Lynn: Spending Slowdown Must Preserve Industrial Base

June 20th, 2011 By American Forces Press Service – DEFENCE TALK

As defense spending slows in the face of a financial crisis, preserving the industrial base that produces military capabilities is critical, Deputy Defense Secretary William J. Lynn III said here today.

Lynn told the audience at an Aerospace Industry Association dinner that preserving the industrial base means taking into account more than manufacturing facilities.

"I mean the financial strength and durability of the companies that run those factories, that invest in next-generation technologies and that design the increasingly complex systems that allow our warfighters to succeed on the battlefield," he said.

Today's industrial base is a relatively recent development in U.S. history, Lynn said. "Before World War II," he explained, "we relied largely on an arsenal system, where the government itself designed and produced most of the weapons and munitions we needed. The arsenal system was a corollary to our reliance on mass mobilization in times of war — with no large standing army to serve, there was no foundation for a defense industry."

The risks inherent in such a system became clear during World War I, he said. Because no capability existed to ramp up production quickly, American forces depended on the British and the French for supplies of advanced munitions.

"World War II constituted a paradigm shift," Lynn said. "In a time of crisis, we engaged the ingenuity of the American industrial base, producing a tide of weapons and material that won the war. The achievement largely eliminated the arsenal system, and the enduring partnership between science, industry and the military has meant that our forces have always taken to the battlefield with a technological edge."

Over the past three generations, Lynn said, the defense industrial base has emerged as a national asset, with thousands of firms and suppliers — some big, and others small — helping to equip the U.S. military. These firms, their suppliers, and their suppliers' suppliers, he said, each are links in a chain that, if broken, can have outsized consequences on military capabilities.

To ensure the nation has the industrial capacity it needs going forward, he added, the Defense Department is conducting a study of the industrial base.

"We are going sector by sector, tier by tier, to assemble a long-term policy to protect that base as we slow defense spending," Lynn said. "This detailed review will inform our budget decisions, our acquisition decisions and our industrial policy. Already, several overarching themes are emerging."

The first emerging theme, he said, is the importance of preserving competition.

"For the past 60 years, competition in the defense industrial base has provided our armed forces with more reliable equipment and better technology than our adversaries," he explained. "Competition not only ensures the defense industry is fully exposed to the 21st century currents of technology, innovation, and capital markets, [but] also yields the best goods and services for the warfighter."

Globalization of some elements of the industrial base is not an option, but a reality, Lynn said. "The corollary of ensuring our defense market welcomescompetition from abroad is ensuring that U.S. firms have full access to the international market," he added, noting that this leads to the second theme: the importance of international sales to the industrial base.

"A significant impediment to our international competitiveness is the archaic export control system," he said. "That system frequently fails in its central purpose of preventing states of concern from acquiring sensitive technologies. Indeed, from the results, one might think that the central purpose of our export control system is to make it difficult and time-consuming for our closest allies — many of whom fight alongside us today — to buy our weapons."

Lynn said the export control system's barriers bring to mind a marriage of the complexity of the Internal Revenue Service with the efficiency of the Department of Motor Vehicles. "It's something we have to change," he said. "We need to reverse this dynamic." Toward that objective, headded, the Obama Administration is undertaking comprehensive export control reform.

"The president, the secretary of defense and the secretary of state are committed to seeing reform through," Lynn said. "The heart of the reform is a single integrated process – a single agency making decisions from a single munitions list utilizing a single information technology system. We are already making progress on related fronts with the passage of Defense Trade Cooperation Treaties with the [United Kingdom] and Australia."

Along with export control reform, Lynn said, officials are changing U.S. policies for technology security and foreign disclosure.

"How we transfer sensitive information to foreign partners is currently governed by 13 separate processes that are neither integrated nor synchronized," he said. "This process looks like a plate of spaghetti. You cannot tell where one strand ends and another begins, and if you want to try to advance the system, you pick up one of the strands and push. The goal of our reforms in technology transfer is to create a single process that is integrated and centrally governed."

The final theme emerging from the Defense Department's study of the industrial base is the importance of targeted research and development spending even as budgets decline, Lynn said.

"Defense spending plunged in the 1970s after Vietnam, but even then, the department made sure promising research and development continued," he said. "One product we kept investing in lowered radar reflections from aircraft. Stealth technology is one of our military's most important advantages today. If not for careful stewardship in the lean years of the 1970s, it would have been left on the drawing board, rather than deployed in our force."

Long-range strike systems, unmanned aerial vehicles and cyber defense capabilities are examples of key technologies the Defense Department and industry must collaborate in advancing today, the deputy secretary told the audience, because they will be crucial to future conflicts.

"We do not yet know the exact shape they will take, or the precise advantages they will confer," he said. "But unless we shield the research and development funds that support them, we will deny future decision-makers the opportunity to deploy these technologies, and deny the nation the security gains that accrue as a result."

Seeing through these security investments will require sustained stewardship from both government and industry, Lynn said.

"Those of us in the department, like most of you in this room, are in this for the long haul," he said. "And we need industrial partners and financial backers who think and act likewise. In this respect, our viewpoint is similar to long-term investors, not short-term speculators -- think Warren Buffet, not Gordon Gekko.

"Only by taking the long view," he continued, "can we collaboratively manage the slowdown in defense spending without disrupting the capabilities of the effective military forces our nation has developed."