US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT - MACKENZIE EAGLEN AND JULIA POLLAK
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US MILITARY TECHNOLOGICAL
SUPREMACY UNDER THREAT
M ACKENZIE E AGLEN AND J ULIA P OLLAK
AMERICAN ENTERPRISE INSTITUTEUS MILITARY TECHNOLOGICAL
SUPREMACY UNDER THREAT
M ACKENZIE E AGLEN
AND
J ULIA P OLLAK
November 2012
A M E R I C A N E N T E R P R I S E I N S T I T U T EAcknowledgments
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, with-
out whose help this paper would not have been possible.
iiExecutive Summary
D efense research and development (R&D) spend-
ing has long been a cornerstone of American
security, bringing important advances to military hard-
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
ware such as the jet engine, real-time communica- large share of the burden as legislators struggle to
tions, and precision munitions. Yet advanced preserve procurement, personnel, and operations
technologies do much more than simply support accounts in their districts.
America’s men and women in uniform. In fact, Political pressure is mounting from lawmakers
throughout the 20th century, many military innova- who believe that government money could be better
tions ended up playing key and sometimes revolution- spent elsewhere and that defense R&D “crowds out”
ary roles throughout the broader civilian economy. private-sector R&D efforts. Such opposition to
Despite the benefits of military research spend- defense research, however, ignores the larger picture:
ing, there tend to be powerful short-term incentives that military research and development, as a founda-
to reduce defense R&D investment. After all, cuts to tion of national security, is a constitutionally man-
R&D provide immediate returns for a favorable dated public good as broadly articulated in the
balance sheet, and the negative effects of underin- Preamble. It ensures a technologically dominant mil-
vestment are not felt until years later. As Washington itary that underpins global economic stability, and as
enters a period of deficit reduction, the defense a positive byproduct provides the resources for com-
budget will likely face further cuts on top of the mercial technology. Although it may appear ineffi-
close to $900 billion already being implemented cient, such innovation would not be possible without
or proposed. government involvement. Other nations understand
Including the pending FY 2013 budget, the this, such as China, whose R&D spending is pre-
defense Research, Development, Test, and Evalua- dicted to surpass the United States’s by 2023.
tion (RDT&E) account has declined by 17 percent There are many options available to further struc-
in real terms since the start of the Obama adminis- ture defense research and development spending to
tration and will decline by another 12 percent, or maximize security and economic benefits, including
$8 billion, in real terms from 2013 to 2017. This longer-term funding stability, reform of human cap-
largely follows a sustained trend of the moderniza- ital recruitment, and the multiple potential methods
tion accounts bearing the largest burden of cuts. of facilitating research and technology transfer from
From 2010 through 2013, procurement experienced the DoD to the private sector. Reform, along with a
a real decline of over 24 percent and will further drop budgetary commitment to continued R&D, will
by over 5 percent through 2017. In comparison, mil- ensure the innovation that has made America great,
itary personnel was cut by 6 percent from 2010 and safe, will continue to enjoy robust support into
through 2013 and will fall another 9 percent through the future.
iiiUS Military Technological Supremacy under Threat
A merica’s defense budget exists to fulfill the
first responsibility of government under the
Constitution—to provide for the common defense.
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
Without a military with adequate and sufficient economy or promote economic growth. Defense
resources, America would no longer be the master of investment has a simple and irrefutable constitu-
its own fate. As Thucydides observed so many years tionally mandated role: to provide for the common
ago, “The strong do what they can and the weak suf- defense. Yet, just as it would be simplistic to cite
fer what they must.” examples of defense innovation as evidence that
In practice, however, defense spending does government spending built the modern economy, it
much more than simply guarantee the independ- would also be simplistic to say that defense spend-
ence and autonomy of the United States. Defense ing had no role in promoting useful technologies
spending, especially during the 20th century, has that happened to spin off into commercial products.
acted as an important driver of technological inno- When it comes to the defense industry, the public
vation and commercial progress. Increasingly, and private sectors are mixed in a way that does not
defense research and development (R&D) has pro- really exist in any other market. The unique buying
duced important and often-overlooked innovations conditions that exist in the defense industry inher-
within the broader civilian economy. Some of these ently mean that the “market” is not a true market at
innovations, such as hairspray and plastic bags, have all but, rather, a complex arena in which a sole
made our lives more convenient. Others, such as buyer determines the near total demand and suppli-
electronic computers and the Internet, have ers are entirely at the mercy of the customer’s prefer-
changed our planet and economies. ences. Consequently, defense R&D must be kept in
The buildup in defense-related federal R&D perspective: it is not the end-all, be-all of the mod-
spending that began in the 1940s and persisted ern economy—but it has played an important role.
through the 1980s was responsible for propelling Today, the United States still dominates the world
many of the pivotal technological breakthroughs of of R&D, but it spends far less as a percentage of
the 20th century, including jet engines, avionics sys- gross domestic product (GDP) than in the 1960s,
tems, weather satellites, electronic computers, the when the Cold War and the space race were driving
Internet, computer software and graphics, global posi- America’s pursuit of technological supremacy, and
tioning system (GPS) facilities, and cell phones. Spin- only half as much as a percentage of GDP as it did
offs such as these have been an important channel during the mid-1980s. Spending is spread across
through which defense spending has bolstered Amer- fewer companies, channeled toward narrower goals,
ica’s larger technological advantage and positively and tied to more stringent requirements.
affected economic growth. The rapidity with which Moreover, R&D funds are calculated differently
military technologies diffused to other economic sec- today than during the first part of the 20th century.
