A Fiscal Crisis: The West is on the Wrong Side of Cost Curve

“REAL CLEAR DEFENSE” By Matthew Van Wagenen & Arnel P. David

“An axis of aggressors has embarked on a new strategy to defeat the West: relentless attacks with inexpensive weapons, produced at scale, to provoke a global response.

Western militaries, which cling to outdated and excessively expensive weapon systems and platforms (that take too long to develop and replenish, and regularly exceed their budgets), are being systematically bled dry”

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“In simple financial terms, the West is on the wrong side of the cost curve. Imagine the defense industry as a normal business. In economics, a cost curve illustrates the relationship between production costs and quantity. Successful businesses achieve economies of scale, reducing costs through efficiency. But the West’s defense enterprise is operating on the wrong side of this curve. Production costs are high, and output is low, pushing Western nations into diseconomies of scale.

The recent aerial attack on Israel and the war in Ukraine expose this vulnerability. Iran’s 300 plus airborne weapons that targeted Israel amounted to less than $200 million dollars whereas the Western response exceeds billions of dollars. In Ukraine, multi-million dollar weapons platforms are destroyed by uncrewed aircraft systems (UAS) that range from hundreds to thousands of dollars, and Russia’s prized Black Sea Fleet has been devastated by inexpensive maritime drones. Defense analysts estimate the cost ratio is easily 100:1.

A Call to Action

A new revolution in military spending is underway. It is a radical change in the way nations procure and integrate military capabilities.  The innovation and changes in Ukraine has been described by General Mark Milley as “the most significant fundamental change in the character of war ever recorded in history.” Consequently, this is not a military issue alone; it is a societal one. In democracies like the United States, we the people are responsible for our common defense. We cannot afford to ignore this unsustainable cost mismatch. Every defense dollar matters when there are competing demands for resources to address aging populations, health care, migration challenges, and myriad other social services.

Traditional procurement models in the West, to include the U.S. and NATO, are no longer fit for purpose. They are failing. Decades-long development cycles are obsolete in a world of rapidly evolving threats and disruptive technological change. Let’s say an adversarial nation has a four year cycle to produce a capability and, in the West, it takes ten years. In this scenario, in twenty years’ time the adversary-to-West ratio for innovation and capability development is 5:2. This all but guarantees that our adversaries will field a greater range of innovative capabilities, potentially leading to overmatch.

Rapid technological advancements are outpacing the military’s long-term development programs, rendering them obsolete as cheaper, more effective alternatives emerge. Program managers, those with the responsibility, authority, and personnel to deliver programs (e.g., ships, planes, software), lack both the incentive and the means to adapt to this fast-changing landscape. The ingrained culture of preserving existing programs stifles innovation and adaptability. It is unlikely a program manager will kill their program for the greater good.

Likewise, the political representatives of states where these programs sit will lobby heavily to keep these programs (i.e., jobs) alive irrespective of any negative strategic impact.

To overcome this, the military and the broader defense enterprise must urgently rethink their approach. Early and aggressive testing, integration, and prototyping of innovative warfare concepts are essential to gain an edge in modern conflicts. SpaceX’s rapid trial and error prototyping to develop rockets and OpenAI’s early release and testing of ChatGPT are examples of this approach to develop capability faster.  Waiting for “perfect” solutions, or clinging to lengthy development cycles, leads to unpreparedness on the ever-evolving battlefield. Keeping this approach is akin to relying on horse cavalry in the era of mechanized warfare.

A Glimmer of Hope

There is movement in the right direction. Nations like Estonia, Latvia, Lithuania, Poland, Norway, and Finland are leading the way. Their “drone wall“ initiative leverages affordable, networked sensors to safeguard their sovereignty. They will do this by keeping costs down to achieve economies of scale.

The U.S. Department of Defense is also taking steps in the right direction with its Replicator initiative. Thousands of drones have been delivered, demonstrating a shift toward rapid, warfighter-centric innovation. This could be the necessary spark to ignite essential change.

