture, and bridge and 

urban construction. Inevitably, the ascent of steel would have military 

implications—especially for the Navy.

While the rise of American steelmaking in the 1880s was principally tied to the production of rails, the Navy started courting 

steelmakers. The military case was made by prominent navalists like 

Captain Alfred Thayer Mahan and Rear Admiral Stephen B. Luce. 

The first ships of what came to be known as the “steel Navy” were the 

so-called ABCD cruisers—the cruisers Atlanta, Boston, and Chicago

and the dispatch boat Dolphin.

13 The first to launch was Dolphin in 1884, 

making her the U.S. Navy’s first steel hull. The Navy would prove to 

be a reliable partner during depressions. For its part, Bethlehem Steel 

was by 1886 experiencing a poor market in rails and thus looking to 

diversify. The alliance between steel and the Navy was first embraced by 

the Democrats and Grover Cleveland in his first Presidency in the mid1880s. Although Andrew Carnegie was morally against using steel for 

destructive purposes, his firm did business with the Navy anyway. When 

the Panic of 1893 depressed the rail and structural steel markets during 

Cleveland’s second Presidency, Navy procurement was there in abundance to insure profitability for both Carnegie and Bethlehem Steel.
20 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Steel also transformed the world of ordnance and gunnery. In 

1883, the congressionally authorized Gun Foundry Board established 

gun factories for each Service. The Navy got authorization to use the 

Washington Navy Yard. Known familiarly as the Gun Factory, the yard 

shifted from anchor fabrication to forging cast gun casings and polished 

liner tubes, becoming fully operational in 1892. The Army got funding 

to upgrade Watervliet Arsenal in Troy, New York, which in 1888 

began manufacturing and supplying 8-, 10- and 12-inch cannons for the 

Army’s coastal forts.

In the 1890s with the rise of steel, the United States made the transition from a Civil War “‘militia’ theory of industrial preparedness . . . to 

an integrated system which was capable of meeting the peacetime demands of an expansionist nation functioning in a hostile international 

climate.” Concludes naval historian Frank Cooling, “The needs of the 

U.S. Navy—like those of navies abroad—became central for stimulating 

industrial modernization.”14

From the time of the Revolution and War of 1812 to the First 

World War, strategic threats to the Nation were deemed to come by sea. 

Strategic defense of the United States—purely a military function (involving an army, navy, and various state militias)—primarily relied on 

fortifications defending the Atlantic ports. At the turn of the last century, the new great power industrial capabilities enabled battleship navies 

to threaten U.S. national security. In 1900, the U.S. Navy decided that 

the German fleet was the main threat to the Western Hemisphere. As 

irrational as it may seem today, Washington had a real fear of battleship 

bombardment of the East Coast, akin to the Cold War fear of a nuclear 

exchange, a national paranoia more familiar to contemporary policymakers. As much as battleships were symbols of international power 

and ultimate instruments of sea control, they were also deterrents to that 

very threat of bombardment. 

With the 1899 annexation of the Philippines, moreover, Atlantic 

sea control responsibilities extended to the Pacific. U.S. industrial capabilities had also reached the point where America could shift its strategic 

defense doctrine from a reliance on coastal defense to an offensive sea 

control doctrine provided by its own battle fleet. Sustaining such a fleet 

(or eventually fleets) required for the first time major peacetime military 

expenditures, a mobilized industrial base, and broad public support. 

Established in 1900 to address such issues, the Navy’s General 

Board was the Nation’s first organization to plan for war in peacetime.15
TOWARD A PREMISE FOR GRAND STRATEGY 21

To make the deterrence argument, the Navy League, founded in 1903, 

hoisted as its motto, “Battleships are cheaper than battles.” Proponents 

of latter-day deterrence would make similar arguments for the 

comparatively costly Mutual Assured Destruction and its successors, 

the Strategic Defense Initiative (SDI) and National Missile Defense. 

Entering a new century, America was coming to grips with 

the sense-making of burgeoning technological advance, industrial 

expansion, and its increasing presence on the world stage. Domestically, 

consolidation in the banking, steel, railroad, and oil industries was 

giving rise to antitrust Progressive policies to manage the relationships 

among big business and what would become 20th-century big labor and 

big government. In the military realm, the transition to the steel Navy 

generated attempts to align industrial base planning and U.S. national 

strategy.16

Steel was thus the foundation for the late 19th-century to mid–20thcentury industrial base. Initially, it had a mutually reinforcing relationship with railroads for accelerated expansion. The steel Navy was the 

first evidence of the military component of this complex. (Not yet a “big 

system” Service, the Army would not become a player in the complex 

until World War I and the introduction of tanks and airplanes.) The 

matrix of interests based on steel and its applications for railroads (and 

later the auto industry) and the Navy, together with oil and finance, 

characterized what can be called the “industrial” phase of the economic 

element of national power. Its genesis occurred just after the Civil War 

and would continue to the end of the Cold War. Its organizational 

expressions tended toward vertical and horizontal industrial integration 

and were based on fixed and centralized hierarchies.

Meaningful alignment of industrial base planning and strategy 

would first materialize with the Preparedness Movement prior to the 

U.S. entry into World War I. Preparedness came with a new realization 

that war mobilization had to extend from Government-managed 

resource allocation and production to Government resourcing of the 

technology base as well—specifically, the new fields of electronics and 

aviation that did not yet have fully mature commercial applications. 

Planning for Wars: The Base Extends to Technology

The 1912 elections came at a time when Progressive antitrust 

sentiment was strong. The trusts had been busy merging or acquiring 
22 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

corporations. New York financier J.P. Morgan was deemed to be at 

the center of the trust networks, evidenced in the steel industry, the 

bedrock of the U.S. industrial base. In 1901, Morgan had bought out 

Andrew Carnegie and formed U.S. Steel. In the midst of the 1907 

banking crisis, he had notoriously engineered U.S. Steel’s acquisition of 

a controlling stake in its rival, the Tennessee Coal, Iron, and Railroad 

Company. U.S. Steel was now in the crosshairs from both ends of its 

supply chain. Ore producers wanted competitive buyers; railroad 

operators wanted cheaper rails.

Voters spurned the Republican variety of Progressivism that espoused centralized government power to counter the trusts. They went 

with Woodrow Wilson, whose approach appealed to small business and 

more populist democratic ideals. Wilson believed in a national economic policy to balance big business and competition—something that the 

trusts sought to eliminate. The Federal Government would police industrial self-rule. Wilson was ready to target steel, particularly U.S. Steel.

The President was also set to reform the perceived plutocratic 

hegemony of big finance made evident after the banking crisis—the Panic 

of 1907. Congress had put together a commission to reform the banking 

system with Rhode Island Republican Senator Nelson Aldrich in the 

chair. Although Aldrich had Morgan representation on his committee, 

his work pushed a banking reform that would divorce investment 

from commercial banking and inform the Federal Reserve Act, which 

established the Federal Reserve System in 1913. 

Despite these apparent successes, the onset of war in Europe 

interrupted the national discussion of industrialism and Wilson’s brand 

of Progressivism. Arguably, when war came to America, the national 

economy, despite the financial reforms, reverted to the very aspects of 

centralized financial and industrial power that had been so objectionable to the Progressives. 

Ironically, the Preparedness Movement made this reversion somewhat palatable to the Progressive cause. Prominent in the movement was 

Theodore Roosevelt, who raised his voice in 1914 during the outrage over 

the atrocities committed by the German army against Belgian civilians 

early in the war. Other preparedness leading lights were Elihu Root, who 

had been Roosevelt’s Secretary of War and State; Henry Stimson, who 

had served as William Howard Taft’s Secretary of State; and a number of 

financial and industrial heavyweights like Morgan, Charles M. Schwab, 

and Pierre du Pont, not exactly regarded as cohorts of Progressivism.
TOWARD A PREMISE FOR GRAND STRATEGY 23

Roosevelt linked his imperialist sentiments with his Progressivist 

ideals in an advocacy for what amounted to armor and ordnance production. As the peacetime Navy had demonstrated by translating rapidly 

advancing battleship technologies to ship characteristic requirements, 

service life was becoming secondary to projections for the life of technology. The stage was set for annual system procurements for an army in 

addition to a navy. War preparedness now required an industrial mobilization. Those heretofore isolationist Progressives, like future columnist 

Walter Lippmann and commentator/publisher Herbert Croly, saw 

preparedness in terms of its potential to advance the liberal Progressive 

agenda internationally. Others felt that preparedness would require 

an income tax that would soak the rich and thus serve the domestic 

Progressive agenda. They found support in the Wilson administration, 

notably Lindley Miller Garrison, Secretary of War in the first administration; Franklin Roosevelt, Assistant Navy Secretary; and Colonel Edward 

House, the President’s personal diplomatic advisor during the war.

In an informal way, the war in Europe reestablished the trusts 

before America’s war declaration. J.P. Morgan and Company served 

as the “money trust” by providing the Allies with loans guaranteed by 

Wilson. It also represented the British to the materiel suppliers in the 

Northeast and Midwestern industrial belt eager to export to Britain and 

France. The armor trust, U.S. Steel and Bethlehem Steel, would enjoy 

fixed prices, while war-generated profits abroad particularly benefited 

Bethlehem. DuPont, the “powder trust,” would profit on explosives. 

With nitrates as the most important raw material for explosives and 

food production, DuPont had been able in 1910 to break the AngloGerman nitrate cartel in Chile and thus dominate the wartime supply.

War in Europe and its worldwide effects thus shuffled the deck 

and dealt a Democratic President a hand different than he had expected 

or wanted. Two years before the U.S. entry, German U-boats in the 

Atlantic had a devastating impact on American maritime commerce 

and presumed neutrality. While Wilson was trying to keep the country 

out of the war, the U-boat—not the German battleship fleet—induced 

the Navy and shipbuilding interests to activate a formal alliance between 

science and the military to deal with it.

The May 1915 German torpedoing of the passenger liner Lusitania

with great loss of life finally prompted action. The Navy thereupon 

invited inventor Thomas Alva Edison to chair the Naval Consulting 

Board in an effort focusing on submarine detection. Edison picked 
24 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

practical-minded engineers and industrialists for his panel, as opposed to 

scientists. By example, the board’s Industrial Preparedness Committee 

was chaired by Howard E. Coffin, the vice president of Hudson Motor 

Car Company, president of the Society of Automotive Engineers, and a 

renowned standards and specifications proponent. 

Earlier in the year, the Naval Appropriations Act had established 

a National Advisory Committee for Aeronautics (NACA) to undertake, 

promote, and institutionalize aeronautical research. The creation of 

NACA along with Edison’s effort pushed scientists to form their own 

group in 1916 with major support from the Carnegie Corporation and 

Rockefeller Foundation, nonprofit entities that reflected the core of the 

early 20th-century U.S. industrial base and establishment. Called the 

National Research Council (NRC), it also undertook extensive research 

into detection of submarines. To this day, the NRC is housed under 

the National Academy of Sciences, which dates from 1863, another 

wartime era. 

The establishment of the Naval Consulting Board, NACA, and 

the NRC represented the first steps in the American march toward 

modern, government-sponsored research—led by engineers, industrialists, and scientists. 

At the behest of his Secretary of the Treasury, William Gibbs 

McAdoo, Wilson met the legendary Wall Street financier Bernard 

Baruch in September 1915 to discuss the need for and mechanics of 

actual industrial mobilization for war. A key fundraiser for Wilson’s 

1912 Presidential campaign, Baruch came with a solid background in 

raw materials and railroad financing and reorganization. By the time 

of the 1916 elections, Wilson had fully embraced Baruch’s counsel and 

would run and win on the preparedness issue. The President was aware 

that under the national leadership in the private sector, preparedness 

was already under way. The U.S. Chamber of Commerce had been 

pushing the idea and had made the president of Jersey Standard, A.C. 

Bedford, chairman of its Committee on Mobilization. 

In August 1916, Congress established the Council of National 

Defense (CND). Envisaged by Hollis Godfrey, a New York banker 

who was president of Drexel University, the CND was funded by that 

year’s Army Appropriations Act and would ultimately absorb the Naval 

Consulting Board. The CND principals were Cabinet level: the Secretaries 

of War, Navy, Interior, Commerce, Labor, and Agriculture. Several 
TOWARD A PREMISE FOR GRAND STRATEGY 25

months later, Wilson appointed an Advisory Commission of engineers 

and professionals to provide links to finance, transportation, merchandizing, industrial science, industry, labor, and medicine and tapped 

Baruch to serve on the panel. While the commission had little power and 

some 100 committees, the significant ones were on transportation, raw 

materials, munitions and manufacturing, and general supplies. 

Representatives came from associations like the American Iron and 

Steel Institute. The Steel Committee, for example, was chaired by Judge 

Elbert H. Gary, a key founder of U.S. Steel and a proponent of an 

industrial self-policing concept called “new competition.”17

The U.S. entry into the war brought increased demands for 

economic and industrial mobilization for total war. Within 4 months, 

Wilson reconfigured the CND’s Advisory Commission into the War 

Industries Board (WIB). Among other things, the WIB was supposed to 

establish priorities for raw materials, set production quotas, fix prices, 

and determine wages and hours. However, it was not until Baruch 

assumed the chairmanship in March 1918 that the WIB began to 

exercise real authority. A firm believer in national economic policy to 

forge a government-industry partnership for war mobilization, Baruch 

looked ahead to implementation of a construct to position American 

corporations for global postwar expansion. 

This American attempt at public-private industrial mobilization 

for war was similar to what had already happened in Europe. The great 

power belligerents were settling into a new kind of war—protracted 

and total. Input came into general staffs and their quartermasters from 

corporations and private industrial organizations that functioned on 

behalf of stockholders as much as the national interest. Before the war, 

the great powers patronized deliberate or command invention only for 

their navies. Once at war, they saw that the deliberate invention process had to also apply to development of land forces. Technology and 

industry offered 20th-century operational solutions for 19th-century 

armies. Not 2 months into the war at the first battle of the Marne, the 

French reinforced their lines using some 600 taxis to transport reservists from Paris to the front. The stalemate of trench warfare prompted 

increased military use of aircraft for artillery spotting. The internal 

combustion engine thus was accepted as a key warfighting technology 

with potential applications for new concepts like “land cruisers.” 

Nevertheless, armies still lacked systems expertise. In Britain, the army 
26 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

had to rely on the Bureau of Naval Design for the early development 

of land cruisers (tanks). It was not until the British Plan 1919 that 

the Service finally embraced the idea of command invention for tank 

innovation; by that time, however, the war had ended.

During the war, the Navy Department, having a good systems 

expertise with the steel Navy, had adjusted to the CND Advisory 

Commission. The Army, however, did not yet have an equivalent peacetime industrial mobilization planning capability that could lend itself 

to wartime surge. Thus, it had opposed the commission’s effort. As 

a result, when it sent its troops into battle on the Western Front, they could 

only fight using French heavy equipment. Once it was clear that modern 

warfare had become mechanized and an arms race in tanks and planes 

was under way, the Army embraced the need for industrial planning 

for war. With war’s end, however, the War Industries Board ceased 

operations. Its role in a wartime command economy was a notion too 

un-American for peacetime, notwithstanding the stresses of postwar 

readjustment. The Government did see strategic utility in supporting 

the aviation industry, however. It did so by having the U.S. Postal 

Service relieve the Army of its airmail service prior to the end of the 

war and letting contracts for a civilian-operated airmail service.18

The program generated demand for airplane production and led to 

development of commercial passenger services.

In 1922, the War Department founded the Army-Navy Munitions 

Board (ANMB) for the two Services to coordinate planning and 

mobilization. The ANMB proved ineffective and rarely met. The Navy, 

having for decades had its own internal planning (the General Board) 

and industry liaison processes, ignored the ANMB. Undeterred, the 

War Department proceeded in 1924 to found the Industrial College 

primarily for the study of mobilization problems. Army planners had 

to convince the General Staff that plans had to be based on economic 

reality. This thrust led to the Industrial Mobilization Plan of 1930. 

At the forefront of the Army embrace of planning was the 

Office of the Assistant Secretary of War’s Major Dwight Eisenhower, 

who from late 1929 spent over 2 years of his career on the planning 

effort. His mentor was former WIB chairman Bernard Baruch, who had 

been instrumental in getting the office to establish the Industrial College. Eisenhower’s work on the so-called M-Day Plan brought him to the 

attention of Major General Douglas MacArthur, the Army Chief of Staff, 

thus making his career. In a June 1930 Army Ordnance article written by 
TOWARD A PREMISE FOR GRAND STRATEGY 27

Baruch’s “apt pupil” but bylined by his boss, Assistant Secretary Patrick 

J. Hurley, “Eisenhower explained that modern war was a conflict 

between economies; production of the weapons and supplies of war 

was as important as sound strategy and tactics.”19

The M-Day Plan of 1930 was the first of four Army interwar 

industrial mobilization plans. The Service department and Service 

were not initially in sync, however. In the view of the Army General 

Staff, supply had to adjust to strategy, and the staff’s subsequent 

Mobilization Plan of 1933 reflected this logic. The Office of the Assistant 

Secretary of War and the bureaus viewed the relationship in reverse. 

The later Protective Mobilization Plans of 1936 and 1939 thus adjusted 

strategy to align with the Nation’s industrial potential, reflecting the 

verities that Eisenhower expressed in his Army Ordnance article and 

that would inform his approach both as a wartime military leader 

and Cold War President.

Entangled Expansionism: A Nation Not Ready

The Great War had drawn the United States into European 

entanglements and fueled an expansionism no longer bounded by 

America’s continental coasts and two great oceans. Once entangled, the 

Nation would require a grand strategy.

As war clouds darkened in the last week of July 1914, British 

and French investors started to liquidate their U.S. holdings and 

convert dollars into gold in order for their countries to finance war. 

The move threatened a run on U.S. gold reserves and financial panic. 

The financial establishment was not prepared to go through a repeat of 

1907—particularly just as the preventive measure to such panics, the 

Federal Reserve System, was being put in place. By his own account, 

Wilson’s son-in-law, Treasury Secretary McAdoo, at the behest of the 

governors of the New York Stock Exchange, supported the exchange’s 

4-month closure to stop the trading of dollar-denominated securities, 

thus preventing further liquidations.20

The U.S. action forced European treasuries to exhaust their 

foreign exchange holdings, currency, and gold reserves to fund the 

spiraling carnage. Some countries issued instruments for sovereign 

bonded indebtedness to allow them to purchase war materiel from the 

United States and elsewhere. In 1914, the U.S. debt had been $3 billion, 

primarily to British creditors. By 1917, the Nation would be a net 
28 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

creditor of roughly the same amount by virtue of underwriting $6 

billion in war credits provided to the Allies. First evidence of the shift 

came suddenly in January 1915: as a consequence of the suspended 

trading on the stock exchange, gold was shipping from Europe to 

New York in ever-increasing amounts. 

“American capital, by itself, could not buy the credibility needed 

to challenge sterling as international money—only the gold standard 

could.”21 By wedding America to gold, New York was able to rise 

above other principally European gold standard centers to become the 

postwar rival to London.

When the Great War finally ended, the European powers were 

prostrate. The Continent was in chaos—if not revolution. The Allies 

would present the Germans with a burdensome bill for $32 billion in 

reparations. Britain, France, Italy, and other countries owed the United 

States some $9.5 billion for their wartime loans. The British costs of war 

required them to liquidate their overseas investments. With the United 

States emerging from war as a creditor nation, American finance was 

primed to step into the breach. The Nation was now in a position to 

complete the shift of international finance from London to New York. 

When Wall Street initially had made overseas private investments, they tended to be hemispheric—in Canada and Latin America. 

American financiers now recognized an expansive potential to 

capitalize on the opportunities presented by European reconstruction. 

Loans to help resolve German war reparations could create markets 

for U.S. corporations, enabling them to pursue export-led growth. 

Wall Street representatives to international negotiating teams could 

help establish forward-leaning Anglo-American bilateral regimes 

(for example, governing oil) and refashion the international monetary 

system, which heretofore had been dominated by Britain.

Domestically, the war had accelerated change in America. While 

Europe was in ruin, this nation was bursting with potential. Gross 

national product had doubled. The population had migrated from 

the farms to the cities—the United States was now over half urban. 

Industrialization had advanced. In the rural areas, the introduction of 

farm tractors generated a shift from family farms to agribusinesses. 

Developed in the late 19th century for the sewing machine and typewriter 

industries and then applied by Henry Ford to automobiles, the U.S. 

mass production capability was without peer in Europe. America could 
TOWARD A PREMISE FOR GRAND STRATEGY 29

look to a robust postwar world economy, confident that it had the 

organization, credit, raw materials, ships, and industrial base to restore 

economic stability and employment on both sides of the Atlantic. 

The war had also revealed within that base an emergent 

community of scientific and capital-intensive industries closely aligned 

with Wall Street and poised for postwar growth. It was now possible 

to speak of a techno-industrial base of large-scale firms—in chemicals, 

radio, and electronics. In 1922, these interests organized around the 

Institute of Economics, which later became the Brookings Institution, 

named for Robert S. Brookings, who had served on the War Industries 

Board. Similar private sector–led efforts had resulted in establishment 

of such entities as the American Petroleum Institute in 1919 and the 

Council on Foreign Relations in 1921. The United States was preparing 

to take its associationalist ideas abroad. 

This expansionist drive did, however, expose a fault line in the 

U.S. political economy. Postwar “readjustment” was stressing civil 

societies, even in America; in the years 1920–1921, the United States 

experienced inflation, strikes, and depression. The populist movement 

railed against the New York bankers, particularly those associated with 

J.P. Morgan and Company, for entangling the Nation with the European 

Allies as the result of their wartime loans. Representing a more traditionally minded community of interest were the non–petroleum extractive industries and their small business allies, which remained primarily 

geared to the domestic economy. This community was isolationist. 

The immediate postwar Washington policy debate was over American 

participation in Woodrow Wilson’s League of Nations. Lawmakers 

divided into hostile camps of isolationists versus internationalists—

that is, those who identified with the apparent beneficiaries of war. 

The league had been a U.S. war aim. It became so through a 

deliberative process that began several months after America 

entered the war when Wilson ordered Colonel Edward House, his 

informal national security advisor, to assemble and chair a group of 

leading academics to study war aims and peace plans. The hundredodd group worked from the New York City headquarters of the 

American Geographical Society. Key participants in “The Inquiry,” as 

it was known, included Isaiah Bowman, the society’s president and a 

geopolitical theorist comparable to Britain’s Halford Mackinder, and 

Walter Lippmann. From their efforts came Wilson’s peace plan for the 
30 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Versailles Conference, the January 1918 “Fourteen Points.” Some two 

dozen Inquiry members served on the American delegation. 

