Adjusting to a New Security Environment:

The Defense Technology and Industrial

Base Challenge

February 1991

OTA-BP-ISC-79

NTIS order #PB91-163261
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Adjusting to a New Security Environment:

The Defense Technology and Industrial Base Challenge—Background Paper, OTA-BP-ISC79 (Washington, DC: U.S. Government Printing Office, February 1991).

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this report)
Foreword

Dramatic political events in Eastern Europe, the Soviet Union, the Middle East, and

elsewhere, as well as spiraling Federal budget deficits, have stimulated a fundamental

re-assessment of America’s national defense posture. The size, form, and purpose of the

United States anneal forces are all being examined along with questions of how much defense

the Nation needs and how much it can afford. While no clear answers have yet emerged, there

is a consensus that-despite Operation Desert Storm-as long as positive trends in

U.S.-Soviet relations continue, U.S. defense procurement during the coming decade will be

much less than in the preceding one. As a result, the defense technology and industrial base

that develops and produces our military systems is currently in flux, changing in both size and

form. This base is a critical component of our national defense.

OTA has been asked by several congressional committees and individual Members of

Congress to conduct an assessment of what form the future defense technology and industrial

base might take; what form it ought to take; what government policies can do to draw these

two together; and how the sweeping changes expected in the base can be managed to minimize

adverse economic effects and ensure sufficient future technology and industrial capability to

meet the Nation’s needs. To set the context for this assessment, this background paper outlines

the complex defense technology and industrial base challenges that confront the Nation in

adjusting to a new security environment. It examines the role of the defense technology and

industrial base in maintaining America’s security, and the major factors affecting the country’s

evolving security posture.

These questions are complicated by a legacy of existing problems and unresolved issues

related to the health and management of defense technology and industry, including the

acceptable degree of foreign dependence and the desired integration of civil and military

industry. While the United States has the opportunity to more fully integrate development and

production in the civil and defense sectors, doing so will require difficult choices on how to

manage defense production most efficiently in peacetime, crisis, and war. These decisions will

force a review and revision of many current acquisition laws and practices.

The final report, to be delivered in the spring of 1992, will build on earlier OTA work

to explore the strategies available to the Nation for maintaining an adequate defense

technology and industrial base, and the policy options to support these strategies.

In undertaking this background paper, OTA sought information and advice from a broad

spectrum of knowledgeable individuals and organizations whose contributions are gratefully

acknowledged. As with all OTA studies, the content of this background paper is the sole

responsibility of the Office of Technology Assessment and does not necessarily represent the

views of our advisers and reviewers.

/J’zf AJ’#&&L9.- >

JOHN H. GIBBONS

Director

,.. Ill
Adjusting to a New Security Environment:

The Defense Technology and Industrial Base Challenge

Advisory Panel

Walter B. Slocombe, Chair

Caplin & Drysdale Chartered

Richard Bohlen

Senior Vice President, Operations

Rockwell International Corp.

Robert Calaway

President

Resources Management International, Inc.

Gordon Corlew

Vice President, Production Operations

AIL Systems Inc.

Jacques S. Gansler

Senior Vice President

The Analytic Sciences Corp.

Julius Harwood

Consultant

William W. Kaufmann

Professor

John F. Kennedy School of Government

Harvard University

General P.X. Kelley, USMC (Ret.)

James L. Koontz

President & CEO

Kingsbury Machine Tool Corp.

John Mearsheimer

Professor

Department of Political Science

University of Chicago

Thomas L. McNaugher

Senior Fellow

The Brookings Institution

William McNeill

Professor Emeritus

University of Chicago

Joseph Nye

Director

Center for International Affairs

Harvard University

Donald W. Putnam

Corporate Director

Contracts and Technical Analysis

General Dynamics Corp.

Jack Ruina

Professor of Electrical Engineering

Center for International Studies

Massachusetts Institute of Technology

Howard D. Samuel

President

Industrial Union Department AFL-C1O

Wickham Skinner

Professor Emeritus

Business Administration

Harvard University

James Solberg

Professor

Engineering Research Center

Purdue University

General William Y. Smith, USAF (Ret.)

President

Institute of Defense Analyses

Leonard Sullivan

Consultant

System Planning Corp.

Admiral Harry Train, USN (Ret.)

Division Manager

Strategic Research and Management

Services Division

SAIC

General John W. Vessey, Jr., USA (Ret.)

Albert Wheelon

Consultant

Ex Officio:

William J. Perry

Chairman & CEO

Technology, Strategies & Alliances

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members.

The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the

report and the accuracy of its contents.

iv
OTA Project Staff

Adjusting to a New Security Environment:

The Defense Technology and Industrial Base Challenge

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Alan Shaw, International Security and Commerce Program Manager

Project Staff

Jack H. Nunn, Project Director

Ivan Oelrich

Jonathan B. Tucker

Contractor

David Novick

Administrative Staff

Jacqueline Boykin Madeline Gross Louise Staley

v
Overview

This backround paper outlines some of the

difficult strategic issues that face the Nation as it

seeks to maintain an adequate defense technology

and industrial capability at a time of rapid, worldwide political, military and economic change. The

defense technology and industrial base can be

broadly defined as the combination of people,

institutions, technological know-how, and production capacity used to develop, manufacture, and

maintain the weapons and supporting equipment

needed to achieve our national security objectives.

The recent diminution of the Soviet/Warsaw Pact

military threat appears to offer the opportunity for

significant reductions in the resources the Nation

must allocate to national security, and the conversion of some portion of the U.S. defense technology

and industrial base to nondefense activities. At the

same time, Operation Desert Storm and the uncertain path of political reform in the Soviet Union

highlight the need to preserve a base capable of

supporting diverse U.S. national security objectives.

Significant cuts in active forces, resulting in smaller

inventories of military equipment and consumables,

could increase the need for a rapid industrial

response capability in a future crisis. A poorly

managed industrial transition could make both the

maintenance of capable smaller forces, and an

industrial response to a crisis, difficult.

Despite the more than two thousand billion

dollars spent on defense over the past decade and the

impressive preliminary results of the high-technology

weapon systems employed in the Gulf War, the

current defense technology and industrial base has a

number of serious weaknesses that could reduce its

capacity to either develop and produce new weapon

systems or to sustain U.S. forces in a future conflict.

Cuts in defense spending since 1985 have faced

many defense contractors with serious financial

difficulties, causing them to downsize facilities,

reduce investment in new technology and physical

plant, eliminate critical personnel, and diversify

into nondefense areas. In addition, the relative

erosion of U.S. technological superiority in both the

defense and civilian sectors has increased the

Nation’s dependence on foreign sources of supply,

while weapons acquisition programs have been

plagued with cost overruns and inadequate quality

control. These weaknesses could have serious implications for U.S. national security. To deal with them

and guide the future use of the Nation’s base requires

the development of a long-term defense technology

and industrial strategy linked to operational military

plans and broad national security objectives.

In planning for the future defense technology and

industrial base, the Nation faces three critical tasks.

The first is to determine the size and nature of the

future base. The challenge is not only to downsize

current capabilities to meet anticipated budget

reductions, but to anticipate future weapons development needs and determine how best to utilize

military and civilian scientific and technological

capabilities, both foreign and domestic, to build the

weapons required. The second task is how to time

changes in the base, since it is far more difficult to

reconstitute a technological or industrial capability

than to reconstitute military forces whose equipment

and source of supply remains intact. The challenge

will be to match prudence in such reductions with

the imperative to keep Federal expenses under

control. The third task will be to reconsider the

overall organization, planning, and guidance of the

base. Maintaining g an adequate future base will

require the revision of laws, regulations, and administrative guidance developed to facilitate access and

to control costs during a period of rapid defense

industrial expansion. With careful planning, the

United States can devise and retain a scaled-down

defense technology and industrial base that will

support our national security objectives into the next

century. The changes required to move to a new base

will be extensive, however, and will take vision,

time, and effort to implement.

vi
Adjusting to a New Security Environment:

The Defense Technology and Industrial Base Challenge

Introduction

The dramatic political and military changes underway in the Soviet Union and Eastern Europe are

prompting major reassessments in U. S. national

security planning. These trends appear to offer an

opportunity for the United States to make reductions

in defense spending far larger than any since the end

of World War II. At the same time that the Soviet

threat is diminishing, however, the Iraqi invasion of

Kuwait and the U.S. military response have shown

that the world remains a dangerous place and have

provided a strong rationale for retaining a robust

military capability. Defining how large that capability should be, and what roles it should perform,

presents major challenges to national security planners.

