Build Back the Base: Takeaways from America's First National Defense Industrial Strategy

During World War II, Americans streamed into private shipyards from Baltimore to San Francisco as part of a massive mobilization that powered victory. Submarines were among the most prized output, as crews mass produced a newly modernized fleet that gave the Allied forces an upperhand from below the sea.

Today, most shipbuilding activity takes place offshore. The U.S. Navy owns the nation’s only two facilities that have the capability to produce nuclear submarines, and it can't find enough skilled workers to staff them.

According to a new U.S. Department of Defense report, this erosion of the Submarine Industrial Base is just one example of how the ecosystem that equips America's national security has whittled down.

This happened gradually over decades, as reductions in the defense budget, the consolidation of defense contractors at The Last Supper, the decline of domestic manufacturing, and the globalization of the supply chain permanently altered how the DoD conducted business to carry out its mission.

At the same time, the realization is setting in that the defense industrial base as currently constructed isn't set up to meet this moment. The crises of the first years of the 2020s underscored the pitfalls of applying legacy systems to new challenges. The Defense Production Act was invoked to spark manufacturing of protective equipment and vaccines for health and safety during COVID-19, but many stockpiles were found depleted. Russia’s invasion of Ukraine increased demand for U.S.-built weapons systems, but facilities were initially lacking because many companies had decreased capacity in the preceding years. China has leveraged its emergence as a manufacturing power as a geopolitical advantage that has helped it expand influence around the globe. It is now an investor in and producer of U.S. defense products, and exploits the exposure to new technology to steal intellectual property, among other transgressions.

The themes above are topics of conversation in the Pentagon, just as they are in corporate boardrooms. National security and economic competitiveness are linked, and there are few places where the bond is tighter than the defense industrial base. Factories that produce supplies to protect the country also employ skilled workers that helps the nation provide sustainable livelihoods for its people. In turn, a reduction in stateside manufacturing activities and industrial investment by the DoD leaves the nation less prepared to respond quickly to threats to both the U.S., and its allies. China’s leading role in the global supply chain and dominating position in critical industries gives it a strategic leg-up. Fortifying the defense industrial base can help the pendulum swing back toward the U.S., both in the market and in the arena. 

Source: National Defense Industrial Strategy

U.S. leaders have heard the call to build back the defense industrial base, and they are beginning to respond. The Biden administration has taken the baton with particular vigor. Legislation designed to bolster infrastructure and microchip manufacturing states implicitly that the U.S. needs to make improvements to the federal innovation landscape, manufacturing base, and supply chain in order to bolster its national security during a period of multidimensional threats. 

It has resulted in a new groundswell of energy to expand America’s national security capacity. 

But mobilization won't be enough.

Through the new National Defense Industrial Strategy, the DoD is explicitly calling for a mass modernization of the defense industrial base.

Why it Matters

While it may be easy to gloss past a 59-page government report, this document is worth the attention of the defense tech ecosystem. It's the first time that the DoD has released such a strategy. It also represents a government — and, by extension, a nation — confronting some hard truths about itself. The facts in the intro to this piece were sourced directly from the document. For an innovation community that remains fragmented between disciplines and a DoD that is often described as difficult to navigate, such a document can also serve as a uniting force. Here is a roadmap for reform that ties together the full breadth of the defense industrial base, and puts the recommendations in the context of both U.S. history and the global order. It calls for generational change, and everyone has a role to play in seeing it through, from startups to the Pentagon.

“We need to shift from policies rooted in the 20th century that supported a narrow defense industrial base, capitalized on the DoD as the monopsony power, and promoted either/or tradeoffs between cost, speed, and scale,” the National Defense Industrial Strategy states. “We need to build a modernized industrial ecosystem that includes the traditional defense contractors – the DIB primes and sub-tier defense contractors who provide equipment and services – and also includes innovative new technology developers; academia; research labs; technical centers; manufacturing centers of excellence; service providers; government-owned, contractor-operated (GOCO) facilities; and finance streams, especially private equity and venture capital.”

Each stakeholder will need to identify where they fit in. So along with analysis on how we got here, the document identifies four key strategic areas where America should prioritize resources, rethink policies and foster cooperation across government, the private sector, and allies.