The internationalist voice of Wall Street regarded the German 

reparations program demanded by the Allies in the Versailles peace 

treaty as a radical mistake. American financiers deemed Germany 

central to European reconstruction. Evidence of this assessment was 

in the work during the 1920s at the Council on Foreign Relations. By 

far, the preponderance of council studies focused on Germany.22 With 

the 1924 Dawes Plan and its follow-on in 1929, the Young Plan—both 

international attempts to resolve the German defaults on reparations 

payments—it was representatives from the private and central banks 

who crafted the international repayment plans that provided for 

Germans to use a cycle of money originating from U.S. postwar loans to 

repay reparations. The committee responsible for the latter plan was led 

by an American, Owen D. Young, president of General Electric, founder 

and president of the Radio Corporation of America, and coauthor of 

the predecessor Dawes Plan. Among the Young Plan’s provisions was 

agreement to establish a Bank of International Settlements (BIS) to 

assume responsibility to collect, administer, and distribute the annuities 

payable as German reparations. The BIS was a trustee for the Dawes 

and Young international loans issued to finance reparations. Today, the 

Basel-based BIS is an intergovernmental organization of central banks 

that furthers international monetary and financial cooperation and 

serves as a “bank for central banks.” 

Unfortunately, the Wall Street crash of 1929 collapsed the 

repayment system and led to the shattering of world trade. The 

isolationists in Congress succeeded in passing the harshly protectionist 

Smoot-Hawley Tariff of 1930. Although President Herbert Hoover 

opposed the measure, Republicans in Congress successfully pressured 

him to sign it into law. Protectionist repercussions abroad further 

deepened the Depression, finally unraveling the international economic 

system based on the gold standard. In 1931, its 19th-century financial 

hegemon, Great Britain, chose to devalue the pound and abandon the 

standard to staunch a run on British gold. Hoover did not follow suit. 

Foreign investors assumed he would and generated a run on American 

gold. Instead, he had the Federal Reserve raise interest rates to entice 

foreigners to leave their dollars in U.S. banks. The following year, in 

Ottawa, Canada, the British concluded a preferential tariff and trade 
TOWARD A PREMISE FOR GRAND STRATEGY 31

agreement for the Empire’s pound sterling area that reversed Britain’s 

policy of free trade. Germany and Japan responded by erecting their 

own trade barriers. Franklin Roosevelt came to the Presidency in 1933 

vowing to break with Hoover’s internationalist-inspired monetary 

policies. In his First New Deal, he adopted the stance of an economic 

nationalist and took America off the gold standard.23 What followed was 

a breakdown of the international monetary system followed by the rise 

of imperial or regional blocs. 

In the midst of the Great Depression, America turned inward. 

Internationalism was in retreat. Republican isolationist ire intensified 

against the forces that appeared to have led to the economic malaise 

and given rise to the centralized New Deal bureaucratic players 

characterized as big government, big business, and big labor. The 

Progressive Republican Senator from North Dakota, Gerald Nye, 

launched into an investigation of wartime profiteering sponsored by the 

War Industries Board. The Special Committee on Investigation of the 

Munitions Industry, or Nye Committee, ran from 1934 to 1935. Among 

its concerns were the perceptions that the United States had entered 

into some sort of commercial alliance with Britain and that the pursuit 

of preparedness had taken America down the road toward a warmaking German model of concentrated economic power. The impact of the 

Nye investigation led to the passage of the four Neutrality Acts of the 

late 1930s, whose various embargoes only ended with the passage of the 

Lend-Lease Act of 1941. For the balance of the 1930s, Populist forces 

and the Depression arrested attempts by Washington and Wall Street 

to reinstitute internationalist economic policies, even as Roosevelt was 

shifting in that direction with the so-called Second New Deal. The 

United States would not reengage with Europe, even in the face of the 

manifest threat to world peace presented by Nazi Germany.

Instituting Techno-industrial Governance: 

From War Mobilization to Deterrence

Despite the macro-level anti–New Deal and isolationist criticisms 

of centralization and centralized planning, interwar mobilization 

planning nevertheless continued. Accordingly, once war came, militaryindustrial relations would be better than they were in World War I, 

except in the minds of left-wing New Dealers, labor, and small business. 
32 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

In mid-1939, just prior to the outbreak of war in Europe, Roosevelt put 

Bernard Baruch in charge of creating an advisory War Resources Board 

(WRB) around his mobilization and planning ideas. Baruch likened 

the WRB to the CND and felt that it should be put under his authority. 

Roosevelt was not prepared to go that far and wanted Edward Stettinius, 

Jr., a Wall Streeter who ran U.S. Steel, to chair the board.24 While the 

WRB enjoyed the support of the National Association of Manufacturers 

and the U.S. Chamber of Commerce, liberal Democrats saw it as a 

Morgan entity and forced Roosevelt to kill it in November 1939. 

After the fall of France in May 1940, Roosevelt resuscitated the 

CND Advisory Commission. That summer, just after the Republican 

National Convention, he added Republicans Henry Stimson and 

Frank Knox to his Cabinet to present a bipartisan, coalition face to his 

internationalist policies. In turn, Stimson and Knox brought in the New 

York lawyer Robert P. Patterson, while FDR secured James V. Forrestal, 

another Baruch associate. Forrestal’s effectiveness derived from his 

Wall Street background. Prior to coming to Washington to serve as the 

Navy Under Secretary, Forrestal had been president of the investment 

bank Dillon Read, a Wall Street institution whose networked reach into 

Washington in the first half of the 20th century was analogous to that of 

Goldman Sachs today. 

A January 1941 executive order formally established the White 

House Office of Production Management (OPM), which would be led 

by a director general, General Motors executive William S. Knudsen. 

Initially, Knudsen was not able to engage the steel and automobile 

industries, which were not inclined to shift civilian auto production to 

defense. With the Lend-Lease program for the Allies, things changed. 

Enacted in March 1941 and initially run by Stettinius, Lend-Lease 

provided material support primarily to Britain and France and formed 

the basis, in terms of transatlantic personal and business relationships, 

of the Bretton Woods Agreements and the Marshall Plan. Defense 

orders now came to heavy industry. In 1941, three-quarters of all OPM 

contracts serving the “arsenal of democracy” and Lend-Lease went to 

the big corporations. 

Once America was in the war, the civilian mobilization structure 

Roosevelt created became confused and convoluted. In an attempt 

to resolve the confusion, he established in early 1942 another White 

House mobilization entity, the War Production Board (WPB), led by 

Sears Roebuck executive Donald Nelson. His efforts were not wholly 
TOWARD A PREMISE FOR GRAND STRATEGY 33

successful. He was confounded by the military departments. War and 

Navy had likewise built their own mobilization structures, which proved 

to be more effective than those of the White House, largely due to their 

respective Under Secretaries, Patterson and Forrestal. 

The White House effort on the research and development (R&D) 

front was more successful. The threat of war had prompted Roosevelt 

to consider a concept for a Government-sponsored research entity 

focused on air defense, called the National Defense Research Committee 

(NDRC). The idea originated from Vannevar Bush, president of the 

Carnegie Institution and founder of Raytheon. Roosevelt made Bush 

the NDRC director with direct access to Presidential funds without 

congressional oversight. The NDRC work plan was tagged “federalism 

by contract.” Grants went to private research bodies whose researchers 

would not work for the Federal Government per se but rather would 

remain with their organizations to form a national research network. 

The arrangements were similar to those made by the National Advisory 

Committee for Aeronautics with its network of universities. From June 

1940 to April 1941, $3 billion went to the NDRC principals’ companies 

and institutions, something government ethics laws would restrict today. 

In developmental terms, as its title stated, the NDRC was a 

research council reporting to the President. It needed firmer legal ground. 

In May 1941, Bush was able to get Roosevelt to establish the White House 

Office of Scientific Research and Development (OSRD), which absorbed 

the NDRC. Subsequent legislation bestowed statutory authority and 

congressionally appropriated funding. The new name made it a research 

and development office—an organization reporting to the President. 

As such, it now had authority to prototype small numbers of weapons. 

At the highest levels, scientific advances and technological development now fed into policymaking and in turn were themselves fed by 

massive funding in a command innovation partnership that owed its 

power to OSRD. Reporting directly to President Roosevelt, its director, 

Vannevar Bush, was now a czar with almost unlimited budgetary 

authority. By 1944, OSRD was funding projects to the tune of $3 

million per week. Money was going to some 6,000 industrial and 

university researchers at over 300 labs. In addition to radar and 

radio-controlled fuzes, the wartime OSRD-backed labs would give the 

Nation missiles, mass-produced penicillin, and the atomic bomb.

Roosevelt, however, wanted responsibility for the Manhattan 

Project, the initiative to develop atomic weapons, to go to an organization 
34 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

other than OSRD. He chose to bury it in the Army budget for the Corps 

of Engineers. Manhattan thus became the Nation’s first “black” program. 

The Army now had another arsenal and armory system that promised 

to be exponentially greater than small arms and ordnance production. 

Undoubtedly, the Army bureaucracy would survive postwar demobilization and indeed prosper with a capital-intensive atomic weapon 

strategy. For the first time, the Service potentially could have a new 

industrial configuration that would rival the Navy’s. If the bomb worked, 

it was all about the bang. Then would come the question of the delivery 

system—which weapons platform could best serve to put it on target. 

Initially, it was deemed to be aircraft; in the end, it would be missiles.

By 1944, it was clear that the military had been organizationally 

looking ahead to the postwar period. Mobilized defense manufacturing of aircraft and ordnance on a continental scale in the United States 

had given life to a victorious warfighting strategy. Vannevar Bush did 

not see a near-term value in missiles and rocketry, but the chief of the 

Army Air Forces, General Hap Arnold, did, and he took steps to build 

a separate network of scientific support within his Service. Arnold 

instituted his own OSRD-type organization in the Army to advise him: 

the Special Bombardment Group. It was led by the Massachusetts Institute of Technology’s (MIT’s) Edward Bowles, who was scientific advisor 

for radar and communications to Arnold and Secretary of War Stimson. 

“For Bowles, the source of the Army’s power would lie in postwar 

military budgets, likely to reach record levels for peacetime.”25 In the 

fall of 1944, Arnold, now a five-star general, formed the Scientific 

Advisory Group chaired by the California Institute of Technology’s 

Theodore von Karman to explore rockets. These efforts by Arnold and 

Bowles would give birth to RAND, which would become the preeminent 

think tank for nuclear strategy and deterrence for over three decades. 

Washington military planners and policymakers in 1945 were 

emerging from a global war with hard-won insights. In a purely military 

sense, they saw that the world had entered an era with a new strategic 

threat: that of offensive strategic airpower. Meeting it would require a 

national security paradigm supported by a more formalized peacetime 

preparedness alliance of government, science, industry, academe, and the 

military. The environment required new national security structures and 

processes for planning and resourcing a strategy to maintain a postwar 

peace and American prosperity. What emerged was a national security 

establishment that would last through the end of the Cold War.
TOWARD A PREMISE FOR GRAND STRATEGY 35

Once the end of World War II was in sight, the Roosevelt team 

began to plan for transforming the economy for a return to peacetime. 

During the war, the driver of the economy was military procurement. 

The Navy Department under Secretary James Forrestal led the thinking. 

Forrestal chose a Wall Street colleague from his Dillon Read days, 

Ferdinand Eberstadt, for this transition task, and for good reason. Even 

in the early stages of the war, Eberstadt as Army-Navy Munitions Board 

director had oriented his agency toward the long term—precisely the 

direction needed to ensure a smooth shift to peacetime production 

and postwar national policy and organization. Forrestal charged 

Eberstadt with preparing a report on how to structure that transition.

Thus empowered by Forrestal, Eberstadt assembled a gifted team 

of Naval Reserve officers and others who had Wall Street backgrounds 

and Ivy League credentials. Viewing structural problems with a financial 

lens, he applied Wall Street verities to his designs for solutions.

Eberstadt and Forrestal, as well as Clark Clifford, the Naval 

aide upon whom President Harry Truman relied for national security 

insights, saw the world entering a new era with no distinction between war and peace. Eberstadt thus saw atomic-age mobilization as a 

continuous state, occurring even in peacetime. “Eberstadt’s plan would 

create paths through which business could dominate national security. It recommended formal cooperation between the state and major 

economic power blocs.”26

The Eberstadt team presented its report to Forrestal in September 

1945. The document became the basis for the National Security Act 

of 1947, which, among other things, provided for a national security 

structure resting on three pillars: a National Security Council (NSC), a 

Central Intelligence Agency (CIA), and a largely forgotten third pillar, 

a National Security Resources Board (NSRB). “The National Security 

Council became the keystone of Eberstadt’s coordinate system.”27

His vision was resource-driven. The NSC was to serve as an 

interagency vehicle to weigh options and advise the President on 

aligning strategy with the allocation of resources for industrial mobilization coordination. The CIA would provide it with foreign resource 

assessments for competitive strategies. The NSC would collect its 

domestic inputs for such strategies from the NSRB, the “basic mechanism 

to balance the nation’s supply of resources with its military demands.”28

Far from being an unfamiliar idea, the NSRB echoed Eisenhower’s 

conception of an industrial mobilization planning agency as provided 
36 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

by the Army’s interwar M-Day Plans.29 Specifically based on the examples 

of the World War I–era War Industries Board and the World War II 

War Production Board, the NSRB was a carryover from the various 

civilian entities in the White House for wartime mobilization. It reported 

directly to the President. In policy formulation, it was intended to be the 

NSC’s equal. The NSRB chairman was a civilian appointment requiring 

Senate approval. Inspired by the influential Bernard Baruch, Eberstadt 

“considered this agency as the key mechanism to connect [Department 

of Defense] unification to a larger corporate political-economic 

organization by coordinating military, industry, labor, and business in a 

national security program.”30

Truman and the left-wing New Dealers were suspicious of 

the NSRB. The President would not go so far as to make it into a War 

Production Board in line with the intent of its architects, Eberstadt and 

Baruch. Instead, he wanted it to be merely a body to coordinate mobilization plans across government. In December 1950, 6 months into the 

Korean War, Truman declared a national emergency and by executive order established the Office of Defense Mobilization (ODM), an independent White House agency that absorbed the responsibilities of the NSRB. 

Because of its potential impact on collective bargaining, Korean 

War mobilization was not fully accepted by labor, whose representatives 

left various government mobilization boards. In 1952, the crisis over 

mobilization came to a head in the steel sector, where collective 

bargaining was failing. Industry hung tough, and labor went into a strike 

mode, an action that threatened to disrupt the steel supply and cripple 

the war effort. Truman responded by nationalizing the steel industry 

in the interests of national security. In late April, he seized the mills. A 

legal case resulted and quickly went to the Supreme Court. The President 

ultimately lost in the landmark Youngstown Sheet and Tube Company 

court decision 2 months later. 

The Youngstown decision killed Presidentially led mobilization. Notwithstanding his attempted force majeure in the steel sector, 

Truman was philosophically uneasy about the NSC and NSRB. He 

and the New Dealers on his left saw in the NSRB and ODM structures 

for Wall Street’s corporatist managerial elite. Thus, the NSRB never 

functioned as intended. 

Whereas Truman failed to nationalize steel, the United States was 

far more comfortable in nationalizing the new technology of atomic 

energy in 1945. Civilians, not the military, controlled the postwar 
TOWARD A PREMISE FOR GRAND STRATEGY 37

successor to the Manhattan Project, the Atomic Energy Commission 

(AEC). The AEC management culture was more scientific/academic 

than corporate—that is, it was without overt and obvious profit and 

labor concerns. The atomic energy enterprise was gigantic. Some 

120,000 employees had worked on the wartime Manhattan Project. The 

AEC was in effect a government-sponsored monopoly. The cover story 

of the January 14, 1952, issue of Time magazine tells the tale. Titled 

“The Atom: The Masked Marvel,” the article introduced a snapshot 

of the AEC with the following profile of its commissioners:

These almost unknown men are responsible for making 

the weapon that holds in check all-out Communist aggression. They spend billions of public funds, tie up a good 

part of U.S. scientific and business brains, and operate an 

industrial empire that may be the pioneer of a new technological era. The AEC controls a land area half again as 

big as Delaware—and is growing more rapidly than any 

great U.S. business ever did. Its investment in plant and 

equipment ($2,174,000,000) makes it bigger than General 

Motors Corp. At the end of its present expansion program, 

it will be bigger than U.S. Steel Corp. and General Motors 

combined. AEC will soon ask for (and probably get) 

another $6 billion. When this chunk of money is spent on 

new, strange, secret and dangerous equipment, the AEC 

will be bigger than the Bell Telephone System, now the 

largest business organization in the U.S.31

Truman’s successor, Dwight Eisenhower, finally abolished the 

NSRB with his national security reorganization in 1953 and transferred 

its responsibilities to the Pentagon. “[T]his vital corporatist agency [the 

NSRB] had seemingly been removed from the national security system. 

In fact, industrial mobilization planning, stockpiling, contracting, 

and research and development functions shifted to the defense establishment. Assistant defense secretaries and a collection of functional 

defense agencies replaced the NSRB.”32

Mobilization may have failed conclusively in the postwar era as 

something managed by civilians at the Federal level in the White House 

or an independent agency, but the concept did not go away. Ironically, 

along with the AEC, it survived under another structure and another 

name: Pentagon acquisition. The mammoth postwar aerospace and 
38 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

missile programs would thus be housed in the Department of Defense 

(DOD), effectively a government-sponsored monopsony.

Taken together, it was the mortal urgencies of the Second World 

War, atomic age, and Cold War that sharpened the concept of a U.S. 

techno-industrial complex around the postwar conception of a defense

industrial base.33 This base supported a perpetual “peacetime” mobilization. Essentially, DOD and the AEC—the forerunner to the Department 

of Energy—acquisition would ultimately provide the material linkage 

between the defense industrial base and national security strategy. The 

size of the Pentagon R&D and procurement budgets relative to those 

of other departments and agencies was the expression of a U.S. technoindustrial policy—albeit without a name. Throughout the Cold War, 

Pentagon acquisition would be the government driver for science and 

technology innovation and a government-created market for aerospace, 

electronics, and nuclear weapons. In an era of postwar growth, this 

policy was justified by this market’s capability to “spin off” a succession 

of technologies into the commercial sectors well into the 1970s.

Distinct from the approach taken by the previous Democratic 

administrations, Eisenhower made no pretense of attempting to manage 

any peacetime mobilization in the White House. The AEC would continue to administer and fund programs to develop and produce atomic 

bombs and ultimately nuclear warheads. The Pentagon would exercise 

responsibility for the means of delivery and the broad range of other 

complex weapons system programs via defense acquisition. 

Upon coming to the Presidency in 1953, Eisenhower initiated the 

Solarium discussions, which were led by his closest security advisors. 

Their object was to craft a more affordable national security policy 

than the national security expenditures supporting Truman’s NSC–68, 

which, along with the costs of the Korean conflict, were busting the Federal budget. The findings of the various Solarium task forces informed 

a policy to build strong strategic offensive and continental defense 

capabilities. The resulting policy, outlined in NSC–162/2, was sold as the 

administration’s “New Look.” Galvanized by the unexpectedly rapid 

Soviet advance in atomic weapons, NSC 162/2 recognized that the U.S. 

nuclear superiority and capability for a retaliatory strike in response to 

a surprise Soviet strategic attack would not last for long. In a January 

1954 speech at the Council on Foreign Relations, as the administration 

finalized its fiscal year 1955 budget, Secretary of State John Foster Dulles 

articulated this first real U.S. nuclear strategy, tagging it “massive 
TOWARD A PREMISE FOR GRAND STRATEGY 39

retaliation.” Any Soviet aggression or attack on the United States or its 

allies would trigger an all-out nuclear attack on the Soviet homeland. 

The council, however, received the speech badly.34 Despite the 

wisdom of Eisenhower’s vaunted “great equation,” which sought to balance 

policies seeking simultaneously to provide security and prosperity, 

council members regarded the strategy as dangerously restricting policy 

options. That November, it convened a study group on nuclear weapons 

and foreign policy led by government attorney Gordon Dean, the former 

chairman of the AEC. Said Dean with regard to the urgency of such a 

study, “For all practical purposes we have in terms of nuclear capabilities 

reached a point which may be called ‘parity.’”35 In the council’s view, parity deprived massive retaliation of its credibility.36 Dean’s study director 

was Harvard’s Henry Kissinger. His panel included some heavy hitters 

in the evolving field of nuclear strategy, notably NSC–68 architect Paul 

Nitze, Robert Bowie of the State Department’s Policy Planning Staff, and 

Army Lieutenant General James Gavin. Also participating in the study 

was Republican Presidential hopeful David Rockefeller, who was with 

Chase Manhattan Bank, representing New York’s financial establishment. 

In early 1956, the study group reported its findings with an 

endorsement of gradual employment of force and arguments that would 

form the basis of limited nuclear war concepts and shape nuclear strategy 

into the 1960s. This material reached a wider audience via Kissinger’s 

book Nuclear Weapons and Foreign Policy, a surprising 1957 bestseller. 

Among the key findings in the study was the realization that all-out 

nuclear war demands the use of “forces-in-being”—in other words, 

industrial mobilization for war in the nuclear age was no longer a 

viable concept. “The only way we can derive an advantage from our 

industrial capacity is by utilizing it before the outbreak of war.”37 Thus, the 

transformative impact of nuclear weapons meant that the two geostrategic adversaries would be fighting the Cold War not with their militaries 

on a battlefield but rather with their techno-industrial bases in a peacetime chess match. “The goal of war can no longer be military victory, 

strictly speaking, but the attainment of certain specific political conditions which are fully understood by the opponent.”38 In the nuclear era:

[t]echnical skill and ingenuity were devoted to the design 

and production of offensive weapons, reducing the opportunities for enemy defenses, but in the process also reducing 

the demands of professional military talents. . . . The problems of national defense were those of the management of 
40 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

technical innovation, large-scale engineering projects and 

far-flung organizations, and of the formulation of a credible 

doctrine for the employment of the means of unprecedented 

destruction. The responsible politicians turned to civilian 

specialists to provide guidance and assistance.39

The think tank RAND become “the spiritual, and often actual, 

home of the new strategy.” In a widely read book published in 1960, RAND 

said, “Essentially we regard all military problems as, in one of their aspects, 

economic problems in the efficient allocation and use of resources.”40

Engaged Expansionism: A Nation Now Ready

The Dean study group expressed a deeper, irrefutable ground 

truth. The position of the established community of interest recognized 

that the Nation was now inextricably internationally entangled, whether 

the isolationists liked it or not. Nuclear parity meant America could not 

retrench behind two oceans as it had done after World War I, despite the 

financial sector’s engagement with Europe in the 1920s. In any event, 

after the loss of China and the Korean War, the isolationists had morphed 

into unilateral interventionists more inclined to pursue an expansionist 

policy in the Pacific than to support Wall Street Atlanticism. The debate 

over nuclear strategy for the remainder of the Cold War would take the 

form of whether to emphasize pursuit of nuclear superiority or arms 

control.41 Eventually, the policy would devolve to what Paul Nitze called 

“dynamic stability.” Both geostrategic contenders in the nuclear arms 

race, in his view, would come to accept the “lack of need for significant 

change over time by either side.”42

As long as postwar growth continued, the community of interest 

so triumphant in 1956 believed it could apply Eisenhower’s “great 

equation” with guns and butter, both to wage cold war against the 

Soviets and to reinvent the world in America’s image. The Soviets had 

sunk their money into guns into Eastern Europe and made the costly 

decision to go nuclear. The U.S. defense industrial economy in the 1950s 

had the leverage to outspend the Soviet Union on guns to the extent 

that it would have precious little left for butter at home, much less to 

apply for policies in the Soviet Bloc or abroad.43 In the late 1950s, the 

Soviets nevertheless tried to do so by advancing a series of economic 

and disarmament initiatives. Eisenhower’s trusted propagandist and 

psychological warfare specialist C.D. Jackson took the stance that U.S. 
TOWARD A PREMISE FOR GRAND STRATEGY 41

policy should force the Soviets to spend money on arms to prevent 

them from releasing it for foreign aid.44 Jackson’s view was informed 

by a grand strategy that was in the making during World War II and 

harkened to the Wilsonianism of World War I.