tors between the 1940s and 1980s owes largely to the Throughout World War II and the beginning of the
unique scale and structure of US defense research and Cold War, research and development spending was
development investments during those years. narrowly interpreted as scientific research and
1US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
development. This changed following the launch of under the administration’s proposed budget, domes-
Sputnik when public pressure for increased scientific tic agencies such as the Departments of Health and
funding prompted the expansion of R&D funding to Human Services and Energy will receive a larger
include testing and evaluation (T&E)—creating the share of R&D funding than the Department of
modern Research, Development, Test, and Evalua- Defense (DoD).4
tion (RDT&E) account in the defense budget. In contrast with American military R&D trends,
Because the new RDT&E category included many a study by the Battelle Memorial Institute forecasts
items beyond basic and applied research, increased that China’s rate of spending on R&D will remain
budgets made the overall R&D investment appear strong and continue to grow faster than 10 percent
larger. Today, less than one-tenth of RDT&E funds each year, as it has done consistently over the past
go to basic and applied research.1 15 years. At this rate, China’s R&D spending can be
In the coming years, US government research expected to match or surpass ours by 2023.5 Other
and development budgets are set to shrink further countries, including Russia and Israel, are also start-
amidst mounting fiscal pressures. The debt-ceiling ing to gain a technological edge in certain sectors.6
agreement reached by Congress last summer—the In a New York Times op-ed titled “Will China Out-
Budget Control Act of 2011—mandates $487 bil- smart the U.S.?,” Adam Davidson speculated on the
lion in defense spending cuts over the coming threat China’s rising investments in R&D could pose
decade.2 Another $492 billion in automatic budget to America’s economy:
cuts are also scheduled to take effect through the
sequestration measure, a result of the super commit- Our global competitiveness is based on being
tee’s failure to come up with $1.2 trillion in deficit the origin of the newest, best ideas. How will
reduction measures in November 2011. we fare if those ideas originate somewhere
These reductions come on top of numerous pro- else? The answers range from scary to scarier.
gram cuts and “efficiency” savings already imple- Imagine a global economy in which the U.S. is
mented throughout the Department of Defense or playing catch-up with China: while a small
banked as savings regardless of outcome. As many class of Americans would surely find a way to
defense experts have noted, so-called “across-the- profit, most workers would earn far less, and
board” reductions will affect R&D and procurement the chasm between classes could be wider
(together, what are commonly called the moderniza- than ever.7
tion accounts) disproportionately because other
parts of the defense budget are buried more deeply Not only are other countries outpacing the
across multiple accounts and organizations or more United States on research and development, but
politically sensitive and therefore more difficult to they are also thinking about the very idea of future
cut. Under President Obama’s proposed fiscal year investment differently. Nowhere is this more pro-
2013 budget, the defense RDT&E account would nounced than in simple accounting practices. In the
decline by nearly 5 percent to $69.65 billion.3 As United States, R&D spending is expensed, meaning
figure 1 illustrates, this represents a real (inflation- that money directed to R&D adds an immediate
adjusted) decline of more than 17 percent since the negative to a firm’s balance sheet and reduces prof-
start of the Obama administration, the fifth decline its.8 In Japan, on the other hand, R&D spending is
in real terms in as many years. The rest of the capitalized, meaning that its cost is spread out over
Obama administration’s five-year defense plan con- several years, reducing the incentive to cut invest-
tinues this trend. RDT&E spending will continue to ment as a short-term strategy to increase profits.9 In
decline by more than $8 billion in real terms other words, the Japanese accounting system is pre-
between FY 2013 and FY 2017. At the same time, disposed to value long-term success over short-term
2MACKENZIE 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 How Federal Spending on Defense R&D
the opposite. This predisposition to think about Increases Economic Growth
R&D spending as a burden and not as a source of
strength only makes America’s challenge even Congress supports the modernization efforts of the
greater going forward. US military with appropriations for RDT&E and
Before Congress signs off on further defense procurement. Although they primarily support the
spending reductions, which senior Department of development and acquisition of the nation’s future
Defense leaders and military officials have warned military hardware, software, IT, and consumables,
would have devastating effects, members should these investments spill over into the wider economy
review the indispensable contributions US defense through three main channels: the development of
R&D and procurement spending have made human capital or research infrastructure, technology
historically—and continue to make—not only to transfers or commercial spinoffs, and foreign sales.
US national security, but also to technological inno-
vation and economic growth. With the right level Human Capital and Research Infrastructure.
and composition of defense R&D and procurement Roughly 17 percent of the total federal defense
spending, and the right policy framework, Con- RDT&E budget (nearly $12 billion in FY 2013) goes
gress can ensure that the military continues to pro- toward basic and applied research, referred to as the
vide the best defense, as well as the maximum Science and Technology (S&T) program. The pro-
incentive to technological advancement and eco- gram supports a large share of university-based
nomic growth. research and education, particularly in fields such as
3US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
mathematics and materials engineering. This funds development. Each of these activities has yielded
the training of scientists and engineers and develops scientific knowledge, organizational innovations,
the future expertise that the DoD—as well as indus- and technologies first used in military products that
try and universities—rely upon. later found their way into civilian or commercial
Federal spending on defense R&D was originally applications in the private sector.
concentrated in government arsenals, but during Technology developed in the military can be
World War II, weapons production largely shifted to transferred to other parts of the government or to
private companies while basic research moved to the private sector in a number of different ways. One
universities. For instance, in 1980, at the height of way is through the patent system, which was
the Cold War, about 70 percent of federal R&D designed to promote the disclosure of inventions.
