Are We Ready? | America’s Crumbling Defense Industrial Base, With Kathleen Hicks

Three, two, one. The world has turned dangerous. It is the United States prepared to meet the new challenges it might face in this special series from the President's inbox where bringing you conversations with Washington insiders to assess whether the United States is ready for a new, more dangerous world. How long could the United States fight if a major power war began tomorrow? When the United States replenish its weapons stocks quickly, unreliably, can it supply its allies and partners in time of need? During World War II, the United States was the arsenal of democracy, arming itself in its allies to defeat Nazi Germany in Imperial Japan. But since the Cold War ended, America's defense industrial bases atrophied what procurement costs had ballooned. The production of new weapons regularly runs behind schedule and over budget, even as the war in Ukraine has shown that sustained warfare can quickly deplete weapons stocks. Can America's defense industrial base be rebuilt or will doubts about Washington's ability to sustain its military force in vit aggression? From the Council on Foreign Relations, welcome to the President's inbox, I'm Jim Lindsay. Joining me today is Kathleen Hicks, former Deputy Secretary of Defense and a senior fellow at Harvard Kennedy School's Belfer Center and at John Hopkins University's Kissinger Center for Global Affairs. Thanks for joining me. Yeah, Jim, it's a pleasure to be here and I do want to just give the Chicago Council on Global Affairs a shout-out since I'm also a distinguished fellow there. Okay, sorry to have missed it. No, no, no, no, I just don't want them to feel left out. Jim Hicks, who is the President of the Council, but I'm glad to have you here with your multiple affiliations. And I guess we'd like to begin, Catholic, if we may, is, can you help me understand what we mean by the term defense industrial base? I went a couple decades without anyone worrying about the defense industrial base and now it seems like every week I get an invitation to go and talk about the defense industrial base. I suspect many people are like me, so help me understand what we're actually talking about. Sure, sure. So, isn't that just the best encapsulation of the problem seven and not unusual in the US system, right? We go 20 years not paying attention to something and then suddenly the problem is right in front of us. And that's a pretty good summation of what's going on with the so-called defense industrial base. The first thing I would say is it's best to think about the defense industrial base as really just a reflection of the broader industrial base. DOD has so many different needs and requirements and it acquires everything from say, you know, toilet paper to sustaining bases to high end operational capabilities, military specific capabilities. And often when folks are talking about the defense industrial base, they're talking about the piece of that industrial support that is more specific to DOD operational applications. And that has traditionally in the last 20 plus years been dominated by a set of prime contractors and increasingly across partisan aisles, we've been focused on bringing more and more solutions to bear from the commercial sector, particularly non-traditional suppliers for defense. And that's because much of the innovation that used to be government generated first in the United States and typically those federal dollars were coming from the defense department itself are now being generated from the commercial sector. So the 70/30 split is the way to think of it. The defense department used to provide about 70% of overall research and development. Now it's flipped to the commercial sector, essentially providing 70% of that. Okay. So, Katherine, we're talking about the big defense contractors, the five primes. We're talking about Lockheed Martin, Northrop Grumman, Boeing, General Dynamics and Raytheon, correct? And more, I think even when you're thinking defense industrial base, it is not just the primes. It is those who are supplying the needs of the defense department, but really folks tend to focus on one of those operational needs that the department has, which is a mix, I mentioned the 70/30, the other big split shift to think about is hardware software. We now live in an age where so much of the development potential is on the software side, particularly as you can quickly upgrade hardware that you've bought. So those traditional primes that you've mentioned, they themselves, are focused on software and hardware. But think about all the software providers that you didn't name that are really important to the development of capability, everywhere from the Googles to a Palantir and others who are bringing software solutions to defense. Yeah, besides Google and Palantir, we have Microsoft, Amazon, SpaceX, Android, and a lot of other sort of high tech firms operating in this space. When you think about the defense industrial base, Cath, you also include government owned, arsenals, factories and depots. Yeah, absolutely. So that's what's called our organic industrial base and they are very important, especially you can think about specific areas in support of our naval warfare and munitions in general, particularly army munitions, but not just exclusively. And a lot of times those are actually operated by contractors. They're so-called government owned contractor operated and in DOD we have to have an acronym for everything. So that's a go-ko. So even those organic industrial base elements have a heavy influence and partnership requirement with the commercial sector. So Cath, there's been a lot of talk about the defense industrial base, one article that came out recently in the Atlantic was titled, "The Crumbling Foundation of America's Military." I will note that it doesn't seem like a couple weeks go by without reading a new story about the challenges the DOD has with its procurement programs. I'll note that the