The challenge is particularly great for those

responsible for maintaining the U.S. defense technological and industrial base. Planners are challenged

by uncertainties over: 1) what defense technology

and industrial capabilities may be needed in the

future; 2) how the future U.S. defense technology

and industrial base should be postured in order to

support our national security objectives; and 3) when

defense technology and industrial reductions should

best proceed. Timing is even more critical in this

area than in manpower reductions, since the reconstitution of defense technology and industrial capabilities can take years and the speed and direction of

change in the Soviet Union is uncertain.

Dealing with these uncertainties requires that the

Nation consider fundamental questions, such as the

extent to which the U.S. national security should

depend on domestic technology and industrial capabilities, and who, in a free-market economy, has

control of defense industrial changes. It is clear that

the Nation can neither forecast all future defense

technology and industrial base requirements nor

manage all changes in the base. Nevertheless, it is

prudent to make a rough assessment of future

requirements in order to allocate our national

resources more efficiently.

Assuming that large reductions in defense spending actually materialize, this will be the third major

military demobilization for the United States in the

20th century. While there is something to be learned

from the past, the present situation differs in

important ways from the industrial demobilizations

after World Wars I and II. One major difference is

the widespread acknowledgment of the need to

maintain a significant defense capability to deal with

the security uncertainties of the future. Such a

perception was lacking in the wake of America’s

successful military crusades in the two World Wars,

when no foreign threats were immediately identified. As a result, U.S. military forces, and their

supporting defense technology and industrial base,

were hastily dismantled.l

A second difference is that the current demobilization comes at a time of strong international

economic competition for the United States, rather

than the American economic preeminence that

characterized the end of World War II. This competition has raised concerns over the loss of jobs and

technological expertise in America, the "hollowingout’ of U.S. manufacturing capability as production

has moved offshore, and the prospect that the United

States will lose the lead in critical areas of technology with national security implications as more

scientific and technological advances take place

outside our borders. Increasingly fierce international

technological, industrial, and economic competition

will have a major effect on the policies the United

States must pursue to ensure an adequate defense

technological and industrial base in the future. It

may force greater reliance on technologies and

industrial capabilities that exist in the civilian sector,

potentially shifting the primary focus of the defense

procurement process from deciding what military

capability is desired to determiningg what weapons

can be produced with available resources.

The Office of Technology Assessment (OTA) has

been asked to ex amine the implications for the

Nation’s defense technology and industrial base of

the changes in the international security environment, particularly in the Soviet Union and Eastern

IAI~ou@ Concew over a potenti~ hat from the Soviet Union were voiced as early as 1946, these concerns were not widely shared UIItd tie

takeover of governments in Eastern Europe in 1947 and 1948. By theq much of the U.S. defense industrial base had been dismantled.

–l-
2 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

Europe, and to provide Congress with insights into

steps that might be taken to: 1) ensure a transition to

an adequate defense technology and industrial

capability in the future; 2) apply assets not used for

development and production of military systems to

civil purposes; and 3) cushion, as much as possible,

the economic impact of reductions in the defense

technology and industrial base. To accomplish this

task, OTA has undertaken an assessment that will

result in a series of reports. This background paper

outlines the general requirements of the defense

technology and industrial base and the critical

choices that confront the Nation as it modifies the

structure of the base to meet future national security

requirements. Specifically, this paper defines the

elements of the defense technology and industrial

base that will be examined, outlines the traditional

functions of the base, assesses the current capabilities of the base to meet U.S. national security goals,

sketches the range of expected national security

requirements for the base, and outlines some of the

policy options that the Nation should consider as it

seeks to ensure a viable defense technology and

industrial base in the future.

Definition of the Base

The defense technology and industrial base can be

broadly defined as the combination of people,

institutions, technological know-how, and production capacity used to develop and manufacture the

weapons and supporting defense equipment needed

to achieve our national security objectives.2 It

contains three functional elements:

1.

2.

a technology base that includes private industry laboratories and research facilities, university laboratories conducting defense research,

government laboratories (e.g., those run by the

National Aeronautics and Space Administration and the Departments of Energy, Commerce, and Defense), test centers, and the

trained scientific and technical personnel to

staff these facilities;

a production base composed of private industry as well as government enterprises (both

government-owned and government-operated

(GOGO) and government-owned and contractor-operated (GOCO)); and

3. a maintenance base consisting of government

facilities (arsenals, depots, etc.) and private

companies that maintain and repair equipment

either at their own facilities or in the field.

The base includes a U.S. and Canadian component termed the North American Defense Industrial

Base (NADIB), and a foreign, offshore component.

Although the defense technological and industrial

base is often discussed as if it were a separate

identifiable entity, it is more accurately a subset of

the larger national technology and industrial base

and draws on that larger base to meet defense

requirements. Even the large “prime” contractors

and smaller second-tier defense firms principally

dedicated to defense work (e.g., General Dynamics,

McDonnell Douglas, Grumman, Loral, E-Systems)

depend on hundreds to thousands of predominately

civilian firms for components and technology. The

same is true in research and development: dedicated

defense laboratories rely on a wide range of nondefense research efforts, and technology flows back

and forth between the military and civilian sectors.

This interrelationship raises concerns about negative

trends in the larger national technology and industrial base, whose health is ultimately key to maintaining national security. It is not enough for the

larger national base to be capable of producing

weapons through its defense-dedicated elements; it

must also produce a sufficient output of high-quality

goods and services to provide for the economic

well-being of the American people, and enough

surplus so that the Nation can afford an adequate

national defense establishment.

An understanding of this interdependence between civilian and defense production was behind

President Eisenhower’s concern, during the early

years of the cold war mobilization of technology and

industry, about the well-being of the U.S. economy

and the Nation’s ability to meet a long-term military

threat. In a 1955 letter to Secretary of Defense

Charles E. Wilson, Eisenhower wrote that “the

threat to [U. S.] security is a continuing and manysided one-there is . . . no single critical ‘danger

date’ and no single form of enemy action to which

we can soundly gear our defense preparations. ’

While military forces were important, the President

2This definition b~lds on one developed in OTA’S previous repo~ The Defense Technology Base: Introduction and overview, 0~-lsc-374

(Washington, DC: U.S. Government Printing Office, March 1988), p. 7.
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge . 3

President argued that “true security . . . must be

founded on a strong and expanding economy. ”3

This argument remains sound with respect to

current concerns over the Nation’s international

industrial competitiveness. A healthy and robust

technology and industrial base has allowed the

United States over the past four decades to develop

and deploy the wide range of military forces it has

deemed essential for defense, devoting an average of

around 6 percent of the GNP to the effort. Figure 1

illustrates the relationship of the defense and civil

components of the base, with overlapping pyramids

representing defense and civilian demand. While

there is industrial integration at the lower levels

(subtier producers of components and suppliers of

raw materials), many studies have pointed out that

this integration has been limited by specialized

Department of Defense (DoD) procurement practices and stringent military specifications that often

require the separate development and production of

defense components even though they may be

similar to those already available in the commercial

sector. 4 Moreover, figure 1 does not illustrate the

international component of the U.S. defense technology and industrial base, which draws increasingly on

foreign-sourced components.5 National security

planners must understand how best to deal with

these internal and external factors if they are to be

successful in defense technology and industrial base

planning.

The relative size of each demand pyramid at any

given time is a function of the degree to which the

country has mobilized its strength to deal with a

perceived security threat. When threats to the

country increase, defense demand draws goods and

services away from civilian research projects and

production, and toward military items. Conversely,

in times of reduced threats, the demand on the

Nation’s industrial base shifts back toward the

civilian sector. Of course, it is also possible for both

pyramids to grow in response to the combination of

an increased national security threat and positive

economic trends, and for both to contract in response

Figure 1 —Defense and Civil Demand

Defense demand Civil demand

End

product

Subtier

Basic

Inputs

Aerospace, electronics (e.g., computers,

telecommunications, software), shipbuilding,

automotive, construction equipment,

farm machinery, etc.

o

Forgings, castings, ball bearings, machine tools,

robotics, semiconductors, semiconductor

equipment, etc.

o

Steel, petrochemicals, metals (e.g., aluminum,

titanium, copper mining), ceramics, composite

fibers, fiber optics, etc.

Raw materials, energy, capital, technology,

. . . . . scientific/skilIed manpower, management

SOURCE: Roderick L. Vawter, Foreign Dependency and Foreign Vu/nerabdify: Part /, A Survey of the Literature (Washington, DC:

Mobilization Concepts Development Center, National Defense

University, Ft. McNair, September 1986).

to the combination of a lessened threat and negative

economic trends.

Since 1940, the United States has devoted substantial resources to national security (see figure 2).

