Balancing act: uncertainty about budgets, workforce shape future of U.S. weapons industry.

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Uncertainty about future conflicts and the capabilities of potential enemies raise complex questions about what weaponry the U.S. military will need to counter a wide spectrum of threats.

From top to bottom, they range from low-tech insurgencies to sophisticated peer competitors.

As a result, the U.S. government must carefully consider how to best protect domestic industrial capacity to produce a broad range of weapons and to ensure there is a technologically skilled workforce to support future needs, concludes a study completed last year by a group of military officers and government civilians at the Industrial College of the Armed Forces.

The group visited dozens of private and public weapons production and research facilities in the United States and overseas.

The industrial base for developing and sustaining modem systems is shrinking, says the study. The government must recognize this and deal with the possibility that the armed forces might reach a point where the weapons on hand today cannot be adequately maintained by a shrunken base.

Since World War I, the United States has relied on its industrial base to provide the tools of wars. But the government has been reluctant to develop a defense industrial policy, and has relied on the provisions of the Defense Production Act of 1950 to manage the industrial base.

One issue of concern, the study points out, is the capability of the U.S. industrial base to rapidly surge the production of critical systems.

Currently, there is little capability for a fast large surge in production because of what the study describes as the "dormant state of excess capacity."

Equipment requirements for the Iraq war are a case in point. Once the Defense Department realized it needed to increase production of body and truck armor, it took two years to procure and deliver the equipment. The government strategy is to fight from the war reserve stocks and replenish during peacetime. The excess capacity necessary for replenishment comes at a cost premium. For many weapons key components, there is limited excess production capacity available to support a production surge or acceleration.

The private sector has made great strides in reducing, if not eliminating, excess capacity. The Defense Department has tried to reduce costs and sees excess depot capacity as an area that it is willing to decrease, knowingly accepting the risk.

Former Defense Secretary Donald Rumsfeld notably said, 'ms you know, you go to war with the Army you have .... not the Army you might.., wish to have at a later time." His comments highlight a view of lightening speed modem warfare that does not take into account the mobilization of the defense industry and depots, says the study. One will consume the weapons systems on hand. But what if the war is not ended in the secretary's time frame?

The domestic weapons industrial base comprises a diverse group of producers. Suppliers include small independently owned micro-unmanned aerial vehicle businesses to the large government owned and government operated depots, arsenals and ammunition manufacturing plants. In most segments of the market, there is a strong interdependency between the government buyer and the suppliers. Unlike Japan where Mitsubishi Heavy Industries relies on the government for only 2 percent to 3 percent of its revenue, the U.S. weapons industry derives most of its earnings from Defense Department contracts and as a result will expand or contract along with the defense budget.

The cyclical nature of the defense budget has had a significant impact on shaping the market, the study says. As spending increases, there are new suppliers entering the market. Conversely, as the budget contracts these late entrants either fold or are absorbed by the larger corporations.

As weapons have become more technologically advanced, the makeup of the weapons industry has changed. It now includes producers of revolutionary kinetic weapons, such as electro-magnetic rail guns and anti-ballistic missile systems, such as the exo-atmospheric kill vehicle.

The sector also includes nonlethal and less-lethal systems, from variants of small arms to broad area crowd control systems. Directed energy weapons, both radio frequency and laser, are of increasing relevance. The U.S. experience in Iraq and Afghanistan has demonstrated the need for technologies to detect, remotely detonate, and protect personnel and systems from improvised explosive devices. Finally, advances in robotics, remote control, and sensing capabilities have enabled highly capable uninhabited vehicle capabilities to find a niche in military and homeland security applications.

The ICAF study group suggested a number of issues for the government to consider as it looks at the weapons industry.

One is economic efficiency. Less government regulation is generally preferred when seeking efficiency. Letting free market forces determine supply and demand equilibrium generally leads to more efficiency than permitting a government agency or monopoly to set production quotas.

Most governments seek to maintain a robust, responsive, and efficient industrial base to ensure availability of the necessary tools to meet threats to their national interests. The United States in particular, given its world leadership role, has a significant incentive to devise and participate in policy initiatives which control the sale and transfer of weapons technology. The United States continues current policies limiting and controlling the spread of weapons technology.

The United States must seriously consider the costs and benefits of maintaining a domestic weapons production base versus acquiring from foreign sources. The United States has a long history of operating government owned facilities that produce weapons and munitions. Government run operations are usually less productive than privately operated factories, and recently the Defense Department has turned to a hybrid system that tries to leverage the advantages of both systems. This approach uses a private contractor to operate a government owned facility meeting government's standards through contract incentives.

The government should provide incentives which encourage a domestic industrial base for weapons technology and production. Maintaining a mix of government owned and operated facilities along with privately owned facilities is necessary for meeting the needs of the country. The Defense Department should also encourage competition and multiple suppliers when ever possible.

In the area of research and development, the United States, since World War II, has succeeded in producing the world's most advanced weapons. These capabilities did not materialize overnight but were the product of an extensive, deliberately constructed, research and development infrastructure. The U.S. government's basic research infrastructure operates on a budget of approximately $13 billion a year. The ability to maintain this level of spending over the long term may prove problematic. Of the roughly $500 billion appropriated for the Defense Department in fiscal 2007--subtracting supplemental funding for the global war on terrorism--science and technology comprised less than 3 percent. The study recommends that the department increase its science and technology budget by 10 percent during the next five years.

Human capital will continue to be integral to a robust weapons industry. Issues of concern include an aging workforce and securing its replacement. The government must diligently pursue avenues to attract, train, educate, and retain a diverse and highly skilled workforce. Funding is recommended for educational programs with incentives offered for people to enter the science and technology fields.

Strong partnerships with allies also are key to the health of the industrial base, the study says. U.S. security alliances with Japan and the United Kingdom are good examples. Having commonality of weapon systems increases interoperability and efficiency. This also means, however, weapons production must be shared between the industrial bases security partners. The study recommends the United States work closely with its long term partners to achieve a balance in security concerns and weapons acquisition.

EDITOR'S NOTE: The complete Industrial College of the Armed Forces study on the weapons industry--from which this article is derived--can be found on the National Defense Magazine website www.NationalDefenseMagazine.org.

Alan L. Gropman is a distinguished professor of national security policy at the Industrial College of the Armed Forces, National Defense University. This article has been derived from an ICAF student/faculty industry study report. The views expressed in this article are those of the author or industry study group and do not reflect the official policy or position of the National Defense University, the Department of Defense, or the U.S. government.