US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

M ACKENZIE E AGLEN
AND

J ULIA P OLLAK

AMERICAN ENTERPRISE INSTITUTE

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

M ACKENZIE E AGLEN
AND

J ULIA P OLLAK

November 2012

M E R I C A N

N T E R P R I S E

N S T I T U T E

Acknowledgments

This paper is the product of a true team effort. Throughout the process, we have been indebted to numerous individuals, including Danielle Pletka, Arthur Herman, James Cross, Charles Morrison, Lazar Berman, and Alex Della Rocchetta. We also owe a special debt of thanks to Jared McKinney and Andrew Houston-Floyd, whose keen eyes and helpful edits immeasurably improved this paper. Lastly, we are grateful for the support of the entire AEI family, without whose help this paper would not have been possible.

ii

Executive Summary

efense research and development (R&D) spending has long been a cornerstone of American security, bringing important advances to military hardware such as the jet engine, real-time communications, and precision munitions. Yet advanced technologies do much more than simply support Americas men and women in uniform. In fact, throughout the 20th century, many military innovations ended up playing key and sometimes revolutionary roles throughout the broader civilian economy. Despite the benefits of military research spending, there tend to be powerful short-term incentives to reduce defense R&D investment. After all, cuts to R&D provide immediate returns for a favorable balance sheet, and the negative effects of underinvestment are not felt until years later. As Washington enters a period of deficit reduction, the defense budget will likely face further cuts on top of the close to $900 billion already being implemented or proposed. Including the pending FY 2013 budget, the defense Research, Development, Test, and Evaluation (RDT&E) account has declined by 17 percent in real terms since the start of the Obama administration and will decline by another 12 percent, or $8 billion, in real terms from 2013 to 2017. This largely follows a sustained trend of the modernization accounts bearing the largest burden of cuts. From 2010 through 2013, procurement experienced a real decline of over 24 percent and will further drop by over 5 percent through 2017. In comparison, military personnel was cut by 6 percent from 2010 through 2013 and will fall another 9 percent through

2017. For operations and maintenance, these figures are 12 percent and 23 percent, respectively. The reality is that defense R&D will continue to face a large share of the burden as legislators struggle to preserve procurement, personnel, and operations accounts in their districts. Political pressure is mounting from lawmakers who believe that government money could be better spent elsewhere and that defense R&D crowds out private-sector R&D efforts. Such opposition to defense research, however, ignores the larger picture: that military research and development, as a foundation of national security, is a constitutionally mandated public good as broadly articulated in the Preamble. It ensures a technologically dominant military that underpins global economic stability, and as a positive byproduct provides the resources for commercial technology. Although it may appear inefficient, such innovation would not be possible without government involvement. Other nations understand this, such as China, whose R&D spending is predicted to surpass the United Statess by 2023. There are many options available to further structure defense research and development spending to maximize security and economic benefits, including longer-term funding stability, reform of human capital recruitment, and the multiple potential methods of facilitating research and technology transfer from the DoD to the private sector. Reform, along with a budgetary commitment to continued R&D, will ensure the innovation that has made America great, and safe, will continue to enjoy robust support into the future.

iii

US Military Technological Supremacy under Threat

mericas defense budget exists to fulfill the first responsibility of government under the Constitutionto provide for the common defense. Without a military with adequate and sufficient resources, America would no longer be the master of its own fate. As Thucydides observed so many years ago, The strong do what they can and the weak suffer what they must. In practice, however, defense spending does much more than simply guarantee the independence and autonomy of the United States. Defense spending, especially during the 20th century, has acted as an important driver of technological innovation and commercial progress. Increasingly, defense research and development (R&D) has produced important and often-overlooked innovations within the broader civilian economy. Some of these innovations, such as hairspray and plastic bags, have made our lives more convenient. Others, such as electronic computers and the Internet, have changed our planet and economies. The buildup in defense-related federal R&D spending that began in the 1940s and persisted through the 1980s was responsible for propelling many of the pivotal technological breakthroughs of the 20th century, including jet engines, avionics systems, weather satellites, electronic computers, the Internet, computer software and graphics, global positioning system (GPS) facilities, and cell phones. Spinoffs such as these have been an important channel through which defense spending has bolstered Americas larger technological advantage and positively affected economic growth. The rapidity with which military technologies diffused to other economic sectors between the 1940s and 1980s owes largely to the unique scale and structure of US defense research and development investments during those years.

This is not to say that the government built the modern economy through defense investment. The point of defense innovation is not to build a strong economy or promote economic growth. Defense investment has a simple and irrefutable constitutionally mandated role: to provide for the common defense. Yet, just as it would be simplistic to cite examples of defense innovation as evidence that government spending built the modern economy, it would also be simplistic to say that defense spending had no role in promoting useful technologies that happened to spin off into commercial products. When it comes to the defense industry, the public and private sectors are mixed in a way that does not really exist in any other market. The unique buying conditions that exist in the defense industry inherently mean that the market is not a true market at all but, rather, a complex arena in which a sole buyer determines the near total demand and suppliers are entirely at the mercy of the customers preferences. Consequently, defense R&D must be kept in perspective: it is not the end-all, be-all of the modern economybut it has played an important role. Today, the United States still dominates the world of R&D, but it spends far less as a percentage of gross domestic product (GDP) than in the 1960s, when the Cold War and the space race were driving Americas pursuit of technological supremacy, and only half as much as a percentage of GDP as it did during the mid-1980s. Spending is spread across fewer companies, channeled toward narrower goals, and tied to more stringent requirements. Moreover, R&D funds are calculated differently today than during the first part of the 20th century. Throughout World War II and the beginning of the Cold War, research and development spending was narrowly interpreted as scientific research and
1

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

development. This changed following the launch of Sputnik when public pressure for increased scientific funding prompted the expansion of R&D funding to include testing and evaluation (T&E)creating the modern Research, Development, Test, and Evaluation (RDT&E) account in the defense budget. Because the new RDT&E category included many items beyond basic and applied research, increased budgets made the overall R&D investment appear larger. Today, less than one-tenth of RDT&E funds go to basic and applied research.1 In the coming years, US government research and development budgets are set to shrink further amidst mounting fiscal pressures. The debt-ceiling agreement reached by Congress last summerthe Budget Control Act of 2011mandates $487 billion in defense spending cuts over the coming decade.2 Another $492 billion in automatic budget cuts are also scheduled to take effect through the sequestration measure, a result of the super committees failure to come up with $1.2 trillion in deficit reduction measures in November 2011. These reductions come on top of numerous program cuts and efficiency savings already implemented throughout the Department of Defense or banked as savings regardless of outcome. As many defense experts have noted, so-called across-theboard reductions will affect R&D and procurement (together, what are commonly called the modernization accounts) disproportionately because other parts of the defense budget are buried more deeply across multiple accounts and organizations or more politically sensitive and therefore more difficult to cut. Under President Obamas proposed fiscal year 2013 budget, the defense RDT&E account would decline by nearly 5 percent to $69.65 billion.3 As figure 1 illustrates, this represents a real (inflationadjusted) decline of more than 17 percent since the start of the Obama administration, the fifth decline in real terms in as many years. The rest of the Obama administrations five-year defense plan continues this trend. RDT&E spending will continue to decline by more than $8 billion in real terms between FY 2013 and FY 2017. At the same time,
2