Because most of that resource allocation since 1950

has been in response to the perceived Soviet threat,

the apparent decline in that threat should permit a

major reduction in U.S. defense spending, thereby

allowing the civilian demand pyramid to grow

relative to defense demand. Still, other threats to

U.S. security interests will continue to stimulate

defense demand and will also affect the nature of the

weapon systems required. Indeed, since the forces

used to meet lesser military threats have often been

derived from those directed against the Soviet

military threat (e.g., the United States drew down its

capabilities in Europe to fight against North Vietnam), the expected reduction in U.S. forces and

defense spending may not be directly proportional to

the perceived decline in the Soviet military threat.

s~tter from Mesident Eisefiower to Secretary of Defense Charles E. Wilson, Jan. 5, 1955, in Department of State Bulletin, vol. 34 No. 810, Jan.

17, 1955.

‘@ ffice of the Under Secretary of Defense for Aequisitio~ Find Report of The Defense Science Board 1986 Summer Study Use of Commercial

Components in Military Equipment (Washington DC: January 1987); and U.S. Congress, OffIce of Technology Assessment Holding the Edge:

Maintaining the Defense Technology Base, OTA-ISC-420 (Washingto~ DC: U.S. Government Printing Office, April 1989).

5See U.S. Con=ess, Offiw of Tec~ology Assessment Arming Our Allies: Cooperation and Competition in Defense Technology, OT.A-ISC-49

(Washington, DC: U.S. Government Printing Offke, May 1990), pp. 24-25.
4 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

Figure 2—U.S. Defense Spending

Constant 1990$ (billions)

900 1

800

700 IA

600

500

400

;J-’”

DoD 2°/0 annual

reduction

300 . . \

\ ““. .....,, \

200

. .

/

Defense Budget Project 100 6.7°/0 annual reduction

o

I

I I I I I I I I I I I I I I I I I I I I I I I I I 1 I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I 1

194043 46 49 52 55 58 61 64 67 70 73 76 79 82 85 80 91 94 97 2000

Year

SOURCE: William Kaufmann, G/asnosf, Perestroika, and U.S. Defense Spending (Washington, DC: The Brookings Institution, 1990) and fiesfruetun’ng the

U.S. Mi/itary: Defense Needs in the 21st Century (Washington, DC: Defense Budget Task Force of the Committee for National Security and the

Defense B~get Project, 1990).

Moreover, future forces might have to be very

different from the heavy armor divisions developed

for Europe. Whatever the nature of the reduction, the

challenge, as always, will be to provide for our

national security without inordinately reducing national economic welfare.

Uses of the Base

The adequacy of the defense technology and

industrial base can be measured against two broad

criteria associated with its utilization. The first

measure is the ability of the base to conceive of,

develop, deploy, maintain, and upgrade modern

weapon systems and supporting equipment in peacetime. The second measure is the ability of the base

to respond rapidly to crisis or war with increased

production of current materiel and/or the rapid

development of new systems. Within these broad

measures, the Nation’s defense technology and

industrial base has historically performed a number

of tasks, with the relative importance of any one of

them depending on the overall national security

situation of the country at that time. Four tasks of

special importance are listed in table 1.

The first task for the defense technological and

industrial base has been that of sustaining U.S.

forces at war. America’s herculean effort in World

War II, when the U.S. defense industrial base

produced some 300,000 aircraft, over 1,000 major

naval vessels, and 86,000 tanks, set the standard for

this wartime support role.6 The current concept of

wartime support includes both the surge production

of key systems in a crisis, and the subsequent longer

term mobilization of industry to sustain a war

effort. 7 Measuring the capability of the base to

perform this task is a function of the scenario being

considered. For example, a potential worldwide war

against the Soviet Union would obviously be more

demanding than a regional conflict in the Third

World.

An important aspect of America’s ability to

provide wartime industrial support has been the

degree to which such support is independent of other

me Air Force Association and the USNI Military Data Base, Lifeline in Danger: An Assessment of the United States Dt#ense Industrial Base

(klingtou VA: The Aerospace Education Foundation 1988), p. 1.

TSee R~efickL. Vawter, I&~m”al Mobilization: The Relevant History (Washington DC: National Defense UniveB@, Ft. McNfi, 1983). Swge

is the termusedwithinDoD to refer to the expansion of military production in peacetime without the declaration of a national emergency. IUobiZizatz”on

refers to the rapid expansion of military production to meet materiel needs in a war-fighting situatiorq and involves the declaration of a national

emergency. Several types of mobilization are considered. Full mobilization refers to mobilization to fiil the existing or ‘program force” structure. Total

mobilization describes a mobilization effort that expands beyond the existing force structure to new forces.
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge ● 5

Table l—Important Defense Technology and

Industrial Base Tasks

● Support U.S. wartime operations

● Develop high technology weapons

. Enhance deterrence

● Supply military equipment to allies

SOURCE: Office of Technology Assessment, 1991.

nations. Concerns over dependence have been

voiced since the early years of the Nation. Secretary

of the Treasury Alexander Hamilton, for example, in

a 1791 report to Congress, noted his desire to

promote manufacturing that would “tend to render

the United States independent of foreign nations for

military and other essential supplies.’ Hamilton’s

wish for defense industrial independence was a

response to the colonies’ shortages of materiel

during the Revolutionary War. Maintaining an

adequate degree of defense technological and industrial independence remains a matter of concern

today, but it has become much more complex and,

because of the globalization of technology and

industry, may have costs (in terms of lack of access

to the most advanced technology) that did not

confront earlier generations. The Nation must therefore balance concerns over dependence on foreign

sources that might lead to cutoff of supplies (such as

occurred with some raw materials in World War II)

against the reality that attempts to pursue a highly

autonomous defense technology and industrial base

could preclude access to new technologies and

products, which increasingly are being developed

abroad.

A second important task for the defense technology and industrial base has been the development

and production of high-quality defense materiel.

Defense research and development (R&D) was

particularly critical during the cold war, when the

United States sought to counter what was seen to be

a quantitatively superior Soviet threat with qualitatively superior technology. For example, air-to-air

missiles such as the Sidewinder, Sparrow, and

Phoenix, and antitank missiles such as the TOW and

Hellfire, were the result of years of research and

development. In addition, U.S. strategic nuclear

forces were developed and produced by a vast

scientific and engineering complex that began with

the Manhattan project and other scientific efforts of

World War II and was greatly expanded in the 1950s

and 1960s. Over the years, the United States has

developed a panoply of strategic weapons (intercontinental ballistic missiles, stealth bombers, cruise

missiles, high-yield nuclear warheads), as well as an

array of space-based sensors and early-warning

devices that have helped stabilize the nuclear

balance and have greatly improved the verification

of arms control treaties.

A third important task of the defense technology

and industrial base has been the enhancement of

deterrence as a result of the perceived capability of

the United States to mobilize its technological and

industrial strength for the rapid development and

production of new military systems. The Nation’s

ability to mobilize massively was demonstrated frost

by American production achievements in World

War II, and further demonstrated by the rapid

expansion of U.S. conventional and strategic forces

in response to the Korean War and the growing

Soviet strategic nuclear threat, and by the success of

ambitious technological endeavors such as the

Apollo space program. Although deterrence is

difficult to measure, it is too important to be

overlooked in an evaluation of the defense technology and industrial base.

A fourth important task of the Nation’s defense

technology and industrial base has been to provide

support for allies and Friendly nations. The United

States has been a prodigious producer of military

materiel for allies, most notably during World War

II. 9 More recently, the base provided materiel for

allied use in both the Korean and Vietnam Wars, as

well as conflicts in which the United States was not

directly involved (Israel in the October 1973 war,

and Great Britain in the Falkland Islands campaign

of 1982). While the operation of the base in

producing materiel for allies is much like that of

supporting U.S. forces, there are sufficient differences to designate it a separate function. One

difference is that support for allies can be controversial. If the United States is at war, supplying allies

may require diverting production from U.S. forces;

this happened during World War II and provoked

numerous complaints from U.S. military command8AleMda H@toq “Report on Manufactures,” reported in Martin C. Libicki, What Makes Industn”es Strategic, McNair Papers No. 5

(Washington, DC: National Defense University, Ft. McNair, 1989), p. 19.

%tobert W. Coakley and Richard M. Leightoq GlobuZ Logistics and Strategy: 1943-1945 (Washington DC: U.S. Army, Office of the Chief of

Military History, 1968), p. 846. U.S. material support to allies during World Warn totaled almost $330 billion (1982 dollars).
6 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

ers. If the Nation is not at war, materiel assistance to

allies may be hampered by peacetime constraints on

rapid production (the United States, for example,

took almost 4 years to reconstitute the military

equipment that it provided Israel in 1973), and by

political differences over whether and to whom we

should supply arms. In addition, there are growing

concerns that the transfer of modern weapons and

technologies could ultimately present a threat to our

own forces, particularly in the case of technologies

needed for the development of ballistic missiles or

weapons of mass destruction.

