Is the Pentagon Losing Its Edge?

is new in the American experience. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military austrial complex. The potential for the disastrous rise of misplaced power exists and will persist more than sixty years later. The United States spends

more on its military than any nation on Earth. My Bloomberg colleagues Peter Martin, Courtney McBride, and Rock Sena Torone report that now the rise of China and the strain the war in Ukraine has put on US weapons stockpiles have some inside and outside the military questioning whether the Pentagon has become too big and too slow to keep up with a rapidly changing world. They're here with me

now to tell us what they've learned. Pete. In reporting this story, you found growing concern among some top generals and Defense Department officials, contractors, policy experts that the US military is in danger of falling behind its rivals. Can you describe the conversation that's happening right now in military circles.

Something that I found really interesting reporting this was that there are hundreds thousands of people in Washington who spend their lives immersed in what's called the defense industrial base, right or the military industrial complex, And a lot of the time, these people who have exquisite technical expertise decades of experience, don't kind of come out and see the

light of day too much. But as we started reporting this story, we realized that these problems which have been known about for years and years, and if you talk to these kind of old defense hands, they're like, oh, yeah, everyone's known about this for the longest time. But these problems are really bubbling up in the minds of top policymakers now. And there's kind of been this clarifying moment I think over the last eighteen months that's brought this

stuff to the four. There was China's hypersonic missile test stific an event of a test of a hypersonic weapons system, and it is very concerning. So it's a very significant technological event that occurred or test that occurred by the Chinese, and it has all of our attention. But that's just one.

That's just one which was pretty shocking for policymakers in Washington because hypersonics was an area where the US had the lead for a long time, but now China has kind of moved ahead, and that's something that speaks to some of these problems with getting innovations to the warfighter

when it comes to the defense industrial base. There was the rapid depletion of US munition stockpiles when it came to supplying Ukraine, and there's this kind of looming worry about supply chains and the vulnerabilities that might be there because of Chinese parts and components, and so all of these things have started to kind of press policymakers as they think about, Okay, we have the strongest and best military in the world with the most impressive technology, but

do we have enough things and can we produce them quickly enough in order to actually fight the kind of war that would be needed with an adversary like China, and so this has really become a press issue. Roxanna, You've been covering the US military for quite some time. Why is the Pentagon struggling a bit to adapt? It's because it's so big, and it is the biggest military in the world and the best military in the world.

And I think the planning part of it is always extremely ambitious, and when you finally put it on paper and put it in practice, it doesn't work out that well because there's so many rules, so many regulations. The bureaucracy moves so slowly that it doesn't leave any room

for creativity. They don't foster creativity because creativity means risk, and so the US military doesn't want any of these risks because they need to show that they can put together these ambitious concepts and have these weapons that no one else has. But that comes with tremendous downsides because the industry will build what the Pentagon tells them to along the way require change. The Pentagon changes some of

the requirements. Technology doesn't work. It's either too ambitious or the industry sold something that is too ambitious that they can't follow through. So I think it's a combination of

just ambition, bureaucracy, and just inertia. A lot of the problems with the Pentagon really came forward when the US started supplying Ukraine with weapons to fight off rushing I was pleased to announce another major round of US security assistance designed to meet Ukraine's urgent battlefield requirements, and this two point five billion dollar package is one of our

largest yet. And then realized that that was rapidly depleting US stockpiles, that they didn't have enough weapons, and they didn't have a way to replenish them very quickly, that that had all deteriorated exactly. So, after the end of the Cold War, the US kind of study repositioning its defense industry for short, sharp, high tech conflicts where the US would go in with huge strength and win very quickly and hopefully keep the price tag a little bit

lower for the US taxpayer. The result of that is that there is this widespread perception now that the US isn't equipped for a major war against an industrial power like China and to a lesser extent, Russia. And so, you know, you think of supplying things like Stinger surface to wear missiles or Javelin anti tank missiles. US stocks

depleted very very rapidly. Is the US supplied Ukraine over the course of the last year, as Ukraine took on Russia's economy, which is ten times smaller than China's, and so the scale of that problem would be magnified greatly when it comes to taking on the PRC. The best example to just think about the stockpiles here is munitions. Right.

