January 1, 2005

January 1, 2005 | Executive Summary on National Security and Defense

Executive Summary: The Military Industrial Base in an Age of Globalization

This study is intended to help Congress answer a simple but vital question: What kind of legislation is needed to ensure that the U.S. military is supported by an adequate industrial base in the 21st century? Our approach to helping to answer this question is equally simple but essential.

Congress needs a set of guiding principles—a doctrine of goals and values against which any proposed laws can be measured. This study provides those principles and then illustrates the results that can be achieved when they are applied, particularly during periods of national crisis. The results demonstrate that policies that maximize the Pentagon’s capability to operate in accordance with these principles will also make us safer and freer while promoting economic growth.

What Is the Military Industrial Base?
America’s military industrial base is comprised of the private-sector (both privately and publicly owned) and government-owned entities, located in the U.S. and globally, that provide the full array of goods and services required by the armed forces of the United States and select allies.

The military industrial base is essential to national security. The means to forge, deploy, sustain, and maintain fighting forces have been and remain the lifeblood of war. A secure industrial base is a prerequisite for conducting prompt and sustained military operations.

What Is the Problem?
Congress has made many attempts to influence America’s industrial capacity regarding national security matters. These efforts have nearly always interrupted the natural tides of the market and have led to unintended consequences, including inefficient practices, high prices, and limited choices for the military. America’s war-fighting institutions have consistently achieved better results when they have relied on the market to decide where industrial capability should flourish.

Today, the tension between exploiting the advantages of the marketplace to obtain the best equipment at the best price and Congress’s desire to accommodate other priorities has never been greater and is exacerbated by the global character of the 21st century industrial base and a plethora of risks, opportunities, and unknowns.

What We Did
To address this issue, The Heritage Foundation drew on experts in military affairs and industrial practices from government, Congress, academia, and public policy research centers to help develop a framework for guiding Congress in its approach to military industrial base maintenance.

Over the course of a year, through interviews, workshops, and an extensive literature search, we developed a set of principles for Congress. These principles were tested and validated during a series of tabletop exercises, from which we developed a list of recommendations. In each exercise, a team of experts was tasked with addressing a significant national security crisis involving the delivery of goods or services. The principles proved useful both for guiding effective decision making and for deriving insights, which are reflected in our recommendations, about how best to exploit the potential of the global industrial base.

Principles for Congress
The following principles comprise the right framework for maintaining access to the industrial resources necessary for the U.S. armed forces in the 21st century.

PRINCIPLE #1: Excessive central control is inconsistent with national security and should be avoided. Generally, national security is hampered by excessive legislation and regulation, which hurts the ability of the military industrial base to produce goods and services quickly and efficiently.

PRINCIPLE #2: Policies on the domestic military industrial base should focus on critical technologies, industries, and skills that are not readily available in the global market. In Congress, debate relating to the military industrial base is caught between free-market trade and protectionism. However, in this policy area, Members of Congress should be concerned primarily with reducing risk for military forces and enhancing the security and defense of the U.S., not protecting local economies or politics.

PRINCIPLE #3: Incentives and open competition in critical technical areas can provide a disproportionate return on investment, encourage the development and furthering of hard science skills, and broaden defense-related industrial capabilities. The U.S. should identify, develop, and sustain the intellectual capital necessary to support a robust and evolving military industrial base. The military industrial base will lag behind non-defense industrial trends without a cadre of vibrant intellectuals that understands how traditional industrial practices must change to fit 21st century defense requirements.

PRINCIPLE #4: A comprehensive divestiture strategy can generate growth in new technology and manufacturing areas.The United States invests too many resources in old technology. By moving beyond or divesting from these programs, the Pentagon can reinvest those resources in new, more relevant programs. With the right strategy, the technology base will not get bogged down by yesterday’s investments and always be focused on the latest technological trends.

PRINCIPLE #5: The U.S. should impose research and development costs and manufacturing costs on potential adversaries. The U.S. should actively look for opportunities to redefine areas of competition through those defense products that industry manufactures domestically. By playing to its strengths, the U.S. can force potential enemies to incur research and development costs as they attempt to counter new or improved U.S. capabilities.

PRINCIPLE #6: Stop paying more for decreasing returns. Procurement policies should support defense-related manufacturing that can remain profitable and competitive. Members of Congress need to view the global defense market in much the same way they view the market for everyday goods and services. If a manufacturer does not produce a defense product that works better at less cost, it should expect the Department of Defense to look for another supplier, whether inside and outside of the U.S.

PRINCIPLE #7: Assured access to the global industrial base is necessary for long-term national security. Industrial independence should not be a national security objective. Maximizing access to the global industrial base and the wide range of products, services, and materiel available advances national security.

PRINCIPLE #8: Not all trading partners are equal. America’s closest allies should be considered reliable trading partners/allies for nearly all defense materials. However, geostrategic military and economic alliances will change, and the U.S. must be prepared to adapt. In developing the manufacturing, supplier, technology-sharing agreements and alliances, the U.S. should carefully consider how global strategic alliances might change over the next century.

PRINCIPLE #9: Greater supply chain transparency is a prerequisite to understanding industrial base vulnerability. The United States must understand where supplies originate and how they are moved before it can undertake any accurate assessments. Without greater supply chain transparency, risk and vulnerability factors are invisible to planners. Primary and secondary suppliers are largely understood, but third-, fourth-, fifth-, and sixth-tier suppliers are often not as well understood.

PRINCIPLE #10: The military industrial base requires an amalgam of approaches to ensure both access to vital goods and services and reasonable prices. Given the diversity of goods and services used by the U.S. armed forces, neither a pure free-market approach nor a protectionist approach is adequate to sustain the long-term health of the military industrial base. Instead, the U.S. should rely largely on markets to determine who provides which military goods and services, except for an extremely limited number of functions that should be sustained domestically.

What Is in the Study?
This study consists of five chapters. Chapter 1 describes the industrial base as it exists today and why and how it has evolved. Chapter 2 summarizes the issues and concerns presented by the modern global industrial base. Chapter 3 proposes objectives and principles for guiding policy decisions. Chapter 4 demonstrates how the principles can be applied in practice. The study concludes with Chapter 5, which provides a set of recommendations for congressional initiatives.

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