spending was located in industrial laboratories and Various organizations take advantage of technologi-
between 10 and 15 percent in universities.10 The cal knowledge embedded in military patents. A
human capital, research infrastructure, and indus- recent study, which sampled 582 military patents
trial base that have emerged as a result provide a from around the world registered between 1998 and
means of acquiring new technology across a wide 2003 with both US and European protection, found
range of sectors and growing further industrializa- that the United States makes the greatest use of mil-
tion and innovation. itary technology for civil purposes, followed by Ger-
Not only does defense-related spending fund the many.14 The study measured the dual use of military
training of scientists, but it also creates an incentive technology by analyzing citations of military patents
for young people to study science by providing in subsequent civilian patents. It notes, however,
lucrative employment opportunities. Overall, the that current intellectual property laws worldwide
defense and aerospace industry supports some 3.53 are in many ways “inadequate for favoring technol-
million American jobs.11 Defense-related science ogy transfer.”15
and engineering jobs attract some of the nation’s best Another way military technologies have often fil-
and brightest and pay commensurately high salaries, tered into commercial products is through the govern-
with the median annual salary above $77,000.12 ment’s use of defense contractors with both military
Defense-related jobs employ about one in ten of the and commercial divisions. US aerospace manufactur-
nation’s computer software and electrical engineers, ers, for example, have often been involved in military
one in five of its physicists, one in four of its and commercial aircraft production simultaneously,
astronomers and mathematicians, and one in three allowing for rapid technology transfer and shorter
of its aerospace engineers.13 R&D spending on learning curves. In some cases, the production of mil-
human capital at all levels helps retain US scientific itary and commercial aircraft has even taken place
competitiveness, an extremely important asset in a within the same facility. The airframe design for the
competitive global economy. Boeing 707 drew on that of Boeing’s KC-135 military
tanker, for example, and Boeing’s ability to design
Technology Transfers and Commercial Spinoffs. large, advanced composite structures benefited from
The second channel through which defense research the military R&D it did as a subcontractor to Northrop
and development spending benefits the wider econ- Grumman on the B-2 stealth bomber.
omy is technology transfers and commercial spin- Yet another source of technology diffusion is the
offs. The RDT&E budget supports seven budget tendency of defense companies to subcontract work
activities: basic research, applied research, advanced to small and medium commercial enterprises.
technology development, demonstration and valida- Today’s military purchases numerous commercial,
tion, engineering and manufacturing development, off-the-shelf products, thereby supporting high-
management support, and operational systems technology private-sector companies involved in
4MACKENZIE EAGLEN AND JULIA POLLAK
production of goods and services not related to R&D has often demonstrated technological possibil-
defense. The leading sectors supplying the defense ities that were previously in doubt. In so doing, it
market are the scientific research and development has lowered the risks other investors perceived and
industry, the engineering and architectural indus- spurred related ventures in the private sector. One
tries, the telecommunications industry, and the air- study of 67 countries between 2000 and 2005 finds
craft industry. Private-sector aerospace product and that military technology was widely diffused to
parts manufacturers design and construct many other sectors and that military R&D had an espe-
component systems of military aircraft; navigational cially positive and substantial impact on economic
and measuring device manufacturers develop many growth in medium- to high-income countries,
of the complex electronics and guidance systems where technological innovations were more likely to
used in military rockets and missiles; and search and be harnessed and commercialized.16
navigation equipment manufacturers supply the
military with many of its radar, sonar, and other
tracking systems. Defense companies create demand CHINA’S R&D SPENDING CAN BE
for high-technology commercial products, and this EXPECTED TO MATCH OR SURPASS
“spin-on” (the flow of technology from the commer-
cial sector to the defense sector) creates a favorable OURS BY 2023.
environment for cooperation and various joint
efforts at two-way technology transfer.
During the Cold War, for example, the Pentagon Foreign Sales. The third channel through which
provided significant funding to electronics compa- federal investments in defense technology improve
nies for R&D relating to integrated circuits, semi- the economy is international defense trade. Largely
conductor materials, and transistors—technologies because of the level of federal investment in cutting-
that have since revolutionized electronics and made edge defense research and development, the United
computers, mobile phones, and many other digital States produces the most advanced and sought-after
devices possible. The DoD acted as a lead purchaser defense and aerospace products in the world. It is
of these new technologies, making early acquisitions the top global exporter—and an overall net
in large quantities, which created new markets and exporter—in the aerospace and defense industry,
attracted new companies. High military demand for which is one of the largest positive contributors to
semiconductor components during the Cold War the US trade balance, enjoying a net export/import
was largely responsible for the rapid growth of this balance of almost $8.2 million more than agricul-
new industry. By providing a steady stream of tural products, the industry with the second-highest
financing, defense contracts helped to fund risky positive net balance, in 2010.17
R&D for unproven systems and supported further In 2010, US exports of aerospace products totaled
development and commercialization by allowing $77.8 billion while imports totaled $34 billion, lead-
firms to achieve economies of scale. ing to a trade surplus of $43.8 billion.18 This trend
Finally, there are also less-direct sources of tech- continues today. According to the State Department,
nology diffusion. Defense programs are frequently 2011 was a “record-breaking year” for foreign military
on the cutting edge of scientific advancement. Sim- sales.19 US exports of defense products—including
ply by introducing or demonstrating new inven- military aircraft, satellites, communications equip-
tions, the US military has sometimes sparked ment, and electronics equipment—ranged from
significant technological transformations as other about $19 billion to $22 billion annually each year
organizations, and even other countries, have raced between 2005 and 2009. As figure 2 demonstrates,
to replicate or improve on them. Historically, military most US defense exports are concentrated in a few
5US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
FIGURE 2
TOP SEVEN COUNTRIES FOR EXPORTS OF DEFENSE ARTICLES, 2005–09
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 defense companies to build important international
Kingdom, Israel, South Korea, Australia, Egypt, and partnerships and pool scarce resources with like-
the United Arab Emirates.20 minded nations. These partnerships sometimes
Some of the benefits of international defense trade allow US firms to obtain advanced foreign technolo-
include increased access to overseas technologies, gies that would otherwise take far longer to filter
capital, and skilled labor; accelerated innovation as a into the US economy.
