Last Thursday, Secretary of Defense Robert Gates and other DoD officials held the second in a series of meetings with leading figures from defense industry. The subject was getting more from industry in an era of reduced real defense spending.
Secretary Gates told the audience that he expected the defense budget to rise 1.5-2 percent next year and to rise by around 1-1.5 percent for the subsequent four or five years. Since this is below the average rate of inflation and defense goods tend to be pricier than the average products in the economy, the only conclusion is that real defense spending will decline by 2 percent or more a year.
The reality of the need to limit defense spending is the primary reason why Secretary Gates has initiated an ambitious plan to find $100 billion in savings from overhead that could be used to shore up DoD’s investment accounts.
Even as defense spending is set to decline, demands on the U.S. military remain high and, if anything, look to increase in the future. Although the U.S. has significantly reduced its military presence in Iraq this is counterbalanced by a major surge of forces into Afghanistan. Growing tensions on the Korean Peninsula have resulted in a delay in the planned transfer of responsibility for command of all forces in the South to the Republic of Korea until 2014. The war against extremists is expanding from the Afghanistan-Pakistan border to Yemen, Somalia and parts of North Africa. The expansion of Chinese military power has the potential to pose a direct security challenge to the U.S. in the Western Pacific. Growing chaos along the U.S.-Mexico border has led to the deployment of several thousand National Guardsmen to states in the southwest. Natural disasters such as the Haitian earthquake continue to require the involvement of the U.S. military.
The Obama Administration’s new National Security Strategy (NSS) identifies a set of core U.S. global interests that must be sustained and protected. The most central of these interests is a stable international order. The NSS and its companion report, the 2010 Quadrennial Defense Review (QDR) identified a number of threats to international order and U.S. interests specifically including the struggle for power in the Middle East, the balance of power in Eurasia and, of course, the growth of terrorist movements.
Addressing these threats will require the use of all instruments of U.S. national power, but the role of U.S. military power will remain central. The recently released final report of the QDR Independent Panel concluded that “these trends are likely to place an increased demand on American ‘hard power’ to preserve regional balances; while diplomacy and development have important roles to play, the world’s first-order concerns will continue to be security concerns.” The 2010 QDR and the QDR Independent Panel both concluded that the U.S. will need a large and sophisticated military, although they disagree somewhat on the specific mix of forces.
But, the Independent Panel and other groups such as the Defense Business Board warn that DoD is heading for a budgetary trainwreck. Simply put there are too many demands on the U.S. military without the commensurate resources. Part of the problem is that DoD is enormously inefficient. It has been slow to introduce modern management techniques, supply chain management methods and even enterprise resource planning systems.
Part of the problem is the growing cost of people. In this case DoD is making the situation worse by trying to insource tens of thousands of jobs currently performed by private contractors. The final part of the problem is that the current inventory of platforms and weapons systems is aging which causes increased maintenance costs while new systems incorporating advanced technologies are very expensive to purchase.
In 1999 Jeffrey Ranney and I wrote a study for the Center for Strategic and International Studies on the coming defense trainwreck. This study warned that the U.S. would have to choose between maintaining its role as a world leader by paying for a large and capable military or, should it choose to reduce defense spending, see its position in the world erode.