It is clear that shrinking budgets mean a smaller defense industrial base is necessary, and even desirable, at least for those not directly affected by the resulting cuts. But policymakers must be clear-eyed about what lies ahead. It is not safe to assume that the mix of public and private capability and capacity that supported the vast surge over the last decade could be recreated in the future.
As the industrial base shrinks, the nature of its new form will dictate not only how costly a reconstitution would be but also how quickly it could occur. Toward that end, policymakers should consider three areas of risk that must be carefully managed.
Risk No. 1: Undervaluing skills. The design and production of advanced weapons systems requires a unique collection of highly skilled individuals, from engineers involved in research and design to the materials specialists assembling the equipment. A reality resulting from major differences between commercial and military products is a lengthy recertification process once defense-specific engineering and production skills are lost. Indeed, the intense, sustained training levels required for high-level manufacturing and the accumulated intellectual capital to drive ongoing innovation and adaptation of production processes are essential to the efficiency and efficacy of the industrial base. DoD’s intention to emphasize prototyping may help to preserve some of these skills, but by no means all of them.
Risk No. 2: Underestimating small-business impacts. While the major defense primes will be strained by the fiscal environment, the greatest impacts may be felt by second- and third-tier suppliers who provide components and subcomponents for US weapon systems. In a 2012 report, the Pentagon identified numerous areas where declining budgets would affect that supply. For example, the defense industry is dependent on a single company for ammonium perchlorate (AP), a key ingredient in solid rocket motor propellants. As the report notes: “Demand for production of AP is well below historic levels and approaching the minimum sustaining rate. Volumes have fallen so low that there is a risk that the vendor may not be able or willing to sustain its workforce skill levels and the supply chain, while remaining competitive.”
Potential impacts can be masked in cases of low-rate production runs. Smaller suppliers may either be forced to vastly increase unit costs, which are passed along to DoD, or to place the DoD behind higher-volume customers, extending timelines and disrupting production schedules.
Risk No. 3: Overestimating capacity and redundancy. Tighter budgets almost always cause policymakers to revisit decisions about the utility of redundancy versus responsiveness. The challenge lies in determining which activities are truly duplicative, particularly between DoD’s arsenal and depot system and private industry. Indeed, there is considerable similarity in some machining and construction capabilities between the public and private components.
There are, however, significant differences that bring into question the idea of true redundancy. Some relate to differing cost structures between purely private and public-private facilities, which can drive different decisions about sustaining excess capacity, for example. Others result from the fundamentally different missions of the public and private elements of the industrial base. Public depots and arsenals are committed to sustaining and improving existing equipment. Frequently, this means they have expertise in fabricating unique components that are no longer available in the commercial sector. But these facilities also rely on private-sector expertise to conceive of major redesigns or new models, and to fabricate the major components of those systems. Firms’ ability to perform this mission is enhanced when it is informed by work on existing systems, which highlights the need for new types of joint support or design, or challenges in electronics integration, for example. The value of this continuous feedback loop is another element that should be considered explicitly as reductions continue.
None of these risks is novel, and DoD officials have repeatedly articulated the need to consider them. The Defense Department’s “Sector by Sector, Tier by Tier” initiative to identify industrial base priorities and risks, for example, is an attempt to mitigate some of them, but its scope is being outpaced by budget realities. Industrial base impacts are not yet fully incorporated into DoD’s decision-making processes.
All of these realities should be explicitly acknowledged, and suggest the need for a risk-reduction strategy to bridge the gap between information shortfalls and short-fuse decision timelines. The upcoming Quadrennial Defense Review presents an obvious opportunity to articulate such a strategy, within the context of a broader industrial base policy.
This kind of well-defined policy will be essential in the current budget environment. The industrial base is not simply an economic sector, it is an extension of the nation’s warfighting ability. It provides the tools that allow the US military to field the most capable, technologically advanced military in the world. Losing sight of this truth while we continue down a budget path disconnected from strategies or missions will further compound the challenge of reconciling DoD’s activities, if and when we return to some semblance of “regular order.”
Maren Leed, a senior adviser at the Harold Brown Chair in Defense Policy Studies at the Center for Strategic and International Studies, and Scott Mann, program coordinator for the Brown Chair.