For those who thought President George W. Bush would splurge on defense, his tiny increase in the Pentagon's 2002 budget was a shock. It may not be the last. It's a good bet that Bush's Defense Dept. will change the way the U.S. buys weapons, fundamentally altering the economics of the defense sector. Instead of aiming to keep aircraft and weapons production lines humming for decades, Defense will likely funnel more of its limited funds into research and development.
Bush's plan is a welcome nod to the fact that the world has changed. Future confrontations won't be protracted, World War II-style battles fought on the plains of Europe. They'll be shorter skirmishes, farther from home--or possibly anti-guerrilla campaigns in foreign cities. The threats range from cyberwarfare to biological weapons and suitcase bombs. And even if the fight is on a battlefield--in Central Asia or on the Pacific Rim--the U.S. may not have access to nearby bases, as it did in the Persian Gulf war. So it is less likely to need thousands of tanks and short-range jet fighters. Space-based radar, unmanned vehicles, and other innovative weaponry are the future--hence Bush's emphasis on R&D.
AUSTERITY. There's another reason for the Administration's new tack. Bush's strategists realize the current system is unsustainable. Costs for troop deployment and equipment maintenance--two short-term priorities--drain cash from procurement. And big contracts for new weapons are increasingly rare. That leaves scant incentive for contractors to gamble on new technology in the hope of making profits on production down the road. "You can't get well on production anymore," says Frank C. Carlucci, chairman of Carlyle Group and Defense Secretary under Ronald Reagan.
The Bush team's thinking emerged from a recent panel organized by RAND that was headed by Carlucci and stacked with Bush Defense Dept. appointees. Its little-publicized report recommended that "austere development" of weapons systems be "more of a rule than an exception." There is little question that the report will be taken to heart. A key author was Bush's Pentagon transition chief, and advisers included Deputy Defense Secretary-designate Paul D. Wolfowitz and others in his league.
Fact is, we're already headed toward austerity. Instead of the 300 planes a year the Pentagon bought from 1974 to 1993, the average has dropped to 44 in the last few years. Defense is buying a mere three destroyers annually--fewer than they decommission. For fiscal 2001, defense spending hit 2.9% of gross domestic product, down from 5.9% at the end of the Reagan years.
While conservatives blame the Clinton Administration for starving defense procurement, Bush may take more painful steps. Budget analyst Steven M. Kosiak of the Center for Strategic & Budgetary Assessments says the Bush tax cut will leave little choice but to cut forces and weapons funding and focus on R&D. "We must put strategy first, then spending," Bush said in his Feb. 27 address to Congress. That could be ominous for proposed programs such as the $223 billion Joint Strike Fighter. Boeing Co. (BA
) and Lockheed Martin Corp. (LMT
) are competing to build 2,800 of them.
Of course, Bush's procurement blueprint won't be adopted without warfare in Congress and in the industry. Already, General Dynamics Corp. (GD
) Chairman and CEO Nicholas D. Chabraja is warning that cutbacks would pose "enormous risk to the national security." But in reality, some upgrades of existing gear, such as F-16 fighter jets, may suffice. That, plus a few new weapons, could be enough to handle many Balkans-scale missions. The RAND plan would seek to soften the blow to industry with fatter research budgets. But that won't compensate for the end of an era when a General Dynamics could make handsome profits building 9,000 Abrams tanks.
Defense execs still aren't resigned to downsizing--and in truth, nobody knows what kinds of budgets Bush will produce next year, or the next. He has, however, signaled a preference for high-tech weaponry, and companies that understand this will probably thrive. One thing is clear: They can't win by producing lots of weapons nobody wants.
By Stan Crock
D.C.-based Crock covers national security.
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