Navy repose building two Virginia class attack submarines annually with a goal of eventually getting up to three a year instead the program is producing I think roughly 1.2 subs a year because of workforce shortages and supply chains. When we talk about the weaknesses of the defense industrial base, how big a problem is it? Let me first say if I were looking relatively around the globe at what military, I'd pick in my draft, United States would absolutely be at the top of the list. And that's both because of the inherent potential and capability, extent, experienced capability that we have in our force, and it's the force's ability to bring to bear capability. That capability might be expressed in high-tech, it might be low-tech, it doesn't matter the point is how you apply it at the edge in order to deter adversaries. So that's the first thing outside. The second thing is, yes, we have tremendous challenges across the United States industrial base. And the defense department is a reflection of that, we rely on the same talent base, stem talent. You can think of a skills, trades, welders is a great example that are, we're shortages, plague the overall economy, we have the same problem. So I say it that way just because too often I think we focus on the defense space of the defense industrial base, whereas if you look more broadly, you now have broad bipartisan support, I think for, you know, manufacturing challenges here at home, think of the Chips and Science Act, for instance. So we're really relying on the defense community on that broader industrial base. Now you get into things like shipbuilding to use your example, and it is an excellent sadly example of where the United States from about 1960-ish kind of stepped away from the table and in that case, it was Japan and Korea who stepped in eventually China and now China is quite dominant in terms of its amount of investment and then production of ships. The goal for the United States isn't necessarily to want to build as many ships as China. The goal is to deliver on time and on budget those things are war fighters need in case of defense at the price point that the taxpayers have essentially agreed to. And that is not working. That system is not working. The challenges there, again, you can extrapolate this to other areas are indeed workforce, although we are seeing in places that increased pay makes a big difference. So it's not, you know, rocket science, if you will. But we also have very significant supply chain fragility. We could show that all throughout the economy, and in the Biden administration in 2021, so predating Ukraine, we had identified this, particularly coming out of COVID. These workforce challenges supply chain challenges major problems for the defense sector. Then Ukraine happened, and I think that really exposed a much broader cross-section of Americans and their representatives in Congress and folks outside the defense sector who care about national security to the challenges we were facing. And shipbuilding, I think, is a place people can see that in a very tangible way, but it's not the only place where those challenges are expressing themselves. So, Cath, I take the point that the United States has the ability to design things. It's not clear we have the capability we need to manufacture things. And that is, I think, a broader problem for the U.S. economy. I want to talk a little bit about how we got here, specifically in terms of the defense department and its needs, which is not simply building big platforms like aircraft carriers or tax, submarines or tanks, but it's the munitions that they're going to use. And I will note, I grew up not far away from the water town arsenal, which is a long standing U.S. Army facility. I believe now it's a mixed-use development with a mall and various entertainment facilities. But how do we go from being the arsenal of democracy where the United States could more than supply itself in its friends to this situation, all of a sudden we've discovered that we may have supply chain vulnerabilities or no capacity to be able to do things, produce things quickly. And it was particularly notable for so-called that it was 150 millimeter shells once the war in Ukraine began. Our production rate was just a small sliver of what the Ukrainian Army was expending on a daily basis. How do we get here? Sure. So this doesn't have an easy answer. And I say that in part to excuse myself as I'm about to explain it. But also as folks are listening to think as they think ahead to solutions, there aren't going to be really single point solutions. There's no silver bullet in solving the challenges that we face. The decisions that the United States has made, I used the shippling example of 1964 and I used that on purpose because often we tend to point to China's rise exclusively. That is certainly a significant factor in the relative, the sense of relative lack of growth on the U.S. side. But you had at least since the end of the Cold War really decisions made to invest in other areas. And it's over to others to think who are outside the defense sector to think about what those trade-offs were and did they pay off. We certainly had a very strong economy, for instance, through the '90s and other areas where we were making these decisions to have a peace dividend. We had base realignment and closures to use your example that had effects on the defense industrial basis. Well, we had consolidation. These were efficiencies, if you will, of their day. And they allowed, I'm sure, for reinvestment in other areas. So I don't want to judge those choices. But I will say the effect of those choices are really what we see here today. And then let me just add the global supply chain, which, again, creates a lot of efficiency, has other positive attributes. But what we found is that, you know, certainly by the time I came back to the department's by third time in the department, beginning in 2021, most major manufacturers at the C-suite level, at the uppermost levels, I