Other promising initiatives in NATO are the Defence Innovation Accelerator for the North Atlantic (DIANA) and the NATO Innovation Fund (NIF). Both complementary initiatives provide access to deep tech start-up communities, but the challenge for these programs will be transition. How do they transition capability into warfighters’ hands to be relevant going forward? As expressed above, it cannot take decades.

The Path Forward

To survive, the West must revolutionize its military procurement and production processes. We need a laser focus on swift prototyping and deployment of cutting-edge technologies. These systems must be affordable, easily updated, interoperable, and adaptable to new threats. The era of billion-dollar projects that risk obsolescence must end. A more diverse approach is not just needed, it is compulsory if we want to win wars and preserve peace.

The conflict in Ukraine serves as a stark warning. Clinging to expensive, slow-moving defense systems will leave the West vulnerable. We must out-innovate, not outspend, our adversaries. Our Alliance, made up of free and democratic nations, must unleash the creative capital present within our societies to find cost wise off-sets that can be immediately integrated into our collective defense system.

The future of warfare demands a fusion of accessible technology, rapid innovation, and scalable production. The West must adapt or face the consequences of falling behind an axis of aggressors who are united in their pursuit of strategic advantage and wish to see the West decline.”

 Real Clear Defense – Fiscal Crisis

Matthew Van Wagenen is a major general in the U.S. Army currently serving as the Deputy Chief of Staff for Operations (DCOS OPS) in the NATO Supreme Headquarters Allied Powers Europe (SHAPE).

Arnel P. David is a colonel in the U.S. Army currently serving as the director of the Strategic Initiatives Group (SIG) in the NATO Supreme Headquarters Allied Powers Europe (SHAPE).

The views and opinions expressed are those of the authors and do not reflect any entity or organization of the U.S. Government or NATO.

Navy Admiral’s Bribery Charges Expose Greater Rot In Government Procurement System

“RESPONSIBLE STATECRAFT” By WILLIAM HARTUNG AND BEN FREEMAN

“The indictment of four-star Navy Admiral Robert Burke on bribery charges late last month raised eyebrows about the extent of corruption in the Navy and beyond. 

But this is just part of a pernicious system of corrupt dealings and profiteering in Pentagon procurement practices, and much of it is completely legal.”

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“The indictment of four-star Navy Admiral Robert Burke on bribery charges late last month raised eyebrows about the extent of corruption in the Navy and beyond. The scheme was simple. Burke allegedly steered a $355,000 Pentagon contract to a small workforce training firm — described unhelpfully in the Justice Department’s description as “Company A.” Less than a year later he took a job at Company A in exchange for a $500,000 annual salary and 100,000 stock options.

The Burke indictment comes on the heels of Washington Post writer Craig Whitlock’s illuminating book on the Fat Leonard Scandal, the biggest, most embarrassing corruption scheme in the history of the U.S. Navy. In the words of his publisher, Simon Schuster, Whitlock’s book reveals “how a charismatic Malaysian defense contractor bribed scores of high-ranking military officers, defrauded the US Navy of tens of millions of dollars, and jeopardized our nation’s security.”

Obviously, the Navy needs to clean up its act, and, if found guilty, Burke should face consequences for his participation in a blatant case of old school corruption.

But this is just part of a pernicious system of corrupt dealings and profiteering in Pentagon procurement practices, and much of it is completely legal. It involves campaign contributions from major weapons contractors to key members of Congress with the most power to determine the size and shape of the Pentagon budget, and job blackmail, in which companies place facilities in as many congressional districts as possible and then stand ready to accuse members of cutting local jobs if they vote against a weapons program, no matter how misguided or dysfunctional it may be.