When war once again had come to Europe in September 1939, 

the Council on Foreign Relations launched what it called the War 

and Peace Studies Project. This effort performed the same task in the 

wartime 1940s as did the American Geographical Society’s Inquiry for 

Postwar Planning during World War I. A key player was a major 

Inquiry participant, Isaiah Bowman. A geostrategic thinker in the 

Mackinder mold, Bowman, a week after Pearl Harbor, said of America 

that the “Arsenal of Democracy” “cannot throw the contents of that 

arsenal away [after the war]. It must accept world responsibility.”45

In 1940, the project arrived at the conclusion that a Germandominated Europe was more self-sufficient than the Western 

Hemisphere—unless America could configure another wartime sphere 

with the British Empire and Far East. The study continued its line of 

reasoning to argue that the U.S. national interest now necessitated free 

access to the markets and raw materials in the British Empire, Western 

Hemisphere, and Far East. In other words, the war required the United 

States and Britain to move beyond Depression-era protectionism and 

economic nationalism. The project’s aide-memoire dated 24 July 1941 

on a so-called Grand Area concept proposed a sphere of interest to 

include the Western Hemisphere, United Kingdom and Commonwealth, Dutch East Indies, China, and Japan. Key was the additional 

language proposing that lasting integration be achieved by international 

financial institutions to stabilize currencies and by international banking institutions to invest in development. Essentially, these proposals 

would create an international system of payments—which was lacking 

after the interwar abandonment of the gold standard and the disastrous 

attempt at floating rates that followed. They would build on the Bank of 

International Settlements established under the 1929 Young Plan, and 

they would find their way into suggestions made in February 1942 for 

an International Monetary Fund (IMF) and World Bank. This language 

was an early enunciation of U.S. postwar strategic goals.46

The 1944 Bretton Woods monetary and financial conference 

in New Hampshire formalized these proposals. Bretton Woods built 

upon the contractual and personal relationships solidified via the LendLease Agreement. What emerged from the gathering were agreements 
42 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

that established a regulated postwar world economy. In addition to the 

IMF and World Bank, these accords provided for the Inter-American 

Development Commission and ultimately the General Agreement on 

Tariffs and Trade (GATT) upon which to base multilateral trade. For the 

next several decades, the preponderance of U.S. capital would enable the 

IMF to oversee the international monetary system. The keystone of Bretton Woods was the agreement that the postwar international monetary 

system would have fixed exchange rates based on the full convertibility of 

national currencies into the dollar, pegged at a rate of $35 per ounce of 

gold, the price set by the 1934 Gold Reserve Act. The dollar would thus 

serve as the global reserve currency for the world’s central banks—in other 

words, an international monetary system based on the dollar standard.

When America triumphed in World War II, it became a nation 

with supreme power—military, industrial, and monetary. Informed by 

the War and Peace Studies discussions, U.S. strategic objectives in the 

broadest sense were internationalist: 

■ restore Europe

■ establish a world economic and monetary system

■ obtain worldwide access to raw materials

■ create a favorable climate abroad for U.S. goods, services, 

and investment

■ reduce global tensions.

The war had revealed that the locus of the American industrial 

base had shifted from extractive industries to manufacturing, as well 

as toward a structured relationship to government-sponsored R&D for 

military applications. Extractive combines were now looking overseas 

for raw materials; agriculture was looking to sell its surpluses abroad. 

For manufacturers, an economic policy of export-led growth would 

allow them the freedom to produce by creating a market for their 

goods. As was the case after World War I, investment banks and capitalintensive firms and their allies in labor and organized agriculture saw in 

prostrate Europe opportunities for expansion. 

The Marshall Plan for European reconstruction met and mutually 

reinforced foreign and industrial policy objectives, essentially revisiting 

the frustrated policies of the post–World War I internationalists. The 

United States would now seed Herbert Hoover’s associationalist ideas 

in Europe and around the world. It would replicate the American 
TOWARD A PREMISE FOR GRAND STRATEGY 43

managerial and political-economic system to put right the Old World 

and its empires and keep international order. 

Of course, the deepening Cold War interrupted the process. To 

these strategic goals, the grim acknowledgment that the Soviet Union was 

already America’s postwar geostrategic adversary necessitated another 

policy objective: containment. The Soviet demonstration of an atomic 

weapons capability in 1949 and the means to deliver nuclear warheads 

to the American homeland in the next decade shifted the U.S. strategic 

priority to national security in what policymakers would characterize 

as a bipolar world. The paradigm for strategic defense of the homeland 

and the “West” would remain into the 1980s—even as the world became 

politically and economically polycentric in the 1960s and 1970s.

Despite the vaunted bipartisanship of the World War II years, 

this grand strategy had its opponents—generally Midwestern Progressive Republicans, most notably Ohio Senator Robert Taft and Indiana 

Representative Charles Halleck. Like the interwar isolationists, they were 

hostile to the Atlanticist bent to U.S. foreign policy. They put priority on 

the Pacific and Far East, where they saw America as able to function 

unilaterally. These areas were at the farthest reaches of the crumbling 

European empires. Along with China, they were potentially the primary 

suppliers of resources for America. When Mao Tse Tung’s Communists 

came to power in 1949, these opponents of the Atlanticist grand strategy 

turned from isolationism to unilateral interventionism, believing that—

vis-à-vis the Soviet Union—the preservation of American nuclear superiority would enable unilateral interventions. This difference in point of 

view in the 1940s and 1950s illustrates how those reflecting the community of interest among the extractive industries and attuned to the strategic importance of access to raw materials were not entirely on the same 

page as those representing another community of interest—the financiers, manufacturers, and traders. Grand strategy during the Eisenhower 

period required a balancing act for the crafting of his “great equation.”

During the early 1950s and into the Eisenhower years, a number of 

study groups generated papers suggesting directions for the country, akin 

to what had been done with Woodrow Wilson’s World War I Inquiry 

and the Council on Foreign Relations’ World War II–era War and Peace 

Studies Project. Eisenhower strategist C.D. Jackson put together in late 

1954 a high-level conference in Princeton that brought the fruits of these 

studies together.47 The Eisenhower-era preference was to promote private 

investment approaches as an alternative to public development projects 
44 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

characterized by residual New Deal thinking. These efforts by Jackson 

were to form the basis of America’s world economic policy for the balance 

of the decade and into the next. MIT economists Walt Rostow and Max 

Millikin collated and published the Princeton findings. Framing them 

as constituents of a global development project, Rostow and Millikin 

offered them to the Third World as an alternative to European imperialism and neocolonialism and to the Communist bloc as an alternative 

to costly struggle with the West. Millikin and Rostow were proposing 

a threefold approach: a Marshall Plan for Asia, a mutual security 

program for Latin America, and foreign aid for everywhere.48 Eisenhower’s 

successor, John F. Kennedy, would eventually modify and pursue these 

ideas when the Nation began to look beyond Atlanticism in the 1960s.

After the 1961 Berlin and 1962 Cuban missile crises, the United 

States and the Soviet Union were able to settle many of their geopolitical issues, stabilize the strategic balance, and manage their (by then 

mutually accepted) spheres of interest.49 Yet the apparent strait-jacketing 

of Soviet-American relations fostered discontent in Europe, particularly in West Germany and France, and in China. Both Cold War “poles” 

of the globe chafed at having to live under an imposed bipolar division. 

France and China commenced atomic weapons testing in 1960 and 1964, 

respectively. In 1970, West German Chancellor Willy Brandt pursued 

rapprochement with the Soviet bloc through his Ostpolitik. By that time, 

the Soviets and Americans were managing—to a degree—their escalating strategic arms race, arguably a costly nuclear parity all along, as 

they struggled toward and then away from détente.50 Yet they had been 

colliding in the Third World for the better part of the 1960s. There, the 

Soviets had underwritten (with both rhetoric and aid) various proxies 

in so-called wars of national liberation. The Kennedy administration 

had responded by exporting the New Frontier via Walt Rostow’s 

widely cited model of economic growth and industrial development 

as a containment mechanism. The inextricable collision—at least for 

America—came in Southeast Asia, where the United States committed 

itself to South Vietnam without a strategy for defeating an enemy and 

consequently squandered its blood and treasure. 

The costs of the Vietnam War escalated during President Lyndon 

Johnson’s watch and led to dramatic increases in U.S. inflation and 

deficits that stressed the international monetary system. Germany, 

France, and Japan, whose strong economies had appreciated their 

currency values against the dollar, held major dollar surpluses. The 
TOWARD A PREMISE FOR GRAND STRATEGY 45

situation continued to worsen into the administration of Richard Nixon. 

Fearing these U.S. deficits would reduce the value of their holdings, 

they had started exchanging dollars for gold. Nixon had the Federal 

Reserve continue to print money to stabilize the currency. By mid-1971, 

Germany, Switzerland, and France were opting unilaterally to leave the 

Bretton Woods system, further accelerating the run on American gold. 

In August, Congress recommended devaluation, and Nixon 

closed the gold window, put in place wage price controls, and 

introduced an import quota. Critics were quick to accuse him of not 

consulting with the allies, although governments had already ceased to 

coordinate their monetary policies. It was clear that the Bretton Woods 

system would not survive. While the United States was still at the 

center of the system, Europe and Japan were now credible rival centers 

of international economic power.

The so-called Nixon shocks of August 1971 further deteriorated 

relations among the United States, Western Europe, and Japan. 

The President’s New Economic Policy of 1971 unilaterally devalued the 

dollar, demonetized gold, and raised U.S. tariffs. His critics accused him 

of returning America to a policy of disastrous isolationism and protectionism. In part, Nixon’s economic nationalism was intended to help 

U.S. exporters and manufacturers, who were competing with foreign 

imports, as was his introduction of a 10 percent import surcharge that 

disregarded GATT. But it did not necessarily help the multinational 

corporate and banking interests. 

Nixon’s demonetization of the dollar returned the world to the 

dangerously unstable system of floating exchange rates of the 1930s. Yet 

the circumstances were significantly different in two respects. First, in the 

1930s, the United States may have gone off the gold standard by devaluing 

the dollar, but it still pegged it to gold at $35 an ounce. In the 1970s, when 

Nixon cut the dollar loose, it was truly floating. Second, in the 1930s, 

the international system had fractured into economic and monetary 

spheres of interests. In the 1970s, however, the dollar was ubiquitous 

as the world’s only international reserve currency. With that realization 

came another: one country alone could determine the direction of international monetary policy, and that country was the United States. 

The Cold War Endgame and the Primacy of Monetary Strategy 

Nixon’s sharp reversal of American monetary policy, which 

struck the decisive blow that felled Bretton Woods, prompted a reaction 
46 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

among the internationalists. The theoretical origins to inform that 

reaction came from Columbia University’s Zbigniew Brzezinski. Writing 

in 1970, Brzezinski said that U.S. policy must shape a new world 

monetary structure. The United States must further abandon restrictions 

on American corporations operating foreign subsidiaries and plants in 

favor of a “truly international structure of production and financing.” 

Finally, policy must reflect a theory of international production to 

supplement theories of international trade.51

Brzezinski was representing the coming of age of so-called 

transnational or multinational corporations. These private international actors often functioned according to their own interests and 

priorities—as opposed to national ones. Postwar national policies in 

Britain and the United States in fact did support such corporations.52

The American approach, however, differed from the traditional 19thcentury British policies. Whereas British imperial policy supported the 

sending of capital and labor overseas to its colonies and dominions, 

postwar U.S. policy promoted the dispatching of corporate management 

to foreign subsidiaries, thereby creating a system where U.S. corporations functioned more like trading companies. While U.S. policy was not 

imperial, it was not exactly free trade. 

As early as 1956, American food giant H.J. Heinz Company 

received 70 percent of its income from abroad.53 In the 1970s, foreign 

subsidiaries produced four times the value of what the United States 

exported, and most of those exports were internal transfers to those very 

subsidiaries. As for capital transfers, postwar U.S. policy encouraged 

corporations to make direct investments abroad. In 1956–1957, direct 

foreign investments by U.S. firms increased by $4 billion, with 40 percent 

going to Latin America, mostly in the petroleum sectors, as well as to 

Africa and the Middle East.54 U.S. overseas investments flourished—

especially in Europe after the 1958 establishment of the European 

Economic Community (EEC), the original iteration of the European 

Union. As this trend continued into the 1960s, America became more a 

foreign investor than an exporter of domestically manufactured goods. In 

the 1970s, U.S. corporations extended their investments beyond Europe 

into rapidly developing countries, putting capital in their growth sectors, 

this time primarily in manufacturing. By 1971, U.S. corporations held 52 

percent of worldwide foreign direct investment. 

U.S. domestically based manufacturers did not always benefit. In 

the 1960s, U.S. support for EEC protectionist policies made American 

exports less competitive. Yet Europeans placed no restrictions on the 
TOWARD A PREMISE FOR GRAND STRATEGY 47

transfer of U.S. capital into Europe. Nixon reflected these manufacturing 

equities in choosing to impose import quotas as part of his package to 

resolve the 1971 monetary crisis. His retrograde economic nationalism 

did not square with the forward-thinking Brzezinski. The Columbia 

professor held that economics, science, and technology were propelling 

nations and societies to functional forms of cooperation with limits on 

national sovereignty. The role of oil companies helped prove his point. 

Since the 1920s, the U.S. policy supported use of American oil firms 

to manage U.S. relations with the Arab world. By the 1970s, once U.S. 

consumption of overseas oil surpassed the supply from domestic fields, 

those very firms were increasingly inclined to represent Arab equities.

With support from the Brookings Institution, Brzezinski launched 

a course on what he called Tripartite Studies at Columbia in December 

1971. Brzezinski’s work aligned with the views of Chase Manhattan’s 

David Rockefeller. The preeminent New York banker had concluded 

that financial institutions in America were dominating the industrial 

sectors of the economy.55 Further, he proposed to eliminate any restrictions on multinational corporations in their pursuit of world economic 

development. In July 1972, the banker assembled a 17-person gathering at 

the Rockefeller estate at Pocantico, New York, to consider in effect a grand 

strategy with the foremost aim of stabilizing the international monetary 

system.56 Among their numbers were former Kissinger associate Fred 

Bergsten and Henry Owen, both from Brookings, Harvard’s Robert 

Bowie, Ford Foundation President McGeorge Bundy, and Council on 

Foreign Relations President Bayless Manning. From this Pocantico 

planning session came the storied Trilateral Commission. The following 

July, Brzezinski became its director.

The strategic vision that emerged was for streamlining the U.S. 

economy by emphasizing high-tech, high-productivity, high-profit 

industries like advanced electronics, aerospace, and energy over laborintensive, low-tech, poorly competitive industries like textiles and steel. 

The so-called Trilateralists suffered criticism for failing to appreciate 

the threat posed by the Soviet Union’s determined strategic nuclear modernization. This criticism, however, did not apply to Brzezinski, who as 

Jimmy Carter’s national security advisor pushed for a strong U.S. stance 

on nuclear modernization and arms control negotiations, which those 

very critics credited the Reagan administration for pursuing. Ronald 

Reagan also benefitted from a notably prescient Trilateralist analysis that 

predicted the declining Soviet economy going critical in the 1980s.57
48 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

When the Reagan administration came to Washington in 1981, 

the focus of U.S. national security policy had already returned to the 

Soviet Union. The United States would fund strategic modernization 

to counter the Soviet program that had been under way throughout the 

1970s despite the jewel of détente, the 1972 Strategic Arms Limitation 

Treaty. After the Soviet invasion of Afghanistan, the United States was 

ready to rise to the challenges presented by Soviet activity in the Third 

World. Reagan agreed with Brzezinski: the Soviet system was going 

bankrupt. His administration would go for broke with a full-court press 

to stress Soviet imperial overreach.

At the same time, America and the West had their own stress 

fractures. Western economies were suffering through what was called 

stagflation—simultaneous high interest rates and high unemployment. 

The second set of Organization of the Petroleum Exporting 

Countries oil price hikes in 1979 had created energy shortages 

and led to Third World debt defaults. Coincident with the Iranian 

Revolution, the price increases were leading to renewed moves toward 

economic nationalism. U.S. economic rivals Germany and Japan were 

pursuing independent and competitive paths. Although high growth 

was occurring in information-based industries, the West was facing 

industrial overcapacity in traditional heavy industry—steel, autos, 

and shipbuilding—where additional competition was coming from 

production in the Third World. The linchpin of the international system 

was still the United States with its strategic power, military alliances, and 

the dollar. The Carter administration’s attempt to manage the system 

using a multilateral approach was seen to have failed. Ascendant Reagan 

Republicans and their neoconservative Democratic allies would reassert 

U.S. unilateralism and supremacy. 

Nevertheless, fault lines could be found in the administration. 

It had fashioned itself with representation from national industries 

and defense contractors who had formed an uneasy Reagan-inspired 

coalition with representatives from big banks and corporations more 

inclined to free trade and détente. The locus of the former was Reagan’s 

circle of White House advisors, plus Secretary of Defense Caspar 

Weinberger. Representing the internationalist side were Vice President 

George H.W. Bush, White House Chief of Staff James Baker, and George 

Shultz, who succeeded Alexander Haig as Secretary of State in the 

second year of the Reagan presidency. 
TOWARD A PREMISE FOR GRAND STRATEGY 49

In the second term, Shultz would emerge as the key player to 

bring the administration together. Shultz was an economic strategist, 

a tough-minded moderate attuned to the nuances. His background 

included high-level work in monetary policy at a critical time: in 1972, 

just after the Nixon shock, he succeeded John Connally as Nixon’s 

Treasury Secretary. His main task was to pull together a plan to restore 

the international monetary system, working alongside Federal Reserve 

Chairman Arthur Burns, Secretary of State William Rogers, Council of 

Economic Advisors Chairman Herb Stein, Assistant to the President for 

International Economic Affairs Peter Flanigan, and Under Secretary 

of the Treasury for International Monetary Affairs Paul Volcker.58 In 

March 1973, Shultz assembled the so-called Library Group of finance 

ministers, which met at the White House. Guided by Volcker’s desire 

for an international solution, this assemblage ultimately formalized into 

a regular mechanism for international financial consultation under the 

rubric Group of Six (G–6), now expanded to the Group of 8.

The conservative circle around Reagan emphasized both strategic 

and conventional defense modernization to further stress the Soviet 

economy. Reagan’s Strategic Defense Initiative (SDI), deemed a wasteful, 

destabilizing, and technically unsound effort, generated particular criticism at the time. However, SDI reflected the recognition of the deeper 

truth of the battle of techno-industrial bases that was the Cold War. It 

was not so much whether SDI could work, but rather with enough resources whether it might lead to a strategic paradigm shift, analogous to 

that produced by the Manhattan Project. Career intelligence professional Robert Gates offered the best insight: “SDI was a Soviet nightmare 

come to life. America’s industrial base, coupled with American technology, wealth, and managerial skill, all mobilized to build a wholly new 

and different military capability that might negate the Soviet offensive 

build-up of a quarter century. A radical new departure by the United 

States that would require an expensive Soviet response at a time of deep 

economic crisis.”59 He adds, “I think it was the idea of SDI and all it 

represented that frightened them.”60 In the military realm, in the end, 

the United States defeated the Soviet Union on the techno-industrial 

battlefield in a war of budgetary attrition. As Eisenhower strategist C.D. 

Jackson had foreseen in the 1950s, when it came to guns and butter, the 

United States was supremely able to out-produce the Soviet Union in 

both to bankrupt its system and win the Cold War.61
50 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

At the same time, the Reagan administration had to preserve the 

Western international system whose multiple fissures posed risks to the 

American grand strategy. When James Baker became Secretary of the 

Treasury in the second term, item one on his agenda was the dollar.62

His approach aligned with the thinking of those behind Shultz, as well 

as with the international monetary views of Volcker and Brzezinski: 

preserve the dollar as the world’s reserve currency by finding a means 

for “international economic policy coordination.” Baker understood 

the need for coordination: governments, companies, and investors had 

difficulty planning for the long term, because since the end of Bretton 

Woods, it was the market that set currency values. Baker thus worked 

with other foreign financial leaders to establish a process for multilateral, macroeconomic policy coordination that resulted in the 1985 

Plaza Accord. The United States got agreement from Britain, France, 

West Germany, and Japan to have central banks intervene in the 

currency markets to revalue the dollar against the Deutschmark and 

yen. Baker maintained that the accord was a crowning achievement.63

Meanwhile, George Shultz emerged unscathed by the Iran-Contra 

arms-for-hostages scandal that broke in 1986. In the administration 

shakeout that followed, Reagan gave Shultz the foreign policy lead. The 

Cold War was already in its endgame. Shultz sent his Deputy Secretary 

of State, former Goldman Sachs executive John Whitehead, on a factfinding mission to Eastern Europe. The sojourn revealed cracks in the 

bloc and in the Soviet Union as well, which, Shultz recognized, prevented 

the Kremlin from taking action to preserve its control over Eastern 

Europe. With the Western economies solidifying their macroeconomic 

coordination on a global scale, Shultz could envision the end. After 

George H.W. Bush was elected, Soviet Premier Mikhail Gorbachev 

in a speech before the United Nations General Assembly evinced his 

acceptance that “the world economy is becoming a single organism.”64

Shultz drew from the remark the realization that Gorbachev was ready to 

engage with the West and that his desire arose from a position of weakness. The only Soviet strength was in strategic weapons. The incoming 

Bush administration would arrive with a broken adversary looking for 

Western economic and technological aid. 

And so the Cold War ended during the Bush Presidency with the 

final economic and political bankruptcy of the Soviet system, stressed 

by U.S. national strategy. The elements of that strategy only became fully 

integrated in late 1986 when the Iran-Contra scandal forced the Reagan 
TOWARD A PREMISE FOR GRAND STRATEGY 51

administration to reorganize. The leadership team that emerged from 

the wreckage successfully represented and knit together the strategies 

for nuclear and conventional force modernization with arms control 

vis-à-vis the Soviet Union, and the various approaches for facilitating 

international monetary and trade policy coordination with Europe and 

Japan. In its Cold War victory, the United States thus achieved its broad 

strategic goals of 1947, albeit almost half a century later. 