under the administrations proposed budget, domestic agencies such as the Departments of Health and Human Services and Energy will receive a larger share of R&D funding than the Department of Defense (DoD).4 In contrast with American military R&D trends, a study by the Battelle Memorial Institute forecasts that Chinas rate of spending on R&D will remain strong and continue to grow faster than 10 percent each year, as it has done consistently over the past 15 years. At this rate, Chinas R&D spending can be expected to match or surpass ours by 2023.5 Other countries, including Russia and Israel, are also starting to gain a technological edge in certain sectors.6 In a New York Times op-ed titled Will China Outsmart the U.S.?, Adam Davidson speculated on the threat Chinas rising investments in R&D could pose to Americas economy: Our global competitiveness is based on being the origin of the newest, best ideas. How will we fare if those ideas originate somewhere else? The answers range from scary to scarier. Imagine a global economy in which the U.S. is playing catch-up with China: while a small class of Americans would surely find a way to profit, most workers would earn far less, and the chasm between classes could be wider than ever.7 Not only are other countries outpacing the United States on research and development, but they are also thinking about the very idea of future investment differently. Nowhere is this more pronounced than in simple accounting practices. In the United States, R&D spending is expensed, meaning that money directed to R&D adds an immediate negative to a firms balance sheet and reduces profits.8 In Japan, on the other hand, R&D spending is capitalized, meaning that its cost is spread out over several years, reducing the incentive to cut investment as a short-term strategy to increase profits.9 In other words, the Japanese accounting system is predisposed to value long-term success over short-term

MACKENZIE EAGLEN AND JULIA POLLAK

FIGURE 1 INFLATION-ADJUSTED US DEFENSE RDT&E SPENDING DECLINES FOR FIVE CONSECUTIVE YEARS

90,000

80,000

$ Millions

70,000

60,000

50,000 2009 2010 2011 2012 2013

Source: US Department of Defense, National Defense Budget Estimates for FY 2013, Historical Table 6.8.

gains, while its American counterpart does precisely the opposite. This predisposition to think about R&D spending as a burden and not as a source of strength only makes Americas challenge even greater going forward. Before Congress signs off on further defense spending reductions, which senior Department of Defense leaders and military officials have warned would have devastating effects, members should review the indispensable contributions US defense R&D and procurement spending have made historicallyand continue to makenot only to US national security, but also to technological innovation and economic growth. With the right level and composition of defense R&D and procurement spending, and the right policy framework, Congress can ensure that the military continues to provide the best defense, as well as the maximum incentive to technological advancement and economic growth.

How Federal Spending on Defense R&D Increases Economic Growth Congress supports the modernization efforts of the US military with appropriations for RDT&E and procurement. Although they primarily support the development and acquisition of the nations future military hardware, software, IT, and consumables, these investments spill over into the wider economy through three main channels: the development of human capital or research infrastructure, technology transfers or commercial spinoffs, and foreign sales. Human Capital and Research Infrastructure. Roughly 17 percent of the total federal defense RDT&E budget (nearly $12 billion in FY 2013) goes toward basic and applied research, referred to as the Science and Technology (S&T) program. The program supports a large share of university-based research and education, particularly in fields such as
3

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

mathematics and materials engineering. This funds the training of scientists and engineers and develops the future expertise that the DoDas well as industry and universitiesrely upon. Federal spending on defense R&D was originally concentrated in government arsenals, but during World War II, weapons production largely shifted to private companies while basic research moved to universities. For instance, in 1980, at the height of the Cold War, about 70 percent of federal R&D spending was located in industrial laboratories and between 10 and 15 percent in universities.10 The human capital, research infrastructure, and industrial base that have emerged as a result provide a means of acquiring new technology across a wide range of sectors and growing further industrialization and innovation. Not only does defense-related spending fund the training of scientists, but it also creates an incentive for young people to study science by providing lucrative employment opportunities. Overall, the defense and aerospace industry supports some 3.53 million American jobs.11 Defense-related science and engineering jobs attract some of the nations best and brightest and pay commensurately high salaries, with the median annual salary above $77,000.12 Defense-related jobs employ about one in ten of the nations computer software and electrical engineers, one in five of its physicists, one in four of its astronomers and mathematicians, and one in three of its aerospace engineers.13 R&D spending on human capital at all levels helps retain US scientific competitiveness, an extremely important asset in a competitive global economy. Technology Transfers and Commercial Spinoffs. The second channel through which defense research and development spending benefits the wider economy is technology transfers and commercial spinoffs. The RDT&E budget supports seven budget activities: basic research, applied research, advanced technology development, demonstration and validation, engineering and manufacturing development, management support, and operational systems
4

development. Each of these activities has yielded scientific knowledge, organizational innovations, and technologies first used in military products that later found their way into civilian or commercial applications in the private sector. Technology developed in the military can be transferred to other parts of the government or to the private sector in a number of different ways. One way is through the patent system, which was designed to promote the disclosure of inventions. Various organizations take advantage of technological knowledge embedded in military patents. A recent study, which sampled 582 military patents from around the world registered between 1998 and 2003 with both US and European protection, found that the United States makes the greatest use of military technology for civil purposes, followed by Germany.14 The study measured the dual use of military technology by analyzing citations of military patents in subsequent civilian patents. It notes, however, that current intellectual property laws worldwide are in many ways inadequate for favoring technology transfer.15 Another way military technologies have often filtered into commercial products is through the governments use of defense contractors with both military and commercial divisions. US aerospace manufacturers, for example, have often been involved in military and commercial aircraft production simultaneously, allowing for rapid technology transfer and shorter learning curves. In some cases, the production of military and commercial aircraft has even taken place within the same facility. The airframe design for the Boeing 707 drew on that of Boeings KC-135 military tanker, for example, and Boeings ability to design large, advanced composite structures benefited from the military R&D it did as a subcontractor to Northrop Grumman on the B-2 stealth bomber. Yet another source of technology diffusion is the tendency of defense companies to subcontract work to small and medium commercial enterprises. Todays military purchases numerous commercial, off-the-shelf products, thereby supporting hightechnology private-sector companies involved in