found would be hard pressed to know at their fingertips what their own supply chains were for an area like munitions. This was not their most profitable area. The defense department didn't have a steady funding stream for it, so, you know, they could turn on and off factories or supply lines when directed or asked and contracted with. But it wasn't their focus. And so, to your point, what you found in munitions, and this was from late Obama, I think, through the first Trump administration, into the Biden administration, there already had been a significant focus on how do we get more investment into munitions? By the time Ukraine crisis happened, while you had that energy in the system, the end result of it had not yet produced. And the supplemental is provided for congressional supplemental funding, provided for Ukraine. A lot of that money went into improving the U.S. defense industrial base. You know, those, you know, Americans who put their tax dollars forward that went into those supplemental funds, that, a lot of that, 10 billion plus came back to the U.S. to create better manufacturing, capability, more robotics investment, workforce improvements, more lines opened. And now, one five five millimeter artillery is a good example. Now we have a much, we're on a much stronger basis. And that shows you some of what it takes. These are policy choices at the national level, some of what it takes to build out that defense industrial base, and that it takes a while. It is not as simple as pulling out your dollar going to the vending machine, pushing the snickers button and having it drop out the bottom. If a policy decision is made today, back to the president's inbox format here, that you want more, whatever it's going to be, Tomahawk missiles, J-Dams, F-35s, any kind of complex system or ships, you have to think about everything that goes into delivering that, the accountability and oversight, the workforce, the supply chain, multiple sources, before you can have an expectation that it's going to deliver right away. I think it's an important point there when you go back looking at history when the wall fell in Berlin and we had the end of the Cold War, as you rightly point out, I think politically a lot of people wanted to have a peace dividend, in fact, the war was over. It was hard to make the case that great power war was just around the corner, so we should keep producing these weapons. I will note that then Secretary of Defense Les Aspen had a meeting with leading members of defense contractors in 1993. I believe it was dubbed the last supper because he told them, "Look, where we're going with the peace dividend, we can't sustain a large defense contracting establishment. You're going to have to consolidate now we're living with the consequences." And likewise, part of the challenge is that we've discovered that having global supply chains is great for efficiency, but they may not be resilient and indeed may create opportunities for your very adversaries to be able to squeeze you, but it seems that another part of what's happening right now is that there's sort of change in our understanding of conflict. It's seen for years the United States military predicated its strategy and notion that we would over-match anyone we faced that they may have more weapons that we would have much better weapons. I think we saw that logic play out in the Gulf War and then in the Iraq War, where the quality of U.S. weapons, precision munitions, among other things, and the advantage we had in sensors, intelligence, satellites, and the rest gave us a decided advantage. And now we're in a war, a world in which it looks like cheaper and smaller and may overwhelm better and more expensive, given just the challenges being overwhelmed by drones. I think we want to talk about the effort against the Houthis in the Red Sea. We're shooting missiles that cost a million dollars to peace against basically missiles they whipped up for four or four or less. How does that play a role in all of this? Sure. Let me step back one on the supply chain piece just to emphasize that in the defense industrial base proper, the specific parts of the defense industrial base for which there's not a broad commercial application. A lot of the challenges are actually a small business, single one point, small businesses here in the U.S. where the defense department is their major customer and the customer itself is not a consistent provider. So you can think about the many, either recently, of course, a shutdown, but really continuing resolutions. DoD has been under things of that sort that really make it hard for those small businesses to survive. And so they opt out. They're easier ways to make money, right? And then you don't have any suppliers. So I just really want to emphasize that because I do think we get focused on the China in the supply chain, which is certainly a major issue. But there's also this really fragile base here in the U.S. that we have to support. Well, just not in that point, though, comment does not seem to be willing to get its own act together and produce budgets, even on the timeline that they're pledged to, you know, funds every year and talk about having longer term budgeting has never gone anywhere. That's exactly right. And you tend to see the defense, the folks who are on the oversight committees for defense whether authorizes or appropriators, they're very seized with the need to get the funding out there. But they are not, you know, they're an advocacy group, if you will, for defense within the system. And I don't think broadly speaking, the effects of this, the erosive effects over time and in all these ways, they, it's just not penetrating at the political level. I think it really has begun to do so. So I think there's a moment of opportunity. To your point on the types of capabilities, yeah, the character of warfare is always changing. And what we've seen in Ukraine is, you know, a strategy for the Ukrainians that has relied very much on what they can get