result of competition; employment for tens of thou-
sands of American workers by export-driven defense
companies and subcontractors; and a wider market Defense R&D Investments That Have Spurred
for American products, which generates economies Commercial Innovation
of scale and drives production costs down. Access to
international markets provides defense companies Some examples of technologies that emerged largely
with the opportunity to make additional sales, which as a result of defense R&D investments but have
can sometimes enable them to keep their US-based since become ubiquitous are atomic energy, high-
production lines open longer than their government powered batteries, night vision, digital photography,
customer would support and sustain employment radar, avionics systems, electronic computers, the
levels, even during times of defense spending reduc- Internet, computer software, and GPS facilities. More
tions and uncertainty at home. recently, the military has made significant strides in
US government efforts to promote interoperabil- developing remotely piloted or unmanned aerial
ity with allies and partner states have also enabled vehicles, and several of the technologies involved are
6MACKENZIE EAGLEN AND JULIA POLLAK
appearing in a growing number of civil applications, the United States against missile attacks. The sys-
such as firefighting and mineral exploration. tem was seminal to the development of the com-
The commercial aircraft sector—one of the puter and opened the doors to many military and
nation’s largest net exporters—is perhaps the most civilian spinoffs.
noteworthy legacy of civil spinoffs from military IBM used much of the pioneering research it
R&D. Federal defense R&D funding has accounted gained access to in building its later commercial
for well over half of total aerospace R&D investments computer hardware. In particular, military R&D on
since 1945,21 and countless examples exist of military SAGE produced technologies such as magnetic core
technologies that have made their way into memory, large operating systems, integrated video
passenger airliners, agricultural planes, traffic helicop- display, algebraic computer languages, analog-to-
ters, and other civil aircraft in use all around the world. digital conversion techniques, digital transmission
Indeed, the rapid growth of commercial aircraft for over telephone lines, light guns, among many others.
passenger and cargo transport after World War II
began largely with the conversion of ex-military air-
OVERALL, THE DEFENSE AND AEROSPACE
craft, such as the US Air Force’s Boeing B-29 Super-
fortress. It would take several volumes to mention all INDUSTRY SUPPORTS SOME 3.53 MILLION
of the military inventions and technological develop-
AMERICAN JOBS.
ments that have filtered into the commercial sector,
so we will focus here on only some illustrative exam-
ples from the information technology sector.
Integrated Circuits. During the Cold War, the
Electronic Computers. The first general-purpose Department of Defense and Atomic Energy Com-
electronic digital computer in the United States, the mission provided significant funding to electronics
ENIAC (Electronic Numerical Integrator and Com- manufacturers for R&D relating to integrated cir-
puter), was developed during World War II by the cuits, semiconductor materials, and transistors. Inte-
US Army Ordnance Corps for the purpose of grated circuit technology has since revolutionized
quickly calculating trajectories and firing tables for electronics and made computers, mobile phones,
artillery. After initial successes, the military funded and many other digital devices possible. Military
the development of additional computers in the demand for semiconductor components supported
1940s and 1950s that soon gained a wide range of the commercialization of integrated circuit technolo-
applications. The US armed forces believed that fully gies by generating price reductions, which facilitated
exploiting the new technologies would require a commercial demand. The military also awarded pro-
substantial industrial infrastructure. As a result, they curement contracts to new companies, which
supported the broader diffusion of the new calculator- encouraged competition and birthed many small,
computer technologies to researchers and firms and nimble, entrepreneurial firms. In addition, the mili-
supported further computer technology develop- tary’s “second source” policy (which required sup-
ment projects throughout the 1950s. pliers to develop additional domestic producers
One such project was the SAGE (Semi-Automatic capable of producing identical products) led to con-
Ground Environment) interceptor early detection siderable technology transfer between companies,
air defense system. In 1952, the International Busi- fostering rapid growth and competitive strength in
ness Machines Corporation (IBM) began working the industry.
with Massachusetts Institute of Technology’s (MIT’s)
Lincoln Laboratories to finalize the design of a digi- Software. The US software industry also benefited
tal computer and radar system designed to defend substantially from defense R&D and procurement.
7US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
Beginning in 1959, the DoD was partly responsible field of packet switching. DARPA saw the potential
for funding and overseeing the development of for military applications in the technology and
COBOL (common business-oriented language), one funded the development and deployment of the
of the oldest computer programming languages. The world’s first electronic computer network.
DoD required that all computers purchased by the ARPANET, as it was named, was the earliest forerun-
military support the language, resulting in the wide- ner of the Internet. By 1975, it had grown to more
spread diffusion of COBOL as a programming lan- than 100 nodes, as universities and other defense
guage in both military and civilian applications. research facilities were linked to it.