So the Pentagon basically when they plan their budgets, they usually take money out of the munitions because it's easier to cut bullets then to only fund three quarters off the F thirty five. And so they want to show that they can proceed with the high tech programs. They don't want to delay things. They're funding these programs, but then they basically take money out and then later on

they don't put the money back. And so now we realize that we have depleted that budget bucket, and now we're in trouble because it comes down to bullets, right, It comes down to munitions, It comes down to artillery in a war, and so just the accounting of it is surprising, and there's a certain amount of sort of maneuvering and perhaps hope that if from the army side, for instance, they cut some of the tanks that they actually would hope to build in a given year, that

Congress will stuff the money back in. And I think that has happened a few times with that borrowing from the munitions account that Roxanna is talking about. But then the money never gets put back in, and if the US doesn't deplete those munitions, then no real harm is done. But as we're seeing now with the Ukraine Security Assistance effort,

those stockpiles are being diminished. Fifty nine additional Bradley Infantry fighting vehicles and ninety Striker armored personnel carriers, fifty three M reps and three hundred and fifty up armored humves and it will provide thousands more, even as some US planners are realizing that perhaps the stockpiles should have been bigger to begin with, and there's not a way for

the contractors to rapidly increase the production to refill the stockpiles. Courtney, some of those defense contractors you're talking about have said that the supply chain issues we saw across all kinds of industries during the pandemic are somewhat to blame. Does that explain a lot of this? I think that's part of it, But a much bigger part is the embrace of the sort of just in time supply philosophy, which you may work for a commercial retailer but doesn't work

for defense contract acting. If you need to rapidly spin up production, what do you mean by just in time? So that's you know, having equipment inventory arrive right before you need to sell it, or in the case of a military right before you need to use those munitions you have them in hand. That doesn't work when you're operating in terms of wartime contingencies and suddenly you need to use or supply a partner with massive amounts of

artillery ammunition. And then you also have to think about the fact that there are different incentives operating for a private sector firm like a Lockheed or a Boeing or a BAE then for the defense department. So these companies are accountable to shareholders and they're looking at profit maximization. They're not going to expend tens of millions of dollars just to potentially have the capacity for increased production. If the government tells them it needs it. And that's the

other issue. The defense industry is suffering from a lack of skilled workers. And when you have to ramp up like that, it's really hard because you know, you have to train them. There's a bunch of other hoops that they have to jump through. So it's not as easy, you know, as a commercial company to build these weapons because you need a certain type of trained person to

do it. And you know, one of the things that the contractors are consistently telling the Pentagon is that they need certainty so they can hire and train and maintain those skilled workers, and they can have the you know, the assembly lines open and ready to expand, but only if they have long term contracts that give them some financial security to do so. These companies are hobwired to sell to the Pentagon. That's in many cases the sole

customer that they have. If they want to sell to foreign customers, they need sign off from the US government.

And so everything about how to be profitable as a large defense contractor flows from being able to build what the Pentagon wants, being able to build it on the timeline that the Pentagon wants, following the thick handbooks of regulations that are involved there, and so you know, really defense contractors have kind of remade themselves in the image of the Pentagon, and so getting away from that or saying to them, like you should be thinking long term,

you should be building out extra capacity in less in case the US wants it is not really a realistic proposition if you have to justify your actions as a defense industry executive to shareholders. And some of those same things that Pete is talking about are actually barriers to entry for smaller companies, perhaps more innovative companies that might

have something to offer to the Pentagon. I wanted to ask exactly about that, because it used to be that there were a lot of defense contractors and now it's dwindled down to really five big players. How did it happen that the industry has so consolidated that you really have just a bare handful responsible for producing almost everything

that the military requires. So in the aftermath of the Cold War, US politicians got very excited about this idea called the peace dividend, this idea that you could bolster domestic economic growth by reducing military spending and diverting those efforts elsewhere. And of course the big adversary for decades. The Soviet Union was winding downs, and so this existential threat that required such a huge military was seen as

no longer necessary. It had completely disappeared. And you know, after the Soviet Union, foul military planners were rethinking what America's national security environment looked like. This was going to be an environment where failed states were a problem, where terrorists popped up and were a threat to the US.