It also involves the revolving door, in which arms industry executives often do stints in top national security posts, even serving as secretary of defense, or, on the other side of the revolving door, when high ranking Pentagon and military officials go to work for weapons makers when they leave government service.In fact, this is, by far, the most common path for retired senior military officers. As a Quincy Institute analysis found, over 80% of four-star generals and admirals that have retired in the last five years (26 of 32) went on to work in the arms sector. In short, most retiring four-stars, like Burke, go on to lucrative positions in the arms industry. Unlike Burke, they follow the rules, so this is all perfectly legal corruption.

The revolving door from the Pentagon is also spinning feverishly to foreign governments. A Washington Post investigation found that more than 500 former Pentagon personnel, including many high ranking generals and admirals, have gone on to work for foreign governments known for political repression and human rights abuses, like Saudi Arabia and the United Arab Emirates.

Last, but certainly not least, there are the lobbyists. Last year alone, Pentagon contractors spent nearly $138 million on lobbying and had 905 lobbyists working on their behalf, according to OpenSecrets. That’s almost two lobbyists for every member of Congress, and more than 600 of them had gone through the revolving door —previously working at the Pentagon, Congress, or the Executive branch.

All of the above is about money and jobs, not crafting an effective defense strategy or buying weapons systems that are appropriate for carrying out that strategy. A case in point was a hearing last October to review a report on America’s strategic (meaning nuclear) posture from a Congressional commission, almost all the members of which have financial ties to the arms industry.

First off, the commission co-chair who testified at the hearing was former Arizona Senator Jon Kyl, a lifelong opponent of nuclear arms control who also did a stint as a lobbyist for Northrop Grumman, which makes nuclear bombers and land-based nuclear missiles. Surprise, surprise, Kyl recommended that Congress pony up more for nuclear weapons on top of the Pentagon’s current $2 trillion, three decades long nuclear weapons “modernization” program.

But surely the gathered members of the Senate Armed Services Committee would ask some tough questions before accepting the commission’s proposals for an accelerated nuclear buildup. Think again. The bulk of the questioners essentially touted nuclear-related missiles or facilities in their states and asked a variation on the penetrating question, “shouldn’t we spend more on this wonderful weapon [or facility] in my state?”

What wasn’t mentioned at the hearing was the fact that defense contractors — including Northrop Grumman, which makes the nuclear weapons in question — are some of the top campaign contributors to members of the Committee, according to OpenSecrets.

It fell to Sen. Elizabeth Warren (D-Mass.) to bring the discussion down to earth by asking how much the commission’s ambitious plan would cost. With a straight face, Kyl said that the commission hadn’t calculated a cost, since the investments proposed were so urgently needed. This seems highly unlikely given that the United States already deploys over 1,700 nuclear warheads that can hit targets thousands of miles away, with thousands more in reserve.

But Kyl’s statement went largely unchallenged in the rush by members to flak for their local weapons of choice.

If skipping a serious conversation on the future nuclear policy of the United States to engage in pork barrel politics isn’t a case of blatant corruption and dereliction of duty, what is? If even a conversation that touches on the future of the planet can’t rouse money-conscious Senators to engage in an actual debate, what will? And isn’t this dereliction of duty ultimately more dangerous than trading cash or a cushy job for doing the bidding of a weapons contractor?

It’s great that our legal system is seeking to hold participants in illegal schemes to account. But when will members of Congress who place shilling for special interests above crafting an effective defense policy face the music? If not soon, we can expect much of the tens or hundreds of billions of new money likely to be thrown at the Pentagon in the next few years to go to waste. If that’s not a scandal of the highest order, we don’t know what is.”

William Hartung

William D. Hartung is a senior research fellow at the Quincy Institute for Responsible Statecraft. His work focuses on the arms industry and U.S. military budget.

Ben Freeman

Ben Freeman is Director of the Democratizing Foreign Policy program at the Quincy Institute. He investigates money in politics, defense spending, and foreign influence in America. He is the author of The Foreign Policy Auction, which was the first book to systematically analyze the foreign influence industry in the United States.