DoD demand for custom software also facilitated the The Internet’s core technological innovations dif-
growth in custom software firms between 1969 and fused widely through the US research and industrial
1980. Initially, DoD funding accounted for the bulk infrastructure and led to the development of many
of the software industry, growing dramatically until supporting technologies. The US Internet industry
it was finally outstripped by commercial industry in soon became a place of rapid innovation, constant
the 1990s. market entry by new firms, and intense competition,
largely because of DARPA’s willingness to fund proj-
The Computer Mouse. The first computer mouse ects in many different universities and private R&D
was invented in 1963 by researcher Douglas Engel- laboratories and to buy products from numerous
bart at the Stanford Research Institute’s Augmenta- different companies. The spinoffs of these invest-
tion Research Center, funded by the DoD’s ments are ubiquitous today in numerous Web-based
Advanced Research Projects Agency (now DARPA). technologies and applications and represent a major
The mouse enjoys widespread use with personal portion of the US economy.
computers today, but the technology remained rela-
tively obscure until it was exploited by Apple Mac- Email. Email was an accidental spinoff of DoD R&D
intosh in 1984. Military-funded technologies and funding. In 1971, programmer Raymond Tomlinson
patents often sit on the shelf for many years before invented a system for sending electronic mail over
the private sector takes advantage of them. For the DoD’s ARPANET. It was the first system able to
example, the personal assistant Siri began as a send messages between users on different hosts,
DARPA-funded initiative to support military person- which it achieved by using the @ sign to separate
nel long before Apple bought its parent company, users from their machines. Tomlinson was working
SRI International, and adapted the technology for on other programming required for ARPANET and
the iPhone.22 It has long been a matter of concern was not specifically assigned to develop an electronic
inside the Pentagon to find ways to improve com- mail system—the idea arose in the course of his other
munication with the private sector and expedite the research. Email is a perfect example of innovations
military-civil technology transfer process. that can transpire when federal defense R&D brings
together the nation’s brightest scientists, engineers,
The Internet. Although French and British scien- and computer programmers on pioneering research
tists made important contributions to the develop- projects using new systems and materials.
ment of packet-switching and computer-networking
technologies, the Internet was primarily invented The Global Positioning System (GPS). In 1973,
and commercialized in the United States, with the the DoD developed a space-based satellite naviga-
DoD playing a critical role. During the 1960s, sev- tion system in an attempt to improve on earlier nav-
eral researchers at MIT, the Stanford Research Insti- igation systems such as the US Navy’s 1960s Transit
tute, and the RAND Corporation, among other satellite navigation system. GPS was originally run
institutions, made significant developments in the with 24 satellites and proved capable of supplying
8MACKENZIE 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 R&D is projected to decline in the coming years
all weather conditions, given an unobstructed line of because of significant budget reductions. Research
sight to four or more satellites. The system initially and development sponsored by the DoD is expected
gave the military critical new navigation and surveil- to see the steepest decline.23 More than ever, the
lance capabilities, but its military and commercial RDT&E account will have to compete with other
impact has since exceeded anything the initial priorities in the shrinking defense budget, such as
researchers could have envisioned. Through features rising personnel and operations costs. Whereas var-
such as highly accurate clock synchronization, GPS ious procurement programs may manage to halt
has revolutionized the global air traffic control sys- funding reductions, or at least delay them temporar-
tem, cellular telephony, and numerous other civil ily, the RDT&E account is likely to absorb the brunt
functions. It has many advanced scientific uses, but of defense cuts because it is often easier for short-
it also has applications in everyday products such as sighted politicians to get away with cutting pro-
television and radio, mobile phones, cars, and bank- grams when their benefits are delayed.
ing systems. Amidst tightening defense budgets and a steadily
shrinking RDT&E account, even traditionally popu-
lar accounts such as Science and Technology (S&T)
Current Trends in US Defense R&D Spending funding are coming up short. The Obama administra-
tion’s FY 2013 request represents a 2.5 percent cut
As figure 3 illustrates, overall federal government from 2012 S&T funding levels.24 When defense
spending on both defense- and nondefense-related spending began to decline in the late 1980s, Congress
9US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
initially defended S&T funding and continued to base is least able to make up the shortfall. Today’s
authorize increases for several years. After FY 1993, defense industrial base is under strain and lacks
however, President Bill Clinton’s steep defense reduc- depth. After 1993, Clinton-era defense cuts forced
tions started to cut into S&T funding as well, ulti- the 30 major defense firms to consolidate into 5 and
mately driving it back down to FY 1987 levels by the saw many companies exit the business altogether.
end of the decade. Although successive Pentagon strategy documents
have pledged to maintain a robust and capable
defense industry that can thrive and compete in the
IN 2010, US EXPORTS OF AEROSPACE
global marketplace,27 recent studies and emerging
PRODUCTS TOTALED $77.8 BILLION WHILE trends raise doubts.
In the defense aerospace industry, for example,
IMPORTS TOTALED $34 BILLION, LEADING
congressional language requires “that the United
TO A TRADE SURPLUS OF $43.8 BILLION. States must ensure, among other things, that more
than one aircraft company can design, engineer, pro-
duce and support military aircraft in the future.”28
The George W. Bush administration reversed the As a recent RAND Corporation study illustrates,
downward trend and made it official policy in the defense R&DTE funding is almost as important as
2001 Quadrennial Defense Review to stabilize S&T procurement contracts if a defense contractor is to
funding at 3 percent of the overall defense budget, retain the capabilities to produce fixed-wing air-
although it never actually achieved that bench- craft.29 This same study cautioned that “unless very
mark.25 Although S&T spending initially continued purposeful and structured program decisions are
to increase under the Obama administration, recent made soon, the congressional objective . . . may not
defense cuts have made even this bipartisan priority be achieved.”30 According to RAND, smaller pro-
a casualty of falling toplines. This is in spite of the grams as currently planned (a combination of train-
warnings contained in the administration’s own ing aircraft, tankers, and a Navy unmanned aircraft)
defense strategy documents, which state, “Even at would sustain only one company (Boeing), and even
current, relatively robust levels of investment, the if aerospace competitor Lockheed Martin were to
DoD S&T program is struggling to keep pace with rely on a strategy of selling the F-22 jet to foreign
the expanding challenges of the evolving security partners (which it cannot), international sales would
environment and the increasing speed and cost of sustain the company for only four years (2016–19).31
global technology development.”26 The stark reality is that there is just not enough busi-
The S&T program is widely believed to be imper- ness to go around. Aside from the optionally
ative to maintaining technological superiority, but it manned long-range strike bomber, for the first time
is difficult to calculate the return on investment of in history, the US military has no new manned air-
each outlay because the time between initial craft under design.32 Keeping two prime firms
research and resulting new operational systems is healthy and competitive past 2025 would require
often long and technological developments often substantial R&D and procurement investments in
follow an indirect path, as some of the examples we large-scale programs, such as a next-generation
have given illustrate. As a result, congressional sup- bomber and sixth-generation fighter. In the absence
port for S&T spending is likely to wane in the face of such programs, the DoD will struggle to keep
of a falling topline and competing internal budget- suppliers in a low-rate delivery status and will likely
ary demands. see its manufacturing sources diminish.