MACKENZIE EAGLEN AND JULIA POLLAK

production of goods and services not related to defense. The leading sectors supplying the defense market are the scientific research and development industry, the engineering and architectural industries, the telecommunications industry, and the aircraft industry. Private-sector aerospace product and parts manufacturers design and construct many component systems of military aircraft; navigational and measuring device manufacturers develop many of the complex electronics and guidance systems used in military rockets and missiles; and search and navigation equipment manufacturers supply the military with many of its radar, sonar, and other tracking systems. Defense companies create demand for high-technology commercial products, and this spin-on (the flow of technology from the commercial sector to the defense sector) creates a favorable environment for cooperation and various joint efforts at two-way technology transfer. During the Cold War, for example, the Pentagon provided significant funding to electronics companies for R&D relating to integrated circuits, semiconductor materials, and transistorstechnologies that have since revolutionized electronics and made computers, mobile phones, and many other digital devices possible. The DoD acted as a lead purchaser of these new technologies, making early acquisitions in large quantities, which created new markets and attracted new companies. High military demand for semiconductor components during the Cold War was largely responsible for the rapid growth of this new industry. By providing a steady stream of financing, defense contracts helped to fund risky R&D for unproven systems and supported further development and commercialization by allowing firms to achieve economies of scale. Finally, there are also less-direct sources of technology diffusion. Defense programs are frequently on the cutting edge of scientific advancement. Simply by introducing or demonstrating new inventions, the US military has sometimes sparked significant technological transformations as other organizations, and even other countries, have raced to replicate or improve on them. Historically, military

R&D has often demonstrated technological possibilities that were previously in doubt. In so doing, it has lowered the risks other investors perceived and spurred related ventures in the private sector. One study of 67 countries between 2000 and 2005 finds that military technology was widely diffused to other sectors and that military R&D had an especially positive and substantial impact on economic growth in medium- to high-income countries, where technological innovations were more likely to be harnessed and commercialized.16

CHINAS R&D

SPENDING CAN BE

EXPECTED TO MATCH OR SURPASS OURS BY

2023.

Foreign Sales. The third channel through which federal investments in defense technology improve the economy is international defense trade. Largely because of the level of federal investment in cuttingedge defense research and development, the United States produces the most advanced and sought-after defense and aerospace products in the world. It is the top global exporterand an overall net exporterin the aerospace and defense industry, which is one of the largest positive contributors to the US trade balance, enjoying a net export/import balance of almost $8.2 million more than agricultural products, the industry with the second-highest positive net balance, in 2010.17 In 2010, US exports of aerospace products totaled $77.8 billion while imports totaled $34 billion, leading to a trade surplus of $43.8 billion.18 This trend continues today. According to the State Department, 2011 was a record-breaking year for foreign military sales.19 US exports of defense productsincluding military aircraft, satellites, communications equipment, and electronics equipmentranged from about $19 billion to $22 billion annually each year between 2005 and 2009. As figure 2 demonstrates, most US defense exports are concentrated in a few
5

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

FIGURE 2 TOP SEVEN COUNTRIES FOR EXPORTS OF DEFENSE ARTICLES, 200509

14 12 10 8

$ billions

6 4 2 0

Japan

UK

Israel

South Korea

Australia

Egypt

UAE

Source: GAO, Report to Foreign Affairs Committee on Defense Exports (September 2010), figure 3.

countries, with about half going to Japan, the United Kingdom, Israel, South Korea, Australia, Egypt, and the United Arab Emirates.20 Some of the benefits of international defense trade include increased access to overseas technologies, capital, and skilled labor; accelerated innovation as a result of competition; employment for tens of thousands of American workers by export-driven defense companies and subcontractors; and a wider market for American products, which generates economies of scale and drives production costs down. Access to international markets provides defense companies with the opportunity to make additional sales, which can sometimes enable them to keep their US-based production lines open longer than their government customer would support and sustain employment levels, even during times of defense spending reductions and uncertainty at home. US government efforts to promote interoperability with allies and partner states have also enabled
6

defense companies to build important international partnerships and pool scarce resources with likeminded nations. These partnerships sometimes allow US firms to obtain advanced foreign technologies that would otherwise take far longer to filter into the US economy.

Defense R&D Investments That Have Spurred Commercial Innovation Some examples of technologies that emerged largely as a result of defense R&D investments but have since become ubiquitous are atomic energy, highpowered batteries, night vision, digital photography, radar, avionics systems, electronic computers, the Internet, computer software, and GPS facilities. More recently, the military has made significant strides in developing remotely piloted or unmanned aerial vehicles, and several of the technologies involved are

MACKENZIE EAGLEN AND JULIA POLLAK

appearing in a growing number of civil applications, such as firefighting and mineral exploration. The commercial aircraft sectorone of the nations largest net exportersis perhaps the most noteworthy legacy of civil spinoffs from military R&D. Federal defense R&D funding has accounted for well over half of total aerospace R&D investments since 1945,21 and countless examples exist of military technologies that have made their way into passenger airliners, agricultural planes, traffic helicopters, and other civil aircraft in use all around the world. Indeed, the rapid growth of commercial aircraft for passenger and cargo transport after World War II began largely with the conversion of ex-military aircraft, such as the US Air Forces Boeing B-29 Superfortress. It would take several volumes to mention all of the military inventions and technological developments that have filtered into the commercial sector, so we will focus here on only some illustrative examples from the information technology sector. Electronic Computers. The first general-purpose electronic digital computer in the United States, the ENIAC (Electronic Numerical Integrator and Computer), was developed during World War II by the US Army Ordnance Corps for the purpose of quickly calculating trajectories and firing tables for artillery. After initial successes, the military funded the development of additional computers in the 1940s and 1950s that soon gained a wide range of applications. The US armed forces believed that fully exploiting the new technologies would require a substantial industrial infrastructure. As a result, they supported the broader diffusion of the new calculatorcomputer technologies to researchers and firms and supported further computer technology development projects throughout the 1950s. One such project was the SAGE (Semi-Automatic Ground Environment) interceptor early detection air defense system. In 1952, the International Business Machines Corporation (IBM) began working with Massachusetts Institute of Technologys (MITs) Lincoln Laboratories to finalize the design of a digital computer and radar system designed to defend

the United States against missile attacks. The system was seminal to the development of the computer and opened the doors to many military and civilian spinoffs. IBM used much of the pioneering research it gained access to in building its later commercial computer hardware. In particular, military R&D on SAGE produced technologies such as magnetic core memory, large operating systems, integrated video display, algebraic computer languages, analog-todigital conversion techniques, digital transmission over telephone lines, light guns, among many others.

OVERALL,

THE DEFENSE AND AEROSPACE

INDUSTRY SUPPORTS SOME

3.53

MILLION

AMERICAN

JOBS.