George H.W. Bush presided over the end of the Cold War and with 

his national security advisor, Brent Scowcroft, wrote its epitaph: “The 

Cold War struggle had shaped our assumptions about international and 

domestic politics, our institutions and processes, our armed forces and 

military strategy.” 65 Observed Robert Gates, “It was a glorious crusade.”66

As for America’s future role in the post–Cold War world, Bush and 

Scowcroft offered their view: the United States was the only power able to 

“engender predictability and stability in international relations.”67

The Nineties: (Not) the End of History

In January 1989, the Bush team had assumed the reins of 

national power with Jim Baker as Secretary of State. The new President 

trumpeted the appointment, saying, “As secretary of state, he will be my 

principal foreign policy advisor.”68 As for his foreign policy expertise, 

Baker claimed his previous international work in the Treasury Department with the world’s finance ministers and central bankers.69 Baker’s 

assessment of his appointment was an early signal of what promised 

to be a post–Cold War power shift in Washington and the Executive 

Branch: the decline of the Pentagon and the rise of Treasury and the 

Federal Reserve. As the Nation proceeded into the 1990s, it would 

become clear how the strategic priorities, whether expressed in 

declaratory policy or not, would move from considerations of national 

security informed by the community of interest around the defense 

techno-industrial base to those of monetary policy counseled by a 

community associated with the financial services sector. 

Narrowly conceived, the Federal Reserve was supposed to 

supervise and regulate banks, implement monetary policy, and 

maintain a strong official payments system. In August 1987, Alan 

Greenspan had become its chairman. Greenspan took the position that 

the Federal Reserve should assume a more activist role by adopting 

policies of market interventions—policies somewhat beyond those of 

free-market economics. Under Greenspan, Washington thus would 
52 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

have a regulatory policy for the financial services sector (read bailouts). 

Prompted initially by the credit and debt crises of the 1980s, the dollar 

value of these accelerating interventions would eventually rival the 

oft-criticized Pentagon budget amounts that benefitted the sometimes 

maligned Cold War military-industrial complex. As the Cold War 

priorities began to recede and the impact of the 1980s debt crises began 

to be felt, political power realigned toward lenders, banks, investment 

firms, mutual funds, and the like. 

The 1990s would prove to be a decade without any sustained 

global national security distractions. Policymakers could finally and 

fully address the formalizing of the international monetary and trading 

regimes envisaged in 1944 at Bretton Woods. Fifty years on, the international political-economic system was markedly different: the new fact 

of life was globalization.

The United States may have entered the 1990s as the world’s sole 

superpower. Absent a geostrategic military rival, the military component 

of national strategy quickly assumed diminished importance. Yet 

initially, the U.S. military-industrial sector and defense policymakers 

did not recognize the full extent of the meaning of globalization. Abroad 

was a very competitive Japan and a Europe moving toward some sort 

of union under what was at the time tagged “EC 92.” The American 

defense community saw potential geostrategic rivals converging into 

neomercantilist blocs. In response, defense managers proposed to apply 

“competitive strategies,” a concept developed during the Cold War endgame. The approach had relied on net assessments to make the material 

link between operational concepts, specifically for North Atlantic Treaty 

Organization warfighting, and acquisition. In the post–Cold War era, 

advocates sought to translate this approach to strategies for economic 

competitiveness. They aligned themselves with another carryover 

initiative to identify, prioritize, leverage, and acquire critical technologies 

that would serve as a basis for informing a U.S. techno-industrial 

policy. The model was the late 1980s government-funded 14-member 

Sematech consortium for semiconductor manufacturing, the U.S. 

attempt to regain competitiveness in the information technology (IT) 

base vis-à-vis Japan. Sematech enthusiasts assumed that the vaunted 

“peace dividend” afforded by the end of the Cold War could reprogram 

to underwrite similar efforts to retool American manufacturing—for 

example, by making it agile—for other critical technologies that offered a 

competitive, high-tech value-add. Sematech, however, was not repeated. 
TOWARD A PREMISE FOR GRAND STRATEGY 53

The majority opinion among Republicans and Democrats opposed use 

of any techno-industrial policy that would “pick winners and losers.” 

At the same time, facing certain cuts to Pentagon budgets, 

tier-one prime contractors put emphasis on loosening export control 

policies. In their pursuit of the anticipated closing of the common 

European defense market, they secured—when and where they could—

approvals for offset agreements, at the expense of their own third-tier 

defense suppliers in America, to overcome nontariff barriers such as 

rules of origin and local content requirements. These global strategies 

led to the point where some tier-two defense electronics firms, notably 

EDS Defence, were unabashedly claiming to be “stateless corporations.”

The consumer electronics sector in the 1980s and 1990s was 

driving technology advances. Whereas in the Cold War era, the defense 

sector generated “spinoff” technologies for the commercial sector, 

the private sector had surged ahead offering “spin-in” technologies 

for defense applications, notably in IT, the EDS core competency. 

In short, the defense and the commercial techno-industrial bases 

had merged and were no longer conceived as a “national” base but 

rather as enterprise elements exchanging intellectual property, human 

resources, goods, services, and capital in a global commons.

Advances in information technology enabled corporations to 

flatten their organizational structures. No longer traditional hierarchies, 

corporations were moving toward network structures. They were embracing joint ventures and strategic alliances, often with foreign partners. 

Transnational corporations could use IT to accelerate their use of global 

R&D and manufacturing strategies. In a move away from fixed assets, 

which stranded capital, they could outsource and implement just-in-time 

logistics management strategies whereby they could “warehouse” inventories in the supply chain, a strategy that assumed that strategic-level 

security threats would remain things of the past and a distant concern. 

Corporations made competitive assessments based on an increasing capability to use IT to develop and perfect algorithms for return 

on investment. In the early 1980s, a trend became evident. Increasing 

numbers of institutional investors were serving on corporate boards. 

Accordingly, major corporations began to assess themselves differently, 

no longer simply looking at production as their profit centers; their 

financial services divisions suddenly became more interesting. These 

divisions are now very familiar: examples include General Motors’ 

GMAC and General Electric’s GE Capital, both of which are heavily into 
54 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

home mortgages and commercial financing—far removed from what 

their core businesses were during America’s industrial era. 

Whatever date or event historians may ascribe as the precise end 

of the Cold War, Bill Clinton was inaugurated in January 1993 as the 

first post–Cold War President. In a sense, the 1990s were comparable 

to the post–World War II era when the United States pursued European 

reconstruction via the Marshall Plan. In that respect, the Clinton 

administration would continue its predecessor’s policy to resource 

development in Eastern Europe and the former Soviet republics, adding 

to it the objective of arriving at some kind of economic and security 

condominium with China. As for national security, the administration 

cut Pentagon acquisition, privatized defense functions, and changed the 

mission of the Department of Energy nuclear complex of laboratories 

and sites from development and production of nuclear weapons to 

“environmental management.” In effect, the Clinton administration put 

an end to what had been America’s Cold War techno-industrial policy. 

In its stead, the administration adopted a policy associated with 

Third Way centrism. Its adherents in Britain and America proposed 

to build upon the policies of Prime Minister Margaret Thatcher and 

President Reagan that embraced deregulation, privatization, and 

globalization. In effect, the techno-industrial policy that emerged for the 

1990s would benefit not defense, but telecommunications, the utilities, 

and financial services. 

In terms of pure size, the financial services sector was America’s 

biggest, outstripping manufacturing, health, wholesale/retail, and 

agriculture. The community of interest was a constellation around a 

core of Wall Street investment banking and the Federal Reserve Bank 

of New York. Yet whereas the investment bankers had served the interests of their shareholders, the profusion of shadow banking mechanisms 

and instruments made loyalty somewhat situational. 

For the most part, shadow banking arose as one consequence 

of the floating currency exchange rates following the breakdown of 

Bretton Woods. No longer were governments effectively able to use controls as principal means to administer monetary policy and the supply 

of money. When the dollar ceased to be based on gold convertibility, 

it became based on projected future value, and that entailed risks that 

needed to be hedged. By the 1990s, the widespread use of hedge funds, 

derivatives, credit default swaps, and other financial instruments to 

address risk could also serve as vehicles for speculation, spawning the 
TOWARD A PREMISE FOR GRAND STRATEGY 55

unregulated world of shadow banking. In this world, loyalty was now to 

the “deal.” And more often, the deal was a financial instrument for some 

aspect of an enterprise in the global commons whose raison d’etre was 

just that—the deal. The decade was all about the mobility of capital—

indeed, though still denominated in dollars, capital that was stateless. 

In sum, globalization was really the globalization of financial markets. 

If Henry Kissinger had the stature of a Metternich of the Cold 

War, Robert Rubin was the Cavour of the New World Order. As the 

co-chairman of Goldman Sachs, Rubin participated in Clinton’s transition team. By this time, Goldman had become the Dillon Read of the 

end of the American Century. In 1968, John Whitehead had led the firm 

toward a global and strategically minded enterprise. Whitehead brought 

Lyndon Johnson’s Treasury Secretary, Henry Fowler, to the firm. At 

the same time, he turned Goldman into the first international investment banking firm, establishing a London office with the capability to 

offer American-style commercial paper, corporate promissory notes, in 

a sense equivalent to government-issued paper currency. 

In his 2003 memoir, Rubin says the global priorities were clear 

to Clinton’s transition team. When the President-elect’s economic 

policy advisors considered bond markets, they took as their starting 

point for analysis and advice the international—as opposed to the U.S.—

bond market. Rubin determined that his role as Clinton’s Secretary 

of the Treasury would be to craft policy precisely on the basis of a 

globalization of financial markets.70 Other authors cite a September 1993 

speech by National Security Advisor Anthony Lake at Johns Hopkins 

University as the key statement of what was going to be the Clinton 

administration’s grand strategy focus. Lake spoke of the transition from 

a policy of containment to a policy to enlarge market democracies.71 In 

effect, this approach was a continuation of the postwar policies of the 

two wars, which were interrupted by the Cold War. Rubin and Clinton 

stood for free trade, financial deregulation, and IMF leverage to further 

international monetary and economic policy coordination. The United 

States would serve as the facilitator of a single, globalized market. Its 

security responsibilities would be to maintain peace and stability to 

enable multilateral banking and trade to thrive further.

Rubin and his senior Treasury team,72 which included Larry 

Summers, Tim Geithner, David Lipton, and Caroline Atkinson, worked 

closely with Alan Greenspan to craft policies that supported the 

Federal Reserve chairman’s goals for American banking when he 
56 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

succeeded Paul Volcker in 1987. In the last decade of the 20th

century, international banking was dominated by superbanks such 

as the Japanese Mitsubishi, the British Hong Kong Shanghai Banking 

Corporation (HSBC), the Swiss Credit Suisse, and the German 

Deutsche Bank. When Greenspan became chairman, the United States 

had no banks in the world’s top ten. Greenspan and the Federal Reserve 

became advocates of the idea that America should have its own superbanks to compete. Federal Reserve policy thus moved to support the 

idea. After a decade as chairman, Greenspan was able to say that the 

Fed was able not only to cut interest rates but also bail out banks—and, 

like the Bank of Japan, intervene in “market events.” It could, for example, buy futures or equities from mutual funds and other institutional 

sellers to forestall panic and pump money into the system. It could even 

buy state and local debt, real estate, or gold mines.73 With a Washington 

policy for bailouts, the Federal Reserve provides liquidity and benign 

regulation. In effect, Greenspan’s approach was an industrial policy for 

the U.S. financial services sector. The repeal of the 1933 Glass-Steagall 

Act in the 1999 Financial Services Modernization Act, which eliminated 

the barriers to commercial banking, insurance, securities, and mortgages, was the final enabler for Greenspan’s superbanking competitive 

strategy. By 2003, the United States had three banks in the world’s top 

ten. Citigroup stood at number one, accompanied in the rankings by 

Bank of America and JPMorgan Chase. 

The enhanced confluence of the Federal Reserve and Treasury in 

the 1990s elevated the monetary policy of the United States to a postwar 

grand strategy built around the Nation’s superbanks as the competitive 

core and the dollar as the U.S. export. The techno-industrial base would 

appear no longer to be the American core. As always, the numbers tell 

the tale. In 1950, just into the start of the Cold War, manufacturing 

represented 29.3 percent of gross domestic product (GDP); finance was 

a mere 10.9 percent. That year, manufacturing generated over 50 percent 

of U.S. corporate profits; finance accounted for 10. Fifty-five years later 

in 2005, manufacturing provided just 12 percent of GDP, while finance 

contributed 20.4. Yet the really telling numbers are that year’s figures on 

corporate profits: in 2005, manufacturing tallied less than 10 percent, 

while finance was responsible for 40 to 50 percent of all corporate 

profits in the United States.

In today’s national economic policy debates, the globally oriented 

financial services sector is dominant over what had been the Cold 
TOWARD A PREMISE FOR GRAND STRATEGY 57

War military-industrial complex, many of whose elements are more 

nationally oriented. The post–Cold War budgetary retrenchment 

in the 1990s consolidated this complex into a handful of behemoth 

defense firms, such as Lockheed Martin, Northrop Grumman, Boeing, 

Raytheon, and General Dynamics. The Pentagon monopsony gave way 

to these defense-industrial “trusts,” reduced to begging for business. If 

Lockheed Martin represents the first among equals “inside the Beltway,” 

it is Goldman Sachs who is the big dog with Washington suasion on 

Wall Street. Once, the industrial policy debates had been over “picking 

winners and losers.” In the first decade of the 21st century, the debates 

are over “too big to fail.” 

And what geostrategic threat now rises to focus the national mind 

on a grand strategy? After 9/11, the George W. Bush administration 

tried to tie rogue states with weapons of mass destruction capabilities 

to al Qaeda to pursue a global war on terror. Some saw this as, at best, 

a declaratory policy. They would argue that the Bush grand strategy 

was a resource strategy, the subject addressed by Vice President 

Dick Cheney’s National Energy Policy task force. Or is it, at bottom, 

preservation of the dollar as the international reserve currency? If so, 

the threat could be coming from a truly geostrategic rival who not only 

holds a significant amount of our national debt but is also developing 

information warfare capabilities that could end American life as we 

know it without firing a shot. Can we assume that we can manage this 

cyberspace standoff as successfully as we did with nuclear deterrence? 

And swimming in an ocean of debt, how does our nation resource what 

remains of our heartland (if such a descriptive still has meaning) 

techno-industrial base to rise to these challenges?

History indeed is without end. We have our work cut out for us. 

Notes

1Aaron L. Friedberg, The Weary Titan: Britain and the Experience of Relative Decline, 

1895–1905 (Princeton: Princeton University Press, 1988), 79.

2Leopold Amery, “Comments on Mackinder,” Geographical Journal 23 (1904), 439–441.

3Admiral Mike Mullen, USN, Chairman of the Joint Chiefs of Staff, August 26, 2010. 

4Today, most notably the Pentagon, Treasury, and Federal Reserve.

5All properties in England and Wales are either freehold or leasehold. The owner of freehold properties fully owns the land and buildings. Leasehold properties do not include ownership 

of the land and in some cases the buildings—for example, in the case of apartments. Leaseholders 

are granted the right to live there by the freeholder and own the property for as long as the lease 

specifies. Many leases were originally granted for up to 999 years, but existing leases on properties 
58 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

are usually shorter—for example, 99 years. At the end of the lease, possession of the property reverts to the freeholder. The largest freeholders in the West End of London include the Queen, the 

Church of England, the Duke of Westminster, the Earl of Cadogan, the Howard de Waldens, and 

Viscount Portman.

6The Federal Government also provided support for transportation infrastructure projects. The noteworthy example was the Cumberland or National Road over the Allegheny Mountains. Construction began in 1811 at Cumberland, Maryland, and finished in 1818 in Wheeling, 

on the Ohio River, in what is now West Virginia. A series of turnpikes connected the road to Baltimore by 1824. To the west, the National Road continued to Illinois, finishing in Vandalia in 1839.

7Although the United States sees itself as the historical champion of free trade, New England and the North were generally protectionist at this time, whereas the South was for free trade. 

At issue was the use of tariffs to protect infant industries—an industrial policy, as it were, that benefitted the North. The Southern and Midwestern agricultural interests, which were at the time generating the vast majority of U.S. exports, did not wish to see America contributing to tariff wars 

with Europe and European colonies—their overseas markets. Moreover, not having their own regional industrial bases, they did not want the costs of imported manufactures burdened by further 

costs imposed by high Federal protectionist tariffs. This disconnect was a continuance of the creative tension that began with the Founding Fathers, specifically New York’s Alexander Hamilton 

and Virginia’s Thomas Jefferson, and endures as an American historical narrative motif. In the 19th

century, tariff policy was one key manifestation that divided centralizing industrial and financial 

interests from decentralized agrarian and small business interests in the South and Midwest. Then, 

tariffs were the principal means for the Federal Government to collect revenue. Yet high tariffs protected home industry and further supported those deemed critical to the Nation’s defense, an argument put forth by Kentucky Hamiltonian Henry Clay on behalf of his so-called American System, 

which included policies for Federal funding of infrastructure projects and a strong national bank.

8Postwar American policymakers essentially took this approach and applied it to Europe 

with the Marshall Plan.

9Michael J. Hogan, The Marshall Plan: America, Britain, and the Reconstruction of Western 

Europe, 1947–1952 (Cambridge: Cambridge University Press, 1987), characterizes the American 

version of the “associative state” as having a: 

political economy founded on self-governing economic groups, integrated by institutional 

coordinators and normal market mechanisms, led by cooperating public and private elites, 

nourished by limited but positive government power, and geared to an economic growth 

in which all could share. These efforts married the older traditions associated with the localized and fragmented political economy of the nineteenth century, including individualism, privatism, competition, and antitrust, to the twentieth-century trend toward an organized capitalism characterized by national economies of scale, bureaucratic planning, and 

administrative regulation. (3)

10Prior to his political career, Hoover was a mining engineer. His brand of associationalism 

owed much to Fredrick Winslow Taylor’s Efficiency Movement. In Britain prior to the Great War, 

Halford Mackinder was identified with the British iteration, the National Efficiency Movement. 

The effort, championed by Mackinder while at the London School of Economics, had similar technocratic goals—for example, to reverse the deterioration of efficiencies in the military, business, 

and government administration, first revealed in the Boer War, oft cited as Britain’s Vietnam.

11After the Panic of 1893, President Grover Cleveland restored the income tax until the Supreme Court declared it unconstitutional in 1895. 

12Carnegie named the works after the Pennsylvania Railroad president, in homage to 

Thompson’s mentoring him as a young man.

13The Industrial College of the Armed Forces’ Benjamin Franklin Cooling marks these 

awards as the origin of the Nation’s military-industrial complex. See Cooling, Gray Steel and Blue 

Water Navy: The Formative Years of America’s Military-Industrial Complex 1881–1917 (Hamden, 

CT: Archon Books, 1979), 55.

14 Ibid., 12–13.
TOWARD A PREMISE FOR GRAND STRATEGY 59

15 John S. Craighill, David E. Jeremiah, Howard K. Schue, and John F. Morton, “The Navy 

General Board: Balance Wheel to Receiving Ship,” Technology Strategies and Alliances, Report to the 

Office of Net Assessment, March 31, 2005.

16To be sure, a case can even be made that presteel shipbuilding “industrial” base priorities 

were evident in Federal policies as far back as the early years of the Republic. By example, 3 years 

into the 19th century, Congress recognized the importance of the shipbuilding base after fire ravaged Portsmouth, New Hampshire. The Congressional Fire Disaster Act of 1803, which provided 

ad hoc assistance to the city, was the first instance of Federal disaster legislation. At the time, Portsmouth was not only the cradle of American shipbuilding but also a major port whose commerce 

provided the Federal Government with substantial tariff revenues.

17Gary, from whom the city of Gary, Indiana, takes its name, brought together Morgan, 

Carnegie, and Schwab to create U.S. Steel and served as its president and board chairman.

18 Similarly, the Federal Government had contracted with steamship companies starting in 

1847 and railroad companies in 1869. 

19Kerry E. Irish, “Apt Pupil: Dwight Eisenhower and the 1930 Mobilization Plan,” Journal 

of Military History 70 (January 2006), 40.

20William Gibbs McAdoo, Crowded Years: The Reminiscences of William G. McAdoo (Port 

Washington, NY: Kennikat Press, 1931), 290.

21William L. Silber, When Washington Shut Down Wall Street:The Great Financial Crisis 

of 1914 and the Origins of America’s Monetary Supremacy (Princeton: Princeton University Press, 

2007), 168.

22Robert D. Schulzinger, The Wise Men of Foreign Affairs: The History of the Council of Foreign Relations (New York: Columbia University Press, 1984), 22.

23 In fact, it was the Gold Reserve Act of 1934 that changed the nominal dollar price of an 

ounce of gold from $27.67 to $35. The dollar itself was thus pegged; it did not float against gold.

24Along with Stettinius, the WRB had Walter S. Gifford of AT&T, Harold G. Moulton, 

president of Brookings, Karl Compton of MIT, John Lee Pratt of GM, and Robert E. Wood of 

Sears—but not Baruch. 

25G. Pascal Zachary, Endless Frontier: Vannevar Bush, Engineer of the American Century

(New York: The Free Press, 1997), 229.

26 Jeffrey M. Dorwart, Eberstadt and Forrestal: A National Security Partnership (College 

Station, TX: Texas A&M University Press, 1991), 105.

27 Ibid., 106.

28 Ibid.

29 Irish, 40–41.

30Dorwart, 155.

31 “The Atom: The Masked Marvel,” Time, January 14, 1952, available at <www.time.com/

time/magazine/article/0,9171,806177,00.html#ixzz0fXoL6Tqb>.

32Dorwart, 178–179.

33Over time, the notion of a defense industrial base assumed a somewhat negative cast as 

the military-industrial complex, famously enunciated in 1961 by President Eisenhower in his farewell address to the Nation. 

34 Schulzinger, 150.

35Gordon Dean, foreword to Henry A. Kissinger, Nuclear Weapons and Foreign Policy

(New York: Harper & Brothers, 1957), vii.

36Paul H. Nitze, From Hiroshima to Glasnost: At the Center of Decision (New York: Grove 

Weidenfeld, 1989), 151–152. Nitze wrote that in the State Department view, massive retaliation reduced the value and effectiveness of diplomacy. He himself saw it as ending the wartime and postwar bipartisan foreign policy consensus. By 1955, it was clear to him that massive retaliation was 

only a declaratory policy. In actual fact, he wrote, the policy had become graduated deterrence. 
60 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

37Kissinger, 93.

38 Ibid., 225.

39Lawrence Freedman, The Evolution of Nuclear Strategy, 2d

 ed. (New York: St. Martin’s 

Press, 1989), 175–176. 

40 Ibid.

41Robert Gates has addressed at length a hidden bipartisan continuity to Cold War policy: 

“Hidden because, regardless of philosophy, the public approach of challengers in our politics is usually to tear down rather than to promise to build upon the work of incumbents—especially if the 

incumbent is in the other party. . . . Indeed, I believe that the conventional wisdom that Vietnam 

shattered the American consensus in foreign policy was not borne out by experience.” Liberals, he 

says, opposed CIA operations; conservatives felt its assessments were too soft and supportive of 

arms control. “The terms ‘hawks’ and ‘doves’ do oversimplify the contending factions in the American government from 1969 to 1991.” Gates says disputes occurred in all five Presidencies in which 

he served, but “these disputes were neither unusual nor weakening. They represented, in fact, a 

healthy contention of ideas and approaches. . . . Presidents needed both hawks and doves, because 

this aviary mixture allowed the Presidents, more often or not, to be the ‘owls.’” Robert M. Gates, 

From the Shadows: The Ultimate Insider’s Story of Five Presidents and How They Won the Cold War

(New York: Simon & Schuster, 1996), 556–571.