The United States has generally not considered

potential allied needs in determining g its defense

industrial base surge and mobilization requirements.

Exceptions to this policy have occurred in actual

conflicts (the World Wars, Korea, and Vietnam),

when supplying allies was considered militarily

essential. Recently, U.S. arms producers have begun

to view the foreign market as a means to maintain

profitability at times of uncertainty in U.S. defense

spending. Allied requirements are therefore playing

a more important role in private industrys planning.

Determining g the extent to which the United States

should plan to provide defense technology and

industrial support for allies, or should rely on allied

support to help meet our own materiel needs, is

clearly critical to shaping our future defense industrial base policies.

It is likely that the four tasks of the defense

technology and industrial base will continue to be

important in the future, and others may be added to

the list. Ultimately, U.S. defense technology and

industrial base requirements will be determined by

such factors as the nature of future military threats to

the Nation and our own national security objectives,

decisions on the military force structure and operations needed to achieve these objectives, and future

scientific and technological developments with relevance to national security (including trends in the

civil portion of the technology and industrial base).

Unfortunately, a major difficulty for those making

long-term decisions about the base is that the debate

over future threats, force levels, and U.S. national

security objectives has only just begun.

Future Threats and Force Levels

The Soviet threat (principally defined in military

terms characterized by numbers of divisions, tanks,

nuclear-armed missiles, and aircraft, etc.) has dominated the defense planning of the United States for

the past four decades. A threat is composed of more

than enemy capabilities; there must also be some

assessment of intent to use those capabilities. One

writerl0 has described perception of military threats

in quasi-mathematical form as:

estimated estimated

Threat perception = enemy X enemy intent

capability to act

During most of the cold war, Soviet military

capability and hostile intent were evident to U.S.

security planners. Today, however, the nature of the

Soviet military threat appears very different than it

did just 5 years ago. Although the Soviet Union’s

overall military power remains formidable, its ability to intervene militarily in Europe with conventional forces has eroded considerably, and its intentions seem less hostile. If such trends continue, the

Soviet threat will be very different 5 years in the

future. These changes are forcing a review of U.S.

security objectives and a revision of the policies

developed to achieve them.

Since the Nation’s security objectives determine

the size and types of military forces that are required,

it is important to examine our security objectives

explicitly and to understand the associated limits

and tradeoffs. Some goals are simply not realistic or

are in conflict with one another: the Nation can never

achieve total economic autonomy, complete political independence, or absolute military security. As

a result, tradeoffs are necessary. The nations of

Western Europe, for example, have concluded that

they must sacrifice some of their political autonomy

by integrating their monetary and trade policies in

order to achieve greater economic growth.

The most recent National Security Strategy announced by the President lists four basic national

objectives: 1) ensuring the survival of the Nation as

a politically independent entity; 2) promoting economic prosperity for America and the world; 3)

maintaining a stable world order conducive to

liberty; and 4) forging strong ties to allies and

IOJ. David Singer, “Threat-Perception and the Armament-Tension Dilemmz ” Journal of Conj7ict Resolution, vol. 2, No. 1, 1958, p. 94.

llNafional Securiv Strategy of the United States (Washington DC: The White House, Wch 190), PP. 2-3.
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge ● 7

like-minded nations throughout the world.ll As

President Eisenhower observed, the threats to the

Nation have always had an economic component.

While this component was often overlooked during

the last two decades of the cold war, it will play a

more prominent role in U.S. national security in the

coming years. For the foreseeable future, however,

attaining the four primary national-security objectives listed above will require military forces in

addition to economic and diplomatic tools.

The current threats to the Nation are ambiguous.

In the past, when the Soviets appeared to have both

the capability-and, if unopposed, the intent-to

invade and seize Western Europe (deemed vital to

U.S. interests), or to attack the United States with

strategic nuclear weapons, the military threat was

relatively clear and the Nation could structure its

forces to forestall those possibilities. The threats the

Soviets posed outside Europe (subversion and support of indigenous revolutions in Asia, Africa, and

Latin America) were less clear, and the Nation had

difficulty sizing a force or creating a long-term

policy to deal with them. Now that the Soviet

conventional threat to Europe is much reduced in

capability as well as intent, there is no clear-cut

yardstick against which to measure U.S. forces. To

the degree tensions between the United States and

the Soviet Union have lessened, there is also a

reduced threat of a Soviet strategic nuclear attack.

Nevertheless, because the speed and ultimate nature

of reform in the Soviet Union are uncertain (as

evidenced by recent repression in the Baltic Republics), our national security plans must continue to

hedge against this uncertainty.

Lacking a large, immediate Soviet threat, but

facing a range of lesser threats, U.S. national

security planners must cope with ambiguities similar

to those faced by planners in the 1930s. At that time,

the United States developed a series of color-coded

plans to meet a variety of possible military

contingencies. For example, Plan Orange, the

Navy’s preferred plan, anticipated a war against

Japan in the Pacific; other plans anticipated attacks

from Mexico and conflict with European powers.

The Nation must again prepare for a spectrum of

only dimly outlined threats, ranging from minor

challenges to regional and global stability, to larger

threats to U.S. economic welfare, and finally to the

possibility of a new or resurgent threat to national

survival. In designing the forces and operational

plans to meet this array of potential threats, national

security planners will have to make decisions on

force structure and readiness, the degree of cooperation with allies, and the nature of armament-all of

which will fundamentally affect the nature of the

defense technology and industrial base. Because

planners are constrained by available resources, they

must also make tradeoffs among these factors. The

nature of these tradeoffs, and the degree of risk they

entail, will depend on the level of resource constraints.

Future U.S. forces will probably consist of some

combination of active and reserve forces. While

military planners generally prefer active forces,

resource constraints may force them to rely increasingly on less expensive reserve forces. The “force

mix” decided on will, in turn, constrain operational

plans. The most demanding contingencies (such as

a resurgent Soviet military threat) would require a

large-scale military mobilization and expansion,

which the Bush administration has termed the

‘‘Reconstituted Force. Smaller operations such as

Grenada and Panama, on the other hand, might be

handled with the Administration’s planned “Base

Force,’ consisting of active forces and ready

reserves. The current crisis in the Middle East

provides some insight into the size of the Base Force

that might be required in the future, but it is only one

planning scenario and only a single operation plan.

A smaller future Base Force might not preclude U.S.

action, but might require very different operations

and levels of effort by our allies. Future force

structure will therefore have to be based on judgments about the probability and scope of various

contingencies.

As planners consider the size of future military

forces, they must also consider the readiness and

sustainability of those forces. There are obvious

tradeoffs among these variables. High levels of

readiness and sustainability require a major investment in training, spare parts, war reserve stocks of

munitions, etc., yet these costs in turn reduce the size

of the forces the Nation can field. An important task

will be to determin e an optimal tradeoff between

size and sustainability. For example, by fielding a

smaller force that can react quickly and is more

sustainable in combat, the United States might be

able to respond in a timely reamer to a military

threat that, if allowed to develop over the time

required to mobilize a larger U.S. force, would

become much more difficult and costly to oppose.
8 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

Decisions on force structure, readiness, and sustainability will also depend on judgments about

available warning. The changes in Eastern Europe

have clearly increased the amount of warning that

would be available in the event of a resurgent Soviet

threat and conventional attack against Europe.

Overall, force reductions by the Soviet Union and

the demise of the Warsaw Pact as a viable military

alliance have further increased warning time; indeed, the Soviets would probably have to fight their

way through Poland and Hungary to invade Western

Europe. To be useful, however, warning must be

acted upon. Some have argued that the U.S. political

system is so poor at responding to rising potential

threats and acting on warning that the Nation should

maintain high levels of military vigilance (and large

active forces) at all times. Since it takes even longer

for the defense industrial base to gear up in response

to crisis or war, assumptions about warning and

response times are particularly important.

The degree of interdependence with allies the

United States decides to accept will also affect force

structure, operational planning, and ultimately the

defense technology and industrial base. Since the

beginning of World War II, the Nation has pursued

a strategy of cooperation with key allies in order to

defend many of our most vital interests. Although

the United States has maintained a secure and

independent nuclear retaliatory force, it has chosen

to forego the ability to conduct most major conventional military operations without allied, or host

nation, support. Although the interventions in Panama and Grenada were unilateral actions, NATO’s

security guarantee of Western Europe could not have

been undertaken by U.S. forces alone.