Integrated Circuits. During the Cold War, the Department of Defense and Atomic Energy Commission provided significant funding to electronics manufacturers for R&D relating to integrated circuits, semiconductor materials, and transistors. Integrated circuit technology has since revolutionized electronics and made computers, mobile phones, and many other digital devices possible. Military demand for semiconductor components supported the commercialization of integrated circuit technologies by generating price reductions, which facilitated commercial demand. The military also awarded procurement contracts to new companies, which encouraged competition and birthed many small, nimble, entrepreneurial firms. In addition, the militarys second source policy (which required suppliers to develop additional domestic producers capable of producing identical products) led to considerable technology transfer between companies, fostering rapid growth and competitive strength in the industry. Software. The US software industry also benefited substantially from defense R&D and procurement.
7

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

Beginning in 1959, the DoD was partly responsible for funding and overseeing the development of COBOL (common business-oriented language), one of the oldest computer programming languages. The DoD required that all computers purchased by the military support the language, resulting in the widespread diffusion of COBOL as a programming language in both military and civilian applications. DoD demand for custom software also facilitated the growth in custom software firms between 1969 and 1980. Initially, DoD funding accounted for the bulk of the software industry, growing dramatically until it was finally outstripped by commercial industry in the 1990s. The Computer Mouse. The first computer mouse was invented in 1963 by researcher Douglas Engelbart at the Stanford Research Institutes Augmentation Research Center, funded by the DoDs Advanced Research Projects Agency (now DARPA). The mouse enjoys widespread use with personal computers today, but the technology remained relatively obscure until it was exploited by Apple Macintosh in 1984. Military-funded technologies and patents often sit on the shelf for many years before the private sector takes advantage of them. For example, the personal assistant Siri began as a DARPA-funded initiative to support military personnel long before Apple bought its parent company, SRI International, and adapted the technology for the iPhone.22 It has long been a matter of concern inside the Pentagon to find ways to improve communication with the private sector and expedite the military-civil technology transfer process. The Internet. Although French and British scientists made important contributions to the development of packet-switching and computer-networking technologies, the Internet was primarily invented and commercialized in the United States, with the DoD playing a critical role. During the 1960s, several researchers at MIT, the Stanford Research Institute, and the RAND Corporation, among other institutions, made significant developments in the
8

field of packet switching. DARPA saw the potential for military applications in the technology and funded the development and deployment of the worlds first electronic computer network. ARPANET, as it was named, was the earliest forerunner of the Internet. By 1975, it had grown to more than 100 nodes, as universities and other defense research facilities were linked to it. The Internets core technological innovations diffused widely through the US research and industrial infrastructure and led to the development of many supporting technologies. The US Internet industry soon became a place of rapid innovation, constant market entry by new firms, and intense competition, largely because of DARPAs willingness to fund projects in many different universities and private R&D laboratories and to buy products from numerous different companies. The spinoffs of these investments are ubiquitous today in numerous Web-based technologies and applications and represent a major portion of the US economy. Email. Email was an accidental spinoff of DoD R&D funding. In 1971, programmer Raymond Tomlinson invented a system for sending electronic mail over the DoDs ARPANET. It was the first system able to send messages between users on different hosts, which it achieved by using the @ sign to separate users from their machines. Tomlinson was working on other programming required for ARPANET and was not specifically assigned to develop an electronic mail systemthe idea arose in the course of his other research. Email is a perfect example of innovations that can transpire when federal defense R&D brings together the nations brightest scientists, engineers, and computer programmers on pioneering research projects using new systems and materials. The Global Positioning System (GPS). In 1973, the DoD developed a space-based satellite navigation system in an attempt to improve on earlier navigation systems such as the US Navys 1960s Transit satellite navigation system. GPS was originally run with 24 satellites and proved capable of supplying

MACKENZIE EAGLEN AND JULIA POLLAK

FIGURE 3 RDT&E SPENDING CONTINUES FREEFALL

72,000 70,000 68,000 66,000 $ Millions 64,000 62,000 60,000 58,000 56,000

2013

2014

2015

2016

2017

Source: US Department of Defense, Fiscal Year 2013 Green Book, table 6-8.

location and time information anywhere on earth in all weather conditions, given an unobstructed line of sight to four or more satellites. The system initially gave the military critical new navigation and surveillance capabilities, but its military and commercial impact has since exceeded anything the initial researchers could have envisioned. Through features such as highly accurate clock synchronization, GPS has revolutionized the global air traffic control system, cellular telephony, and numerous other civil functions. It has many advanced scientific uses, but it also has applications in everyday products such as television and radio, mobile phones, cars, and banking systems.

Current Trends in US Defense R&D Spending As figure 3 illustrates, overall federal government spending on both defense- and nondefense-related

R&D is projected to decline in the coming years because of significant budget reductions. Research and development sponsored by the DoD is expected to see the steepest decline.23 More than ever, the RDT&E account will have to compete with other priorities in the shrinking defense budget, such as rising personnel and operations costs. Whereas various procurement programs may manage to halt funding reductions, or at least delay them temporarily, the RDT&E account is likely to absorb the brunt of defense cuts because it is often easier for shortsighted politicians to get away with cutting programs when their benefits are delayed. Amidst tightening defense budgets and a steadily shrinking RDT&E account, even traditionally popular accounts such as Science and Technology (S&T) funding are coming up short. The Obama administrations FY 2013 request represents a 2.5 percent cut from 2012 S&T funding levels.24 When defense spending began to decline in the late 1980s, Congress
9

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

initially defended S&T funding and continued to authorize increases for several years. After FY 1993, however, President Bill Clintons steep defense reductions started to cut into S&T funding as well, ultimately driving it back down to FY 1987 levels by the end of the decade.

IN 2010, US

EXPORTS OF AEROSPACE

PRODUCTS TOTALED IMPORTS TOTALED

$77.8

BILLION WHILE

$34

BILLION, LEADING

TO A TRADE SURPLUS OF

$43.8

BILLION.

The George W. Bush administration reversed the downward trend and made it official policy in the 2001 Quadrennial Defense Review to stabilize S&T funding at 3 percent of the overall defense budget, although it never actually achieved that benchmark.25 Although S&T spending initially continued to increase under the Obama administration, recent defense cuts have made even this bipartisan priority a casualty of falling toplines. This is in spite of the warnings contained in the administrations own defense strategy documents, which state, Even at current, relatively robust levels of investment, the DoD S&T program is struggling to keep pace with the expanding challenges of the evolving security environment and the increasing speed and cost of global technology development.26 The S&T program is widely believed to be imperative to maintaining technological superiority, but it is difficult to calculate the return on investment of each outlay because the time between initial research and resulting new operational systems is often long and technological developments often follow an indirect path, as some of the examples we have given illustrate. As a result, congressional support for S&T spending is likely to wane in the face of a falling topline and competing internal budgetary demands. Moreover, these cuts can be expected to hit at a time when the private-sector industrial research
10