The Four Pillars

The strategy's “guiding beacons” focus in four key areas. Here's a quick summary of the recommendations:

To bolster the infrastructure that delivers defense products, services, and technology, the strategy calls for a focus on developing resilient supply chains capable of dynamic production to the meet the needs of warfighters now, and do so quickly and at scale. The supply chain is a complex system, so change must come in layers, with policy and technology serving as two of the key levers. It will require making more goods, as the strategy calls for incentivizing industry to invest in extra capacity, and increasing stockpiles of critical items they produce. This can be supported by changes in how these products are made and who makes them. The report calls for supporting domestic manufacturers through accelerators such as the Defense Innovation Unit (DIU) and reinvigorating the DoD-owned network known as the Organic Industrial Base, while investing in automation technology that can bring efficiency and productivity gains. A key goal to achieving this aim is diversifying the supply chain, and the report in particular calls on the DoD to expand relationships with companies and industries not traditionally in the defense industrial base, while lowering barriers for small businesses, such as cybersecurity requirements. Across the globe, the U.S. must do more to strengthen relationships with allies, use data analytics to improve visibility into the supply chain, and improve the Foreign Military Sales process with an eye toward enabling sustainable businesses, the report states. 

To shift toward a culture that allows for more flexibility in how the DoD purchases defense platforms and support systems used by warfighters, the document calls for the development of flexible acquisition strategies. Here, the DoD is seeking a balance. It wants to expand development of customized systems, while also ensuring they adhere to industry standards and have strong requirements in order to prevent overbuilding and “scope creep” that balloons deliverables, and costs. The DoD wants to capitalize on the speed and efficiency of commercial off-the-shelf systems, while also ensuring they can scale. To get there, the strategy calls for promoting open architecture and using modular open systems approaches (MOSA). It also calls for revisiting contracting strategies, employing flexible funding and procurement mechanisms, and making acquisition policy changes that ensure the industrial base can expand production now, and mobilize quickly when needed going forward.

Source: Shift5

To expand training and development of people so that the facilities and organizations that supply warfighters are properly staffed, the strategy centers workforce readiness. Expanded support in this area can help ease the path to industrial careers, provide workers with the skills necessary to succeed, and prepare for future innovation. The report calls for expanding upskilling and apprenticeship programs, while aligning STEM curricula with skills that are critical to the defense industrial base.

To exercise more influence and increase American competitiveness in an international trade system where China and Russia are upending the order established after World War II, the report calls for a focus on economic deterrence. There are two sides to this priority. There are carrots proposed for allies, including strengthening economic agreements, interoperability standards, and technology sharing practices. There are also sticks for adversaries, including reducing the defense industrial base’s entanglements with companies and investors controlled by adversarial nations, while fortifying defenses against cyberattacks.

What it Means for Startups

Innovation takes center stage in the report. After all, the strategy is effectively calling for new solutions to what has become an old problem. America is home to many early-stage startups ready to apply them. For each recommendation, there is likely at least one new company or product that has already formed, or likely will be in the coming years, to bring innovation to American industry. This report lays the groundwork for the federal government to do business with more of these companies, and adopt open and interoperable systems that allow their technology to be integrated more easily. Startups are also in a unique position to influence systems-level change. Entrepreneurs are on the front lines of the DoD's shift toward doing business with a broader range of companies. Aligning well-founded criticisms of DoD processes with the recommendations in this report can provide additional fuel to accelerate reforms and reshape requirements.

There will be room for more startups to join the modernization effort. A renewed focus on the defense industrial base will also broaden the categories of technology adopted by the federal government. With a wide focus that brings in manufacturing, education, cybersecurity, and software architecture, the report offers a reminder that defense tech isn’t limited to the products that are used on the battlefield. The DoD has identified 14 critical technology areas where it is directing energy, and seeking to spur investment. Strengthening the link between economic prowess and national defense will only expand the range of solutions sought by the federal government, and widen the opportunity for those who develop technology to serve the country and build a sustainable business that provides for their families. With a healthy defense industrial base, security can be achieved on all fronts.

What's Next?

With recommendations in hand, the DoD will now move toward action. During a briefing, Assistant Secretary of Defense Laura D. Taylor-Kale stressed in remarks to reporters that the strategy is "more than just an aspirational document." The DoD is finalizing an implementation plan with "near-term, measurable actions and metrics to gauge progress," Taylor-Kale said. This will include two dozen actions and associated outputs. An unclassified version of the plan that provides an overview will be released as soon as February. Monitor the action steps closely for opportunities to get involved.

Featured image: U.S. Navy photo by Richard Chaffee, used under a Creative Commons license.