While interdependence conserves national resources and is therefore essential in today’s world,

it may also constrain U.S. ability to act in its own

national interest, and increase security risks. Indeed,

specific defense technology and industrial base

concerns have been raised over future reliance on

foreign military technology, foreign-sourced military components, and foreign-owned U.S. companies. Decisions about the extent of future U.S.

cooperation with allies will impact on the Nation’s

defense industrial base needs in two ways: first, by

determining the size of U.S. forces needed for

various contingencies; and second, by affecting the

potential foreign supply of weapons and components, and the quantity of weapons that the United

States must supply to its allies.

A final military policy decision that will affect the

requirements of the industrial base is the desired

performance of future U.S. weapons systems. The

United States has, as noted earlier, pursued a policy

of maintaining qualitative superiority over potential

adversaries in an attempt to offset quantitative

superiority. American fighter aircraft, for example,

are designed to have radar capable of acquiring

targets at greater range than the adversary’s aircraft,

and are armed with sophisticated missiles capable of

destroying targets at those longer ranges. As a result,

a single U.S. fighter should be capable, in principle,

of defeating several adversary aircraft. During

World War II, however, the Nation pursued a

different procurement strategy. Although excelling

in critical defense technologies such as long-range

bombers, radar, and the atomic bomb, the United

States was renowned in that war not for the

performance of its individual weapons but for their

overwhelming numbers. It would therefore be possible for the Nation to reevaluate its current armsprocurement policy and follow a different course.

Moreover, even if we continue to pursue a policy of

maintaining performance superiority, the question

of tradeoffs between quality and quantity will

remain. A small, elite force may choose to rely on

relatively few high-performance weapons, while a

larger force composed of less well-trained personnel

might value simplicity and reliability over sophistication and thus procure a larger number of less

capable weapons. Whatever tradeoff is made between quantity and quality will affect the technology

and industrial base.

A number of force-structure alternatives have

already been proposed in the developing national

security debate and are outlined in table 2. They

provide examples of current thinking about future

force structure and associated trends in the defense

technology and industrial base. Embedded in these

proposals are different assumptions about threats,

available warning, weapons effectiveness, and interdependence with allies. While it is too early to make

a decision on the exact size and composition of the

future force, if the Soviet threat continues to decline,

U.S. force levels may fall to somewhere between the

25-percent reductions proposed by the Bush administration in April 1990 and the much deeper cuts

postulated by defense analyst William Kaufmann of

the Brookings Institution.

The timing of Kaufmann’s proposed reductions

would be contingent on significant cuts in Soviet and
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge ● 9

Table 2—Major Military Elements Under Several Proposed Defense Reductions

Comm. for Nat.

CBOf CBO Kaufmann 1 Sec. and Admin. k 25%

Forces Current “Alternative l“ “Alternative V“ “Case D“ Def. Budget Proj. Force Reductions

Divisionsa . . . . . . . . . . . . . (21/11) b(19/1 1) (12/8) (10/1 1) (10/10)j - 221

Carriers. . . . . . . . . . . . . . . . 1 4 6 9 1 2

Attack submarines . . . . . . . 9 2 d 72h

Tactical Air Wingsa . . . . . . (27/13)c(2%3) (17/8) (1%2) (l2/12)j 25

Missile submarines . . . . . . 34e 23 1 7 1 7 17 20

ICBMs . . . . . . . . . . . . . . . . . 1000 50 MX+500 SICBM 50 MX+500 MM-III 100 MM-Ill Minuteman 500

Bombers . . . . . . . . . . . . . . . 260 g97 B1+132 B2 23 B52+97 B1 +15 B2 41 B 1 97 B1+15 B2 200

a (active/reserve)

b Army (18/10) + Mafine (3/1) divisi~n~oes not in~ude nondivisional assets. See CBO, Security Needs, p. 3, Mil Bal, pp. 17,20.

c Air Force (24/12) + Marine (3/1) airwings. See CBO, p. 3 and Mil Bal, pp. 21-22.

d CBO, p. 46.

e Mil Bal, p. 16.

f Minimum reductions to meet expected START& CFE limits.

9 Mil Bal, p. 16 (excludes FB-1 11s).

h CBO, p. 46.

~Kaufmann, Table 32. Kaufmann calculates force levels in terms of “division equivalents.”

J Excludes Marine forces.

k From C)SD bfiefing, “Budget Impact of Illustrative 25% Force Reduction,” June 1990.

IActive and reserves were not broken OUt.

“CBO” refers to Meeting New Nationa/ Security Needs: Options for U.S. Mi/itary Forces in the 1990s, Congressional Budget Office (February 1990).

“Kaufmann” refers to William Kaufmann, G/asnost, Perestroika, and U.S. Defense ~ending (Washington, DC: The Brookings Institution, 1990).

“Mil Bal” refers to The Mi/itary Ba/ance, 1989-1990 (London: International Institute for Strategic Studies, 1989).

“Comm. for Nat. Sec. & Def. Budget Proj.,” refers to Restructwng the U.S. Mi/itary: Defense Needs in the 21st Century (Washington, DC: Defense Budget

Task Force of the Committee for National Security and The Defense Budget Project, 1990).

SOURCE: Office of Technology Assessment, 1991.

Chinese forces, as well as arms control agreements

covering conventional and nuclear forces. If such

reductions occur, Kaufmann estimates a 1999 defense budget outlay of $160.0 billion and budget

authority of $162.8 billion (both in 1990 dollars). Of

these outlays, $37.8 billion is allocated for procurement (a reduction of more than 50 percent from

1990) and $24.5 billion for research, development,

test, and evaluation (a reduction of more than 35

percent from 1990).12 These projections, however

uncertain, are comparable to estimates by other

defense analysts and industry groups. For example,

a study by the Committee for National Security and

the Defense Budget Project also anticipates a 50

percent reduction in defense budgets by the turn of

the century, while the Electronic Industries Association’s annual 10-year forecast anticipates a one-third

cut in budget authority .13

All of the alternatives in table 2 appear to include

sufficient forces to deal with a wide range of

contingencies, with the exception of a short-warning

conflict against a major power. As the forces get

smaller, however, there is less margin for error and

more risk associated with regional military threats,

and allied cooperation becomes more important

from a military standpoint. The proposed cuts in

forces also have major implications for the defense

technology and industrial base, not only in terms of

the funds available but also with respect to its

organization and structure.

Implications for the Defense

Technology and Industrial Base

While it appears that the four basic tasks outlined

in table 1 will remain valid in the future, the

transformed security environment and the resulting

force reductions are likely to produce changes in

emphasis among these tasks. Both the need for

responsiveness and the Nation’s ability to respond

may evolve in a number of ways. An extended

conflict with a major power (a resurgent Soviet

threat or a new threat of the same magnitude)

appears unlikely, and even if such a conflict were to

occur, warning time would probably be far greater

than previously anticipated. Most estimates of

warning are in terms of several months to years,

rather than the days to weeks of warning that drove

previous planning. Conflict with smaller regional

IZWilliaInWufmam GZasnosr, perestroika, and U.S. Defense Spending (Wbshiogtom DC: The BrookingsIIIStitUtiOIL 1990), PP. 38-52.

1sElec@ofics ~dus~es Association Defense Electronics Market Ten-Year Forecast, U.S. Department of Defense and National Aeronautics and

Space Administration Budgets, FY1991-FY2000, Oct. 16, 1990.
10 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

powers remains likely, however, and such contingencies might involve considerably less advance

warning. Although the United States monitored the

Iraqi military buildup for over a decade, the invasion

of Kuwait appears to have caught the Nation by

surprise because of a misjudgment of Iraq’s intent

rather than its capabilities.

Paradoxically, a reduction in the size of U.S.

forces may actually increase the relative importance

of the defense technology and industrial base for

wartime contingencies. While the waning of the

Soviet/Warsaw Pact threat could allow the United

States to cut its active forces, it could simultaneously

increase the requirement for industrial surge and

mobilization capabilities because the Nation would

have smaller inventories of materiel in its active

forces and war reserves. 14 With smaller inventories,

even a regional conflict might require a fairly rapid

U.S. industrial response to ensure adequate supplies

of ammunition and other consumables. In response

to this problem, the defense community has developed the concept of “Graduated Mobilization Response’ (GMR) to provide a more flexible means of

ensuring the readiness of key defense industrial

sectors in a crisis.15 GMR has been described as ‘an

attempt to overcome the challenges a democracy

faces anytime its leaders believe that more defense

is needed. In order to take advantage of warning, one

must have the ability to fashion a resource response

appropriate to the provocation. ’ ’ 16 Proponents argue

that GMR would allow the United States to respond

to a potential conflict by increasing production of

spare parts for aircraft or activating selected munitions plants in advance of a general mobilization.

Selective defense-industrial mobilization in a crisis

might serve as a deterrent to aggression, while

improving U.S. force readiness should war break

out.