base is least able to make up the shortfall. Todays defense industrial base is under strain and lacks depth. After 1993, Clinton-era defense cuts forced the 30 major defense firms to consolidate into 5 and saw many companies exit the business altogether. Although successive Pentagon strategy documents have pledged to maintain a robust and capable defense industry that can thrive and compete in the global marketplace,27 recent studies and emerging trends raise doubts. In the defense aerospace industry, for example, congressional language requires that the United States must ensure, among other things, that more than one aircraft company can design, engineer, produce and support military aircraft in the future.28 As a recent RAND Corporation study illustrates, defense R&DTE funding is almost as important as procurement contracts if a defense contractor is to retain the capabilities to produce fixed-wing aircraft.29 This same study cautioned that unless very purposeful and structured program decisions are made soon, the congressional objective . . . may not be achieved.30 According to RAND, smaller programs as currently planned (a combination of training aircraft, tankers, and a Navy unmanned aircraft) would sustain only one company (Boeing), and even if aerospace competitor Lockheed Martin were to rely on a strategy of selling the F-22 jet to foreign partners (which it cannot), international sales would sustain the company for only four years (201619).31 The stark reality is that there is just not enough business to go around. Aside from the optionally manned long-range strike bomber, for the first time in history, the US military has no new manned aircraft under design.32 Keeping two prime firms healthy and competitive past 2025 would require substantial R&D and procurement investments in large-scale programs, such as a next-generation bomber and sixth-generation fighter. In the absence of such programs, the DoD will struggle to keep suppliers in a low-rate delivery status and will likely see its manufacturing sources diminish. In addition to firm closures and consolidations, several other trends have emerged over the past

MACKENZIE EAGLEN AND JULIA POLLAK

20 years as a result of funding strains, market turbulence, and other factors. One notable trend is that large defense companies have moved away from inhouse R&D, conducted in industrial laboratories or in R&D subdivisions, toward greater competitive outsourcing. The RAND Corporation says that the old model was a successful model for a corporation in a stable environment,33 but because of greater uncertainty, much of what companies produced is now outsourced to lower-tier contractors, both foreign and domestic. Instead of managing internal research divisions and staff, larger companies in both the defense and nondefense sectors increasingly find themselves managing and organizing complex innovation networks of smaller external suppliers. They also invest in small start-up companies that are more technologically cutting-edge and whose investors are more prepared to bear the risks of innovation. RAND defense analysts worry that, despite some encouraging public statements, the DoD currently appears to have no policy for increasing innovation that acknowledges these changes and has no framework for what such a policy should look like.34 Policymakers should consider expanding R&D funds to small firms as a way to encourage innovation, progress, and efficiency. This is especially true in areas like software and cyberwarfare, where the market changes so quickly that only highly specialized firms have the agility and personnel to stay on top. According to Frank Kendall, under secretary of defense for acquisition, technology, and logistics, the DoD plans to become more selective with its R&D resources in the face of declining budgets. To that end, the Pentagon has directed the Defense Science Board to conduct a study to determine which technologies to prioritize. The study will seek to identify technologies that will be pivotal over the next two decades to the sustainment of innovation and superior warfighting capability. The assessment could influence the allocation of R&D spending as soon as the fiscal year 2014 budget is made public in February.35 Even amid cutbacks, there are some promising developments. In mid-March, for example, the Navy opened a cutting-edge laboratory devoted to research

on robotics and autonomous systems, such as unmanned underwater vehicles, firefighting robots, and sensor networks.36 Nevertheless, it will be a challenge for the DoD to sustain the scale, scope, and quality of research projects such as these unless funding remains robust.

Obstacles to the Development of a Sound Defense R&D Strategy While Pentagon leaders and pro-defense members of Congress try to navigate these challenges and develop strategies to deal with new budgetary and economic trends, they also face mounting political opposition from those who argue that the governments money is better spent on other priorities. One common refrain is that defense R&D crowds out private-sector R&D. However, defense is supported by four principles that make it an exception to normal patterns of government spending. For one, defense is the first and most important responsibility of government under the Constitution. In this sense, defense R&D is a public good that cannot be considered part of the normal economy. A technologically dominant military guarantees US companies undisrupted access to global markets. Moreover, defense spending operates on a scale that is simply unknown to the civilian economy. No civilian corporation has the resources, reach, or ability to sponsor the kinds of research and innovation necessary for an organization that employs more than 2.2 million individuals directly. The scale, length, and purpose of defense programs makes them unique to the public sectordefense cannot exist outside of the public sector, but no other public-sector organization could exist and budget like the DoD. In this context, the alternative to federal investment in national defense is not a more efficient private market for national defense but, rather, no investment in national defense at all, which hurts the warfighter and our national deterrence and global presence.
11

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

Another common argument against the economic benefit of military R&D is that defense technologies are becoming increasingly specialized and therefore less relevant to commercial industry and the civil sector. This argument, which has been repeated throughout history, simply manifests a lack of foresight and imagination. The US defense establishment once believed that harnessing flight and developing aircraft would be too complex and risky a proposition ever to have a military, let alone civilian, use. The first studies suggesting that humans might be able to send cameras into orbit for military surveillance purposes were deemed similarly fanciful and far-fetched at first. Today, of course, the influence of airplanes and helicopters, as well as observation, communications, navigation, and weather satellites is ubiquitous. Similarly, technologies deemed excessively complex, specialized, and quixotic today could become commonplace within the coming decades. A final argument in favor of redirecting defense R&D funding toward other priorities or abandoning them altogether is that defense programs are too slow and expensive. It is true that a new piece of defense technology can take many years to specify, test, and acquire, but this is largely due to the onerous requirements that Congress has established. It is also true that defense systems can be excessively expensive, but this is largely because defense contractors supply their products in only the limitedand often, changingquantities that the government customer procures, while being prevented from exploring wider markets abroad due to congressional export control restrictions. Defense exports can help reduce unit costs and spread the burden, but different countries demand different specifications and Congress often requires that US systems have unique features, which drive costs back up. Of course, some truth exists in all of these arguments, as do pitfalls with defense R&D investments as with any undertaking. The following section lays out some recommendations for how the government can improve the effectiveness of defense R&D and procurement and create an environment more
12

conducive to technology transfer between the public and private sectors while still maintaining the security of critical defense technologies.