Moreover, these cuts can be expected to hit at a In addition to firm closures and consolidations,
time when the private-sector industrial research several other trends have emerged over the past
10MACKENZIE EAGLEN AND JULIA POLLAK
20 years as a result of funding strains, market turbu- on robotics and autonomous systems, such as
lence, and other factors. One notable trend is that unmanned underwater vehicles, firefighting robots,
large defense companies have moved away from in- and sensor networks.36 Nevertheless, it will be a
house R&D, conducted in industrial laboratories or challenge for the DoD to sustain the scale, scope, and
in R&D subdivisions, toward greater competitive quality of research projects such as these unless
outsourcing. The RAND Corporation says that the funding remains robust.
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 Obstacles to the Development of a Sound
now outsourced to lower-tier contractors, both for- Defense R&D Strategy
eign and domestic. Instead of managing internal
research divisions and staff, larger companies in both While Pentagon leaders and pro-defense members
the defense and nondefense sectors increasingly find of Congress try to navigate these challenges and
themselves managing and organizing complex inno- develop strategies to deal with new budgetary and
vation networks of smaller external suppliers. They economic trends, they also face mounting political
also invest in small start-up companies that are more opposition from those who argue that the govern-
technologically cutting-edge and whose investors are ment’s money is better spent on other priorities. One
more prepared to bear the risks of innovation. common refrain is that defense R&D “crowds out”
RAND defense analysts worry that, despite some private-sector R&D.
encouraging public statements, the DoD currently However, defense is supported by four principles
appears to have no policy for increasing innovation that make it an exception to normal patterns of
that acknowledges these changes and has no frame- government spending. For one, defense is the first
work for what such a policy should look like.34 Pol- and most important responsibility of government
icymakers should consider expanding R&D funds under the Constitution. In this sense, defense R&D
to small firms as a way to encourage innovation, is a public good that cannot be considered part of
progress, and efficiency. This is especially true in the normal economy.
areas like software and cyberwarfare, where the mar- A technologically dominant military guarantees
ket changes so quickly that only highly specialized US companies undisrupted access to global mar-
firms have the agility and personnel to stay on top. kets. Moreover, defense spending operates on a
According to Frank Kendall, under secretary of scale that is simply unknown to the civilian econ-
defense for acquisition, technology, and logistics, the omy. No civilian corporation has the resources,
DoD plans to become more selective with its R&D reach, or ability to sponsor the kinds of research
resources in the face of declining budgets. To that end, and innovation necessary for an organization that
the Pentagon has directed the Defense Science Board employs more than 2.2 million individuals directly.
to conduct a study to determine which technologies The scale, length, and purpose of defense programs
to prioritize. The study will seek to identify technolo- makes them unique to the public sector—defense
gies that will be pivotal over the next two decades to cannot exist outside of the public sector, but no
the sustainment of innovation and superior warfight- other public-sector organization could exist and
ing capability. The assessment could influence the budget like the DoD. In this context, the alternative
allocation of R&D spending as soon as the fiscal year to federal investment in national defense is not a
2014 budget is made public in February.35 more efficient private market for national defense
Even amid cutbacks, there are some promising but, rather, no investment in national defense at all,
developments. In mid-March, for example, the Navy which hurts the warfighter and our national deter-
opened a cutting-edge laboratory devoted to research rence and global presence.
11US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
Another common argument against the eco- conducive to technology transfer between the pub-
nomic benefit of military R&D is that defense tech- lic and private sectors while still maintaining the
nologies are becoming increasingly specialized and security of critical defense technologies.
therefore less relevant to commercial industry and
the civil sector. This argument, which has been
repeated throughout history, simply manifests a lack How to Structure Defense R&D to Maximize
of foresight and imagination. The US defense estab- Multisector Benefits
lishment once believed that harnessing flight and
developing aircraft would be too complex and risky The success of defense R&D investments and their
a proposition ever to have a military, let alone civil- spillover benefits are strongly influenced by the level
ian, use. The first studies suggesting that humans and structure of funding, as well as by the policy
might be able to send cameras into orbit for military environment (such as intellectual property rights,
surveillance purposes were deemed similarly fanci- export controls, and other regulatory policy) affect-
ful and far-fetched at first. Today, of course, the ing the training of scientists, the development of
influence of airplanes and helicopters, as well as technology, and the transfer or sale of technology
observation, communications, navigation, and among sectors and countries. Historically, defense-
weather satellites is ubiquitous. Similarly, technolo- civil technology transfer has been far more successful
gies deemed excessively complex, specialized, and in the United States than in other countries because
quixotic today could become commonplace within of the sheer magnitude of US defense-related R&D
the coming decades. and procurement spending, the prominent role
A final argument in favor of redirecting defense played by research universities and industry, and the
R&D funding toward other priorities or abandoning DoD’s willingness to work with small, start-up com-
them altogether is that defense programs are too slow panies. Falling budgets, a shrinking number of prime
and expensive. It is true that a new piece of defense defense corporations, and the changing locus of
technology can take many years to specify, test, and innovation all present new challenges. Here are some
acquire, but this is largely due to the onerous ways the DoD can address them.