A number of critics have challenged the GMR

concept, however. As noted earlier, some analysts

question whether timely mobilization decisions are

possible in a democracy. A second concern is that

while early mobilization actions might help to deter

a conflict, they could also send a signal of preemptive intent to a potential aggressor, raising tensions

and possibly precipitating an attack. (This scenario

would be of primary concern in the case of a major

adversary capable of launching a massive preemptive strike that could disrupt U.S. mobilization.)

Other critics have argued that environmental and

other restrictions would prevent the opening of key

munitions and other production facilities early in a

crisis, before a national consensus on the need for

such production has been established. These and

other issues are currently being ex amined by national security planners. In any event, if the Nation

reduces its forces and materiel inventories but

maintains a broad range of national security interests, there will clearly be an increased need for

flexibility in the use of the defense technology and

industrial base. Careful planning and management

of defense-industrial resources will therefore be

essential in responding to future contingencies.17

The implications of force changes such as those

outlined in table 2 for weapons development and

acquisition in peacetime maybe even more profound

than their impact on industrial responsiveness in

crisis or war. Reduced defense budgets are expected

to have a significant adverse impact on R&D and

production. Although R&D appears to be protected

in current budget projections, at least for the time

being, it will still shrink in absolute terms. Weapons

procurement cycles will slow down and upgrades

may be favored over new systems. Since weapons

procurement has traditionally paid for funding much

of U.S. defense R&D, reductions in procurement

will further reduce overall defense R&D. The U.S.

14A .s~dy by tbe rndu~~~ College of tie ~edForces for the policy coor~ting CO~~M on Emtigency preparedness ad Mobilization

Plannin g, National Security Emergency Preparedness Mobilization Policy Review (Feb. 1, 1990), noted: “The future we have outlined (and are

witnessing) will present new, more diverse, and more complex demands on U.S. mtional security than at any time since World War IL As traditional

threats abate, new ones of various stripes already are taking their place. Resou.rms will become more elusive, more dispersed, and thus mom diffkult

to manage. The United States will come face to face with the global imperative for greater interdependence. Standing military capabilities will be scaled

back for politically, economically, and militarily prudential reasons. AS a result mobilization will present itself as an increasingly important dimension

of national security.”

15Pa~ E. T~bl, Gr~Wted Mobilization Response: A ~qSfiategy of Natio~/ Dete~ent strategy (wmgtq DC: Ft. McNti, Mobilization

Concepts Development Center, National Defense University, 1988).

IsJoseph Mu&e~n lrr, Dir@or, Em~gency Planning, Office of the Secretary of Defense, Department of Defense, De~mber 1990.

17Jacquess. G~ler,A..o~ding Defense (Grnbridge, MA: The MIT Press, 1989), p. 264. Gansler notes that: “UdOrhu@dy, nmerous studi~ ~ve

shown that today there is little planning for a production surge in a crisis situatio~ or for the industrial mobilization that would be required to sustain

anextendedconflict in Central Europe. The studies have also confiied the Iackof potential industrial responsiveness. Even during the extensive Reagan

defense buildup, the focus was entirely upon ‘force modernization’; little was spent on industrial preparedness.”
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge ● 11

defense industry has been anticipating reductions for

several years, and companies have already taken

steps to protect themselves. Many firms are leaving

the defense market, while others are diversifying

into nondefense areas. While these actions may

make sense for the individual firms involved,

collectively they may cause significant damage to

the U.S. defense technology and industrial base. For

example, when a large corporation divests its

defense business, the result may be a financially

weak spin-off firm that cannot afford to conduct

in-house R&D or make the capital investments

needed to maintain its productivity. Closing critical

production or test facilities may also reduce the

Nation’s overall response capability. An even more

serious consequence of cost-cutting measures could

be the breakup of design teams, which embody the

skills and systems-engineering know-how that underlie all of our high-technology weapons systems.

The future challenge to the technology and

industrial base is not just how to maintain the

capability to produce the forces we have developed

in the past, but also how to continue developing the

weapons of the future. The Department of Defense’s

Critical Technologies Plan and its recent report to

Congress on critical defense industries18 outline

general areas of technology that DoD believes to be

important for future weapons development. These

areas, and others not yet identified, will in turn

modify the future force structures and the operational concepts that are devised to deal with national

security threats.

Current Condition and Trends

in the Base

The future defense technology and industrial base

will be shaped not only by U.S. security requirements and force structure, but also by broader

technological and industrial trends, such as the

growing internationalization of the base. In planning

a transition to a future base, the Nation should

understand the condition and trends of the current

base and the Nation’s ability to influence those

trends. Concerns over the loss of critical U.S.

technological and industrial capabilities have inspired a host of studies and prompted the Department of Defense to develop its Critical Technologies

Plan. While action by the Federal Government can

mitigate some of the negative effects of the globalization of defense technology, in many cases government policymakers can do little more than monitor

trends and adapt national security plans to the

realities of an increasingly global technology and

industrial base.

The current U.S. defense technology and industrial base emerged during the cold war and was

largely designed to support a military establishment

sized and structured to deal with a formidable Soviet

threat. This threat was two-pronged: 1) a potential

aggression against Western Europe with massive

ground and air attacks employing a high volume of

conventional firepower and the potential use of

theater nuclear weapons; and 2) a direct strategic

nuclear threat to the continental United States, the

deterrence of which required tactical warning and

attack assessment and a secure second-strike capability. Although other military threats were recognized, the yardstick for measuring the adequacy of

the U.S. defense technology and industrial base over

the past four decades was the ability to balance the

Soviet/Warsaw Pact threat. It was assumed that if the

Nation was prepared to meet this principal threat, it

could handle all lesser military threats. The result

was a defense technology and industrial base oriented toward the development and production of

high-technology weapons designed to defeat sophisticated Soviet equipment, and—in principle-large

and responsive enough to support major sustained

conventional operations against the Soviet Union. In

fact, except for a period in the early to mid-1950s,

the need for conventional sustainability (and an

associated industrial responsiveness capability) was

always controversial (many believed in a‘ ‘come-asyou-are’ war) and seldom fully funded. As a result,

the U.S. defense industrial base might best be

described as one that has provided a deterrenceoriented, high-technology force with little sustained

logistics depth.

Beginning in the late 1970s, studies of the defense

technology and industrial base revealed a number of

shortcomings. One problem was the high cost of

military equipment resulting from the growing

isolation of the defense base from the civilian

industrial base. The problem of cost escalation in

1 8TheDepartment of Defense Critical Technologies Plan for the Committees on Armed Services, United States Congress, March 15, 1990; and U.S.

Department of Defense, Report to Congress on the Defense Industrial Base: Critical Industries Planning, Assistant Secretary of Defense (Production

and Logistics), Office of Industrial Base Assessment, October 1990.
12 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

defense acquisition existed in the 1960s and 1970s,

but it only became the focus of considerable public

debate in the 1980s.19 Studies blamed much of the

problem on flawed acquisition policies that impeded

efficient defense production, suppressed innovation,

and interfered with good business practices. 20 The

ability of the current base to provide affordable,

high-quality military materiel continues to raise

serious concerns, as was demonstrated by the recent

cancellation of the A- 12 strike aircraft program after

major cost overruns.

A second long-standing problem with the base has

been lack of industrial responsiveness. In the late

1970s, a series of DoD mobilization exercises and

studies revealed that the base would be incapable of

adequately sustaining U.S. forces in a major conflict

with the Soviet Union and Warsaw Pact.21 These

findings led to congressional hearings in 1980 that

also called attention to the base’s inability to surge

and/or mobilize production of military materiel fast

enough to meet planned expenditures of equipment

and munitions stockpiles in a conventional war.22 A

host of studies designed to identify constraints and

bottlenecks in defense production found that subtier

producers had limited capacity, there were long

leadtimes even in peacetime, portions of the industrial plant were obsolescent, and inefficiencies in the

defense-acquisition process inhibited industrial responsiveness. The studies indicated that it would

take many months to increase production of key

items of equipment, and that while responsiveness

might be enhanced through selected investment in

the industrial base (e.g., buying long leadtime items

or building excess capacity into production lines),

such measures had not been funded. 23 Critics argued

that the main reason for the deficiencies in the base

was DoD’s institutional preference for investing in

force modernization and force readiness at the

expense of industrial mobilization and force sustainability. 24

Today, despite the waning of the Soviet threat, the

war in the Persian Gulf demonstrates the continuing

need for industrial responsiveness to lesser military

threats. Before and during Operation Desert Storm,

the United States has surged production of a number

of defense items.25 Thus, the industrial base was

shown to be inadequate to deal with the hypothetical

Soviet threat, and its ability to respond to lesser but

real surge and mobilization requirements is currently being tested.

