Last week, the National Research Council released a report revealing that the United States accounts for less than one-third of the total spending in research and development, a figure that’s expected to drop to 18 percent by 2050.
“We’re not seeing the same level of R&D investment today as we did before, and in particular, relative to the rest of the economy, it’s been shrinking,” said Bill Lynn, CEO of Finmeccanica North America and DRS Technologies Inc, Tuesday, during a discussion as part of the Atlantic Council’s Captains of Industry series. Lynn was the deputy secretary of defense from 2009-11. From 1997 to 2001, he served as the chief financial officer and under secretary of defense (comptroller).
The growing globalization presents particular challenges for the Defense Department, which has exhibited a number of blind spots when it comes to its approach to accessing basic global science and technology.
Lynn sees these gaps as something the Pentagon and the defense industry needs to address sooner rather than later.
“Over time, IRAD (independent research and development) spending has been flat or declining, while the rest of the economy has been investing,” he said. “And so, at this point, Boeing, Lockheed, Northrop, Raytheon and L3 combined spend about $3 billion in R&D collectively.”
This points to two things. First, the U.S. is not investing in defense technology the way it used to, and, second, the technologies that are needed are increasingly coming from outside the defense industry.
At one time, the Pentagon itself was a chief exporter of technology, from the GPS system to the Internet, which came out of DoD’s Advanced Research Projects Agency Network (ARPANET). Now the process has flipped and much of the cutting edge technology DoD needs originates from commercial sources, some of whom are foreign.
“3D printing, nanotechnology, the cloud, autonomous vehicle technology, a lot of that is being done outside defense,” Lynn said. “And so, you need a structure that pulls it into the national security arena and then operationalizes it for our military force. I think that’s going to be one of the key steps we need to take if we’re going to maintain that edge.”
Three areas of concern for DoD
Lynn says the Pentagon and the defense industry have three trends it needs to address.
“We need to look, frankly, at greater consolidation,” Lynn said. “I’m not sure we can maintain the structure we’ve had with the 20 to 30 percent lower budget, maybe more.”
Consolidation, he acknowledged, is a controversial subject at the Pentagon.
“I understand the push back because you want competition and I agree, we do want competition,” Lynn said. “But, I think, in certain arenas, we’re going to have trouble getting it, particularly if we don’t go to globalization.”
As examples, Lynn pointed to the Navy and Air Force, where the percentage of contracts going without competition are on the rise.
“If you looked at the Navy in actual tonnage of ships, only 4 percent of our tonnage right now is actually competed,” he said. “The rest is either sole-source or allocated. In terms of ship building, there already isn’t much competition. As you go down the aircraft, the F-35 is the only aircraft in development. There are others in production, but how long is that going to last? Are you going to be able to maintain competition there? If so, how are you going to do it?”
Competition does remain in other areas of defense, such as robotics, vehicles and communications.
“When you think about consolidation, we may want to worry less about competition in the platform arena and focus more on competition in the other arenas, partly because it’s a fact of life and partly because I think that’s where the future is,” Lynn said.
The second trend DoD faces is its growing reliance on commercial technology. He said that DoD’s acquisition of commercial goods has risen from about 10 percent to 30 percent in the last few years.
Lynn considers the final trend the Pentagon is facing — the growing globalization of the defense industry — to actually be a good thing for the U.S.
“To have competition in many sectors, you may only have one U.S. supplier, but there are international suppliers,” he said. “You’re going to get a better product with better technology at a better price if you have competition. We need to make sure that we have a global approach to this.”
In addition, not all the best technology is produced by U.S. contractors. In order to compete, the Pentagon needs to have access to the best technology available, whether its produced domestically or not.
“From a point of view of self interest, in terms of if the U.S. defense industry is going to fight this, I would argue they should not, because all of the major defense companies are talking about growth in international markets,” Lynn said. “If they expect to have those markets open, we’re going to have to have some access to our markets here.”