How to Structure Defense R&D to Maximize Multisector Benefits The success of defense R&D investments and their spillover benefits are strongly influenced by the level and structure of funding, as well as by the policy environment (such as intellectual property rights, export controls, and other regulatory policy) affecting the training of scientists, the development of technology, and the transfer or sale of technology among sectors and countries. Historically, defensecivil technology transfer has been far more successful in the United States than in other countries because of the sheer magnitude of US defense-related R&D and procurement spending, the prominent role played by research universities and industry, and the DoDs willingness to work with small, start-up companies. Falling budgets, a shrinking number of prime defense corporations, and the changing locus of innovation all present new challenges. Here are some ways the DoD can address them. Provide Adequate and Stable Funding for Defense Modernization, Including RDT&E. Historically, defense budgets have experienced eventdriven booms but then been raided during intervening periods of peace. World War II, the Korean War, the Vietnam War, the Cold War, and the September 11 attacks all followed periods of inadequate defense investment. Each event prompted sharp increases in spending, most of which was directed toward funding the technological and manpower requirements of the war of the day. There was no more hollow buildup in military spending than the growth following 2001which, while necessary to fulfill urgent warfighting needs, did little to renew the militarys aging inventories.37 This spending pattern has undermined the development of a stable, coherent defense program

MACKENZIE EAGLEN AND JULIA POLLAK

designed with sufficient regard for long-term goals, such as well-balanced modernization. The single most important reform that would encourage innovation and support a vibrant military R&D workforce and infrastructure would be for Congress to ensure that adequate and stable funding is provided for defense RDT&E, even after current operations wind down. A reasonable benchmark for RDT&E spending might be roughly $73 billion in FY 2013 dollars just about halfway between the peak of 2008 spending and the low point of the current drawdown. In addition, as Steven Hayward and colleagues have argued, Congress should consider the benefits of increasing the R&D budget of the Department of Energy.38 Congress should also establish closer links between the DoD and the Department of Energy and between research and procurement, to drive the successful commercialization and improvement of energy technology on which the military is so reliant. Improve the Recruitment of Skilled Scientists and Engineers. A skilled and highly trained workforce is critical for continued innovation. Currently, however, the defense industrys workforce is declining in population and rising in average age, with a large percentage nearing retirement. With fewer defense programs and a smaller number of new program starts, scientists are likely to work on fewer projects than they might have in the past and therefore find the defense sector a less appealing work environment than high-technology firms such as Apple or Google. Current developments in unmanned aircraft systems are likely to sustain some excitement in the coming years, but the DoD will need to introduce additional programs to maintain its stated goal of attracting the nations best and brightest. The Pentagon and Congress should also review security clearance requirements, which pose a significant challenge. With a third of all science and engineering doctoral degrees from US universities awarded to foreign students, defense firms struggle to recruit eligible graduates. Congress should take steps to

increase the number of H1-B visas for highly skilled workers, and the DoD should make an effort to reduce the backlog for security background checks. Reform Export Controls and Promote Defense Exports to Friends and Allies. Export regulations are meant to keep sensitive technologies from falling into the wrong hands, but they often prohibit our defense contractors from sharing technologies with allied and partner states. They also prevent defense manufacturers from selling products that are already widely available on the open market. American workers suffer this loss of business and opportunity as a result. The administration has proposed a number of reforms to address this problem, as have numerous independent defense analysts.39 Export control lists should be consolidated and reviewed frequently so that items can be promptly de-listed once they no longer need to be restricted. The administration can also explore closer partnerships with our friends and allies on the joint development of weapons systems and through foreign sales. Instead of shuttering the F22 fighter production line, Congress should have promoted sales to countries like Israel, Japan, Australia, and Canada. Congress should also encourage the sale of F-35 fighter aircraft to India. Such foreign sales would not only strengthen the United States strategically by making our allies more capable but also reduce unit costs for the US military and taxpayer. Accept More Risk to Develop Novel Systems. Many defense companies report that a major hindrance to undertaking R&D on risky, new technologies is the governments growing emphasis on maximizing the return on investment, minimizing cost overruns, preventing schedule slippages, and penalizing companies for poor performance, as measured against strict performance measures. The DoD may need to develop a different set of metrics for technological innovations than those used for ordinary programs, such as lower performance standards or investment return thresholds. Novel systems involve uncertainty, and often the full benefits of cutting-edge research are realized only decades after the initial
13

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

research. According to a recent RAND Corporation study on weapon system acquisition: Current acquisition policies and processes are too risk averse to enable the effective development and timely employment of novel systems. Consequently, DoD needs a separate acquisition strategy that is less tied to achieving precise cost, schedule, and performance outcomes. The new strategy should include a focus on unique integrations of existing and emerging technologies, a willingness to accept risks, easy and quick termination of programs not yielding expected benefits, and early test and demonstration of military utility.40

Keep R&D Funding Honest. The Pentagon should consider restoring the original intent of research and development funding by making it distinct from testing and evaluation. By establishing a separate budget category for testing and evaluation, the Pentagon could provide increased transparency for funding levels spent on research and exploratory development as opposed to industrial development, testing, and evaluation. This would allow the Pentagon to more readily prioritize potential breakthrough research while controlling testing and evaluation costs.41 Modernize and Internationalize the Safety Act. The Heritage Foundation has long been calling on Congress to revitalize, broaden, and internationalize the Safety Act, a piece of legislation that encourages innovation by providing liability protection for counterterrorism technologies. According to Heritages James Carafano, Congress should broaden the act to apply to cybersecurity and other security technology needs, and the administration should encourage other countries to establish comparable regimes to promote global innovation and open new security technology markets.42 Preserve Federally Funded Research and Development Centers (FFRDCs). Nearly 40 FFRDCs
14

sponsored by the US government exist. Their studies have played a central role in the development of numerous critical technologies. For example, the RAND Corporation, the original US think tank, played a central role in researching satellites for space reconnaissance and prompting investments in technologies such as infrared detection sensors, space vehicles, rocket propulsion, orbiting television cameras, and electronic transmission. RAND was also largely responsible for developing packet switching and digital networks, the technologies that led to the creation of ARPANET and ultimately the Internet. In addition, RAND made significant contributions to the development of computer software. As a recent paper summarizing RANDs contributions concluded, [these advances] make a persuasive case that an organization whose sole job is to generate ideas can promote the advance of technologies with the power to change the life of an entire culture.43 In a May 2011 memorandum, then-Under Secretary of Defense Ashton Carter emphasized the high value and unique capabilities that FFRDCs provide the Department of Defense. He also released new guidelines covering areas such as nondisclosure agreements, information access, and postemployment restrictions for FFRDC researchers. Congress should ensure that these restrictions are targeted and do not unnecessarily impede the flow of nonsensitive technologies between the DoD and the private sector. Ensure Intellectual Property Laws Are Adequate and Favorable to Technology Transfer. The structure of a countrys patent laws strongly influences the technology transfer process and the dual use of military technology. Congress should work with defense researchers to ensure that the US patent system is modern and adequate for the task of protecting intellectual property while also publicizing inventions and fostering the use of military knowledge in other applications. Improve Incentives for Technology Transfer from the DoD to the Private Sector and to State and Local Governments. For the past 25 years or so,