The 10-year debate over the defense technology

and industrial base has raised concerns not only

about wartime production, but also about the ability

of the United States to maintain superiority in

weapons technology. A 1988 Defense Science

Board (DSB) study examining the state of the

defense technology and industrial base concluded

that the United States was “losing technological

leadership in many areas. ”26 Areas of particular

concern were semiconductors and computers, both

of which are considered the foundation of every

defense system.27 The DSB panel noted a number of

reasons for these adverse trends. Some were the

result of company actions (short-term concentration

on profits, lack of attention to quality, lack of

investment), others the fault of government actions

(changes in tax rules, changes in progress payments,

poor planning), and still others the consequence of

the globalization of advanced technology, which

was creating new sources of competition and fundamentally altering the world’s economic and industrial structure.

19J. Ro~dFoxwithJamesL, Field, The Defense Ma~gement C~llenge: WeaponsAcquisition (BostorL Mf% HmwdBusiness School press, 1988),

p. 33.

~I@orc to the Secrew of Defe~e by the Under Secretary of Defense (Acquisition), Bolstering Defense Zndusrrial Competitiveness ~aswtoQ

DC: July 1988), p. vi.

Zlne first of these mobfi~tion exercises, known as Exercise Nifty-Nugge4 revealed production bottlenecks and shortfalls as we~ as gmer~

transportation and personnel inadequacies. These shortfalls were further documented in subsequent exercises and studies.

22u.s. Conpss, House ~~SemiWs Codtteeand the panel on Defense ~dus~Base, capa&l@ of U.S. Defense Indusrn”alBase (H.A.S.C.

No. 96-69), December 1980.

~The I~us&ialRe~pomivene~~ AMzy~is, ~~dm~ mobi~tion exercise run in ~njunction ~~JCS exercise POII m 86, detailed InaSly Of the

shortcomings and made specitlc recommendations for dealing with production constraints.

~Gansler, op. cit., footnote 17, p. *66.

fic~eb B~er and David Silverberg, “Missile Output Reaches War Rate,” Defense News, SePt. 10, 1990.

260ff1ce of the Undms~=~of Defense for &@sitio% Fi~lRepOrt of the Defense Science Board 19~ SummerS&y on the Defense Indusm”al

and Technology Base, vol. 1 (WashingtoIL DC: October 1988), p. 13.

zTfiid., p. 14. Other technology sectors noted for particular concern were optics and machine took
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge ● 13

An earlier OTA assessment noted some of these

international trends:

Not long ago, the United States was the undisputed technological leader of the world. U.S. military equipment was meaningfully and undeniably

more sophisticated than that of the Soviet Union, and

our allies sought American technology for their own

defense efforts. American companies developed and

sold high-technology products to a world that could

not produce them competitively. Defense-related

developments led American technology and often

“spun-off” into the civilian sector, creating products and whole industries. This reinforced a U.S.

defense posture based on using technological superiority to offset whatever advantages the Soviet Union

and other potential adversaries might have.

As we approach the 21st century, much has

changed. The model of U.S. technology leading the

world, with defense technology leading the United

States, still retains some validity. But it is a

diminishingly accurate image of reality. Soviet

defense technology increasingly approaches our

own, and sophisticated weapons appear in the hands

of Third World nations not long after their introduction into Western and Soviet arsenals. At the same

time, the U.S. military has been plagued with

complex systems that do not work. Most are

high-priced and take a long time to develop.

Increasingly, leading edge technology comes from

an internationalized, civilian-oriented economy,

which puts a premium on exploiting technology as

well as developing it.2 8

Such conclusions drove home the interrelationship of the defense and civil technology and

industrial bases outlined in figure 1. The defense

industry has long been dependent on civil industry:

in the 19th century, a strong steel industry was a

fundamental national security requirement for a

great power. Today, a strong defense relies on a very

broad section of the overall technology and industrial base. A 1988 DoD report 29 noted the increasing

importance of civilian technology and industrial

developments to defense, yet also found that government regulations and military specifications had

increased the separation between defense and civilian manufacturing plants. As a result, just when the

defense industrial base could make better use of civil

technology, access to that technology had become

more difficult. The report argued for a DoD investment strategy that would encourage the development and widespread introduction of dual-use product and process technologies, and increase the

interaction between the defense and civilian bases.

These recommendations were reinforced by the

findings of the 1988 Defense Science Board study,

which stressed not only the relationship between the

defense industrial base and the larger national base

but also the increasing globalization of the defense

base.30

An underlying concern in all of these analyses has

been the extent to which the U.S. Government can

manage the defense technology and industrial base.

The National Security Act of 1947 established a

National Security Resources Board reporting to the

President, and a Munitions Board and a Research

and Development Board reporting to the Secretary

of Defense. Over the years, this structure has

evolved into a series of offices and organizations

responsible for peacetime weapons acquisition and

emergency resource allocation.31 Dissatisfaction

with DoD management of peacetime weapons acquisition prompted the Packard Commission to

recommend the creation of a formal acquisition

management structure that included an Under Secretary of Defense for Acquisition, service acquisition

executives, and program executive officers.32 This

proposed structure was later implemented in an

attempt to streamline the acquisition process and

make it more efficient. Nevertheless, the management of both peacetime weapons acquisition and

emergency resource planning and allocation have

continued to be plagued by serious problems.

In the midst of the debate over the ability of the

base to respond adequately in an emergency or to

field technologically superior weapons, defense

budgets peaked in FY 1985 and then began to fall

(see figure 2). These reductions resulted from the

2$u.s. con~ss, mice of Tec~olo~ Assessment, Holding the Edge: Maintaining the Defense Technology Base, Op. cit., footnote 4, P. 3.

29RepOII to&secre~ of Defense by the Under Secretary of Defense (Ac@sitiOn), Op. cit., footnote 20, P. v.

~Offlce of tie Under Secretq of Defense for Acquisition op. cit., footnote 26, p. 11.

slTo&y, emergency resource PI arming for the nation is coordinated by the Federal Emergency Management Agency (FBMA). See Executive Order

No. 12656, Assignment of Emergency Preparedness Responsibilities, November 1988. DoD weapons acquisition and wartime industrial resource

allocation is under the control of the Under Secretary of Defense for Acquisition.

32FOX ~~ Field, op. cit., foo~ote 19, p. 50. me pac~d Commission’s (president’s Blue Mbbon Commission of Defense Management, chaired by

David Packard) repo~ A Quest for Excellence, June 1986, was the basis for a number of DoD management changes.
14 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

growing U.S. budget deficit, the belief that the

United States had redressed the military imbalance

with the Soviet Union that had existed in the late

1970s, and disenchantment with the defense industry in the wake of a growing number of cost

escalations in major programs and fraud charges

33 The widespread per--

against defense contractors.

ception of defense mismanagement also prompted

Congress to draft hundreds of bills aimed at improving the defense acquisition process.34

The budget cuts had several effects on the U.S.

defense industry. Although there was a considerable

backlog in weapons orders, the financial community

discounted the stock prices of defense contractors,

sharply increasing their cost of capital. Individual

defense fins, anticipating further cutbacks in defense spending and believing that they had been

adversely affected by many laws and DoD directives

in the mid-1980s,35 began to take actions to shore up

their financial positions and ensure their survival.

Among the major defense contractors, some decided

to continue concentrating on defense (e.g., General

Dynamics), but others sought to diversify (Rockwell

International and Raytheon) or to divest themselves

of defense work (Ford and Honeywell). Similar

changes took place among the smaller “subtier”

producers of components, to which a defense prime

contractor typically subcontracts between 40 and 60 36 By the late 1980s, the percent of a weapon system.

defense sector had become a “buyers’ market” and

firms were using creative approaches to rid themselves of defense contracts .37 Many of those remaining in defense faced major financial problems and

ended up writing off large losses. 38 These losses and

growing company debt have resulted in the reported

failure “not only to develop new defense technologies, but also to exploit the commercial applications

of defense technology. ” 39

As the Nation considers the nature of the future

defense technology and industrial base, it is clear

that despite the billions spent on defense over the last

decade, the present base has a number of serious

weaknesses. Although the base has produced some

remarkable weapons and has strengths that should

not be overlooked, such as extensive military R&D

capabilities (facilities and personnel) and economies

of scale, these assets are increasingly outweighed by

the poor financial health of the defense industry,

which has reduced investment in new technology

and physical plants; the relative erosion of U.S.

technological superiority, which has increased U.S.

dependence on foreign sources of supply; the

growing incidence of cost overruns and inadequate

quality control; and the lack of an overall defense

technology and industrial strategy linked to military

strategy.