42Nitze, 170.

43This situation was a geostrategic reversal of Mackinder’s axiom, “Who rules East Europe 

commands the Heartland. Who rules the Heartland commands the World-Island. Who rules the 

World-Island commands the World.”

44Blanche Wiesen Cook, The Declassified Eisenhower: A Divided Legacy (Garden City, NY: 

Doubleday and Company, 1981), 325.

45Laurence H. Shoup and William Minter in Trilateralism: The Trilateral Commission and 

Elite Planning for World Management, ed. Holly Sklar (Boston: South End Press, 1980), 146.

46 Ibid., 142. 

47One study was the November 1950 Gray Report, led by Gordon Gray and Edward S. Mason, which focused on Third World development. Another was the March 1951 Rockefeller Report, 

recommending a new international finance agency. Others were the June 1952 Paley Report on raw 

materials, the February 1953 Bell Report on trade and tariff policy, and the January 1954 Randall 

Report on world shortage of dollars, the so-called “dollar gap.” Cook, 304–307.

48 Ibid., 309.

49 Jeremi Suri, Power and Protest: Global Revolution and the Rise of Détente (Cambridge: 

Harvard University Press, 2003), 95.

50Robert Gates wisely observed:

Détente’s greatest achievement was the opening of consistent contact between the United 

States and the USSR in the early 1970s—a gradually intensifying engagement on many 

levels and in many areas that, as it grew over the years, would slowly but widely open 

the Soviet Union to information, contacts, and ideas from the West and would facilitate 

an ongoing East-West dialogue that would influence the thinking of many Soviet officials and citizens. At the same time, détente was discredited after 1974 because, by then, 

it was readily apparent that neither power was prepared to change its basic adversarial 

approach to the competition. Further, neither party could get from détente what it most 

wanted. The United States wanted to stop the Soviet arms build-up and to obtain Soviet 

help in extracting itself from Indochina. It was unsuccessful on both counts. The Soviets 

wanted an ally against China and help in dealing with its increasingly severe economic 

problems. It, too, was unsuccessful on both counts.

Gates, 49.
TOWARD A PREMISE FOR GRAND STRATEGY 61

51Zbigniew Brzezinski, Between Two Ages: America’s Role in the Technetronic Era (New 

York: Viking Press, 1970), 300. 

52For example, in 1954, U.S. firms were getting tax breaks on profits earned from overseas 

subsidiaries. Cook, 303.

53 Ibid., 322.

54 Ibid., 319.

55Peter Collier and David Horowitz, The Rockefellers: An American Dynasty (New York: 

Holt, Rinehart and Winston, 1976), 407.

56 Sklar, 484. 

57 Ibid., 34.

58George P. Shultz, Turmoil and Triumph: My Years as Secretary of State (New York: Charles 

Scribner’s Sons, 1993), 147.

59Gates, 264.

60 Ibid., 266.

61 In their 1957 Nuclear Weapons and Foreign Policy, the Dean study group interestingly 

observed that once the Soviets had nuclear weapons, they suddenly had an ideological problem. A 

sustained nuclear stalemate compromised the root Marxist doctrine of historical inevitability. Nuclear weapons established that the forces of technology were superior to the forces of history and 

demonstrated that technological innovations could paralyze the dialectic of class struggle. Kissinger, 384. 

62 James A. Baker III, “Work Hard, Study . . . and Keep Out of Politics!” Adventures and Lessons from an Unexpected Public Life (New York: G.P. Putnam’s Sons, 2006), 428.

63 Ibid., 426–432.

64 Shultz, 1107.

65George Bush and Brent Scowcroft, A World Transformed (New York: Alfred A. Knopf, 

1998), 564.

66Gates, 574.

67Bush and Scowcroft, 566.

68Baker, 283.

69 Ibid., 282.

70Robert E. Rubin, In an Uncertain World: Tough Choices from Wall Street to Washington

(New York: Random House, 2003), 121.

71Derek Chollet and James Goldgeier, America Between the Wars From 11/9 to 9/11: The 

Misunderstood Years Between the Fall of the Berlin Wall and the Start of the War on Terror (New 

York: PublicAffairs, 2008), 65.

72 See Rubin, 387, for his account of how this team continued to convene out of office to 

consider the financial issues of the day.

73 Kevin Phillips, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of 

American Capitalism (New York: Viking, 2008), 59.

Chapter Three

Energy Security Is National Security

Keith W. Cooley

Defining national security can be a difficult undertaking because 

it can mean different things to different people. George Kennan has 

offered, in my mind, an uncomplicated but reasonable definition: “the 

continued ability of a country to pursue its internal life without serious 

interference.”1

Over the years, the world has shrunk because of the many technological advances that have become commonplace (for example, the 

Internet, global positioning satellites, and electronic convergence), and 

with that shrinking, the context in which the term “national security” 

is defined has morphed. Forty years ago, no one would have thought 

it possible to be able to track someone’s whereabouts using only a telephone (a phone represented a location, not a person, per se); the same 

holds true for the idea of stealing government secrets in the middle of the 

night while sitting in one’s home thousands of miles away; and certainly 

few people would have believed that the survival of the species could be 

threatened by the thoughtless acquisition and use of carbon-laden fuels. 

Yet each of these concepts is now an everyday reality, and in their own 

way, they contribute to our personal and national feelings of insecurity. 

Energy security can be described in many ways, but for the purposes of this chapter, to paraphrase the International Energy Association, 

we will simply call it “the assurance of the uninterrupted supply of energy 

at an affordable price, while respecting environmental concerns.”2

We have seen energy insecurity growing at an alarming rate 

recently. From the ability of hackers to disrupt the flow of power on 

an international Internet-reliant grid; to the seemingly innocuous 

decision to make critical parts for energy distribution systems offshore, 

a decision that backfires the moment our supply base decides they are 

our competitors; to the growing threat to health and safety from oil spills 

and the environmental contamination it breeds: it is clear that ready 

access to cheap energy is becoming ever more problematic. When you 

factor in the uneven distribution of energy availability in countries 

 63
64 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

across the globe and the manipulation of fuel pricing that threatens 

geopolitical stability, the problem becomes even more complex.

This chapter will address the notion of energy security as national 

security from four points of view that are, in my opinion, strategic 

priorities:

■ Priority 4: widespread increased dependence on domestic 

energy efficiency 

■ Priority 3: migrating to alternative (sometimes called “clean”) 

energy sources 

■ Priority 2: developing and sustaining an alternative energy 

capability 

■ Priority 1: creating strong civic, business, and political leadership to quickly implement needed changes that assure energy 

and national security for this country.

The Facts

Energy supply and demand play an increasingly vital role in 

our national security and the economic output of the country. It is not 

surprising that we spend more than $500 billion annually on energy. 

The United States, on both domestic and military fronts, is a 

tremendous user of the world’s proven supplies of energy. It is the world’s 

second-largest consumer in total usage, at roughly 100 quadrillion 

British thermal units (BTUs)3 annually of a 451-quadrillion BTU flow. 

Put differently, that means that 4.5 percent of the world’s population uses 

21 percent of the world’s energy. For those who have traveled abroad, 

it is clear that energy is not only accessible, but also comparatively 

cheap. The majority of our fuels are petroleum-/oil-based (38 percent), 

followed by coal (23 percent) and natural gas (24 percent). Nuclear 

power provides 8 percent, and renewables weigh in at 7 percent.4

Moreover, our appetite for power and energy is continually 

growing. Facts pulled from a brutal but honest assessment by financier 

Michael Milken suggest an unsustainable (translate as “addictive”) 

appetite for oil over the last 35 years (see table).

It is also clear that we are not the only substantial user of the 

world’s energy supplies. In 2010, China overtook the United States as 

the world’s largest energy consumer.5
ENERGY SECURITY IS NATIONAL SECURITY 65

Table. U.S. Appetite for Energy

Year Foreign Oil 

Dependence 

(in percent)

Presidential Statement 

1974 36.1 Richard Nixon: “At the end of this decade, in the year 

1980, the United States will not be dependent on any 

other country for the energy we need.”

1979 40.5 Jimmy Carter: “Beginning this moment, this nation will 

never use more foreign oil than we did in 1977—never.”

1981 43.6 Ronald Reagan: “While conservation is worthy in itself, 

the best answer is to try to make us independent of 

outside sources to the greatest extent possible for our 

energy.”

1995 49.8 Bill Clinton: “The nation’s growing reliance on imports of 

oil . . . threatens the nation’s security. . . . [We] will continue efforts to . . . enhance domestic energy production.”

2006 65.5 George W. Bush: “Breakthroughs . . . will help us reach 

another great goal: to replace more than 75 percent of 

our oil imports from the Middle East by 2025.”

2009 66.2 Barack Obama: “It will be the policy of my administration 

to reverse our dependence on foreign oil while building 

a new energy economy that will create millions of jobs.”

Source: <www.businessinsider.com/look-who-failed-to-reduce-foreign-oil-dependence-2010-4>.

The facts are unambiguous. The United States:

■ uses more of the world’s energy resources than anyone else 

(except China)

■ is using these resources at an ever-increasing rate

■ is importing more of its energy supplies each year

■ is in competition with our global neighbors for available proven 

reserves 

■ needs a cheap, readily accessible supply of energy to continue 

to thrive.
66 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Clearly, strategies that lessen our dependence on traditional fuels 

from traditional sources are needed if we are to preserve our place in 

the global pecking order. So let us look at four strategic priorities that 

can greatly assist our efforts to have the energy we need when we need it 

AND to continue our role as a global leader. 

Strategic Priority 4: Widespread Increased Reliance on 

Energy Efficiency

Energy efficiency simply means using less energy to produce the 

same level of energy service. For example, insulating a building allows 

the use of less heating and/or cooling energy to achieve and hold a 

comfortable temperature for its occupants. The use of fluorescent and 

natural lighting can in many circumstances provide as much or more 

light energy as a conventional incandescent light bulb. If there is any 

path that can quickly and easily move us toward greater energy security, 

it is energy efficiency.

A McKinsey and Company report titled “Unlocking Energy 

Efficiency in the U.S. Economy” states, in part, that “energy efficiency 

offers a vast, low cost energy resource for the U.S. economy—but only if 

the nation can craft a comprehensive and innovative approach to unlock 

it. . . . If executed at scale, a holistic approach would yield gross energy 

savings of up to $1.2 trillion.”6

This $1.2 trillion savings on energy, which neither includes 

the transportation sector nor factors in the cost of greenhouse gas 

emissions, could cut the country’s energy usage by as much as 23 

percent (~ 9.1 quadrillion BTUs) by the year 2020. That would be more 

than enough to offset the expected growth in U.S. energy use if we 

continue at a “business as usual” pace.

Note that this savings comes from a $520 billion investment in energy efficiency improvements such as insulating basements, replacing old, 

inefficient appliances with newer ones, and sealing leaky building ducts.

With these energy savings comes the opportunity for consumers 

(whether commercial or residential) to take those same dollars previously 

used for energy generation and allow them to flow into other portions 

of the U.S. economy—for example, to offset costs of critical services like 

education and healthcare, as opposed to an economic model that sends 

many of those dollars overseas.
ENERGY SECURITY IS NATIONAL SECURITY 67

For the military, a comprehensive energy efficiency plan focusing 

on the warfighter would suggest, again, the ability to access the same 

level of energy services at a much lower energy cost. Lower energy costs 

in country may very well translate into lower fuel consumption. 

Just as important is the notion that as the United States begins 

a serious effort to downsize its energy use, especially use that depletes 

precious fossil fuel reserves, more nations of the world will begin to see 

us as serious partners in the hunt for comprehensive solutions to global 

warming as well as to health hazards that arise from using oil, gasoline, 

diesel, and so forth. As that happens, the United States will find itself 

in better standing with countries that, in my opinion, now see us as 

addicted to energy at any cost. Their sense of us will change because of our 

significant efforts to commit to a more sustainable world through a 

change in perspective and behavior.

Strategic Priority 3: Migration to Alternative Energy Sources 

Leading to Less Dependence on Carbon-intensive Fossil Fuels

There are at least two significant reasons the United States must 

migrate from fossil fuels to alternative (sometimes called clean) sources 

(such as solar, wind, geothermal, and biomass) in the near future. 

Foremost is the fact that power generation by fossil fuels expels 

significant amounts of carbon into the atmosphere (~ 6.3 billion metric 

tons globally on an annual basis; see figure). This contributes to an 

ever-increasing global warming trend, 25 percent of which the United 

States is fully responsible for.

Experts believe the effects of this warming will be adverse, 

especially for the United States: “Likely future changes for the United 

States and surrounding coastal waters include more intense hurricanes 

with related increases in wind, rain, and storm surges . . . as well as drier 

conditions in the Southwest and Caribbean. These changes will affect 

human health, water supply, agriculture, coastal areas, and many other 

aspects of society and the natural environment.”8

Moving to alternative fuel sources will greatly slow the rate at 

which we add to the problem because the amount of pollutants being 

put in the air will be reduced. That will be a huge step forward toward 

slowing, stopping, and eventually reversing global warming. 

Second, as competition for these fuels increases, the cost to the 

United States in dollars and materiel (military equipment, apparatus,
68 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Figure. Global Carbon Cycle (in billion metric tons)

Atmosphere 730

Ocean 38,000

Vegetation and

Soils 2,000

Carbon Flux Indicated by Arrows: Natural Flux = Anthropogenic Flux = 

Global Gross 

Primary 

Production and 

Respiration

Fossil Fuel

Combustion and

Industrial

Processes

88 90

119

120

6.3

1.7

1.9

Changing

Land-Use

Source: Intergovernmental Panel on Climate Change, Climate Change 2001: The Scientific Basis (U.K., 2001).

supplies, and so forth) must increase, accompanied by a significant loss 

in global goodwill. China and India lead a contingent of emerging 

nations that will need more oil to sustain their rise in economic and military clout, and they will seek those resources from the same places we 

do: the Middle East (Iraq, Saudi Arabia), Africa (Nigeria), and South 

America (Venezuela). The United States, no doubt, will fight to keep its 

energy supply intact. On that subject, the following opinion was voiced: 

“Some countries such as the U.S. have enormous military expenditures in 

part to protect global oil areas for their interests. A number of other large 

countries are getting more involved or active in the international arena 

due to energy related concerns, including China and Russia prompting a 

fear of a geopolitical cold war centered around energy security.”9

Moving to alternative fuels that significantly decrease our dependence on foreign-owned supplies will substantially reduce the level of 

competition in which we must engage to assure uninterrupted access to 

power and energy.

Of course, other reasons for making the transition are abundant:

■ A “green economy” based on alternative energy will require 

a workforce skilled in “green jobs,” an economy that will be 

associated with fewer health problems than that of our present 

energy/power generation industry and that will be built on 
ENERGY SECURITY IS NATIONAL SECURITY 69

“knowledge work.” This suggests better paying high-tech 

jobs that will boost the U.S. economy and stabilize/raise the 

standard of living for millions of Americans.

■ The sooner we make the changeover, the sooner we put the 

hurdles to such a change behind us, whether they are technological, process difficulties, consumer acceptance, or cost 

benefits of economies of scale.

■ A smaller number of significant oil spills/leakages will occur 

(such as the BP/Deepwater Horizon mishap in the Gulf of 

Mexico in 2010) around the globe as these fuels become less 

important to satisfying our energy needs. Fewer spills mean 

fewer environmental concerns.

Clearly, then, moving to carbon-based fossil fuel alternatives for 

power and energy generation is an imperative if we are to overcome a 

series of key challenges to our present way of life.

Strategic Priority 2: Assuring that Alternative Energy Creation, 

Refinement, and Manufacturing Prowess Starts and Stays in the 

United States

Over the past 100 years, the American scientific, research, 

design, and manufacturing base has given the world thousands of 

technological advances from motorcars to spacecraft to cancer-fighting 

breakthroughs. Not only have many of these advances provided a better 

standard of living for much of the rest of the world, they also have 

given the United States a competitive global position second to none. 

However, that standing comes with a significant investment price tag.

A quick look at the numbers reveals that the Federal Government’s 

investment has not been there: “The federal government spends less 

than 1 percent of its R&D budget on energy—a level less than one-fifth 

of expenditures in the 1970s and 1980s—clearly insufficient in light of 

coming challenges.”10 This is true not only in energy but also in most 

areas of scientific, technological, and manufacturing endeavor we would 

consider critical to our goal of self-sufficiency.

With that in mind, it should come as no surprise that the U.S. 

scientific/industrial base has been eroding over the past five decades, 

and our ability to continue to supply an ever-accelerating series of 

game-changing technical breakthroughs is heavily dependent on our 

commitment to such an effort—an investment in dollars as well as in 

the American creative spirit.
70 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

We must now focus our efforts on clean energy advances that 

improve existing technology while developing the “disruptive” proofs 

of concept that will lead us to the next level of energy/power generation 

and storage capability. We need this to happen in a number of areas if 

a comprehensive green future is to be realized. These advances include 

investments in power generation, energy storage, sustainable transportation, and smart grid technology, to name just a few.

At the same time, we will need to shore up our crumbling manufacturing base, which not long ago led the world in providing a host of 

products on a national and international basis. By that I mean the gears, 

bearings, advanced materials, and electronics that were the bedrock of 

manufacturing in the “old economy” and that will become the critical 

elements we need in years to come for wind turbines, solar cells, biomass 

gasification generators, and so forth to slow the pace of global warming. 

This will benefit not only us, but also residents of the entire world. 

On the other hand, failure to embrace this course of action will 

lead to a loss of our global innovation leadership. That in turn will 

downgrade our status in the global pecking order with negative impact 

to our economy and a substantial downgrading of the American way of 

life as we have known it. Implicit in this loss is the notion that we will 

have to buy green products, for both domestic and military purposes, 

from others. From the viewpoint of national security interests, this is 

an unsafe place to be. The cost to the United States can certainly not 

be any less, and may be very much more, than the cost of investing in 

technological, scientific, and manufacturing leadership now.

Strategic Priority 1: Creating Strong Civic, Business, and Political 

Leadership to Quickly Implement Needed Changes that Assure U.S. 

Energy and National Security

I have made this the top priority because to me, it is the most 

important. The best plans in the world are little more than paper and ink 

unless they are acted upon. Unfortunately, we find ourselves in just such 

a circumstance. We have known for years how precarious our position 

has been. We know what we should do about it, and we know, at least in 

the short term, how to go about implementing the plans. 

If we do, we can reduce and eventually stop global warming 

and the problems it could bring; we can lessen tensions between our 

global neighbors and ourselves that would otherwise grow because 

of the increased competition for a precious but diminishing natural 
ENERGY SECURITY IS NATIONAL SECURITY 71

resource (foreign oil); and we can revitalize the U.S. economy (built on 

alternative energy solutions), create needed green jobs, and rebuild a 

standard of living that was once foremost in the world. This work can 

start with the priorities discussed above.

Creating the collective will to make these changes will be a major 

undertaking requiring the attention and commitment of our nation’s 

principal government, business, and community leaders. It will not be 

an easy task, but it is one that has been accomplished in many other 

parts of the world and, on a smaller scale, in the United States. It 

happens when opinion leaders in the community see the need for 

change and convince those in power, sometimes one person at a time, 

to commit to and lead initiatives that change the thinking and behavior 

of the community at large. Examples across the globe include China 

and Europe (wind and solar), Brazil (sugar cane ethanol), and projects 

in Seattle, Washington, Portland, Oregon, and Minneapolis-St. Paul, 

Minnesota (green jobs in weatherization/energy efficiency). America 

can take lessons from best practices in these locales and create a 

roadmap for national implementation. 

This same collective will has been a part of U.S. history throughout the country’s existence—most notably in the 1940s, when we saw 

President Franklin Roosevelt’s “Arsenal of Democracy” quickly adapt 

Detroit auto production lines for the building of bombers, tanks, and 

guns; in the 1950s, when the creation of a national interstate highway 

system championed by President Dwight D. Eisenhower connected the 

Nation in a way not previously possible; and when the U.S./Soviet “space 

race” of the late 1950s and early 1960s was all but won by the realization 

of President John Kennedy’s 1962 vision of having a man on the Moon 

by the end of the decade. We also will take lessons from these examples 

to realize the clean, environmentally sustainable, prosperous, and 

socially equitable future we all desire.

Conclusion

U.S. energy insecurity is growing as more countries of the 

world compete for a fixed (some would say diminishing) quantity of 

oil to satisfy growing energy appetites. This insecurity is worsened by 

the harmful effect that the burning of fossil fuels has on our atmosphere, exacerbating an already dangerous greenhouse gas problem 

that will negatively impact the rich, diverse environment of the Nation. 
72 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Overcoming these challenges starts with actions in the four specific areas 

outlined above (increased energy efficiency, increased clean energy use, 

assurance of a U.S. clean energy technical/manufacturing capability, and 

the will to act). Of all of these strategies, the most important one, and the 

one we have done the least to implement, is moving to real action.

We know what we need to do to increase U.S. energy efficiency. 

Energy audits to gauge need, installation of improved lighting systems 

and upgraded insulation, as well as the use of energy-efficient appliances are off-the-shelf strategies we can implement immediately. When 

paired with thoughtful growth planning, especially in urban areas and 

state-of-the-art Leadership in Energy and Environmental Design–

sustainable building design, we can move the country to an increasingly 

smaller carbon footprint over the next few decades. 

Mandating a national energy policy that calls for increased use of 

low carbon or carbon-free renewable energy sources can be done now, 

and the manufacturing of clean energy products in the United States for 

installation and use all over the country is feasible now. 

The creation of a series of new U.S. energy research laboratories 

where innovative, disruptive concepts can be discovered, explored, and 

proven is within our means at this very moment. The ability to safeguard 

the intellectual property from these discoveries as well as the means to 

produce such products here in the United States is ours if we want it.

The creation of millions of new higher paying jobs driven by the 

demand for clean energy technology from entry level/green collar jobs 

to engineers and scientists can begin now. Those jobs can be shared by 

every segment in our society. 

The question we must collectively answer as a nation is this: If we 

really want to remain in control of our own destiny, and if the means to 

do it are clearly at our disposal, why have we not done so? 

I suspect the answer to that question is not an easy one, or if it is, 

it is not an easy one to hear. The answer may have to do with intestinal 

fortitude and the willingness to sacrifice short-term comfort for longer 

term/longer lasting gain. I also believe the answer to that question 

tells us a lot about our ability to act in unity for the good of the entire 

nation as opposed to the good of narrow-minded and somewhat insular 

interests. Whatever the case, those of us who understand the critical 

role energy security and environmental sustainability play in assuring 

national security have no other option but to endorse and encourage in 

the strongest ways the implementation of these priorities. 
ENERGY SECURITY IS NATIONAL SECURITY 73

The comments made by Lou Glazier, head of Michigan Futures, 

when outlining the path forward for the state’s economic revitalization 

are just as applicable for our nation: 

It’s inconceivable to us that the big changes we are recommending can happen without strong civic and business 

(and ultimately political) leadership. If this project is going to avoid just sitting on the shelf, there needs to be some 

group with clout that takes ownership of this agenda. It is an 

essential ingredient in our future economic success.11

This chapter is written to urge action on energy security issues at 

the highest levels of government, industry, and civic engagement. We 

have many examples to draw lessons from both here and abroad that 

can inform our actions. But we must act; we must engage. It is the only 

path available for our survival.