MACKENZIE EAGLEN AND JULIA POLLAK

Congress has established numerous legislative initiatives to encourage collaborative ventures and technology transfers between federal R&D programs, industry, academia, and state or local government projects. These have included tax credits for industrial payments to universities for research and antitrust laws that facilitate cooperative research and joint manufacturing. One important incentive for the transfer and commercialization of technology, for example, is the law allowing government-operated laboratories to enter into cooperative research and development agreements (CRADAs) with universities and privatesector companies.44 Approximately 2,600 to 3,000 DoD CRADAs were active each fiscal year between 2004 and 2008, according to the Department of Commerce.45 A CRADA is a legal document defining the rules and regulations governing collaborative ventures. Some of these rules include revolving door restrictions and checks on conflicts of interest. Some may need to be modernized and relaxed to allow government and industry to communicate more easily about future needs. Congress should explore ways to update these laws to facilitate rapid technology transfer and commercialization. Develop a Comprehensive Strategy for Private Sector Investment in Defense Innovation. The defense RDT&E account is not the only source of funding for defense innovation. For example, the private sector also invests through venture capital and private equity. Yet the private sector often faces severe obstacles when it comes to cooperating with the federal government, especially with regard to dual-use technologies. One way to deepen cooperation is through transparency, which should be pursued on a number of levels. For one, the Pentagon should compile a common index of all existing dual-use technologies within its purview. This can range from GPS satellites to switches in cockpits. The idea is to gather an exhaustive list that illustrates how many programsand how much moneygoes into dual-use technologies department-wide. Second, the Pentagon should

conduct an internal review that determines which existing requirements could be met by dual-use products that are not already. Although many programs will not have an obvious civilian counterpart, components of even sophisticated platforms may exist elsewhere in the civilian economy, often at a cheaper price point than if the DoD were to issue a requirement for that part to be constructed from scratch. A third solution is on the civilian side. The DoD should send representatives to major research hubs and survey existing civilian technologies that may have a dual-use role. Many companies have a vision to market dual-use technologies to the Pentagon but have not been able to gain access, while others may have perfectly usable dual-use technologies, but never had it occur to them to pitch the idea to the DoD. By being proactive and surveying what already exists in the civilian economy, the DoD can more effectively leverage its resources by utilizing technologies that have already been developed for commercial applications.

THE

STARK REALITY IS THAT THERE IS

JUST NOT ENOUGH BUSINESS TO GO AROUND.

ASIDE

FROM THE OPTIONALLY

MANNED LONG-RANGE STRIKE BOMBER, FOR THE FIRST TIME IN HISTORY, THE

US

MILITARY HAS NO NEW MANNED AIRCRAFT UNDER DESIGN.

The Pentagon can also improve its marketing to the commercial world. All too often, potential suppliers are intimidated by mountains of red tape, hassle, and unpredictability when it comes to working with the government. One solution is for the DoD to compile a list of potential projects that the private sector can contributeand then market it as an open competition to industry. This would have the effect of encouraging outside ideas while forcing the DoD to
15

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

streamline the process through which commercial technology is adapted to military use. The end result of this, coupled with the measures above, would be a more efficientand more effective dual-use strategy. The Pentagon is not the only stakeholder with the ability to encourage closer cooperation with the private sector. Congress should collect data on defense investment through venture capital and private equity, meeting with firms involved to get an overall sense of the defense R&D environment and of the ways in which Congress could create more attractive conditions for domestic and foreign investment. Second, Congress should also develop a better understanding of how a defense companys stock market performance and treatment in capital markets affects its innovation strategy. Congress should investigate whether defense contractorswhich are, after all, private companies with shareholderswill be able to sustain R&D and maintain financial performance, profitability, and capital access as they confront procurement cancellations and delays and reduced federal spending on RDT&E. Develop a Strategy for Mitigating the Negative Effects of Monopsony. As a monopsony, the DoD has a unique opportunity to shape the future of the defense industry and its long-term R&D investments. Congress should beware of the lessons from other international experiences with monopsony, such as single-payer health care systems, many of which have exhibited reductions in innovation. Congress should also encourage the DoD to explore the management lessons it can learn from other private sector monopsonists, such as Walmart and Amazon.com.

Conclusions Defense research and development spending is a vital component of military modernization that can pay tremendous dividends through spinoffs and applications throughout the broader civilian economy. Despite these positive externalities, the American way of thinking about R&D provides powerful short-term incentives to reduce investmentafter all, cuts to R&D provide immediate returns for a favorable balance sheet and any potential consequences would not show up for years down the line. However, those responsible for the national defense are charged with thinking beyond the passing concerns of today with an eye towards the salient problems of tomorrow. Cutting R&D now may have short-term benefits but in the long run may lead to dire consequences. Military R&D spending has been responsible for many of the great technological breakthroughs of the 20th century. From computers to planes to GPS systems, investment in defense R&D has produced things we use every day and tremendous economic and social dividends. As we have argued, defense R&D help drive innovation and results in economic growth. It underpins the information revolution, vitalizes the American economy, and keeps America safe. But defense R&D spending is declining precipitouslyat a time when the private sector is least able to take the hit. Nonetheless, there are options: first among these is to stabilize R&D funding. Though this may squeeze other accounts in the short term, investment now will help ensure the long-term safety and prosperity of America. The choice before Congress is simple: will it make a strategic investment in the future, or will it concern itself only with the troubles of the present?

16

Notes

1. United States Department of Defense, Research, Development, Test, and Evaluation Programs, February 2012, at http://comptroller.defense.gov/defbudget/fy2013/r1.xlsx. 2. Budget Control Act of 2011, Public Law 112-25, 365, 112th Cong. (August 2, 2011). 3. AEI Calculations based on table 6.8 of US Department of Defense, National Defense Budget Estimates for FY2013 (Green Book), March 2012, 13940, http://comptroller .defense.gov/defbudget/fy2013/FY13_Green_Book.pdf. 4. Bill McMorris, The One Thing He Wants to Cut, Washington Free Beacon, April 17, 2012, http://freebeacon .com/the-one-thing-he-wants-to-cut/. 5. Battelle Memorial Institute, 2012 Global R&D Funding Forecast, R&D Magazine, December 2011, 29, http:// battelle.org/docs/default-document-library/2012_global _forecast.pdf. 6. See, for example, Arthur Herman, How Israels Defense Industry Can Help Save America, Commentary, December 2011, www.commentarymagazine.com/article /how-israels-defense-industry-can-help-save-america/. 7. Adam Davidson, Will China Outsmart the U.S.?, New York Times, December 28, 2011, www.nytimes.com/ 2012/01/01/magazine/adam-davidson-china-threat.html. 8. Lester Thurow, Head to Head: The Coming Economic Battle among Japan, Europe, and America (New York: William Morrow and Company, 1992), 1412. 9. Ibid., 142. 10. David Mowery, National Security and National Innovation Systems, Journal of Technology Transfer 34, no. 5 (October 2009): 458. 11. Deloitte, The Aerospace and Defense Industry in the U.S.: A Financial and Economic Impact Study, Aerospace Industries Association, March 2012, 3, www.aia-aerospace. org/assets/deloitte_study_2012.pdf . 12. US Chamber of Commerce, Defense Trade: Keeping America Secure and Competitive, 2007, www.uschamber .com/sites/default/files/issues/defense/files/defensetrade.pdf.