Future Challenges and Choices

In Summary if the Soviet threat continues to

diminish along currently projected lines, the United

States will be able to reduce its defense budget and

force structure. While it is impossible to foresee the

full extent of the change, a 30 to 50 percent reduction

in budget authority over the next decade is not

implausible. Reductions of this magnitude will

result in significant changes in the defense technology and industrial base. Yet defense needs will

clearly continue to exist, as evidenced by the current

conflict in the Middle East. Preserving an adequate

defense technology and industrial base in the face of

competing defense and other economic demands,

along with changes in weapons technology and in

the global technology and industrial base, will

present many challenges to national security decisionmakers.

As noted earlier, preserving the defense technology and industrial base has not been a high priority

for the Nation even during periods of relatively high

defense expenditures. The primary reason is that

investing in a responsive industrial mobilization

Ssfiid., pp. 34-37, 327-339.

~~id.,p. N’.6‘h 1984 con~ess fi~oduc~more than 150 bills related to improving tbe defense acquisition process. k 1985, they introduced mother

140 bills . . . In 1986 . . . more than 100 bills . . .“

35 Some of thee.

ges ~tre=iv~the ~atest ~dus~ atten

tion ficluded: lowerprogresspayment @eS,c,OSt Sharingonxlew developmentprograms,

special tooling investments, and tax law changes that reduce tax deferrals.

sGGamIer, op. cit., footnote 17, p. 247.

s’7For exmple, ~onevellffi~ t. se~ its Defe= ad M-e Systems ~d ~t~dcreat~Alli~t TechSystems, a t~-free .SphlOff. Emerson created

ESCO Electronics Corp. Paine Webber Aerospace Group, October 1990, briefing paper.

sBP~ip Ffiegaq “Defe~e Industry Forced To Write Off More bsses,” Defense News, JaLL 15, W90.

s~id. wo~gang IMnisch quoted in Dqfense NeWS.
Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge ● 15

capacity almost always conflicts with the goal of

efficient peacetime production, particularly in a

fiscally constrained environment. There is a similar

tradeoff between readiness and force modernization.

As a result, investments in technology and industrial

capability must provide sufficient short-term benefits to win support from a skeptical defense community. The challenge will be to balance the need to

maintain ready forces with the longer term investments in the defense technology and industrial base

required to support U.S. military strategy .40 Indeed,

a reduction in the size of U.S. active forces and

war-reserve materiel will most likely place greater

stress on industrial responsiveness, forcing the

country to make investments in industrial readiness

and planning that it has heretofore been able to

avoid.

The transition to a new defense industrial base

must also cope with the internationalization of

defense technology and industry and the increasing

prominence of civilian high technologies with potential military applications (“dual-use” technologies). The challenge will be to develop a future base

and a method of managing our defense resources that

are flexible enough to adapt to these technological

and industrial changes. The Nation will be further

challenged by the fact that the defense technology

and industrial base is under increasing financial

stress. On the one hand, the government will be

under pressure to act quickly if it is to have a positive

effect on the outcome. On the other hand, it must

proceed with caution, lest ill-considered solutions

(such as rules that have worked to isolate the defense

industry over the past two decades) make matters

worse rather than better.

Probably the most difficult policy challenge

derives from the fact that the “tools” for effecting

change (such as tax policy and organizational and

procedural changes) are relatively blunt, yet the

requirements of the defense technology and industrial base are many and varied. First, the linkages

among the defense base, the broader national civilian base, and the international technology and

industrial base require taking a global perspective on

what might at frost appear to be local decisions.

Furthermore, only some of the problems of the base

are amenable to legislative solutions. These problems also vary depending on industrial sector, size of

firm, degree of foreign involvement, and current

technological trends. While this complexity makes

it difficult to formulate universal policies, good

management practice argues against trying to develop individualized measures for each firm. The

challenge for Congress will be to develop policies

that are broad enough to be manageable, yet

sufficiently tailored to be effective.

In planning for the future defense technology and

industrial base, the Nation must make three critical

choices. First, we must determine the size and nature

of the future base. As a guide for such planning, it

will be necessary to formulate a national defense

strategy that provides a clear rationale for a future

force structure. Even without such a strategy, some

general statements can be made. As noted above, the

base is already shrinking as a result of reduced

defense budgets since 1985 and strategic decisions

by individual U.S. defense contractors. Making

greater use of civilian production and components

could provide a way of slowing or even halting the

decline. To this end, “military requirements” would

increasingly be matched against what is available in

the larger civil industrial base. In fact, the Nation

might often turn the military requirements issue on

its head by asking not what the defense community

believes it requires, but rather what the technology

and industrial community can provide.

The United States will also need to maintain

vigorous R&D programs if it wishes to anticipate

foreign developments and preserve its technological

edge against a spectrum of potential adversaries in a

world in which sophisticated military equipment has

become widely available. The challenge in determining the size and nature of the future defense

technology and industrial base is thus not only one

of potentially downsizing current capabilities, but

also of anticipating future weapons developments

and of determining how best to utilize scientific and

~Cr~gAlderm~, ~eDepUty u@er swre~ of Defemefor Policy, outlined how he saw this problem in a symposium on tbreats to tie U.S. defense

industrial base sponsored by the American Defense Preparedness Association, Dec. 11-12, 1986. Mr. Alderman noted that the key to sustaining a long

conventional war was “to achieve the right balance between war reserve stocks and the industrial base capability, and this is a very tough cdl. . . . We

have to be able to forge a very close link between our ability to surge and mobilize industry, and the operation plans, the strategies that we have out

there. . . . We haven’t impressed upon the warilghtersj the CINCS, the JCS, that some of the strategies that you look at cannot be executable now with

the current industrial base, and therefore if this is the case, you’ve got three choices. You either increase the effectiveness of the base, or you put more

into war reserves, or you modify your strategy. ’ Symposium Proceedings, American Defense Preparedness Association, pp. 31-328.
16 ● Adjusting to a New Security Environment: The Defense Technology and Industrial Base Challenge

technological advances within the domestic civil

sector, as well as abroad.

Another issue that must be kept in mind is the

large gap between the requirements for peacetime

replacement production and for wartime materiel

production. This gap creates a dilemma for government planners desiring both peacetime efficiency

and crisis responsiveness, since abase optimized for

peacetime production would not have adequate

surge and mobilization capacity to deal with a real

emergency. Coping with the major differences

between peacetime and wartime requirements will

demand excellent planning, including the ability to

create entirely new industrial capabilities on short

notice.

In restructuring the defense technology and industrial base, there are a host of tradeoffs to consider,

including:

1.

2.

3.

4.

increased reliance on the North American

Defense Industrial Base v. greater interdependence with other allies and friendly powers;

increased reliance on civilian R&D and production and purchase of nondevelopmental

items v. continued development of dedicated

military equipment;

maintaining ‘‘warm’ production lines at low

levels of production over long periods v.

developing prototype equipment in a few

copies and mothballing the production line;

and

returning to a government-owned and operated

arsenal system, or more sole-sourcing, v.

retaining high levels of competition.

The second critical choice concerns the timing of

changes in the U.S. defense technology and industrial base. Timing is important because it is more

difficult and takes far longer to reconstitute a

technological and/or industrial capability than to

reconstitute military forces whose equipment remains intact. Thus, any drawdown of our supporting

defense technical and industrial infrastructure

should, in principle, follow our opponent’s force

structure drawdowns (including materiel destruction) by a prudent interval. Nevertheless, needed

changes in the base, such as promoting the integration of military production into the civil sector,

should be initiated quickly.

Reductions in defense spending should also be

made selectively, with an eye to their impact on the

defense technology and industrial base. Indiscriminate cuts in funding for current weapons systems,

without regard for new requirements or alternative

base structures, would result in the shutdown of

production lines and the dispersal of skilled workers.

Even reductions in such mundane items as rations

could have severe implications for the Nation’s

ability to respond to a future crisis. Thus the

challenge on decisions of timing will be to match

prudence in reductions with the reality of the budget

process. It will be particularly difficult to maintain

a surge capability while reducing tiding.

The third critical choice will be to reconsider the

overall organization, planning, and guidance of the

defense technology and industrial base. In addition

to developing a broad defense technology and

industrial strategy to support our operational military strategy, it will also be necessary to review the

utility of the laws, regulations, and administrative

guidance developed to manage wartime responsiveness and peacetime procurement. There is a strong

consensus among those who have studied the

capabilities of the current base that many of these

defense-procurement statutes will need to be modified if we are to maintain an adequate defense

technology and industrial capability in a more

fiscally constrained environment. The challenge

here is to ensure that the right rules get changed.

In sum, with careful planning, the United States

can retain a defense technology and industrial base

that will support our national security objectives into

the next century. The changes required to move to a

new base will be extensive, however, and will take

considerable time and effort to implement.