Notes

1 Robert E. Ebel, comments on the Economic and Security Implications of Recent Developments in the World Oil Market; before the United States Senate Committee on Governmental 

Affairs, Washington, DC, March 24, 2000.

2 See <www.iea.org/subjectqueries/keyresult.asp?KEYWORD_ID=4103>.

3 Wikipedia, World Energy Resources and Consumption, available at <http://en.wikipedia.

org/wiki/Energy_in_the_United_States>.

4 See <www.eia.doe.gov/aer/pecss_diagram.html>.

5 See <www.iea.org/index_info.asp?id=1479)>.

6 Kate Galbraith, “McKinsey Report Cites $1.2 Trillion in Potential Savings from Energy Efficiency,” The New York Times, July 29, 2009, available at <http://green.blogs.nytimes.

com/2009/07/29/mckinsey-report-cites-12-trillion-in-potential-savings-from-energy-efficiency/>. 

7 U.S. Department of Energy, available at <www.eia.doe.gov/oiaf/1605/ggccebro/chapter1.html>.

8 Thomas R. Karl, Jerry M. Melillo, and Thomas C. Peterson, eds., Global Climate Change 

Impacts in the United States (Cambridge: Cambridge University Press, 2009).

9 Anup Shah, “Energy Security,” Global Issues, August 2010, available at <www.globalissues.org/article/595/energy-security>.

10 James Duderstadt et al., Energy Discovery-Innovation Institutes: A Step toward America’s Energy Sustainability (Washington, DC: Brookings Institution, February 1, 2009).

11 Lou Glazier, “A New Agenda for a New Michigan,” Michigan Futures, Inc., June 2006. 

Emphasis added.

Chapter Four

Achieving Energy Security That 

Feeds the Economic Component of 

National Security 

Louis J. Infante

Energy has been and will remain an essential enabler of economic 

prosperity in the United States. Past prosperity was enabled by abundant 

and relatively low-cost energy and fuel. Even today, a majority of 

American citizens take our supply of affordable energy for granted. 

Without assured and secure sources of energy, our economy will be hard 

pressed to function normally and certainly will not be able to grow.

Having stated the obvious, the changes in the future of energy 

could not be more uncertain. The situation the United States faces is a 

critical one. The lack of a national energy policy and a robust plan for 

the future surety and security of our energy supply is hampering efforts 

to provide adequate and affordable forms of energy that fuel economic 

prosperity. 

Why do we need a national energy policy and plan? Because after 

a number of false doomsday predictions regarding the eventuality of oil 

shortages, it is generally agreed that the combination of oil supply depletion and climate change effects will affect our economy for the next four 

decades. Many will say that much is being done to develop alternatives 

as we speak, and this is true. But the efforts are not coordinated and are 

not being planned with a view toward an overall long-term solution. 

Instead, short-term technology development and implementation are 

being installed without a real understanding of how they will affect the 

long-term goal of energy security in the 2030–2050 timeframe. 

Should we not enact a robust energy scenario, the projected cost 

to the quality of life and overall political stability of the United States 

goes far beyond economic criteria. After decades of economic growth, 

Americans expect their quality of life, which has stalled over the last 

decade, to continue to improve. The political dissatisfaction we are now 

experiencing gives us an indication of a negative trend that could be 

exacerbated by an uncertain energy future. This dictates that we take 

 75
76 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

a serious look at the energy issue quantitatively and understand the 

scenarios that can assure success. Our leaders need to see the complexity 

of the problem and potential future success scenarios in a way they can 

understand and recognize the costs of change and/or inaction when 

making decisions on future investments. 

What is proposed is a National Energy Security Initiative. This 

initiative should be administered by the Department of Energy (DOE) 

and joined by every government department with responsibilities that 

will be affected by energy—in essence, practically all departments. In 

this initiative, a model of current energy use in the entire country would 

be developed. Then, a complex systems modeling exercise would map 

the changing technologies, use elements, and economic factors around 

the future potential scenarios. Policies and plans could then be recommended to deliver affordable and assured energy to all economic sectors 

and regions with future technology investments defined.

Current State of Affairs

The most influential dynamic affecting global distribution of 

energy demand is affluent population growth over the next two to three 

decades, which will result in a 30 to 40 percent increase in quantitative 

global demand (see figure). Fossil fuel discovery and supply will be 

stressed, creating shortages and pricing instability.

Figure. Regional Shares in World Primary Energy Demand

■ OECD

■ Transition economies

■ Developing countries

2002 2030

38% 52%

10%

48% 43%

9%

Source: World Energy Outlook 2004.
ACHIEVING ENERGY SECURITY 77

This is not the recipe for a future of energy stability in the United 

States. The landscape of supply and demand in fossil fuels will become 

chaotic. Compounding the problem is that the structure of the U.S. stationary power system is regionalized. As a result, we have multitudes of 

organizations and corporate entities with which to work. And now the 

United States is targeting the implementation of an electrified transportation sector. When all of these changing trends are evaluated in aggregate, 

the complexities do not allow for an intuitive understanding of policies 

and plans that are possible, affordable, and socially responsible.

There is an ocean of opportunity for technology development 

that will fuel technology exports. So our Federal Government has 

decided to invest in many different and competing research and development (R&D) programs. Without a national energy policy, the United 

States lacks any coherence of integrated effort or criteria on which to 

evaluate the research that is being conducted and funded. 

There is no doubt that the Federal Government should continue 

to invest in forward leaning research. What is required here is to take 

all of this research and consolidate it into one modeling and planning 

environment to understand how the individual developments may 

contribute to a defined goal.

The Endgame

The vision for energy security of the United States is actually 

simple to qualitatively describe. It must be totally renewable; kind to 

our climate and environment; affordable; employ technologies that are 

not independently controlled by foreign interests; and create economic 

growth and jobs within industries that develop, deploy, and sustain it.

So how does that compare to what we have today? The United 

States is at best 15 percent renewable in stationary and 4 to 5 percent 

renewable in the transportation sector. We are the largest carbon dioxide 

producer in the world by a 5:1 factor. We are fairly affordable but subject 

to fluctuations that throw chaos into our economy on short notice. 

Foreign interests are dominant in the supply base, causing the majority 

of our negative balance of payments. Jobs are available in the energy 

sector but due to our declining development of technical professionals, 

some are filled by foreign students or are exported. This is a train wreck 

that may have already happened.
78 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

The endgame employs the following technologies:

■ water flow technologies of hydro and tidal

■ solar technologies of PV and CS

■ nuclear (with fuel reclaiming)

■ wind (all forms) 

■ geothermal generation

■ H2

 (primarily for transportation)

■ fuels from new forms of agriculture

■ new, as yet undefined, renewable technologies.

The endgame includes the following characteristics:

■ the basic technologies of energy generation and fuels are 

controlled by U.S. or allied interests

■ new technologies, when integrated, will meet all supply and 

economic requirements

■ the agricultural system will provide fuels and food without 

economically affecting either

■ a new energy workforce will be trained in an education system 

that is coordinating its offerings to a national policy and plan 

and regionalized for local needs and advantages

■ the technologies employed will be sustainable and not adverse 

to climatic or environmental elements

■ the system will be affordable and contribute to the economic 

prosperity of the nation and its citizens.

An endeavor of this magnitude has succeeded before in the 

United States. The technological, educational, and organizational 

challenge of manned space flight to the Moon is on the order of magnitude of the complexity of the future energy state. We succeeded in 

that challenge and developed technologies that fueled the information 

age. These contributions initiated some of the building blocks that will 

facilitate our energy quest—computers, communications, and fuel cells, 

to name a few. This can be repeated in the new energy age.
ACHIEVING ENERGY SECURITY 79

Plotting the Path to the Endgame

The lack of a national energy policy, even though we are investing 

billions into R&D, leaves the United States in a situation described by 

the phrase, “If you don’t know where you’re going, any road will get 

you there.” U.S. leadership must overcome barriers to establishment of 

a national policy on energy that prescribes an endgame and the plan 

to achieve it. Not doing so leads to variable outcomes, many of which 

can cause economic distress. Recognition of the need for the population 

to be educated to understand the changes that they will see and to 

have confidence that our leadership has the problem in hand is critical 

to political tranquility. And with the fossil fuel supply and demand 

curves spreading over the next 10 to 20 years, there will come a day 

when coordinated action will need to be organized. Rather than waiting 

until events such as the embargoes of the 1970s and the subsequent 

reactionary actions occur again, the United States should set policy, 

establish a clear course of action, and properly fund it. Most important 

is communicating with the American people to elicit wide-ranging 

support for the changes that will eventually come.

The path will be one of change, and it must have a significant 

amount of flexibility built into it. An example is the transportation 

sector, which touches most Americans daily. Over coming decades, cars 

will be powered by an expanding number of systems, from our current 

liquid fuels to hybrids to gaseous fuels and eventually electricity. The 

earliest possible conversion to a full electric-driven U.S. vehicle fleet is 

projected to be in about 35 years. Components of alternative transportation will be employed. Over this time period, people’s transportation 

lives will change 3 to 5 times. This is a much higher rate of change to our 

population than any we have seen in our country’s existence.

There is no easy fix to this and no single silver bullet to employ. 

The path will include the use of a number of interim solutions. 

Technology developments and validations will have variability in 

their deployment timelines. As technology is developed, it will have to 

be brought into widespread use, and certain elements may well have 

short life spans. But with a plan in place, the opportunity for success 

and economic security will be visible, whereas without a plan, success 

will only be a dream and the population will become frustrated. The 
80 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

energy world of 2030 will be a different one, and the United States is long 

overdue in setting adequate policy in this area. 

A Way Forward

The proposal is to establish a National Energy Security Initiative. 

This effort should be established within DOE and include working 

elements from all of the Federal Departments that may be affected 

by or that may contain solution elements: Defense, Transportation, 

Agriculture, Homeland Security, and so forth.

The tasks within this initiative would be to:

■ dynamically model the current energy use profile for the 

United States

■ incorporate economic, sociological, educational, security, and 

political elements into the models

■ develop the endgame models that incorporate all of the alternative technologies under development

■ recommend to leadership a set of policies that will assure 

adequate energy availability as technologies mature 

■ monitor new and ongoing technology developments assessing 

their effect on the endgame and interim points

■ communicate the needs, plans, and successes to the American 

people.

This approach can be tested and first implemented in a crossdepartment effort being created between the Department of Energy 

and Department of Defense (DOD) to provide for efficient and secure 

future energy usage in the latter. The modeling and planning can be 

exhibited to leadership within the DOD/DOE initiative. After initial 

investments, new systems can produce cost reduction and savings for 

the American people. It also sets an example by which the government 

itself is willing to embark on an organized planning exercise that can 

be tested and then expanded to include the entire country.

Conclusion

The energy profile for source and use will change drastically over 

the next 40 years. The next 20 years are the most critical for the United 
ACHIEVING ENERGY SECURITY 81

States to position itself with assured and secure forms of energy. 

Considering the time needed to develop and implement significant 

reinvestment projects, we are already late in having policies and plans in 

place to forestall economic distress and all of its political consequences. 

The National Energy Security Initiative will provide the coordinating 

efforts in planning and technology R&D that can assure success in the 

redevelopment of the U.S. energy system. And it can start within DOD 

as a first application of success.

Chapter Five

A Well-educated Workforce: 

Vital Component of National and 

Economic Security

Myra Howze Shiplett, Wendy Russell, Anne M. Khademian, and 

Lenora Peters Gant

The world is awash in change. It is the truism of our times. 

President Barack Obama introduced his National Security Strategy with 

the following statement:

Time and again in our Nation’s history Americans have 

risen to meet—and to shape—moments of transition. This 

must be one of those moments. We live in times of sweeping change. . . . Our strategy starts by recognizing that our 

strength and influence abroad begin with steps at home. 

We must grow our economy and reduce our deficit. We 

must educate our children to compete in an age where 

knowledge is capital, and the market place is global.1

In May 2010, in a speech before the Council on Foreign Relations, 

Education Secretary Arne Duncan spoke of the importance of a 

well-educated citizenry: “America’s success depends on the success of its 

individual citizens, just as the progress of humanity ultimately depends 

on the shared progress of nations. I believe that education has immeasurable power to promote growth and stability in the 21st century.”

The history of the United States is replete with examples of the 

contribution of education to economic and national security. In 1635, 

less than 30 years after the first settlers landed on North American soil, 

the Boston Latin School was founded, and the first free school was 

established in Virginia. In 1636, Harvard College was established in 

Cambridge, Massachusetts, and in 1693, William and Mary College 

was founded in what is now Williamsburg, Virginia. In 1862, Congress 

passed the Morrill Act, which established “land grant” colleges:

endowment, support, and maintenance of at least one 

college where the leading object shall be, without excluding 

 83
84 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

other scientific and classical studies and including military 

tactics, to teach such branches of learning as are related to 

agriculture and the mechanic arts, in order to promote the 

liberal and practical education of the industrial classes in 

the several pursuits and professions in life.2

By the last third of the 20th century, the citizenry of the United 

States was among the best educated in the world. In 2010, America 

was “ranked 12th in the number of 24- to 35-year-olds with college 

degrees . . . among 36 developed nations.”3 Discussing this issue before 

Congress last year, Gaston Caperton, president of the College Board, 

stated, “The growing educational deficit is no less a threat to our 

nation’s long-term well being than the current fiscal crisis. . . . To improve our college completion rates, we must think ‘P–16’ and improve 

education from preschool through higher education.”4

The College Board advocates achieving a 55 percent graduation 

rate by 2025 if America is to remain competitive with the rest of the 

world. This goal is in contrast to the 2008 graduation rate of just under 

42 percent. To achieve the 55 percent goal, the United States must find a 

solution that supports college educations for low-income and minority 

populations within the country. Achieving this goal also assumes that 

progress can and will be made in getting children enrolled in preschool 

and elementary school and that they will stay in school through at least 

an associate’s degree:

According to OECD [Organisation for Economic Cooperation and Development] in 2007 our nation ranked 

sixth in post-secondary educational attainment in the 

world among 25- to 60-year-olds. The United States 

ranked fourth for post secondary attainment for citizens 

age 55–64. The United States trails the Russian Federation, 

Israel, and Canada in this age group. As America’s aging 

and highly educated workforce moves into retirement, the 

nation will rely on young Americans to increase our standing in the world. However . . . among citizens between 

25–34 in developed countries, the United States ranks 12th.

5

In recognition of the inextricable link between national security 

and economic security, the National Defense University’s August 2010 

symposium entitled Economic Security: Neglected Dimension of National 

Security? examined various aspects of economic security, including the 

need for a well-educated workforce to drive the engines of creativity 
A WELL-EDUCATED WORKFORCE 85

and economic growth. The human capital discussion panel took its text 

from President Obama’s National Security Strategy: 

In a global economy of vastly increased mobility and interdependence, our own prosperity and leadership depends 

increasingly on our ability to provide our citizens with the 

education that they need to succeed, while attracting the 

premier human capital for our workforce. We must ensure that the most innovative ideas take root in America, 

while providing our people with the skills that they need to 

compete.6

The panel provided a variety of perspectives—from the importance of understanding the contribution of strategy, to an examination 

of the challenges currently facing the “P–16” educational system, to 

graduate education, and finally to the role and relationship between 

colleges and universities and the national security world of work.

America’s High School Pipeline

Wendy Russell has devoted her professional life to educational 

reform. Her presentation offered insights to the educational challenges 

facing America. According to her, the Nation’s critical national security 

human capital needs are threefold:

■ candidates who are well versed in information technology 

(IT). Because this is estimated to be one of the top five Federal 

hiring requirements, that need will translate into 800,000 new 

IT hires by 2018. 

■ a diverse workforce that looks like the Nation

■ increased supply of critical skills related to fluency in foreign 

languages and expertise in foreign cultures.7

The Federal Government spends between $70 billion and $80 billion each year on a wide variety of IT work, from design, implementation, 

and maintenance of enterprise-wide systems to assuring that individual 

employees have computers and support services needed for their jobs. 

Two out of three Federal agencies identify information technology as 

a mission-critical occupation: failure to have these capabilities in the 

workforce means that the organization will fail to accomplish its mission.

Against this background of need, the reality of today’s high schools 

across much of America presents a very different picture. They still 
86 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

reflect the 1950s design of large, comprehensive schools serving as 

giant sorting machines for America’s students: one track for those bound 

for college and professional careers, and another for those bound for 

agricultural and manufacturing jobs in the industrial economy—an 

economy that no longer exists.

There are 19,000 high schools in the United States that provide 

education to more than 15 million students. In a 2009 self-reporting 

survey, 95 percent of teachers stated they have computers in the classroom and that they use technology for instruction. Yet teachers also 

reported that their students’ use of computers in the classroom during 

instructional time ranged from never (16 percent) to often (34 percent).8

Every year, over 1.2 million students—that is, 7,000 every school 

day—do not graduate from high school on time. Nationwide, only 

about 70 percent of students earn their high school diplomas. Among 

minority students, only 57.8 percent of Hispanic, 53.4 percent of African 

American, and 49.3 percent of American Indian and Alaska Native 

students in the United States graduate with a regular diploma, compared 

to 76.2 percent of white students and 80.2 percent of Asian Americans.

In a multinational world connected by technology and cheap and 

swift transportation to every corner of the globe, a world in which more 

than 6 billion people speak hundreds of languages and dialects, only 11 

states have a 2-year foreign language requirement to meet high school 

graduation requirements. An additional five states require 2 years of 

foreign language for admission to the state university system, but not 

for high school graduation. Two additional states require 2 years for 

receipt of an advanced diploma, but not a regular diploma.9 Many have 

proposals on the books but have tabled them for lack of funding.

A Wall Street Journal article reported that test scores for college 

entrance examinations have stagnated. Of the 1.6 million students 

who took the American College Testing examination, only 24 percent 

scored high enough in math, reading, English, and science to ensure 

they would pass entry-level college courses. This suggests that the core 

courses they are taking are not rigorous enough to prepare them for 

college or the workforce.

The price of providing remedial training is high. The Alliance 

for Excellent Education estimates the Nation loses $3.7 billion each 

year because students are not learning basic needed skills, including 

$1.4 billion spent to provide remedial education for students who 
A WELL-EDUCATED WORKFORCE 87

have recently completed high school.10 From the taxpayers’ standpoint, 

remediation is paying for the same education twice.

The alliance estimates that if the 1.2 million high school 

dropouts from the Class of 2008 had earned their diplomas instead of 

dropping out, the U.S. economy would have seen an additional $319 

billion in wages over these students’ lifetimes. The alliance also estimates 

that the country could expect to lose well over $300 billion in potential 

earnings in 2009 as well, due to dropouts from the Class of 2008. If this 

annual pattern is allowed to continue, more than 12 million students 

will drop out of school during the next decade at a cost to the Nation of 

more than $3 trillion.11

It is these stark facts that led the Obama administration to say 

that the Nation’s long-term prosperity depends on fixing its high schools 

and preparing students for the global economy, and to include the issues 

of a sound economy and a well-educated workforce as components of 

its national security strategy: “From unlocking the cures of tomorrow 

to creating clean energy industries, from growing our economy and 

creating jobs to securing our nation in the years to come, there is one 

constant in addressing these challenges: they all depend on having a 

highly educated workforce.”12

Architecture of the High School Educational Future

Peter Smith’s book, Harnessing America’s Wasted Talent, states: 

“We have reached a tipping point in our educational and economic 

worlds, the point at which the needs for an informed and appropriately 

educated citizenry and the capacity to educate them have tipped away 

from the status quo, toward a future that must be invented quickly.”13

Step 1: Know Your Customer 

Know your customer, which in this case means know your learner. 

The Net Generation, Generation Y, or Millennials, born between 1978 

and 1994, have grown up with technology. They are accustomed to 

group/team problemsolving. They are used to living in a 24/7 environment and expect constant high-tech stimulation. They want continuous 

feedback and recognition and flexibility in how they do their work.14

Step 2: Student-centric Technology 

Schools need to create student-centric technology: a computer 

with software or online class time and subject matter chosen by the 
88 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

student. This approach—customizing material to how students learn—

will clash with the need to standardize the way schools teach and test. 

Schools have done what all organizations do with new technologies: 

cramming them into existing structures, rather than allowing the disruptive technology to take root in a new model and grow, and then 

changing how they operate to adapt.15

Some encouraging activities are beginning in this regard, as the 

example below demonstrates:

Over the past 10 years, many of California’s high schools 

have gotten worse, according to the San Francisco Chronicle. 

In an encouraging trend, however, thousands of high 

schoolers across California have joined an educational 

approach called Linked Learning, which changes the 

way core academics are taught by combining classroom 

learning with real-world, work-based experience. The idea 

behind Linked Learning is simple: To make it easier for 

students to stay engaged, coursework must be relevant 

to their aspirations. For instance, at Skyline High School 

in Oakland, Calif., every 10th-grader chooses from seven 

different career-themed programs where they spend the 

next three years combining out-of-school internships in 

their academy field with a rigorous academic core, taught 

through the lens of their industry theme, which qualifies 

every student for college. Teachers are trained to incorporate this work-based experience into the classroom, and 

vice versa. In Skyline’s architecture academy, for example, 

algebra and physics teachers show their students how the 

formulas they’re learning are used in real-world projects 

like building bridges or designing buildings. The Chronicle

describes one student, Cynthia Gutierrez, who entered high 

school “bored” and garnered mostly Cs and Ds her first 

year. In the 10th grade, she joined the education academy, 

centered on careers in education. “Before, I couldn’t 

really connect with my teachers all that well,” Gutierrez says. 

“But in the academy, it was different.” Gutierrez’s grades 

improved despite a more demanding course load, and have 

qualified her for admission to the state university system.16
A WELL-EDUCATED WORKFORCE 89

A second example comes from a North Carolina school system. 

Elementary teachers in the Charlotte-Mecklenburg schools will be more 

effective at integrating engineering and technology in their science 

curriculum this year thanks to a curriculum developed by Boston’s 

Museum of Science and local partners that include North Carolina State 

University, Discovery Place, University of North Carolina at Charlotte, 

and Duke Energy. Engineering Is Elementary (EIS) uses stories set in 

various places and cultures to introduce real-life engineering issues, as well 

as hands-on engineering design challenges that students tackle in groups. 

According to the Museum of Science, an estimated 1.2 million students 

in all 50 states will experience learning through EIS this new school year.

Step 3: Recognize the Learning Edges or Leverage Points 

Milton Chen, a Senior Fellow of the George Lucas Educational 

Foundation, outlines innovations our schools need to employ in his 

book Education Nation:

Technology Leverage Point. From the Internet to mobile devices, 

online curricula and courses, technology-based content, platforms, and 

experiences are enabling students to learn more earlier.

Leverage of Time and Place. Learning can now truly be 24/7/365 

rather than limited to what happens in a classroom 6 hours a day, 5 days 

a week, 31 weeks a year.