their hands on. And that has been heavy toward a credible autonomy as an example. And you know, you may know, I'm very supportive of a credible autonomy, having launched the Replicator Initiative at DOD. Yeah, but I want to really stress that the answer is not one or the other. The answer is for the US, probably what you think of as a high-low mix. It is about a yes and strategy. We have major investments in, I'll call them exquisite or high-end systems that are really valuable to the United States and how we think about deterring and if needed, defeating an adversary who comes up against US interests. But what these new capabilities, and again, this is just one example, but I'd say software defined capabilities in general, leading toward autonomy. But those things can help us do is start to shift those cost exchange ratios, you pointed out, on say, for missiles and missile defense. So they need to be woven in, we're not currently in the desperate situation Ukrainians are. The way we would choose to fight won't look like the way the Ukrainians have to fight. But what we want to make sure is that the things we believe, where the warfighter tells us, they need, we can get delivered to them and that is the real crux of where the industrial base is underperforming. Okay, you've laid out a number of reasons why we've ended up in the situation that we're in. Partly is because the way Congress budgets, partly is because we're seeking efficiencies partly because companies have greener pastures to do their production. Overall, the decline in America is being factoring base. I would also note, particularly in the case of organics like those Army depots, many of them sort of went by the way, because we were happy to offshore a lot of that production was incredibly dirty. I think the EPA has something like 600 Army weapon sites on its super fun list because making some of these weapons produces undesirable residue. But I want to come back to one aspect of our challenge that you alluded to. And that's the issue of skilled tradespeople because my sense is that most people don't focus on that part of the issue. And I'm struck because I was talking to people, electric boat up in Groughton, where they build the fast attack submarines and I said what seemed to be the obvious things since I took economics back in college, just, just pay your people more. And the answer I got was, you had two problems. One, supply isn't that great. And it's cost of living here is very expensive. So even if we pay above average wages, these people look and say, but I can stay somewhere else which is lower cost place to live and I won't have to travel an hour to get to work. How do you get around this issue of not having enough people who can do it? Because you just don't walk, you know, to electric boat one day and say, hey, I can well steal or I can be an electrician. There are a variety of solutions, most of which are already in play. So I'm not suggesting anything that isn't already being tried. You've mentioned one, of course, which is the pay itself. We have seen lower cost of living areas so you can think in particular the southeast of the United States. So we have shipbuilding in that region as well, doing better with retaining skills. And one could suppose it's cost of living. But I rush to add that as it happens all across the country, you know, individual workers are weighing different things education for their children, health care. So making sure that any given region is really focused on how to attract the workforce they need and welders, you know, we're talking about that because I think it's a very clear skill set problem. There are many other trades. That is an area where I have seen a lot of momentum region by region. So in the northeast, you're pointing to they are especially well organized. Why don't you say as in Connecticut? Yes, in Connecticut. Correct. So the northeast is well organized as a region to think about their community college system. They're K through 12 system. They're all these kind of feeders training regimens. How do they help provide support at the state local level? So each region, each state, each locality is going to have a little bit of a different approach. But that's one set of answers. Another set of answers, of course, particularly on the engineering side, maybe a little less on the skills trade side is the immigration policy and H1B visa policy, which is important. STEM improvements here in the United States in general, you know, training and retraining programs in general. And then the last thing I'll say really is the robotics revolution in manufacturing and in addition to that advanced manufacturing processes, both of which reduce the need for, don't remove, but reduce the need for particularly specialized talent. And those we are very far behind. This is where the Koreans and Japanese, for instance, on shippling, are much further ahead. It's not just about the Chinese. So what Hanhua, which is now working out of the Philly Shipyard, the old Philly Shipyard, they are bringing a lot of those techniques and approaches here to the United States. That's the kind of working with your allies and partners who have learned and done better bringing that in. And then turning to the commercial sector where there are some good examples of it taking advantage of advanced manufacturing in robotics, to get the auto industry, others, to improve our position. CAF, how much of the problem can be laid at the door steps of the military services themselves? There's a long history, a long literature of complaints about the military not being able to make up its mind about what it wants to build, continually changing things along the way. I'll point to what is it, the USS constellation frigate program, which was curtailed last month by the Trump administration. I think the original idea was to build frigates based on what I understood to be a fairly well-developed French Italian design and the Navy kept tinkering with it until it became too expensive and