America's adversaries are increasingly harnessing fast-moving, commercial and defense technologies to counter US capabilities.To stay ahead of rising adversaries, Defense Secretary Chuck Hagel recently unveiled the Defense Innovation Initiative. The multifaceted effort will use advanced war gaming and exercises to identify future capability needs that in turn will shape long-range research and development investment. Hagel also wants broader institutional reforms to streamline the Pentagon to improve agility.

A key element of this broader initiative is the third offset strategy by Deputy Defense Secretary Bob Work, designed to counter or offset the technological advances of US foes. The first offset strategy came during the Cold War to counter Moscow's larger conventional forces with nuclear weapons. The second came during the 1970s, and involved investments in stealth, GPS, precision munitions and other technology. Critics say the third offset is too disjointed and that China has access to cutting-edge education, technology and manufacturing experience.

Q. What are the biggest threats and trends that America's national security enterprise must prepare for?

A. The first, of course, are state powers, like China and Russia, both of them on the UN Security Council, both with nuclear weapons, both with regional aspirations and some global aspirations. So, how do we deal with those two powers? And, that is going to increasingly take a lot of our attention. Then, there are nuclear powers or regional powers that want to become nuclear powers. One we deal with all the time, North Korea, and another, Iran, who has said that they would like to gain nuclear weapons. That is another issue. The third, of course, are transnational terrorism and transnational criminal networks. So, you have a state problem at more or less great regional power level. Then, you have regional powers, and then you have non-regional actors, extremely difficult. Layered on top of all three are technological advances that are happening at a very rapid pace.

Q. How do the pieces work together?

A. The broader Defense Innovation Initiative that Secretary Hagel announced at the Reagan Defense Forum [Nov. 15] has five key aspects. And it is important that everybody understand that this isn't all about technology. The first and most important thing is about our people. People have always been the Department of Defense's key secret weapon. So, the question that we have is how can we make innovative leaders. The second thing is what we want to do is reinvigorate war gaming. It's something that the Department of Defense used to do a lot of, but over the last 12 years, due to the press of the war, our activities have actually dropped down. The final thing is our business. Besides technical superiority, how do we make our business practices more innovative.

Now, within the long range, we have the advanced capabilities and deterrence panel, which is really focused on state actors. And, as part of the advanced capabilities and deterrence panel, we have similar lines of efforts, strategy, war gaming concepts. But the long-range research and development planning program is designed to tell us how we would want to use technology to gain an advantage over time.

Q. What is the message you're trying to send to industry?

A. We have to be able to innovate along with industry. The focus of innovation is really in the commercial sector, biotechnology, nanotechnology, robotics, atomics. We have to be able to get that innovation.

Q. You're going to ask for $60 billion more over the next two years. What are the priorities that that covers and what happens if you don't get it?

A. The national security of the United States is not well-served by sequestration. So, last year, [the president] provided $115 billion over the five years defense plan, above the sequestration level cuts. Congress still has not responded to that.

So, over the course of the next two years, again, we will be submitting at the president's budget level. And, we hope that Congress is going to work with us to get closer to that number than sequestration.

Q. Are you guys moving the needle and are you going to get more money?

A. Don't know yet. We've heard encouraging sounds from some members of Congress that sequestration has to go. We've heard other members of Congress say no, we need to stay at the sequestration level.

Q. Are we buying the right sorts of things for the threats we face?

A. Well, that's what the Vice Chairman of the Joint Chief of Staff James Winnefeld and I have been doing for the last six months. I was the Undersecretary of the Navy, and I was very well aware of the Navy's budget. But, this is the first chance where I've really had to look across the broad defense portfolio. So, there are changes we have to make without question, and we hope to be able to start making some of them in the FY16 budget, and certainly a lot more in the FY17 budget once we have a better sense of what our strategy should be.

Q. Could those affect very big programs as well?

A. They should affect big programs, medium programs and small programs.

Q. You just finished a nuclear review, and there's a consensus that all three parts of the triad need to be revitalized, but also at staggering cost. How do you pay for this?

A. Well, the nuclear review was designed [so we] keep our current nuclear deterrent, which has a land-based missile bomber and sea-based missile leg. How do you keep that maintained until we start to recapitalize in the 2020s? So, we have to put more money in to keep it maintained, and you are right. The costs are staggering. We will need to address this as a nation. We need a strategic modernization infrastructure fund where we are going to have to address this, because we simply will not be able to recapitalize in the '20s at the budget levels we're expecting right now.

Q. How should we be deterring China?

A. We want to remain a resident Pacific power. We want China to accept that, and over time we're building confidence-building measures, which were just announced by the president. And, we believe that we can do this peacefully. But, we also need to hedge. They are developing certain capabilities that would be very problematic for our allies, and for us in the Western Pacific, and it is important that we create capabilities that deter their use.

Q. How many more people are you going to need to execute the mission against the Islamic State group, and will it be a big drag on your budget?

A. The best strategists are those strategists who have strategic patience. Everyone believes that we should be able to handle this problem overnight. We have a plan right now that is based on another 1,600 troops in addition to the 1,500 that are there. We believe that at this point, this strategy is working, but it is working over time. People are impatient to find results. We think over time it will be successful. If it is not, we will constantly adjust as the president and the secretary of defense and the chairman have said over and over.

Q. How do we manage to solve the anti-access/area-denial problem with China without imposing enormous costs on ourselves in the process?

A. Right now; we're on the losing end of a cost imposing strategy, where it costs more to shoot down incoming missiles and guided missiles than it does to shoot them. So a key aspect of the offset strategy is to handle that problem, as well as to bring more offensive capabilities. So we're looking at things such as electromagnetic rail guns, directed energy weapons. If we can crack those technologies, then the competition looks much, much different.

Q. When an ally asks, "What do you need from us," how do you respond?

A. Well it's country-by-country, capability-by-capability. If you take a look at what the French are doing in western Africa right now in terms of counterterrorism, it's stunning. They have invested an awful lot of capacity and capability to handle that problem and as we deal with all of our allies, we're trying to figure out how we best help each other through all of these problems.

Q. What happens when projected savings fails to materialize?

A. We are waiting to hear which of the marks — the House Armed Services Committee mark or the Senate Armed Services Committee mark — comes through in the National Defense Authorization Act. The worst case would be $70 billion in noes that we would have to accommodate over the five years of the five-year defense plan. That's unbelievable, especially with the threat of sequestration still hanging over our head. So we have to continue to knock away at this problem and we have to look internally for savings.

Q. But are you achieving your internal savings targets, or are you off?

A. Well what we've done in the past is we've gone to people within the Pentagon and said, "Take 10 percent off your topline. Do it anyway you want." Some would cut contractors, some would cut civilians, some would cut service contracts … now what we're doing is we're going in to each of them and we're looking for vertical integration capabilities.

So right now, we have a Naval Exchange Service and we have an Army-Air Force Exchange service. Why not have one? There might be ways in which we can look at things like this where we have savings. We have asked the Defense Business Board, which has done great studies in the past.

Q. How do you do this quickly, as opposed to something that is measured in geologic time?

A. Well, sometimes geologic times is the right measure within the Pentagon. ■

By Vago Muradian in Washington.

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