The idea of a large industrial war involving land armies and huge protracted conflicts was something that was supposed to belong to the past, and so the US and the Pentagon in particular, the hope that the defense industry would

respond accordingly. And there was this kind of extraordinary clarifying moment in the early nineties where then Deputy Secretary of Defense William Perry called in the largest defense contractors and told them, you guys need to consolidate, or there's not going to be enough of a pie for you in

the future. And they did. They followed his lead. It was just this kind of epochal event known now by defense industry inside is There's the Last Supper, This kind of clarifying moment where they realized that, you know, this was the direction of things and they'd better follow or face extinction. And they did. They really did start to kind of gobble each other up. Is that right, Roxana, Yes they did. And now we're down to five basically,

and who are the five? It's lacked Martin Boeing, General Dynamics north of Grumman and Raytheon when we come back, why it matters that just five companies are left to build the military's big weapons systems. So there's consolidation of the defense contracting industry, five companies now dominating it. How has that affected the ability of the Pentagon and also these companies to be innovative, to be creative, to come

up with new ideas, to be agile and quick. So it has definitely affected it because there's very little incentive to be innovative and creative because that means going off the path that the Pentagon is basically laying out for you. If the Pentagon doesn't want to buy it or doesn't want to invest in it, that there's no point in coming up with some innovative technologies. But that would be

unfair to the industry. They do spend some money on research and development to come up with new and innovative technologies, right, but it makes it really hard for for example, you know you had the rise of Silicon Valley. It makes it really hard for those types of companies to go into business with the Pentagon because of all the regulations. There's a lot of security clearance required. They can't do business with anyone else if they end up doing business

with the Pentagon. So there's just no real incentive to move fast and to offer certain things to the Pentagon when it comes to the new tech companies. The best example of this would be SpaceX, who had to sue the government to be allowed to compete for national security space launches basically launching satellites into space for the Pentagon, because the Pentagon was giving all these contracts and focused on the United launch allowance. It's basically a venture between

Boeing and Lockheed Martin. But they couldn't do these launches without Russian made rocket engines, and so ellen Musk had to sue the government. He eventually won and now is one of the bigger providers of these satellite launches. But it took a lot of patients and it took a

lot of great to do this. It was this really fascinating study done by the Hudson Institute, which is a Washington think tank, where they kind of looked at dozens of weapons systems and figure out what does the timeline look like from going from inception of an idea through

to delivery, and they found pretty shocking stuff. And this evolution that's taken place from the nineteen fifties where it took on average, I think one year to go from identifying a need to issuing a contract to today where it takes about seven years to go from identifying a need to issuing a contract. Then once that contract is issued for an innovative weapons system in the case of the F thirty five fighter, it took a further twenty one years to get it from contract to something that

was usable for the military. So it's really an extraordinary timeline when you think about how quickly technology is developing. And meanwhile, China in particular has decreased the amount of time it takes to go from concept to actual reality exactly moving from the air to the ground. Corney, what does this mean for more conventional WESTMN systems for fighting on the ground, which, as we're seeing now in Ukraine

in other places is still really relevant. The army has no successors to the Abrams tank and the Bradley fighting vehicle, which were developed through the sixties and seventies, fielded in the eighties and made their debut in Desert Storm back in nineteen ninety. They have been top of class, but are losing ground to competitors, both friendly and not so friendly.