requirements that Congress has established. It is also
true that defense systems can be excessively expen- Provide Adequate and Stable Funding for
sive, but this is largely because defense contractors Defense Modernization, Including RDT&E. His-
supply their products in only the limited—and often, torically, defense budgets have experienced event-
changing—quantities that the government customer driven booms but then been raided during
procures, while being prevented from exploring intervening periods of peace. World War II, the
wider markets abroad due to congressional export Korean War, the Vietnam War, the Cold War, and the
control restrictions. Defense exports can help reduce September 11 attacks all followed periods of inade-
unit costs and spread the burden, but different coun- quate defense investment. Each event prompted
tries demand different specifications and Congress sharp increases in spending, most of which was
often requires that US systems have unique features, directed toward funding the technological and man-
which drive costs back up. power requirements of the war of the day. There was
Of course, some truth exists in all of these argu- no more hollow buildup in military spending than
ments, as do pitfalls with defense R&D investments— the growth following 2001—which, while necessary
as with any undertaking. The following section lays to fulfill urgent warfighting needs, did little to renew
out some recommendations for how the govern- the military’s aging inventories.37
ment can improve the effectiveness of defense R&D This spending pattern has undermined the devel-
and procurement and create an environment more opment of a stable, coherent defense program
12MACKENZIE EAGLEN AND JULIA POLLAK
designed with sufficient regard for long-term goals, increase the number of H1-B visas for highly skilled
such as well-balanced modernization. The single workers, and the DoD should make an effort to
most important reform that would encourage innova- reduce the backlog for security background checks.
tion and support a vibrant military R&D workforce
and infrastructure would be for Congress to ensure Reform Export Controls and Promote Defense
that adequate and stable funding is provided for Exports to Friends and Allies. Export regulations are
defense RDT&E, even after current operations wind meant to keep sensitive technologies from falling into
down. A reasonable benchmark for RDT&E spending the wrong hands, but they often prohibit our defense
might be roughly $73 billion in FY 2013 dollars— contractors from sharing technologies with allied and
just about halfway between the peak of 2008 spend- partner states. They also prevent defense manufactur-
ing and the low point of the current drawdown. ers from selling products that are already widely avail-
In addition, as Steven Hayward and colleagues able on the open market. American workers suffer this
have argued, Congress should consider the benefits loss of business and opportunity as a result.
of increasing the R&D budget of the Department of The administration has proposed a number of
Energy.38 Congress should also establish closer reforms to address this problem, as have numerous
links between the DoD and the Department of independent defense analysts.39 Export control lists
Energy and between research and procurement, to should be consolidated and reviewed frequently so
drive the successful commercialization and that items can be promptly “de-listed” once they no
improvement of energy technology on which the longer need to be restricted. The administration can
military is so reliant. also explore closer partnerships with our friends and
allies on the joint development of weapons systems
Improve the Recruitment of Skilled Scientists and through foreign sales. Instead of shuttering the F-
and Engineers. A skilled and highly trained work- 22 fighter production line, Congress should have pro-
force is critical for continued innovation. Currently, moted sales to countries like Israel, Japan, Australia,
however, the defense industry’s workforce is declin- and Canada. Congress should also encourage the sale
ing in population and rising in average age, with a of F-35 fighter aircraft to India. Such foreign sales
large percentage nearing retirement. With fewer would not only strengthen the United States strategi-
defense programs and a smaller number of new cally by making our allies more capable but also
program starts, scientists are likely to work on reduce unit costs for the US military and taxpayer.
fewer projects than they might have in the past and
therefore find the defense sector a less appealing Accept More Risk to Develop Novel Systems.
work environment than high-technology firms such Many defense companies report that a major hin-
as Apple or Google. drance to undertaking R&D on risky, new technolo-
Current developments in unmanned aircraft sys- gies is the government’s growing emphasis on
tems are likely to sustain some excitement in the maximizing the return on investment, minimizing
coming years, but the DoD will need to introduce cost overruns, preventing schedule slippages, and
additional programs to maintain its stated goal of penalizing companies for poor performance, as meas-
attracting the nation’s best and brightest. The Penta- ured against strict performance measures. The DoD
gon and Congress should also review security clear- may need to develop a different set of metrics for tech-
ance requirements, which pose a significant nological innovations than those used for ordinary
challenge. With a third of all science and engineer- programs, such as lower performance standards or
ing doctoral degrees from US universities awarded investment return thresholds. Novel systems involve
to foreign students, defense firms struggle to recruit uncertainty, and often the full benefits of cutting-edge
eligible graduates. Congress should take steps to research are realized only decades after the initial
13US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
research. According to a recent RAND Corporation sponsored by the US government exist. Their studies
study on weapon system acquisition: have played a central role in the development of
numerous critical technologies. For example, the
Current acquisition policies and processes are RAND Corporation, the original US think tank,
too risk averse to enable the effective develop- played a central role in researching satellites for space
ment and timely employment of novel sys- reconnaissance and prompting investments in tech-
tems. Consequently, DoD needs a separate nologies such as infrared detection sensors, space
acquisition strategy that is less tied to achiev- vehicles, rocket propulsion, orbiting television cam-
ing precise cost, schedule, and performance eras, and electronic transmission. RAND was also
outcomes. The new strategy should include a largely responsible for developing packet switching
focus on unique integrations of existing and and digital networks, the technologies that led to the
emerging technologies, a willingness to accept creation of ARPANET and ultimately the Internet. In
risks, easy and quick termination of programs addition, RAND made significant contributions to
not yielding expected benefits, and early test the development of computer software. As a recent
and demonstration of military utility.40 paper summarizing RAND’s contributions con-
cluded, “[these advances] make a persuasive case
that an organization whose sole job is to generate
Keep R&D Funding Honest. The Pentagon should ideas can promote the advance of technologies with
consider restoring the original intent of research and the power to change the life of an entire culture.”43
development funding by making it distinct from test- In a May 2011 memorandum, then-Under Secre-
ing and evaluation. By establishing a separate budget tary of Defense Ashton Carter emphasized the high
category for testing and evaluation, the Pentagon value and unique capabilities that FFRDCs provide
could provide increased transparency for funding lev- the Department of Defense. He also released new
els spent on research and exploratory development as guidelines covering areas such as nondisclosure
opposed to industrial development, testing, and eval- agreements, information access, and postemploy-
uation. This would allow the Pentagon to more read- ment restrictions for FFRDC researchers. Congress
ily prioritize potential breakthrough research while should ensure that these restrictions are targeted and
controlling testing and evaluation costs.41 do not unnecessarily impede the flow of nonsensitive
technologies between the DoD and the private sector.
