June 29, 2015    Volume 22, No. 8

Search Back Issues
Guest Editorials
Trading Exchanges
About Us

Lean Machines Sixteen Case
Studies On Lean
From Manufacturing &
Technology News

Free e-mail newsletter

U.S. Military's Rapid Reduction In R&D Is Causing A High Level Of Concern

By Richard A. McCormack

The amount of money being spent each year by the federal government on defense research and development has declined to levels so low that they "are frightening," says Wes Bush, Chairman, CEO and President of Northrop Grumman.

In the 1960s, the U.S. devoted about 1 percent of its GDP to defense-related R&D. That figure dropped to 0.7 percent of GDP in the 1980s and to 0.5 percent in the 2000s. "By the end of this decade, we expect it to drop to one-third of 1 percent of GDP," says Bush.

Since its peak year of 2009, defense R&D spending has declined by 40 percent, "a devastating reduction," he adds. "Those levels are simply insufficient to support the advances in technology that our future military will need and, as some will argue with everything going on in the world, that our military needs today."

The decline occurs at a time when the pace of technology development has never been faster. The U.S. military needs to develop unique technologies that the commercial sector does not pursue because there are no markets for them. "The automobile industry had no interest in stealth," Bush notes. There is no commercial interest in developing advanced hypersonics, electronic jamming, offensive cyber or advanced missiles. "It's a very, very different environment and business model and there are just too many differences between the commercial world and the national security community for their R&D to be interchangeable."

But given the current period of austerity, tight budgets and sequester, there is a sense that the military can find cheaper alternatives to its needs through the commercial world. "It is natural that [congressional] appropriators and the national defense community would look there for innovations to transform what we are doing in defense, but commercial solutions, while important in and of themselves, are not the answer to the need for technological superiority and therefore should not be used as an excuse for further reductions in R&D," Bush told a meeting of the Center for Strategic and International Studies. "Commercial technology, being inherently broadly available, offers no national security advantages, by definition."

American lawmakers need to be alert to the fact that China increased its spending on R&D by 18 percent per year from 2009 to 2013. By contrast, U.S. spending grew annually over that time by only 1 percent, and defense R&D declined by an average of 7 percent per year. "If you look at velocity and acceleration, they are closing fast," says Bush. Battelle estimates that China will surpass the United States in R&D spending by 2022. It surpassed Japan as number two in the world in 2011.

"A lot of pundits out there say that America is in decline and will cite the numbers that I just cited to make that case, but we also know that national decline is a choice. It is not a fate. And if we are in decline, it's within our power to arrest that slide by making different choices. Technology innovation is not a birthright. It's going on all around the globe."

For DARPA Director Arati Prabhakar, the concern is whether the U.S. defense R&D enterprise is too focused on making incremental improvements and not on revolutionary new capabilities. If so, then America's adversaries will soon have the advantage, given that every nation has access to the same technological advances.

"I don't think we are yet asking a high enough quality question about what we need to be doing," says Prabhaker. "Are you making sure you are going to get onto a new trajectory of capability rather than to a new point where the adversary is going to race by you the next time there is a turn in technology?" The jury is still out on that, she implied. The purpose of R&D is to "actually accomplish something that will change national security outcomes and we need to get to the question of are you changing national security outcomes? Are you aiming far enough out?"

In response to a question about the controversy over why defense contractors are using virtually all of their cash to buy back shares of stock rather than investing in R&D, Bush felt the need to explain the reason for being a public company in the United States. "It is important to understand the basic financial model that is driving the outcomes we see in the defense industry because I think there is a lot of misunderstanding about it, quite frankly," he replied.

The defense industry has reduced its headcount by 20 percent from 2010 to 2012, a process that Bush says has been "devastating" given the level of talent of the people who have been fired. "So we have taken the difficult actions we needed to take to ensure our industry maintains its attractiveness in the capital markets. Why is that important? Because we derive our capital from the capital markets."

When the industry is growing, companies must go to the capital markets to attract investment. "And there are periods of time when we are returning cash into the capital markets" -- as is currently the case -- "and it is usually counter cyclical. We have been through a very tough period of time and, quite frankly, it is quite difficult to go to the capital markets and say, 'Sales are going to be down again next year, why don't you invest some more?' But they are going to do it because they see us being responsible in how we are treating our shareholders so that when we come back in at the other side of the cycle and we need to take on additional capacity in the marketplace, they are going to view our industry as a responsible industry and they are going to be happy [to invest]. So it's a matter of managing for the long term. We are looking out for all of our stakeholders."

Provide us with a comment on this article.

We'll notify you as issues and free stories like this one appear on this site. Sign up for a content-rich, e-mail newsletter. (You will NEVER receive spam.)

Please consider subscribing to Manufacturing & Technology News. You will have access to all back issues dating to 1998, plus receive the current issue electronically and via regular mail. It is all original reporting on the most important stories facing U.S. industry. No advertising. The cost of a new subscription is $495 per year.

Scan Back Issues Comments | About Us | How To Order

Reproduction Rights 2015 Are Granted To This Story So Long As A Link Is Provided To This Source Of Original Content.