I think there was also this period of the War on Terror in some ways kind of vindicated the decisions that were made at the end of the Cold War. You had this shift to just in time manufacturing and this idea that production lines were going to be nimble and quick and when you're chasing terrorists around. Actually it turned out that the defense industrial base was able to

meet that challenge pretty squarely. Terrorists don't require super high tech solutions and they don't require massive amounts of production. But the China as it emerged, and then Russia's invasion of Ukraine really highlighted that those assumptions about the adversaries that the US was going to be facing were wrong and something else was needed. Absolutely, and I think there had been a lot of talk about the death of

tank warfare altogether. I think a lot of people thought of it as something of an anachronism, and obviously the value of tanks in Russia's war on Ukraine has led people to question a lot of those assumptions. There's a political problem looming here when it comes to this talk of supply chains. When you speak to people who are deeply involved in the US events industry, they'll say, well, you know, we've got to reshore supply chains. We kind

of embrace this old vision of globalization anymore. America's got to make these parts so that our supply chains is secure. And that's all very well and good in theory, and then you kind of push them on it a little bit and they say, well, you know, the American public is going to have to deal with higher costs, and you kind of think to yourself, well are you going to tell them, because there are arguments about the debt

sailing at the moment. You know, these are going to create political fights, and it's a conversation I don't think the US politicians have had with the US public yet. So we've talked about a lot of things that we know are not working. Well, what is the Pentagon doing now to try to rectify this situation to improve it in the future. They definitely have learned from the war in Ukraine. They're investing more in munition production. They are trying to look at ways to move a little faster.

They're trying to overhaul their planning and budgeting process. In fact, their Congress is making them do that, and they're supposed to come up with some answers this year. So do you definitely see movement and you see the realization. You also have Congress who realize that they need to sort of back up the Pentagon. They have green lighted a lot more multi year contracts that gives a lot more

predictability to the industry. I mean, one of the things that you realize when you look at this problem is that almost everyone who's involved recognizes that the system is at massive volt from the White House through to the

bowels of the Pentagon to boardrooms of defense companies. Everyone knows that there's a problem, But the system is so huge and so sprawling that no one, including Congress in the White House, really have the ability to fully get their hands around the problem and can only kind of look at it from their own narrow perspective. And so that makes reforming it a really huge undertaking, and it's the kind of action that's not easy to accomplish in

Washington at the moment. Yeah. I mean, I think John Ferrari, who's a retired Army major general who led the Services Officer Program an Analysis and Evaluation, said, you're fighting the ultimate system. There's actually nobody and no single place to go to change it. He said, you know, you can poker at it from around the edges, but it's a living organism that nobody actually controls, you know. And I thought that was just particularly illustrative of the problem in

all of this. How concern should Americans be about US military readiness the ability of the US to fight a war? You know, I think there are a couple of ways to come at that. If you put your pessimists hat on, you would say that the most surefire way to prevent a major war with an adversary like China is ensuring

that the US is ready to fight one. And if you are Chinese intelligence and you're looking at the way that US munition stockpiles are depleting as America's supplies Ukraine against Russia, You're likely to be thinking, well, what do America's stockpiles look like when it comes to the kind of missiles they'd need to stop US from invading Taiwan, And those lessons, I think are pretty sobering and pretty worrying.

And it's not necessarily because the US plans on fighting war anytime soon, but because it needs to have the strength to stop one from breaking out. I think the optimists angle is that China has huge problems too. The US military industrial bases replete with shortcomings. China's is also. You know, China faces massive problems when it comes to corruption, It faces huge problems when it comes to innovating, even

on very foundational technologies like semiconductors and jet engines. China is struggling and is deploying people to try and copy systems from the US. So I think that, you know, the optimist case is that the US is still very much in the lead, but that there are questions about whether it can sustain that. Pepe, you mentioned how the F thirty five other weapons systems take decades from concept

to actually being built. What is in the pipeline now as we look at rapid changes in technology that will be the weapons of the future for the US. So I think there's a lot of focus on autonomous systems, you know, submarines that aren't manned, further developments in drone technology. But the thing that people are really excited about at the moment is this concept called JABC two, which means

Joint All Domain Command and Control. Basically, it's the idea that using satellites, undersea cables, swarms of drones, you ensure that the war fighter in the battlefield, the naval assets, the fighters overhead, and intelligence are all able to talk to each other in real time. And it's the idea that the US will have an advantage by being able to outthink or think more quickly than its potential opponents. And that's what the Pentagon is actively working toward right now.

