Transforming The Defense Industrial Base

The US and international defense industrial sectors have faced many challenges over the last twenty years, including cycles of growth and shrinkage in defense budgets, shifts in strategic defense priorities, and macroeconomic volatility. In the current environment, the defense sector faces a combination of these challenges and must struggle with the need to maintain critical aspects of the defense industrial base as defense priorities change and as defense budgets reduce or plateau. Moreover, the defense sector in the US is interconnected both with defense sectors in other countries and with other industry sectors in the US and global economies. As a result, strategic decisions made in one defense sector impact the defense sectors of other countries, as well as other areas of the economy. Given her academic, corporate, and Department of Defense experience as a leading economist and policy-maker, Dr. Nayantara Hensel is perfectly positioned to examine the interrelationship between these forces both historically and in the current environment, and to assess the implications for the future global defense industrial base.

The forces of globalization present challenges, risks, and opportunities to virtually every industry in every country. This includes the sector that traditionally has been more insulated from external pressures than any other-the defense industrial base. One of the most important implications of globalization is its effect on the economic competitiveness of countries and particular industries. Both governments and defense companies bear the responsibility for devising prudent policies and strategies that capture the opportunities presented by globalization, while mitigating the risks. In this monograph, Dr. Terrence Guay explores how key elements of globalization have transformed national defense industries around the world, and how these changes will affect the U.S. defense industrial base in the coming years. He focuses on elements of globalization that are relevant especially to the defense industry: the globalization of capital (finance), production, trade, technology and labor...

The United States national security and military strategies articulate the need to transform our forces and major defense institutions to meet the challenges of the 21st century. The defense acquisition process and its industrial base comprise a significant economic institution in need of transformation to ensure that research, development, and acquisition efforts remain relevant to current, future, and emergency national security requirements. Transformation, therefore, must include efforts to improve the defense acquisition process that would subsequently enable it to deliver products and services that provide desired capabilities. Perpetual suggestions of acquisition reform often focus on regulatory and statutory leverage and process reform. Acquisition reform, stable appropriations, spiral development, and innovative “collaboration” are valuable recommendations. However, few of them offer the significant benefits derived through market leverage, namely competition. This paper reviews the weary acquisition process, the changing industrial landscape, and an emerging government policy, then analyzes some ways the DOD should consider to leverage market conditions and improve competition as a means totransform the defense industrial base. Competition can help reduce cycle times, lower costs, and improve innovation and weapon systems performance throughout the weapon systems lifecycle, from development through sustainment. Moreover, competition will be imperative early in the R&D phases, given the growing enthusiasm for evolutionary acquisition and quicker development and production cycle times. As witnessed in both commercial and defense industries, competition not regulation, compels industry to integrate advanced technologies into producible systems and deploy them to the marketplace—-in this case the warfighter--in the shortest time practicable.

The forces of globalization present challenges, risks, and opportunities to virtually every industry in every country. One of the most important implications of globalization is its effect on the economic competitiveness of countries and particular industries. The author explores how key elements of globalization have transformed national defense industries around the world, and how these changes will affect the U.S. defense industrial base in the coming years. He focuses on elements of globalization that are relevant especially to the defense industry: the globalization of capital (finance), production, trade, technology and labor, and the changes in global governance that structure the forces of globalization. He concludes by offering ten recommendations for policymakers who have the difficult task of maximizing U.S. economic competitiveness without compromising national security.