Opinion: Setting Pentagon Priorities In A Changed World

Washington has an opportunity to reassess its military and diplomatic goals. By crafting an appropriate national security strategy, the U.S. can avoid costly policy errors and set the stage for proper long--term investment in its defense capabilities. The upcoming budget review should be about defining the threat, understanding the needed force to defeat it and ensuring that the industrial base is properly incentivized and capable of equipping the armed services. In an unpredictable world, a strong and innovative military is essential to protect the U.S. and its economic interests.

At $850 billion, the planned budget for fiscal 2025 is probably below ideal. Government outlays for defense are just under 3% of the $28.3 trillion U.S. GDP. A decade ago, the figure was 3.3%, and it was 4.1% in 1993, when the Cold War had just ended. So the cost to defend America is declining as a percentage of economic output.

Looking at it another way, the U.S. has a stronger defense with fewer troops. The total active-duty force is down to just under 1.4 million today from 1.8 million at the end of fiscal 1993. The Defense Department’s civilian workforce of about 800,000 is 10% smaller. Could we find ways to be more efficient? Probably. Is there nonessential work being performed by the civilian workforce? Of course. Here are some ideas.

The Pentagon should spend more time on budget outliers while cutting paperwork on recurring buys and reducing bureaucratic costs. Find the levers in procurement laws that can speed up reviews and enhance oversight. Operation and maintenance claim 40% of the military budget, so invest in reducing recurring costs. Craft better proposals and raise the hurdle for bid protests. Deliver the budget on time. Delays cost money and harm readiness. It is in the national interest for all parties to work together.

The ability to deliver more for less has been driven by forward-thinking leaders who recognize that strategy drives outcomes. The adversary gets a vote, too, though, so the Pentagon needs to have a competitive fighting force while it evolves and deploys technologies to defeat new threats. For example, to down cheap drones, it should replace expensive interceptors with low-cost-per-kill directed-energy weapons or small projectiles.

In 2002, then-Defense Secretary Donald Rumsfeld set out a compelling framework in Foreign Affairs. He argued that our security challenges were not as predictable as during the Cold War. It was true then, and his argument remains relevant today.

Rumsfeld cited the need for more uncrewed and long-range systems as well as improved information networks. Those ideas have become reality with the Boeing MQ-25 drone, the Northrop Grumman B-21 bomber and significant funding for software-defined radios and cyberspace activities.

With the end of the Cold War, many companies exited the industry, leaving it to those with a vision of how to operate in a more constrained and volatile environment. Successful companies cut overhead, consolidated factories to match demand and transformed production lines to meet the next need. For example, demand for air-to-air missiles declined, but the requirement for long-range strike missiles rose. Today, Lockheed Martin’s Joint Air-to-Surface Standoff Missile and its sister, the Long-Range Anti-Ship Missile, are built on one production line, sharing costs.

Other initiatives have delivered value to the Pentagon and shareholders. The use of multiyear contracting generated shared efficiencies, and to balance risk and innovation, the Pentagon embraced competitive development programs. The Army set up a process that scrapped lower-priority programs to free up about $35 billion to fund its modernization. The Pentagon has sought partners in Silicon Valley and created the Defense Innovation Unit in 2015 to help the U.S. military make use of commercial technologies more quickly. All that drove down procurement costs and renewed focus on competition.

There are many lessons from the war in Ukraine; funding was supplied and industry responded to battlefield needs faster than a budget cycle. In a related example, contracting terms could be revised further to pay for war reserve capacity—future contracts should have a war--related surge clause. Employing unit costs as the sole metric for value does not take into account the need for long-term preparedness.

Finally, Congress, with its control of the nation’s purse strings, needs to support a concrete plan that delivers recurring and verifiable value to the public and to the Pentagon’s suppliers.

Howard A. Rubel is a managing partner at 1215 Strategic Advisors. He previously led investor relations for General Dynamics and worked as an equity research analyst at Jefferies.