Leverage Point of Youth. Today’s youth are becoming the first 

generation to carry powerful mobile devices wherever they go. These 

devices are used for instant access to information and their entire social 

network. This generation learns in a fundamentally different way, and it 

is teaching us how to restructure the educational system.

Step 4: Facilitate Seamless Transitions between Life, Work, and 

Credit/Degrees

We offer three examples:

■ The California Institute for Regenerative Medicine has 

developed the country’s first high school stem cell curriculum, 

which will be pitched to science teachers nationally soon and 

is already being taught at a handful of San Francisco Bay area 

high schools. 
90 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

■ In three high schools in Arlington County, Virginia (all included in the 100 top high schools in the country), German 

is taught in the learning lab by a university professor because 

student course enrollment at each school is not high enough to 

support a full-time German teacher paid by the district. The 

class is virtually linked to students in Germany with real-time 

conversations in German.

■ The Westport, Connecticut, school district’s math teachers decided to rewrite the algebra curriculum, limiting it to about half 

of the 90 concepts typically covered in a high school course 

in hopes of developing a deeper understanding of key topics. 

They replaced the math textbooks with their own custom-designed online curriculum; the lessons are written in Westport 

and then sent to a program in India to animate the algorithms 

and problem sets with animation and sounds.

Step 5: Interorganizational Collaboration

At the Economic Security Symposium, one speaker stated that 

two-thirds of science and technology innovations involve some kind 

of interorganizational collaboration. We must begin to employ innovative ways to serve those who have been underserved by traditional 

education methods. Now more than ever, it is critical that schools 

partner with universities and the national security, military, and 

intelligence communities to support Net Generation students as the 

U.S. economy shifts into a global marketplace, making education not a 

luxury but a necessity to remain competitive in the work force.

Another speaker, an expert in national security issues, challenged 

listeners to be aware of the “architecture of the future, to see across the 

categories to a comprehensive picture of how things relate.” Many of 

our most advanced research laboratories are located in proximity to 

the Nation’s struggling inner-city school systems—New York, Chicago, 

Los Angeles, and Atlanta, to name just a few. What if we were to link 

the military training technology that has generated breakthroughs in 

gaming systems, high-definition video, computer-generated graphics, 

augmented reality, and artificial intelligence with high school education 

programs to push the learning envelope?
A WELL-EDUCATED WORKFORCE 91

America’s leaders and parents must embrace the importance of 

connecting with students the way they want to connect to keep them 

engaged and learning.17

America’s Graduate Education Pipeline

Dr. Anne Khademian spoke of the pracademic—the intersection 

of academic theory and the practical application of that theory to public 

policy—and of the effective development and implementation of public 

programs. She also focused on the fundamental issues of building 

collaborative capacity in public organization as well as the importance 

of building a robust, dedicated public service.

Graduate Education as a Pracademic Exercise 

Traditional graduate education presumes that the student will 

spend 1 to 5 years or more on campus immersed in graduate-level classes 

and research. This model fits a number of students seeking graduate 

degrees, particularly those pursuing research, teaching, and scholarly 

occupations as their life’s work. But there is another world, one populated by individuals who also seek graduate degrees but do not have the 

luxury of doing so, or who prefer to work and attend graduate school 

at the same time. They seek scholarly skills, knowledge, and insights 

but want to apply this knowledge in private and public institutions. 

For these individuals, a pracademic graduate education is the answer. 

Graduate education focused on the pracademic holds great potential 

for promoting the type of research and practical skills that are essential 

for engaging the most complex public policy issues. Strong graduate 

education can foster the collaborative and networking capacities essential 

for sophisticated research, policy development, and implementation, 

and can reinvigorate a professional commitment to public service 

informed by the institutional complexities and policy dynamics of the 

public arena. While graduate education takes on multiple forms at 

Virginia Technical University, the focus is on the scholarly development 

of graduate students as practitioners. These graduate students are often 

part time, but are deeply committed to growth as a scholar.

Here, the focus is on the full-time practitioner taking one or two 

classes per semester in a graduate program, usually several years after 

completing an undergraduate degree. Paul Posner and others have 

used the term pracademic to describe the practitioner/scholar. These 
92 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

individuals are primarily part-time students in the early to mid-career 

phase of life. They seek

continuous engagement between the theoretical and 

abstract and the practical and real. Classroom settings 

combine the daily experience of leading, managing, and 

policy development with the theories of organizational 

dynamics, public policy processes, institutional characteristics, motivation, and so forth. The discussions are a 

continuous process of considering theoretical explanations in the context of daily experience. The benefit can 

be a more realistic grounding of research questions and 

scholarship, and a means to reconsider, reconceptualize, 

and reframe the organizational, policy, and leadership 

challenges of public policy.

Graduate Education Builds Conceptual Thinking and Critical 

Analysis

A centerpiece of graduate education, particularly in this context, 

is the emphasis on the capacity for conceptual thinking and critical 

analysis. The ability to pull back from the minutiae of the immediate and 

to see broader patterns, constraints, and influences on the policy process 

is vital for understanding the benefits of collaboration and the points 

of potential collaboration. The ability to question the accepted or to 

scrutinize options, whether theoretical or practical, in a systematic manner is central to graduate education, essential for working in collaborative 

settings, and essential in the emerging world of interagency collaboration and cooperation. In this world, agencies and their employees realize 

that lasting solutions to complex problems often require horizontal 

collaboration between and among multiple agencies.

Knowledge continues to increase at a rapid rate. Organizational 

and individual success often requires a deep, sophisticated knowledge 

of a field. Graduate education focused on the pracademic contributes 

to such knowledge. Whether for homeland security, national security, 

air traffic control, or any number of other fields of study, graduate 

education offers students the opportunity to dig deeply into the empirical 

dimensions of key public policy areas through their independent 

research or through course work.
A WELL-EDUCATED WORKFORCE 93

The focus on collaborative skills for decisionmaking and consensus-building either contingently or longer term, critical analytic skills, 

and deep sophisticated knowledge of a field are essential components 

for leading within the complex policy arenas of today.

In policy arenas as complex as national security, homeland 

security, education, and the like, the stovepiped approaches to policy 

development and implementation no longer apply. As we have learned 

in the post-9/11 era, the capacity to share information, make decisions 

jointly, and deploy resources collectively and strategically requires 

the ability to lead collaboratively across different agencies, different 

jurisdictions, and even different countries.

Complexity requires collaboration and inclusion. This means:

■ understanding multiple arenas, sectors, jurisdictions (deep 

knowledge)

■ understanding the points of interaction, tensions, compatibilities (conceptual capacities)

■ forging discussion, alternative ways of understanding problems, forging consensus (analytic capacities)

■ decisionmaking (experience).

Two pertinent examples of this are President Obama’s recently 

announced policy to eliminate homelessness in America within a 

decade and the work of the Project on National Security Reform whose 

goal is to achieve reform of the national security system.

Ending homelessness in America within a decade can only occur 

if multiple agencies collaborate and combine their talents and resources 

to tackle the complex and difficult set of issues that contribute to 

homelessness:

On June 22, the lead Cabinet secretaries from the United 

States Interagency Council on Homelessness (USICH), 

from the U.S. Departments of Housing and Urban Development, Labor, Health and Human Services, and Veterans 

Affairs joined Executive Director of the USICH Barbara 

Poppe to unveil and submit to the President and Congress 

the nation’s first comprehensive strategy to prevent and end 

homelessness. . . . By combining permanent housing with 
94 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

support services, federal, state, and local efforts have reduced the number of people who are chronically homeless 

by one-third in the last five years.

The nonprofit organization Project on National Security Reform 

also has identified interagency collaboration as an essential component 

for assuring the Nation’s security. In the global world, national security 

means using all the elements of national power in acheiving a peaceful 

world. This occurs not just as a result of military might, but also 

requires a sound and vibrant economy, an educational system that 

produces well-educated individuals who can think critically and 

conceptualize alternatives, and a citizenry that understands the power of 

assisting other nations in achieving economic and political goals. 

Thus, those agencies involved in national security functions must work 

together to assure that all the elements of national power are coordinated 

to assure our country’s security.

Building a Vibrant and Effective Public Service

Graduate education focused on the pracademic can also be 

essential for rebuilding a professional commitment to public service, 

which requires an understanding of the complexity of governance and 

the challenges of governing. Graduate education can provide this deep 

understanding. It also provides insight into the evolving role of government and agencies and the evolving relationship of government with the 

private sector, with citizens, with contracting partners, and with other 

nations of the world.

The challenges of accountability are central to effective and 

efficient government. Accountability is a term everyone uses, but we 

often cannot agree on what it might mean in practice. If we are to 

govern in more collaborative ways, we will need more creative methods 

of demonstrating accountability for joint and multipartner efforts, 

including efforts to broaden and improve performance measurement.

There are also the challenges of governing to protect fundamental 

values. All policymaking involves balancing priorities and preferences, 

as well as balancing principles, such as security and privacy. Graduate 

education focused on deep knowledge, conceptual capacity, and critical 

analytic skills creates a foundation for engaging in this balancing effort 

in an informed and meaningful way.

By challenging students to think deeply and broadly about the 

complex issues of our times, graduate education provides a means to 

strengthen the abilities of those in public service to analyze and identify 
A WELL-EDUCATED WORKFORCE 95

the root causes of problems and then to work collaboratively to fashion 

effective and efficient solutions to the problems at hand. This enhanced 

capacity to make government function better helps increase citizens’ 

belief and faith in their government.

Results for Public Organizations

As this chapter has discussed and described, a well-educated workforce is essential for economic growth and for effective and efficient 

government. A real-life example of how these factors play out is found in 

the work of Dr. Lenora Peters Gant, who manages an academic outreach 

program for the Office of the Director of National Intelligence (ODNI) 

on behalf of the U.S. Intelligence Community (IC). Dr. Gant has built an 

academic outreach program that now extends to over 30 colleges and universities. Established in 2004, the Center of Academic Excellence (CAE) 

program in national security studies was created to support the IC need 

for multiple sources of well-educated young professionals to fill the many 

interesting and exciting professions in the community.

Unlike a lot of academic programs or partnerships that tend to 

emphasize immediate results, this program focuses on building 

long-term partnerships with colleges and universities in missioncritical occupations to help assure multiple sources of well-educated 

college graduates to work for intelligence agencies. This program, now 

in its seventh year, provides competitive grants to colleges and universities to encourage the development of curricula in a variety of 

scientific and technical areas, foreign languages, cultural immersion, 

and similar studies.

The program’s goals are three-fold:

■ to develop long-term academic partnerships with accredited 

colleges and universities that have diverse student populations 

and courses of academic study that align with the IC core skill 

requirements

■ to provide financial and technical support to these educational 

institutions so they can shape curricula to meet specific IC 

needs

■ to leverage and cultivate IC relationships with faculty and students of those institutions to ensure that the community has a 

diverse, highly qualified, and motivated applicant pool for its 

mission-critical occupations.
96 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

The program has six key strategic criteria and program components:

■ IC-related curricula in core skills–related disciplines. CAE 

institutions must design, develop, and reshape curricula in disciplines that support IC mission-critical skills and competencies

■ Foreign travel/study abroad/cultural immersion or awareness. 

CAE institutions must implement a competitive process and 

program to develop competencies in regional and international 

expertise, critical languages, and cultural awareness

■ IC regional colloquium/seminar. CAE institutions must develop and host a National Security Colloquium in conjunction 

with consortium institutions in the institution’s geographic 

area to promote awareness about IC mission, IC careers, value 

of public service, co-ops, internships, and opportunities for 

scholarships to study in IC-related fields

■ Precollegiate and high school outreach. CAE institutions must 

develop and host high school outreach programs to attract 

talent to national security–related fields of study and promote 

awareness about the IC mission and functions

■ National security–related research. As applicable, CAE institutions will conduct national security research in support of 

building intellectual capital in interdisciplinary fields of study, 

including the science, technology, engineering, and mathematics fields

■ Mandatory reporting, assessment, and evaluation. CAE institutions must conduct assessments, track metrics to ensure 

return on investment, and report findings and linkages in 

accordance with ODNI guidance that focuses on an IC workforce prepared for 21st-century challenges.

The ODNI program has provided an additional benefit for the 

colleges, the students, and the Intelligence Community. It has served to 

educate students, professors, and other citizens about the functions of 

government generally and the Intelligence Community specifically. In 

a time when many citizens find their government complex and difficult 

to understand, this program made understanding the role and functions 

of government easier.
A WELL-EDUCATED WORKFORCE 97

Conclusion

A vibrant, growing economy that provides jobs for America’s 

citizens is an essential component of our national security. A critical 

success factor for such an economy is a well-educated workforce, 

equipped to deal with the complexities of the 21st century. We all have a 

stake in assuring that our children and our neighbor’s children are well 

educated. The security of our nation demands this commitment.

Notes

1 The White House, National Security Strategy, May 2010, available at <www.whitehouse.

gov/sites/default/files/rss_viewer/national_security_strategy.pdf>.

2 Edmund Sass, American Educational History Web site, available at <www.cloudnet.

com/~edrbsass/educationhistorytimeline.html>. 

3 Tamar Levin, “Once a Leader, U.S. Lags in Attaining College Degrees,” The New York 

Times, July 23, 2010.

4 Ibid. 

5 John Michael Lee, Jr., and Anita Rawls, “The College Completion Agenda: 2010 Report,” 

College Board Advocacy and Policy Center, 2010, 9.

6 National Security Strategy.

7 Wendy Russell, Strategic Human Capital Plan (Washington, DC: Office of the Director of 

National Intelligence, 2006); Viveck Kundra, NetGeneration: Preparing for Change in the Federal Information Workforce (Washington, DC: Chief information Officers Council, April 2010).

8 Lucinda Gray, Nina Thomas, and Laurie Lewis, Teachers’ Use of Educational Technology 

in U.S. Public Schools: 2009 (Washington, DC: U.S. Department of Education, IES National Center 

on Education Statistics, May 2010), 6, 12.

9 Janice Kittok and Ryan Wertz, “World Languages Graduation Requirements,” National 

Council of State Supervisors for Languages, March 2010. 

10 Alliance for Excellent Education Web site, available at <www.all4ed.org/about_the_crisis>. 

11 Ibid.

12 National Security Strategy.

13 Peter Smith, Harnessing America’s Wasted Talent: A New Ecology of Learning (San Francisco: Jossey Bass, 2010), 114.

14 Anastasia Goodstein and Mike Dover, The Net Generation “Dark Side”: Myths and Realities of the Cohort in the Workplace and Marketplace (Toronto: New Paradigm Learning Corporation, 2010), 19. 

15 Clayton M. Christensen. Disrupting Class: How Disruptive Innovation Will Change the 

Way the World Learns (New York: McGraw-Hill, 2008).

16 James E. Canales, “Linking Courses to Careers Improves Grad Rate,” The San Francisco 

Chronicle, July 25, 2010, available at <www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/07/24/

IN1K1EGR92.DTL#ixzz0uz2DMpfp>.

17 Michael Jenkins, Vice President of Admissions and Marketing, Everest University Online.

Chapter Six

Innovation

Carmen Medina

In the 2010 National Security Strategy articulated by the Barack 

Obama administration, prosperity is identified as the second of four 

U.S. national interests. Specifically, the United States seeks a strong, innovative, and growing economy. Focusing on innovative, as it relates to 

economic security, the term economic prosperity is probably more appropriate. Innovation is appealing intellectually and psychically. Despite 

32 years in the Intelligence Community, I have come to realize that my 

cognitive orientation is essentially a progressive one. I am much more 

interested in what can be than in what is.

We are living in one of those spurts of progress and innovation 

that punctuate human history on a fairly regular basis. I am inclined 

to believe the impact of the changes we are seeing now will have particularly profound—dare I say, unprecedented—consequences. For my 

purposes, it is enough that technological and process-based changes 

and improvements are bunching up right now like beach traffic on a 

beautiful Friday afternoon.

So how critical is it to our economic and national security for the 

United States to be an important driver of this innovation caravan? To 

answer that question adequately, there are four additional questions that 

must be explored.

1. How important is innovation to the overall economic health of 

the United States?

2. Where does the United States currently stand in the world’s 

innovation index, and how are we vectoring?

3. How do our likely peer competitors compare to the United 

States in their innovation potential?

4. What is contributing to the conditions described in the answers 

to questions 2 and 3? What are the causes and correlates?

Using the approach of the so-called objective intelligence analyst 

in answering these questions, the following lays out what is known and 

not known about this topic, according to my view of reality.

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100 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Before proceeding to answer the questions, let us explore some 

definitions of innovation. The World Bank, in a recent report on agricultural innovation, defined it generally as neither science nor technology 

but as the application of knowledge of all types to achieve desired social 

and economic outcomes. Specifically, innovators master and implement 

the design and production of goods and services that are new to them 

and/or their societies.

People speak of many different types of innovation. The taxonomy 

of innovation is usually presented in the form of paired concepts 

that are in opposition to each other. So, for example, people speak of 

fundamental innovation, which is often technology-based and leads to 

new industries, as opposed to social innovation, which refers to changes 

in the way people behave. These changes in societal behavior—for 

example, most people adapting to cell phones or global positioning 

systems—are often essential to harvesting the advantages of fundamental innovations.

There is process-versus-product innovation; the experts generally 

agree that product innovation often creates jobs, but does it lead to a net 

increase in jobs? After all, new products usually displace the individuals 

working on the old products. Process innovation, however, usually 

eliminates jobs as few innovators seek to increase labor costs through 

process improvement.

Then there are several dual taxonomies that are generally 

describing similar qualities—the extent of change. Is the innovation 

revolutionary or evolutionary? This usually is assessed in terms of 

outcome. Is the innovation radical or incremental? This usually 

distinguishes ease of adaptation. Is the innovation continuous or 

discontinuous? This distinguishes those innovations that trigger mass 

extinctions from those that do not.

A final taxonomy pair distinguishes fundamental innovation 

from applied innovation. In this case, fundamental innovation involves 

science and engineering leading to a completely new paradigm, whereas 

applied innovations take these paradigm shifts and turn them into 

something utilitarian and, in some respects, pedestrian.

Now that the definitions are explored, let us return to the four 

questions originally asked. First, how important is innovation to the 

overall health of the U.S. economy?

Although some of the subsequent questions have less clear or 

authoritative answers, the facts here appear to be without controversy. 
INNOVATION 101

Everyone agrees that innovation has accounted for most U.S. economic 

prosperity in the post–World War II period. The Department of 

Commerce notes, for example, that technology innovation is linked to 

75 percent of U.S. economic growth since the war.

Perhaps less appreciated is the unique role that venture capital 

and the modern private equity firm had in fueling post–World War II 

economic growth. It is generally agreed that the venture capital industry 

really began in the United States in 1946. There was private investment 

before then—the Transcontinental Railroad was a startup—but the 

investors were rich individuals acting on their own. This is a trend that the 

country appears to be returning to as the amounts required by startups 

decline precipitously as a result of Web services and cloud computing. 

Venture capital firms in the postwar environment began by investing in 

the new businesses started by returning veterans. This was a uniquely 

American concept at the onset, but Europe caught up by the 1990s.

Venture capital reached its highest percentage of gross domestic 

product (GDP) in the mid-1990s at just about 1 percent, but the cascading effects of venture capital are more significant. The National Venture 

Capital Association estimated in 2003 that ventured-backed companies 

were then providing more than 9 percent of all U.S. employment.

We do not have to take the lobbying group’s word for it. The 

Organisation for Economic Co-operation and Development (OECD) 

estimates that in the United States, firms less than 5 years old have 

accounted for almost all of the new jobs created in the economy in the 

last 25 years. Put another way, established companies have essentially 

created no net new jobs during that same period. The Kaufman Foundation, in a recent study based on a new set of data from the government 

called Business Dynamic Statistics, analyzes that firms more than a year 

old actually have destroyed more than a million jobs net since 1977.

There does not appear to be a breakdown of exactly how these new 

jobs link to innovation, but many of the new firms every year are based 

on some type of innovation, whether it is fundamental, applied, or social.

The capacity for innovation has been the primary catalyst of U.S. 

economic growth. Indeed, capitalism essentially is built on innovation 

and the concept of creative destruction. Going forward, innovation will 

be even more critical to U.S. economic prosperity. And that is because 

our particular economic circumstances today imply that innovation not 

only will need to contribute to all U.S. economic growth but also will 

have the additional burden of compensating for antigrowth dynamics 
102 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

currently infecting the U.S. economy—specifically, the financial crisis 

and the necessary deleveraging taking place. 

Economists agree that the hangover from a debt crisis is the 

worst kind of economic problem and lasts the longest, and this 

economic downturn is made worse by a simultaneous disruptive secular 

shift in the economy, from analog to digital. Unemployment will stay 

stubbornly high because companies are using this downturn to divest 

themselves of employees and occupations they no longer need in a digital 

and knowledge economy. There are some economists who have argued 

that a similar dynamic deepened the Great Depression, which was the 

occasion that finally allowed for the complete unwinding of the agrarian/horse economy that had dominated the United States during the 19th

century. The only elegant way for the United States to resolve its deficit 

issues is to grow out of them. A nice average 5 percent per annum growth 

rate for the next 10 years might be a good place to start, but it will be 

unachievable without the frisson of significant innovation. It may be 

unachievable without a concurrent effort to reduce spending.

The mature nature of the U.S. population is another serious issue 

in this discussion. Although there is considerable difference of opinion 

among academics as to how population growth affects economic growth, 

particularly for underdeveloped and developing economies, most agree 

that the declining and aging populations of Western Europe and Japan 

necessarily cut into economic demand. The U.S. economy is not there, 

largely because of the positive impact of immigration, but we are also no 

longer going to benefit from the economic boost that was provided by 

the consumption patterns of the baby boomer generation.

So having established that innovation is critical to the future of 

the U.S. economy, let’s turn to the question: how are we doing in terms 

of innovation—specifically, given the focus on national security, relative 

to other countries?

Measuring where countries stack up on an “innovation table” 

appears to have become a cottage industry in the last 10 years. 

There are two recent and credible studies that we can cite. A report 

compiled by the Boston Consulting Group and the National Association 

of Manufacturers that measures innovation inputs and outputs has 

the United States ranked eighth in the world. A second report by the 

Economist Intelligence Unit (EIU), sponsored by Cisco, has the United 

States ranked fourth.
INNOVATION 103

These studies are not very exact or agreed upon. Although most 

people concur on what innovation inputs are, such as a skilled work 

force, education, research and development (R&D) expenditures, 

and so forth, innovation outputs are another matter. For example, the 

number of patents, a popular metric, is criticized by some who argue 

that patents only indicate inventions and societal concepts of intellectual property, not innovation.

It may not matter that Iceland or Switzerland is considered more 

innovative than the United States. Neither country will become a threat 

to national security any time soon. On the other hand, these studies 

underestimate where China is; the status quo always underestimates the 

“new kid on the block” because the status quo owns the yardsticks. That 

said, however, China’s status as a holder of U.S. debt will be a strategic 

problem for the Nation long before China’s innovation capacity. It should 

matter in the long term, of course, but by then China will be dealing with 

its own structural problems, such as the graying of its labor force.

There is, however, no doubt that the U.S. capacity for innovation 

has declined in relative and absolute terms over the last 20 years or so. 