They're actively working on that. Yeah, but it is very much of the conceptual stage, as you get from the clunky Jatz to acronym Courtney Roxanna Pete, thanks so much for coming on the show. Thank you, thanks for having us, Thank you for having us. When we come back, a view of the Pentagon from someone who's been on the inside. Now, let's hear another view about the challenges the US military faces. Michelle Flournoy is co founder and managing partner of West

Exact Advisors, that's a national security consulting firm here in Washington. Michelle, you served as Deputy Assistant Secretary of Defense for Strategy under President Bill Clinton, and then you came back to the Department a decade later as Under Secretary of Defense for Policy when Barack Obama was president. So, from what you've seen, has the Pentagon done a good job of

adapting over the years. One of my privileges in the Pentagon was to work for Secretary of Defense Bob Gates, and he used to like to say that we have a perfect track record in predicting future conflict. We never get it right. And so the Pentagon is always in the situation where we've organized, trained, equipped, prepared for conflicts that we foresee in the future, and almost always the world pulls us in a different direction and you have to adapt all of that to a new set of circumstances,

usually with very little time. What has a Pentagon done well in adapting as you describe it, and where has it really fallen short? So I think probably our strength and adaptation is in our people. When you look at how we responded to nine to eleven and the ability of particularly of our initially our special operations forces to pivot and focus on a very different threat. I think that was pretty impressive. I think what's harder is what

we budget for and procure. Our fiscal year twenty three budget request included more than fifty six billion dollars for air power platforms and systems, and more than forty billion dollars to maintain our dominance at C and almost thirteen billion dollars to support and modernize our forces on land, and some thirty four billion dollars to take years and years to move a weapon system from research and development into acquisition and then finally actually fielding it in the force.

And so you know, you're buying things now that you'll see in ten, fifteen, twenty years. And once those programmatic trajectories are set, it's very hard to change or adapt them, either because of new circumstances in the world and new needs, or because of technology disruption, like better solutions or things that you could add and make something better. So those are the places where it's really hard to turn. The

proverbial aircraft carrier. Has Abandagon focused too much on big weapons systems at the expense of smaller, more agile weapon systems that it would allow it to adapt more quickly. I think any American force has to be a mix of high end, cutting edge systems that will be kind of the backbone of the force structure, like a fifth generation aircraft or the world's best aircraft carrier or what

have you. But the key in this environment where technology is changing so fast, threats are evolving so quickly, is we have to be able to inject new technologies, new concepts, new solutions to marry them up with those legacy platforms if we're going to be successful, because once you buy that carrier force, that fighter force, you're going to have it for decades. Has China been better at adapting and being quicker and more agile at changing, I would not

say so. In general. I think they have stolen a lot of intellectual property from our defense contractors. They've copied a lot of our systems. What they have been able to do is they have a state, an authoritarian system that can throw massive amounts of resources. I think where they have taken a leap ahead of us technologically, it's been less that they've been so good and more that we took a break or a pause or didn't move

something forward. What do you mean by that? Hypersonics is a good example where we had a number of programs, we had a mixed record, some successes, some failures, and then the Department basically didn't invest much in hypersonics for a number of years, either believing that they weren't that

important or believing that the technology wasn't quite ready. Meanwhile, the Chinese saw this and just put mass against the problem for years and years and years, and then they basically caught up and then actually surpassed us in terms of fielding a system, and so now we're playing catchup. China's hypersonic missile test in twenty twenty one was sort of a big wake up call for the US military. You described it, I believe as encapsulating a failure to

transition critical technologies from research and development to production. How sort of big a deal was that when it happened? Well, I think you know, this is a case that is emblematic of a larger problem, which is we are really good at inventing those cutting edge technologies, demonstrating them, prototyping them. We are not so good at helping them cross the valley of death. And actually getting into the force, so into production at scale and field it at scale. And

that's a problem that the department is working on. But we haven't consistently cracked the code. Why is that you've seen it from the inside since then you've seen it from the outside as a consultant and someone who thinks all the time about these issues. What is it about the Pentagon that doesn't let it work quickly enough? Well?