didn't move forward. And again, this is not a new problem. I can recall back in the early 1980s reading a book by Jim Falos that talked about the development of the M16 rifle and how difficult it was to get people to sign off because so many people had a swing at the ball. So to what extent of the services themselves complicit in this problem? This is one that separates the two issues. I think requirements creep is what we usually call that mission creep or requirements creep. It's a real challenge set and to the extent that we can learn from the commercial sector in terms of pushing out 1.0, 2.0, 3.0, improvements, major asterisks that are safe for the service member because safety is obviously a huge priority. I think we are better off and it is absolutely the case that adding requirements is a time honored tradition that ends up getting you nowhere. That is absolutely the case. Whose fault is that? I think is a much more complex answer and it is a combination, it's almost never the service on its own and it's almost never the uniform military on its own. It's often a mix of civilian military inside the executive branch. You might have OMB, you might have the NSC, you could imagine others inside the executive branch. That, of course, Congress itself is a many headed hydra of interests on those requirements and they might stipulate specifically in legislation in ways that make that more complicated, more hands inside the system. Some might say obviously they are doing a appropriate oversight by way of doing that. Then you have things that are not written into law but are more of the product back and forth. And finally, of course, you have the commercial sector in industry. You have the period of selection or pre-selection where different entities are vying for that program and they might have particular commercial advantages that they are trying to bring to bear that cause that requirement to shift or they may just be a party to actually trying to help craft it, the requirement. So I think that is a major issue and we are much better off just to go back to the first thing I said, thinking in terms of classes, iterations and trying to free up as much as possible with safety and quality and warfighter need at the forefront, clear off a lot of those excess requirements. So Kath, I take your point that there are a lot of contributors to the situation we currently find ourselves in in terms of the defense industrial base. You've already alluded to some of the things that the federal government can do, state and local government can do, the services can do, Congress can do, but I can just sort of close on this issue of what else can be done and particularly draw you out a little bit about the idea behind the replicator initiative. How well do you think it is going? What do you think it can realistically achieve? Sure. So the replicator initiative itself overall was really focused on this idea that you could take a specific capability area, bring to bear all the attention of the department's various elements that can affect it, create a realistic but ambitious goal and drive the system at that, and in so doing you were going to advance a capability in an area the warfighter was clamoring for and needed and at the same time you were shifting the culture of the system to one that's action oriented focused on executing against urgency instead of business as usual. So replicator one was this a charitable autonomy approach and then replicator two, which we also launched before I left the Secretary of Defense then Lloyd Austin had determined that that replicator two would be counter unmanned aerial systems so counter UAS. And my best understanding from what the same media that you read is that those are both on track that they are under way, that they are both priorities for the Trump administration that doesn't surprise me because there are priorities for the warfighter so they're not political in any way and you've seen with this administration, the second Trump administration out of the gate a strong focus on reform. So what worries me the most which would worry me no matter what it's a cause of always the worry of every deputy of Secretary of Defense I think is execution, implementation, you have to stay laser focused all the way through the system. We talk a lot about in defense acquisition, valleys of death and that's about how you can have a capability, a company can go in at the beginning, let's say they go in at the research side and they have a prototype contract but then they can never get it all the way through a valley of death to field at scale. Well, on the that's because on the defense side we are crossing these many different process owners, accountable individuals and organizations and you really need a continual effort to drive continuity through that process, drive urgency to the very last stage and deliver out the other end. So that's what I'm watching for right now how well that will all deliver. And then on the Atlantic Council side I'm co-chairing with Mac Thornberry who what as a Republican from Texas was the chair of the House Armed Services Committee, he and I are co-chairing a reforge commission for the Atlantic Council and that is really about watching what's happening here across the defense sector and using the comparison you opened with of World War 2, the forage effort. And now it's about how well are we going to do at reforge efforts to improve our defense industrial base. On that note I'll close up the Presidents inbox for this week, my guest has been Kathleen Hicks, former Deputy Secretary of Defense and a senior fellow at both Harvard Academy Schools Belfer Center in Johns Hopkins University's Kissinger Center for Global Affairs. Thank you very much for joining me, thanks very much Jim. Today's episode was produced by Justin Schuster, Molly Mac and any Marcus Acaria, director of video Jeremy Scherlich and director podcasting Gabrielle Sierra, production assistance was provided by Oscar Barry and Kalea Haddock. [BLANK_AUDIO]