Deep and long-term budget cuts could be the best thing to happen to the U.S. defense enterprise in decades.

Austerity should enforce long-overdue change in the relative size and influence of air/space, land and sea forces. For the last decade of mostly land combat, the ground forces have dominated discussion of strategy, and the doctrine that no war can be won except by taking and holding ground has become a shibboleth to which all who aspire to be “joint” must pay homage.

U.S. Army and Marine strategists today are simultaneously challenging the Air-Sea Battle (ASB) concept, which U.S. Air Force and Navy planners developed to counter anti-access threats, and trying to shoehorn infantry and amphibious forces into a central role in ASB. But it is hard to argue with Center for Strategic and Budgetary Assessments President Andrew Krepinevich, who says: “If the Marines and the Army landed on the coast of China, it would be a story on page A17 of The People's Daily.”

The tough lesson of Iraq and Afghanistan is that “invasion is not a business we can afford to be in,” Krepinevich says. One reason that defense cuts look as scary to the industry as they do is that personnel costs have ballooned, to sustain recruitment and retention through the longest and largest combat deployments ever attempted without conscription. Consequently, budget cuts will fall heavily on procurement.

Land force structure will not be alone in facing review. The last 30 years of U.S. combat aircraft procurement have been about adding stealth technology to every combat aircraft in the force while protecting the numbers of squadrons and wings. In 2030 we will be nearly halfway there, if all goes well, which so far it has not.

The Navy planned its smallest warship in decades, the Littoral Combat Ship, to sustain the count of surface commands as the Navy commissioned the stealthy Zumwalt-class, a so-called destroyer that is the biggest Navy surface combatant in 50 years. But even with the Zumwalt program cut back, the Navy faces a tough time building and sustaining a balanced fleet unless it is ready to reduce numbers.

The common thread to all of the points above: Strategy is matching resources to goals, and does not start with force numbers—although they make impressive images (see photo). Another area where austerity will drive change is the business of procurement: not another well-intentioned “reform” that entrenches an extra layer of bureaucracy, but a restructuring that reflects the unique realities of defense. These include monopsony (a single customer), long product lives (defense equipment sees relatively little use in peacetime) and consequently low production rates (because replacement is slow). Between them, they drive the enterprise away from a free-market ideal.

After the Cold War, the U.S. used its monopsony power to enforce consolidation in the arms industry. Money was poured into a few winner-take-all-forever programs, whereupon most participants dumped their remaining plowshare divisions, acquired competing sword-makers and (in many cases) shut them down to reduce capacity and raise margins.

The pure-play defense companies which emerged from this process cannot generate growth for their shareholders if the procurement budget slumps, and will be under increasing pressure from more-diverse companies. That may not be a bad thing. This isn't the 1950s, when military aircraft were built in thousands and successful commercial aircraft in hundreds, and the cutting edge of almost every technology was in defense. Defense systems should harvest commercial supply chains for subsystems and materials, reducing cost and development time. One way to facilitate that will be for armed forces to buy more materiel (including components) from mixed-economy contractors.

It is time for defense customers to recognize that when it comes to big-ticket items, competition in the development stage is an expensive fiction. Again, this is not the era where you could lose one fighter competition and win another two months later. France has been managing without prime-contractor competitions since Dassault bought Breguet in 1971, and Sweden has never done it any other way. The challenge today is to identify what skills and technologies are unique and vital, and preserve them as efficiently as possible. State capitalism, industrial policy and mercantilism are naughty words today, but unfortunately are inevitable in defense.

Huge organizations, Krepinevich points out, seldom change their behaviors except in response to a major change in resources or catastrophic failure. When it comes to defense, better the former than the latter.