Modernize and Internationalize the Safety Act.
The Heritage Foundation has long been calling on Ensure Intellectual Property Laws Are Adequate
Congress to “revitalize, broaden, and internationalize and Favorable to Technology Transfer. The struc-
the Safety Act,” a piece of legislation that encourages ture of a country’s patent laws strongly influences
innovation by providing liability protection for coun- the technology transfer process and the dual use of
terterrorism technologies. According to Heritage’s military technology. Congress should work with
James Carafano, Congress should broaden the act to defense researchers to ensure that the US patent sys-
apply to cybersecurity and other security technology tem is modern and adequate for the task of protect-
needs, and the administration should encourage ing intellectual property while also publicizing
other countries to establish comparable regimes to inventions and fostering the use of military knowl-
promote global innovation and open new security edge in other applications.
technology markets.42
Improve Incentives for Technology Transfer from
Preserve Federally Funded Research and Devel- the DoD to the Private Sector and to State and
opment Centers (FFRDCs). Nearly 40 FFRDCs Local Governments. For the past 25 years or so,
14MACKENZIE EAGLEN AND JULIA POLLAK
Congress has established numerous legislative initia- conduct an internal review that determines which
tives to encourage collaborative ventures and tech- existing requirements could be met by dual-use
nology transfers between federal R&D programs, products that are not already. Although many pro-
industry, academia, and state or local government grams will not have an obvious civilian counterpart,
projects. These have included tax credits for indus- components of even sophisticated platforms may
trial payments to universities for research and exist elsewhere in the civilian economy, often at a
antitrust laws that facilitate cooperative research and cheaper price point than if the DoD were to issue a
joint manufacturing. requirement for that part to be constructed from
One important incentive for the transfer and scratch. A third solution is on the civilian side. The
commercialization of technology, for example, is the DoD should send representatives to major research
law allowing government-operated laboratories to hubs and survey existing civilian technologies that
enter into cooperative research and development may have a dual-use role. Many companies have a
agreements (CRADAs) with universities and private- vision to market dual-use technologies to the Penta-
sector companies.44 Approximately 2,600 to 3,000 gon but have not been able to gain access, while oth-
DoD CRADAs were active each fiscal year between ers may have perfectly usable dual-use technologies,
2004 and 2008, according to the Department of but never had it occur to them to pitch the idea to the
Commerce.45 A CRADA is a legal document defin- DoD. By being proactive and surveying what already
ing the rules and regulations governing collaborative exists in the civilian economy, the DoD can more
ventures. Some of these rules include “revolving effectively leverage its resources by utilizing tech-
door” restrictions and checks on conflicts of interest. nologies that have already been developed for com-
Some may need to be modernized and relaxed to mercial applications.
allow government and industry to communicate
more easily about future needs. Congress should
explore ways to update these laws to facilitate rapid THE STARK REALITY IS THAT THERE IS
technology transfer and commercialization. JUST NOT ENOUGH BUSINESS TO GO
Develop a Comprehensive Strategy for Private AROUND. ASIDE FROM THE OPTIONALLY
Sector Investment in Defense Innovation. The MANNED LONG-RANGE STRIKE BOMBER,
defense RDT&E account is not the only source of
funding for defense innovation. For example, the FOR THE FIRST TIME IN HISTORY, THE
private sector also invests through venture capital US MILITARY HAS NO NEW MANNED
and private equity. Yet the private sector often faces
severe obstacles when it comes to cooperating with AIRCRAFT UNDER DESIGN.
the federal government, especially with regard to
dual-use technologies. One way to deepen coopera-
tion is through transparency, which should be pur- The Pentagon can also improve its marketing to
sued on a number of levels. the commercial world. All too often, potential suppli-
For one, the Pentagon should compile a common ers are intimidated by mountains of red tape, hassle,
index of all existing dual-use technologies within its and unpredictability when it comes to working with
purview. This can range from GPS satellites to the government. One solution is for the DoD to com-
switches in cockpits. The idea is to gather an exhaus- pile a list of potential projects that the private sector
tive list that illustrates how many programs—and can contribute—and then market it as an open com-
how much money—goes into dual-use technologies petition to industry. This would have the effect of
department-wide. Second, the Pentagon should encouraging outside ideas while forcing the DoD to
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