What Silicon Valley Gets Wrong About National Security |
In the summer of 1993, U.S. President Bill Clinton’s secretary of defense, Les Aspin, and William Perry, then the deputy secretary of defense, hosted a dinner at the Pentagon for defense industry leaders. The Cold War was over, they informed the gathering, and the federal budget would not support them all. With no looming Soviet threat justifying ever-rising defense budgets, consolidation would be necessary.
Just after it happened, this meeting was dubbed the “Last Supper” by the CEO of the Martin Marietta Corporation, a major aerospace and defense firm that went on to merge with the Lockheed Corporation in 1995. Other similar mergers would follow. The gathering has since become a convenient origin story for why the U.S. defense industrial base lost the ability to meet the military’s needs and the defense acquisition process became so onerous. According to this narrative, the Defense Department simultaneously meddled with and neglected the industry, creating the inflexible behemoths that dominate the sector today while cutting off pathways for emerging technology companies to compete.
Defense acquisition is, indeed, broken. The United States cannot produce critical materiel at speed and at scale in a moment of crisis. Despite spending more on defense than the next nine countries combined, the United States faces a crisis of both modernization and production. Recently, an emergent group of Silicon Valley defense tech leaders and their funders, including Alex Karp, the CEO of Palantir; Palmer Luckey, the founder of Anduril; and Katherine Boyle, a co-founder of the Andreessen Horowitz venture capital firm American Dynamism, have blamed excessive government regulation and interventionism for this unhappy state of affairs. Too much funding, they say, flows to large legacy programs and prime contractors. Some have put a spotlight on the Last Supper, arguing that it marked a turning point after which procurement became too slow, requirements too numerous, and risk-averse contract structures too stifling to innovation.
Their declinist narrative is convenient, but it is inaccurate. The Last Supper did not usher in the industry’s dark era. By the time Aspin and Perry held the dinner, the defense industry, like nearly all U.S. manufacturing sectors, had already been weakened by globalization and the financialization of the U.S. economy, drawdowns in the defense budget since 1986, and a broader effort to remake the government in the image of private business. Indeed, after the Last Supper, policymakers repeatedly did exactly what Silicon Valley’s tech leaders suggest today as a solution for the department’s ills: they deregulated the industry and outsourced production capacity to the private sector. In fact, such strategies helped create the very problems that now plague the industry.
Defense tech leaders’ alternative vision for procurement is likely to fail, just as previous deregulatory efforts did. Washington should not rush to accept Silicon Valley’s critique as gospel. Instead, it should accept that national defense is not a normal competitive market and never will be and invest in the government’s own capacity to oversee military production, incorporate new technology, and manage competition.
The modern U.S. defense industrial base took shape following World War II, benefiting from the enormous investments made by the government and the decimation of foreign production capacity wreaked by the war. Before the war, the government had researched, developed, and produced most weapons in-house, at public arsenals, shipyards, and laboratories. During World War II, the government had enlisted the help of blue-chip companies such as Chrysler and IBM to manufacture a variety of defense-related products, from tanks to engines to rifles. This generally fruitful partnership between the military and industry endured after the war ended, undergirding the early Cold War effort to beat the Soviet Union in a technological competition and sparking innovation in national security with positive spillover benefits to the broader U.S. economy. Government investment and direction, paired with industry expertise, led to the creation and commercialization of inventions such as GPS, the Internet, and semiconductors.
By the 1970s, however, overseas manufacturing and technology markets began to reemerge. Foreign governments subsidized the domestic production of electronics, ships, aircraft parts, and more, and U.S. defense companies were forced to find ways to remain competitive. Taking advantage of lower labor costs overseas, U.S. producers moved parts of their supply chains to Asia and Europe. Then, the 1980s brought “financial engineering” to defense. Threats of hostile takeovers, defensive restructuring, and ruthlessly profit-maximizing executives saddled companies such as Lockheed and Martin Marietta with debt, leaving them weak and increasingly dependent on the Defense Department’s largess to stay afloat.
As a result, long before the Last Supper, the U.S. defense industry began to constrict. A defense spending boom at the heart of President Ronald Reagan’s hawkish Cold War strategy in the early 1980s masked the damaging effects........