13. Ibid., 14. 14. Manuel Acosta, Daniel Coronado, and Rosario Marn, Potential Dual-Use of Military Technology: Does Citing Patents Shed Light on this Process? Defense and Peace Economics 22, no. 3 (October 2010): 33549 (quote from 347). 15. Ibid., 338. 16. Yi-Chung Hsu and Chein-Chiang Lee, The Impact of Military Technology Transfer on Economic Growth: International Evidence, Applied Economics 44, no. 19 (2012): 2445. 17. Deloitte, The Aerospace and Defense Industry in the U.S., 21. 18. International Trade Administration, Key U.S. Aerospace Statistics, August 29, 2011, http://trade.gov/wcm /groups/public/@trade/@mas/@man/@aai/documents/web _content/aero_stat_keyqtr.pdf. 19. US Department of State, Briefing on Department of State Efforts to Expand Defense Trade, June 2012, www.state.gov/r/pa/prs/ps/2012/06/192408.htm. 20. US Government Accountability Office, Defense Exports: Reporting on Exported Articles and Services Needs to Be Improved, September 2010, www.gao.gov/assets/310/309800.pdf. 21. Mowery, National Security and National Innovation Systems, 462. 22. Adam Clark Estes, The DARPA Project Thats Powering the New iPhone 4S, The Atlantic Wire, October 4, 2011, www.theatlanticwire.com/technology/2011/10/darpaproject-s-powering-new-iphone-4s/43315/. 23. Battelle Memorial Institute, 2012 Global R&D. 24. US Department of Defense, OverviewFiscal Year 2013 Budget Request, February 2012, 411, http:// comptroller.defense.gov/defbudget/fy2013/FY2013_ Budget_Request_Overview_Book.pdf. 25. US Department of Defense, Quadrennial Defense Review Report, September 30, 2001, 63, www.defense.gov /pubs/qdr2001.pdf. 17

US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

26. US Department of Defense, Quadrennial Defense Review Report, February 2010, 94, www.defense.gov /qdr/images/QDR_as_of_12Feb10_1000.pdf. 27. Ibid., 8182. 28. See House of Representatives, Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2010 (Report 111-166, October 2009), www.gpo.gov /fdsys/pkg/CRPT-111hrpt166/pdf/CRPT-111hrpt166.pdf, 380; and US House of Representatives, Department of Defense and Emergency Supplemental Appropriations for Recovery from and Response to Terrorist Attacks on the United States Act, 2002, Public Law 107-117 (January 10, 2002), section 8162, www.gpo.gov/fdsys/pkg/PLAW-107publ117 /pdf/PLAW-107publ117.pdf. 29. John Birkler et al., Keeping a Competitive U.S. Military Aircraft Industry Aloft: Findings from an Analysis of the Industrial Base (RAND Corporation, 2011), xxi, xxiv, www.rand .org/content/dam/rand/pubs/monographs/2011/RAND_ MG1133.pdf. 30. Ibid, xxix. 31. Ibid, xvii. 32. Michael OHanlon, The National Security Industrial Base: A Crucial Asset of the United States, Whose Future May Be in Jeopardy, The Brookings Institution, February 2011, 14, www.brookings.edu/~/media/research/files/papers/2011 /2/defense%20ohanlon/02_defense_ohanlon. 33. Ibid., 50. 34. Ibid., 57. 35. Jason Sherman, Kendall Commissions Study of Technologies to Ensure Superiority in 2030, Inside Defense, March 20, 2012. 36. Alan C. Schultz, Navy Opens Cutting-Edge Lab for Robotics and Autonomous Systems, White House Office of Science and Technology Policy, March 16, 2012, www.whitehouse.gov/blog/2012/03/16/navy-openscutting-edge-lab-robotics-and-autonomous-systems.

37. Mackenzie Eaglen, The Past Decade of Military Spending: What We Spent, What We Wasted, and What We Need, American Enterprise Institute, January 24, 2012, www.aei.org/article/foreign-and-defense-policy /defense/the-past-decade-of-military-spending-what-wespent-what-we-wasted-and-what-we-need. 38. Steven F. Hayward et al., Post-Partisan Power, American Enterprise Institute, October 13, 2010, www.aei.org /papers/energy-and-the-environment/post-partisan-power. 39. See, for example, James Jay Carafano, Five Steps to Save Americas Defense Industrial Base, Heritage Foundation Web Memo, June 9, 2011, www.heritage.org/research /reports/2011/06/5-steps-to-save-americas-defenseindustrial-base. 40. John Birkler et al., From Marginal Adjustments to Meaningful Change: Rethinking Weapon System Acquisition (The RAND Corporation, 2010), xivxv, www.rand .org/content/dam/rand/pubs/monographs/2010/RAND_ MG1020.pdf. 41. Arthur Herman, email to authors, June 20, 2012. 42. Carafano, Five Steps to Save Americas Defense Industrial Base. 43. Virginia Campbell, How RAND Invented the Postwar World, Invention & Technology 20, no. 1 (Summer 2004): 59, www.rand.org/content/dam/rand/pubs/reprints /2009/RAND_RP1396.pdf. 44. See the Federal Technology Transfer Act, Public Law 99-502, 99th Cong. (October 20, 1986), which amends the Stevenson-Wydler Technology Innovation Act, Public Law 96-480, 96th Cong. (October 21, 1980). 45. US Department of Commerce, National Institute of Standards and Technology, Federal Laboratory Technology Transfer, Fiscal Year 2008, March 2010, 8, www.nist.gov /tpo/publications/upload/Fed_Lab_Tech_Transfer_Report _Congress_FY08_3-8-2010.pdf.

18

About the Authors

Mackenzie Eaglen is a resident fellow in the Marilyn Ware Center for Security Studies at AEI. She has worked on defense issues in the US Congress, both House and Senate, and at the Pentagon in the Office of the Secretary of Defense and on the Joint Staff. She specializes in defense strategy, budget, military readiness, and the defense industrial base. In 2010, Eaglen served as a staff member of the congressionally mandated Quadrennial Defense Review Independent Panel, a bipartisan, blue-ribbon commission established to assess the Pentagons major defense strategy. A prolific writer on defense related issues, she has also testified before Congress. Julia Pollak is a PhD student in policy analysis at the Pardee RAND Graduate School. Her research interests include military intelligence and defense manpower. Her most recent work includes studies of compensation design in the military, Army intelligence organizational design, and counter-WMD intelligence. She has also worked as a research assistant for defense studies at the Heritage Foundation, where she studied defense strategy and military budgets.

19

AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH

1150 Seventeenth Street, NW Washington, DC 20036 202.862.5800 | www.aei.org

Cover: US Army Photo