For the past 30 years, the Pentagon has been cannibalizing the “arsenal of democracy,” eliminating large swaths of our country’s industrial capacity and leaving the rest to deteriorate. The Department of Defense is well aware of the issue, even going so far as to study and catalog it itself, most recently in a February 2022 report on the defense industrial base.
Like any tragedy or disaster, there is rarely one single cause, but the myriad of reasons can be summed up as follows: a bad strategy has led to insufficient resources. The outcome is a national security establishment that has little confidence in its own abilities to fight and win a protracted war against a great power, whether by ourselves or through a proxy.
What we are learning (and possibly relearning) from Russia’s conflict with Ukraine is an obvious fact of war: the side which can produce the most weapons and man those weapons with trained and motivated personnel will have the upper hand. In many respects, we have gotten lucky as Ukraine is benefitting from a former great power’s 50-year decline in both industrial production and inability to provide competent soldiers. As the Pentagon looks forward to either a direct or proxy war with China, we need to be humbled by their ability to produce weapons and manpower. We may not get so lucky a second time.
The United States is a capitalist country where buying items is the demand signal that stimulates investment in both industrial capacity and innovation. During the 20-year period from 1970-1989, often referred to as the Reagan buildup, the ratio of procurement to research & development, or R&D, funding was 2.5 to 1. Our defense industrial base, both private sector and government-run, was stimulated by this robust demand signal, resulting in plentiful stocks of spare parts and cheaper items. That’s due to economies of scale, meaning the more you produce of something, the cheaper it becomes.
In the 1990s, we embarked on a radical experiment of reducing procurement but hoping for the industrial base to maintain itself, and then bemoaning its deterioration with each passing report. For the 30-year period from 1990-2019, the ratio of procurement to R&D funding fell to about 1.5 to 1. As countless reports have shown, the defense industrial base is incapable of even keeping up with the pace of munition consumption in Ukraine at this ratio.
Rather than learning and reversing this trend, the ratio has fallen even further over the past three years to about 1.3 to 1. Remarkably, in 2023, the Pentagon proposed that it be further reduced to about 1.1 to 1. As the old proverb goes, when you are in a hole, stop digging and think about backfilling the dirt. Congress understands this and for fiscal year 2023, the House Armed Services Committee added procurement back at a 2.18 ratio.
So, what should the Pentagon be doing for its FY24 budget request? Assuming that the Office of Management and Budget, or OMB, will not give the Pentagon significantly more funding other than to fully account for inflation, then the Pentagon should cut back on R&D and ramp up procurement for the next five years.
Getting to the ratio of the Reagan buildup is probably not feasible, but a ratio of 2.25 can be achieved by moving $45 billion each year for the next five years from R&D into procurement. Therefore, over the years 2024-2028, this would add $225 billion to the $725 billion already planned for procurement, bringing that account’s total to $950 billion over the next five years.
To cut R&D by $45 billion per year, the Pentagon only needs to look back to 2017. In that year, R&D spending in 2023 constant dollars was $86 billion. In 2023, that rose to $130B, a difference of nearly $45 billion — an increase of more than 50% — in just seven short years.
Additionally, the Pentagon and Congress should sign multi-year procurement contracts for tanks, HIMARs, munitions, ships, and planes so that industry can be assured of this funding over time. With more funding secured, industry will be incentivized to invest their profits by accelerating production and increasing efficiencies. Producing more items over five years will also stimulate the supply chain for the second, third, and fourth tier suppliers which will provide the capacity for new production, wartime replacements, and spare parts.
The Pentagon should be adjusting its forecasting models to assume a lengthy and protracted war of attrition with China and its proxies, while simultaneously being able to conduct combat operations in Europe and counterinsurgency operations in the Middle East. Today, the math underlying the Pentagon’s supply chain is for one quick war at a time, which is entirely unrealistic. For munitions, the stockpile needs to be set to at least two years of expected usage. Just-in-time production works well if you are producing non-essential items, but that story changes dramatically if your life and republic’s future are at stake.
In the end, Pentagon leaders are facing a simple choice. Either they can shift to a more procurement-centered program for the rest of this decade or continue their detrimental experiment of defunding the arsenal of democracy.
Retired Army Maj. Gen. John Ferrari, a nonresident senior fellow at the American Enterprise Institute, is a former director of program analysis and evaluation for the Army.
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