I think there are a couple of things. First of all, the bulk of cutting edge r and D research and development has moved from being US government and Defense Department driven to now in many key technology areas that are essential for national security, that cutting edge is coming out of the commercial sector. So it's not a matter of the government investing and then taking a program to production.

It's a question of innovation adoption. How do you take a commercial technology, adapt it and then bring it into defense systems. That's a very different challenge, and it means that you have to train and incentivize your acquisition workforce differently. Is it part of that? Because we went from having say seventy defense contracting companies competing for various programs, A lot of places go to a huge consolidation where we now when we have a handful of them. I do

think that has been a factor. You know, every program that one of the prime contractors wins becomes a do or die program. They're very very good at making sure that components for those programs are produced. What do you know across all fifty states, and so you've got all one hundred senators you know, wanting to support your program. So we need to get a lot more creative about how we partner with commercial companies to get that greater resilience.

And then there are just things that are not hardware AI. For example, well, first of all, moving to the cloud, being able to leverage the data, the massive amounts of data that d D sits on. I think give credit to the Department for really trying to crack the code on that, but then starting to use AI to make human decision making better, to enable better quality, faster decision making, and a whole host of areas that is very ripe

for the picking now. In twenty twenty, you wrote that unless the US invests more in long range missile technology, and especially because of cyber capabilities increasing, the US could find itself stumbling into a nuclear confrontation with China if China were to attack Taiwan. Does that still concern you at this moment where there are a lot of height

intentions and questions about China's intentions with respect to Taiwan. Yeah, I do think the relationship is on a downward trajectory, despite I think the administration's attempt to try to put a floor underneath that. I do think Hijimping is a different kind of Chinese leader, and he has made it very clear that he views the reunification of Taiwan as

a legacy issue. It's clear that he prefers to do that through political and economic coersion, but he's also told his military that if that doesn't work, I want an option. I want a real option by twenty twenty seven. So to me, that says we have a five year window to meaningfully strengthen our ability to deter Jijimping from taking that action, whether it's a blockade and invasion. We don't know what he would do, but we want to make sure that he doesn't have the confidence that he would succeed.

And there are lots of ways to do that, both diplomatically, working with allies, and through the kinds of military capabilities that we field, that our allies field, and that we helped Taiwan to field. And do you think we have those capabilities now that you were pointing to the US needing Then I think that we could meet that objective if we really put our minds to it, and if

we reallocate resources in the right way. When you were Under Secretary of Defense for Policy when President Obama was in office, you were the highest ranking woman in a history of the Department of Defense. Has that changed much since you were there? And do you think the Pentagon would benefit from having more women in senior positions? Well, I'm happy to say it has changed. Kathleen Hicks is the Deputy Secretary of Defense and she is now the

highest ranking woman that's ever been confirmed. You also have the first time ever Secretary of the Army who's a woman, Christ Warmth. And you know, I think the Biden administration made a commitment upfront to aim for fifty percent of the cabinet to be women, fifty percent of the national security leadership to be women, and they've probably gotten closer to that goal than any administration here too. For so

I give them a lot of credit. What I do find is, you know, I spent a lot of my time when I was under Secretary in the Situation Room, in what's called the Deputies Committee, which is sort of the deputy's level interagency body that would tee up options and make recommendations to the principles and the president in

national security. What I found was when you have a diversity of views, not just gender, but lived, experienced, background, perspective, expertise, you more fully explore the issues and the decision space. You give the president better options, and usually you get better decisions. Michelle Flourne, thanks so much for speaking with me. Thank you, thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio.

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