Our standing has consistently declined. Other evidence points to a less 

vibrant American economy. For example, according to Deloitte’s Center 

for the Edge, the rate of return of U.S. assets has declined by 75 percent 

since 1965. 

How do our likely peer competitors compare to the United States 

in terms of their innovation potential? We have already discussed 

China’s innovation performance and the methods of measurement that 

discount China’s progress. According to these studies, other potential 

national security concerns for the United States, such as Russia, are essentially nonissues when it comes to economic innovation. Given its strong 

performance on pure scientific research, Russia retains the potential for 

military innovations, but its economy, which is dwarfed by China’s in any 

case, is increasingly based on exploitation of natural resources and is not 

poised for strong growth or innovation.

The European Union (EU) and China are the two coherent 

economic powers that could deny the United States leadership—or a 

significant share—of the economic innovations that will shape the 

21st century. But if Goldman Sachs was correct in recent projections, a 

broader trend, the emergence of the BRIC economies—those of Brazil, 

Russia, India, and China—will fundamentally alter the world economic 
104 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

map by 2020. Goldman Sachs may regret its inclusion of Russia in this 

list, given the developments of the last decade. The EIU, indeed, only 

speaks of the BIC. The Goldman Sachs report states:

Our baseline projections, underpinned by demographics, 

a process of capital accumulation, and a process of 

productivity catchup, envisage that the BRICs, as an 

aggregate, will overtake the U.S. by 2018. In terms of the 

size of the economy, by 2020, Brazil will be larger than 

Italy. India and Russia will be individually larger than 

Spain, Canada, or Italy. By 2020 we expect the BRICs to 

account for a third of the global economy and contribute 

about 49 percent of global GDP growth.

Joseph Stalin said that quantity has a quality all its own. This kind 

of change in the global economy will have profound effects on the world 

that we in the West are inclined to not even want to think about. And it 

only serves to underscore the argument that U.S. economic prosperity 

depends upon our capacity for innovation; only innovation will allow 

us to fight above our weight class, that is, the absolute size of our economy—largely a function of demographics and maturity.

While many of the most innovative countries are in the EU, 

it is still hard to imagine the circumstances by which the EU would 

become a peer competitor for the United States, which returns us to China. 

Although China, in the EIU survey, is projected to rise to 50th in the 

Innovation Index by 2013, its low ranking is deceptive. China has risen 9 

places in just 5 years, a rate faster than the EIU anticipated. In a separate 

study of innovation in BRIC economies published in Research Technology 

Management, it was noted that in 1995, China’s patent count was the 

same as Brazil’s. Now, it is seven times that of Brazil.

John Seely Brown and John Hagel, at the 2006 Davos conference, 

asserted that China is now the world leader in management innovation. 

The methodologies used to rate innovation by country are based, 

unavoidably, on how the West has done it and thus have a tendency not 

to appreciate how countries such as China, Brazil, and India might be 

doing things differently.

In theory, China’s (or any other country’s) success at innovation need not pose a problem for the United States. But it can affect 

U.S. economic capacity if U.S.-based multinationals choose to divert 

more of their R&D efforts to China, which is graduating scientists and 
INNOVATION 105

engineers at an incredible rate. The United States is lagging badly on 

science, technology, engineering, and mathematics (STEM) education. 

If Chinese and Indian graduates stop wanting to work and live in the 

United States, our innovation potential suffers. By some estimates, 

Indian immigrants lead up to a third of the startups in Silicon Valley. 

Finally, the economic advantage of innovation, that of surplus income, 

goes to those who do it first and well. The more countries that have the 

skilled workforce and modern economic base for innovation, the harder 

it will be for the United States to be first to the pole.

Let me be clear here. I am not suggesting any malice or nefarious 

intent on the part of any other nation. These trends have impact regardless of the policies of specific governments. It is really just a matter of 

physics and arithmetic. 

Why is the United States losing momentum in economic innovation? The literature presented several compelling reasons. We have 

already discussed one: falling behind in STEM education. Given the size 

of China’s and India’s populations, we will never be able to match them 

numerically, but at the rate we are going, the United States will simply 

be overwhelmed.

A second related issue is a current workforce that needs new 

training and skills.

A third reason is the inadequate U.S. Federal and state government 

support for an innovation-friendly environment. We lag behind many 

other parts of the world. For example, the United States ranks 17th among 

OECD countries in the generosity of its tax credits for R&D. France 

is four times more generous than the United States, according to the 

Information Technology and Innovation Foundation. This is not good.

A fourth factor points to the short-term perspective of too many 

U.S. companies and their outdated and myopic management/leadership 

concepts. Steve Denning, a leadership consultant, notes that the management principles of most U.S. companies are scalable bureaucracy. 

Bureaucracy is, of course, the natural predator of innovation. It appears 

that too many U.S. companies have become quite innovative in inventing ways to use fees to bolster their bottom lines rather than seeking to 

pioneer a new product or process.

Finally, it appears that the United States, as a society, culture, and 

economy, suffers from having transitioned into a status quo mentality. 

The public debate is about preserving what we have or returning to core 

values. Having been a student of dozens of countries over the last 30 
106 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

years, I believe I can detect the difference in the vocabulary and body 

language of a nation looking forward versus that of a nation looking to 

preserve what it has.

Let me share some concluding personal opinions that you may 

find negative or positive, depending upon your perspective. 

Innovation is our economic strong suit, but it will not solve all of 

the U.S. economic problems. It can create many jobs, but we are undergoing a significant transition in labor markets and the nature of jobs. It 

will not cure our debt problem.

As we transition from the knowledge economy to the creative 

economy, we are shifting away from economic concepts that can be 

captured in nationalistic or mercantilist terms. The Chinese are issuing 

statements and doctrine that suggest they do not quite believe this. 

National boundaries not only are irrelevant to knowledge and creativity, 

they also are actually counterproductive. Innovation is becoming more 

collaborative. So what do the terms economic security and national 

security mean, then?

We are focusing on security and spending on military matters 

out of proportion to our economic capability and economic potential. 

The experts tell us that our spending on healthcare is similarly out of 

proportion. In his seminal book The Rise and Fall of the Great Powers, 

Paul Kennedy argued that such disproportionate spending is an indicator 

of a declining great power. There is presumably an optimum balance 

between wealth creation and military strength. Are we there yet?

The conditions I have described are not a platform for continued 

U.S. “dominance” of the world. We do not want to talk about it, but the 

U.S. economy will not support single great-power dominance once our 

economy represents only about 10 percent of the world economy, versus 

the 50 percent it represented after World War II.

I always want to tell young people just starting their careers 

that their greatest challenge will be to help the United States make the 

adjustment from great-power status to a more complex but (I believe) 

still quite comfortable relationship with many peers. Our choice is clear: 

either we can not talk about reality and continue patterns of deficit 

spending that will only hasten a messy denouement, or we can begin 

to make the intelligent choices today that will ensure we remain the 

most influential society in the world even as we relinquish the status of 

sole superpower.
Conclusion

Sheila R. Ronis

The Economic Security: Neglected Dimension of National Security? 

conference explored the economic element of national power through 

the eyes of economists, industry, and government; expeditionary 

economics, energy security, the role of science, technology, research 

and development, and human capital. By the end of the conference, we 

hoped a framework would emerge that the Nation could use to develop 

a “grand strategy” for improving our economic viability. Systemic 

thinking should become the hallmark of a set of capabilities that should 

be used in the Executive Office of the President, perhaps in a Center for 

Strategic Analysis and Assessment, or within current infrastructure that 

already exists.

The economic element of national power is frequently neglected 

because the Nation does not develop grand strategy at all, which means 

that all of the grand strategies recommended at this conference have no 

means to be developed.

My involvement in this issue began about 20 years ago when, as a 

strategic management consultant to the private sector, I had an opportunity to do a little work with the U.S. Army War College in Carlisle, 

Pennsylvania. When I read the National Security Strategy for the first 

time, I assumed it was a subset of a larger national strategy. But I was 

wrong; the United States was not developing long-term, whole-ofgovernment grand strategies.

As a strategic management professor and a systems scientist, 

I thought it was very odd that the private sector routinely used management tools such as forecasting, scenario-based planning, strategic 

visioning, political and economic risk assessments, and so on, but that 

our government, especially in a whole-of-government way, rarely, if 

ever, used such tools across the board—although sometimes, those 

tools were used in pockets, in specific agencies or departments, like the 

Intelligence Community, the State Department, the Department of 

Defense, or the Services.

What mechanisms should the government develop to improve the 

Nation’s ability to plan in a whole-of-government way for a future that 

 107
108 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

will be very different from its past and that needs nonlinear systemic

approaches to problem-solving using both analysis and synthesis?

To be successful in addressing a complex system, we need to integrate all major elements of national power: diplomatic, informational, 

military, economic, and so on. When successfully combined, our vitality as a nation is ensured, and our ability to encourage positive change 

throughout the globe is enhanced.

As a complex adaptive system, the future national security system 

will need to possess certain inherent qualities that will be critical to 

success. It must:

■ share information and collaborate horizontally 

■ accommodate unanticipated needs and partnerships

■ ensure agility in the face of uncertainty

■ incorporate ad hoc structures and processes

■ maintain a long-term view.

Because we are talking about complex adaptive systems, it is difficult to separate geopolitical, social, and economic phenomena. We tend 

to see all these elements interacting as a system of systems. In fact, in 

most instances, we are viewing complex systems of complex systems, 

and that is the challenge we all face.

Globalization has resulted in a world that is increasingly interconnected and interdependent. Readily available technology, environmental 

degradation, global capital market collapses, transnational terror, global 

disease, cyber attacks, and a host of other concerns have added complexity to the national security landscape. This environment will demand the 

application of a wide range of traditional and innovative strategies and 

tactics to counter threats and take advantage of opportunities. 

Based upon both the realities we face today and the context 

emerging for tomorrow, let me make a few basic observations.

First, the world is a system, like a spider web. Movement or 

damage in one spot has the potential to be felt throughout the entire 

web. While the ripples in a pond may be visible closest to where the 

stone is thrown, the entire pond experiences some level of movement 

and/or impact. Global interdependence is now a reality, and national 

security and economy issues must always assume a global focus.
CONCLUSION 109

Second, our homelands are no longer protected by distance or 

time. The great oceans that buffered the United States from much of 

the world, for example, no longer serve as boundaries. Therefore, the 

distinction between foreign affairs and homeland concerns has become 

blurred—perhaps even nonexistent. Economic security is a merged mass

of internal, external, and interdependency issues, and this has enormous 

consequences.

Third, the reality of globalization demands a holistic worldview

alongside of our specific national interests. The needs and concerns of 

every country must be developed in concert with the welfare and security of the entire globe. To participate in globalization requires new ways 

of connecting to everyone else on the planet to ensure we are all secure; 

a rogue nation or rogue citizens can change everything in far-reaching 

ways. 

More than 2,500 years ago, Chinese philosopher Sun Tzu said 

in his masterpiece, The Art of War, “If you know your enemy and you 

know yourself, you need not fear the result of a hundred battles. If you 

know yourself but not the enemy, for every victory gained, you will 

suffer a defeat. But if you know neither yourself nor the enemy, you will 

succumb in every battle.”

What this quotation says to me in today’s context is if you are 

in any kind of economic competition, you must be familiar with, and 

develop knowledge of, your competitors as well as yourself if you expect to be successful. How well have we developed relationships with all 

of our partners and friends to ensure we can cooperate when we have 

a problem anywhere on the globe? No one is big enough to truly cover 

the globe in terms of knowledge and/or capabilities. And think of the 

ramifications of this to a global economy of interdependencies.

General Dwight D. Eisenhower, as the Supreme Allied Commander in Europe in World War II, said, “The plan is nothing, planning 

is everything.” Through the knowledge gained in the planning, we are 

able to more successfully enact the plan. And this is learning about the 

system in the Sun Tzu sense.

Thinking about the complex systems the national security community is dealing with, the physicist in me knows that understanding 

the characteristics of those complex systems is critical. Probably the 

most important characteristic we need to remember about complex 
110 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

systems is that they can rarely be controlled and at best can be 

influenced. And we can only influence those complex systems if we 

understand them intimately—if we have what the great American 

statistician W. Edwards Deming called “profound knowledge.”

In the national security community, we are always being asked 

to make predictions. But predictions assume theories, and theories 

require assumption testing to learn. The complexity sciences say that in 

complex systems, there are limits to what we can learn or know with any 

precision; we can predict with probability but not with certainty. Even 

in physics, the Heisenberg Uncertainty Principle tells us we may not 

always be able to predict everything; if we know some things, we cannot 

know other things. Such is the case in the national security system, 

including the economies that we are trying to influence.

I find it interesting that the policymakers we work for and the 

bureaucracies we serve are not populated with knowledgeable leaders 

on this particular subject. They want us to predict and control the realworld complex systems we are supporting. And, of course, we know that 

we cannot do that.

Working in the world of complex systems, which is the real world 

of national security, requires planning and learning. And the more 

planning and learning we do, the more successful our capabilities in 

foresight, designing, developing, and ultimately protecting the complex 

systems we need for the future.

One of the Vision Working Group findings in the Project on 

National Security Reform includes the need to synthesize “all-ofgovernment” and sometimes “all-of-society” solutions to complex system 

issues and problems. The only successful way to do that is to be learning 

about the system issues—in hyper-learning modes using accelerated 

learning processes and coupling those with foresight tools such as 

the Delphi technique used in the project to “stress test” its findings to 

Congress. These enable the development of scenarios for planning and 

ultimately developing grand strategies.

We also found that the United States needs to systematically use 

these tools and processes to improve decisionmaking, and we found we 

do not have mechanisms in place for that to happen at the whole-ofgovernment level—at the level of the President.

For that reason, we recommended the establishment of a set of 

capabilities in the Executive Office of the President that would be in the 

business of developing scenarios and grand strategies to apply lessons 
CONCLUSION 111

learned in a world of complexities. And that requires context, analysis, 

and synthesis. It also requires breaking down the stovepipes of 

government so they can work together because the United States never 

seems to be ready when it needs to be. Contingency planning outside 

of the military is rare indeed! We need to create the mechanisms to use 

complex systems thinking and foresight tools in the decisionmaking 

processes of the executive branch of our government. And I suspect we will 

need to use strategic thinking if together, as a community, we hope to be 

successful in creating a world that is peaceful, secure, and prosperous.

There are two strategic weaknesses of the United States that 

regularly keep us from looking at our future in a strategic and systemic 

way and preparing ourselves for that future. We do not engage in strategic visioning or foresight exercises, and we do not write and/or execute 

grand strategies as a nation—and we need to do both.

First, we need to establish the planning and foresight capabilities 

within the interagency process that will continuously develop scenarios 

of the future to help senior government policymakers plan for an integrated future across the entire government spectrum, including Congress. 

This will probably include congressional committee reform that creates 

interagency mission funding and oversight mechanisms through intercommittee decisionmaking processes across jurisdictional boundaries. 

Systems scientists see the need to break down the barriers in the 

stovepipes of government from top to bottom. And finally, we need to 

help senior government policymakers plan for the future and the role the 

United States will play in it, including how we will remain strong in the 

George C. Marshall sense: remaining strong to maintain the peace. 

As a nation, we need to become proactive in shaping the future of 

the world and working toward a future of increasing liberty, prosperity, 

justice, and peace because that is the world we want our children and 

grandchildren to inherit. We need to ensure we have a sound economy, 

or they will have no jobs.

I think that improving the foresight and planning capabilities 

within the Executive Office of the President will improve decisionmaking 

processes so that the Federal Government can be more effective in 

ensuring the Nation’s future is better, freer, and more secure than the past. 

The entire world expects the United States to remain a leader. We cannot 

do this unless we are strong. And we cannot be strong unless we plan for 

and shape our future as a Nation with a sound economy. 

About the Contributors

Editor

Sheila R. Ronis is Director of the Master of Business Administration/Master of Management Programs at Walsh College. She is also 

President of The University Group, Inc., a management consulting firm 

and think tank specializing in strategic management, visioning, national 

security, and public policy. Dr. Ronis chairs the Vision Working Group 

of the Project on National Security Reform (PNSR) in Washington, DC, 

which has been tasked by Congress to rewrite the National Security Act 

of 1947. As a Distinguished Fellow at PNSR, Dr. Ronis is responsible for 

the plan and processes to develop the Center for Strategic Analysis and 

Assessment, where the President will conduct grand strategy on behalf 

of the Nation. Dr. Ronis holds Master’s and doctoral degrees in large 

social system behavior from The Ohio State University.

Contributors

Keith W. Cooley is Chief Executive Officer (CEO) of the advisory firm Principia, LLC. He previously was President and CEO of 

NextEnergy, an accelerator for alternative energy businesses and technologies, where he led the creation of a robust sustainability plan and 

helped the organization reconnect to vital funding from the foundation 

community. Prior to joining NextEnergy, Cooley was the Director of the 

Department of Labor and Economic Growth and a Cabinet Member to 

the Governor of Michigan. Mr. Cooley’s background includes work as 

an experimental physicist, engineering program manager, strategic planner, and CEO of Focus: HOPE, where he championed the organization’s 

work in manufacturing technology and workforce development serving 

underrepresented urban youth.

Lenora Peters Gant is the Deputy Associate Director of National 

Intelligence, Human Capital, for the Intelligence Community (IC) and 

the Director of the Office of the Director of National Intelligence IC 

Strategic Mission Outreach. Dr. Gant oversees the Intelligence Community’s Center of Academic Excellence programs at 30 accredited U.S. 

colleges and universities. Prior assignments included Senior Advisor and 

Special Assistant to the Director of Central Intelligence (DCI) and the 

 113
114 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

Deputy DCI for Community Management about workforce management, training/education, human resources, and IC corporate diversity 

management. Dr. Gant holds a Master of Arts degree from Vanderbilt 

University and a Ph.D. from Virginia Polytechnic Institute and State 

University. 

Louis J. Infante is the Executive Director, Government and 

Military, for Ricardo, Inc., an independent automotive engineering 

consulting company, where he is responsible for strategy development 

and enactment in the military and government markets. Prior to joining 

Ricardo, Infante served as Executive Vice President for McLaren 

Performance Technologies and as Chief Operating Officer of one of their 

business units. Other assignments include Managing Director for A.G. 

Simpson/Usiminas LTDA in Sao Paulo, Brazil, Vice President at APX 

International, and 13 years in engineering and manufacturing positions 

at General Motors and Chrysler. Infante holds a Bachelor of Science 

degree in automotive mechanical engineering from Kettering University.

Anne M. Khademian is Program Director for the Center for Public 

Administration and Policy at Virginia Tech in Alexandria, VA. She is also 

the co-convener of the center’s Leadership and Administration Round 

Table series, featuring public leaders and leadership scholars focused on 

the challenges of leadership in public administration. In 2009, Professor 

Khademian became a Fellow with the National Academy of Public 

Administration. Before joining Virginia Tech, Professor Khademian 

taught at the University of Wisconsin, Madison, the University of 

Michigan, and the University of Pennsylvania. She is a co-editor for the 

Journal of Public Administration Research and Theory and a member of 

several editorial boards, including Public Administration Review. 

Carmen Medina retired from the Central Intelligence Agency 

(CIA) in February 2010 after over 30 years of service. Her last assignment was as Director of the Center for the Study of Intelligence (CSI), 

where she developed and managed CIA’s first agency-wide Lessons 

Learned Program. From 2005 through 2007, she was the Deputy Director 

for Intelligence, a member of the executive team that led the CIA’s 

analytic directorate. Earlier in her career, Ms. Medina was Chief of 

the Strategic Assessments Group in the Office of Transnational Issues, 

Directorate of Intelligence. She graduated from Catholic University 

with a Bachelor of Arts degree in comparative government and pursued 

graduate studies at Georgetown University’s School of Foreign Service. 
ABOUT THE CONTRIBUTORS 115

John F. Morton is a Distinguished Fellow and the Homeland 

Security Lead for the Project on National Security Reform. He is also 

the Strategic Advisor to DomesticPreparedness.com and a consultant 

to Gryphon Technologies. With over 25 years of experience in complex 

national and homeland security issues, he has consulted and conducted independent research and analyses for BAE Systems/Detica, 

Technology Strategies and Alliances, Lockheed Martin Government 

Electronics Group, United Defense, L.P., Business Executives for 

National Security, Forecast International/DMS, Center for Strategic and 

International Studies, and National Defense Industrial Association. Mr. 

Morton has been extensively published and has written for almost every 

major defense publication.

Wendy Russell has spent 20 years serving the education and 

leadership development communities in the United States and Latin 

America. She helps create and facilitate arenas where adults and youth 

learn and gain leadership savvy and helps them apply those new skills. 

Her work supports educators, leaders, and volunteers. She is the author 

of Preparing Collaborative Leaders: A Facilitator’s Guide (Institute for 

Educational Leadership, 1994) and has served at American University, 

the Institute for Educational Leadership, and RMC Research. Ms. 

Russell has a Bachelor of Arts degree in political science from the 

University of Tennessee and a Master of Arts degree in international 

education from American University.

Myra Howze Shiplett is President of RandolphMorgan Consulting 

LLC. She has advised a variety of governments, nonprofit organizations, 

and private sector firms on organizational effectiveness and human 

capital management issues, including work on the Project on National 

Security Reform and Ukraine judicial reform. She is also currently serving as international public service reform expert for the Government 

of Iraq. Prior to forming her own consulting firm, Ms. Shiplett directed 

the National Academy of Public Administration’s Center for Human 

Resources Management. Ms. Shiplett spent more than 30 years working 

for both the executive and judicial branches of the Federal Government. 

She holds a Bachelor of Arts Degree in English and journalism from 

the University of South Florida and a Master’s Degree in urban 

affairs from the Virginia Polytechnic Institute and State University.

David M. Walker is President and Chief Executive Officer of the 

Peter G. Peterson Foundation. In this capacity, he leads the foundation’s 
116 ECONOMIC SECURITY: NEGLECTED DIMENSION OF NATIONAL SECURITY?

efforts to promote Federal financial responsibility and accountability 

today in order to create more opportunity tomorrow. Previously, Mr. 

Walker served as the seventh Comptroller General of the United States 

and as head of the U.S. Government Accountability Office for almost 10 

years. He also has over 20 years of private sector experience, including 

approximately 10 years as a Partner and Global Managing Director of 

Human Capital Services for Arthur Andersen, LLP. During this period, 

he also served as one of the two Public Trustees for Social Security 

and Medicare. A frequent writer and commentator, Mr. Walker has 

authored three books and is a subject of the critically acclaimed 

documentary I.O.U.S.A.
Economic Security:

Neglected Dimension of National Security?

From the Preface:

“Economic security is a major element of national 

security, even as borders are less important than 

ever. No matter how we look at national security, 

there can be no question of the need to include the 

economic viability of our nation. Without capital, 

there is no business; without business, there is no 

profit; without profit, there are no jobs. And without jobs, there are no taxes, and there is no military 

capability.”

Edited by Sheila R. Ronis, with contributions from:

Keith W. Cooley Anne M. Khademian Wendy Russell

Lenora Peters Gant Carmen Medina Myra Howze Shiplett

Louis J. Infante John F. Morton David M. Walker