Every four years, the Department of Defense, as required by law, conducts a review of its forces, resources, and programs and presents the findings of this Quadrennial Defense Review (QDR) to the President and Congress. The QDR provides a basic strategy for addressing critical issues like budget and acquisition priorities, emerging threats, and Pentagon capabilities for the next 20 years. At a recent Heritage Foundation conference, experts analyzed the role of the military industrial base in QDR planning.

Biotechnology: A New Field for the Military Industrial Base

Currently, the military relies on the commercial industrial base for its biotechnology needs, leveraging advances developed for health-related applications. There is no established military industrial base for biotechnology. If the military is going to take advantage of the capabilities of biotechnology and make it a part of military transformation, it will have to develop a relationship with the commercial biotechnology industrial base, define requirements, and move forward with a judicious investment strategy. The QDR is an appropriate forum in which to address these issues.

The QDR should embrace the opportunities that biotechnology presents in the fields of logistics, materials science, electronics and sensing, bioenergetics, and biomimetics. It should consider two key strategies:

• New and effective partnerships between the Department of Defense and the biotechnology industry that lead to the development of new approaches to working with the private sector, such as new business and planning practices. The current acquisition system is not set up to work well with biotech companies.
   
• Expanding military understanding of biotech efforts. Advances in biology and biotech should be built into capabilities-based planning.

What now prevents full development of these ideas is the lack of existing successful industry models, as well as regulatory, legal, ethical, and societal concerns over use of biotechnology by the military. However, a military biotechnology industrial base (or a partnership with the commercial industrial base) could produce capabilities vital to the warfighter, such as sensor networks, health monitoring, functional foods, portable power, and camouflage.

Evolving Conditions and Industry Issues

The 2005 QDR-with its relatively open process, consideration of the entire threat environment, and competition for ideas-promises the possibility of real transformation. However, while the Department of Defense is writing its roadmap, industry needs one too. Participants discussed evolving conditions and areas of concern to the military industrial base and military preparedness as they relate to the Quadrennial Defense Review.

Procurement: The procurement process is a constant concern. It is too slow, too long, and getting worse. While the United States gets good value for each procurement dollar, it simply takes too long. The Joint Strike Fighter (JSF) program, for example, has been going for 17 years is still not completion. With strong leadership, the Department of Defense and the Quadrennial Defense Review could improve this process.

Prime contractors: In the 1980s, there were about 20 prime contractors; now there are only 4 or 5. There must be some recognition of the effect that this decline has on the supplier base and its ramifications for innovation and profitability. Furthermore, the Department of Defense apparently believes that the future of innovation resides with small companies, but this is counter to the ongoing trend-primarily mergers and acquisitions. Large companies actively seek to acquire smaller "smart" companies, driven by the desire to acquire technology, innovation, and markets instead of the old desire to expand for survivability and economy of scale. When the Department of Defense goes seeking these smaller companies, it may find itself lagging behind the private sector.

Domestic economics: The Department of Defense used to be a prime driver of research and development and was the major catalyst for many of the technologies that we enjoy in the civilian world today. Additionally, it was a major procurer with respect to the national economy. This is no longer the case. In the electronics industries, for example, many firms that used to be major suppliers to the Department of Defense now have a much smaller relationship with the Department, or none at all. Yet the Department of Defense increasingly relies on the commercial sector in the areas of IT, electronics, and communications, some segments of which find themselves in almost a direct support role to the military. This situation places the acquisition system in difficulty by decreasing the Pentagon's influence over what technologies the private sector pursues.

Globalization: Sourcing and production is now global, with considerable implications for the industrial base. The United States is no longer the single source of high technology, and while "value added" capabilities still reside within our borders, even this is changing. The United States likes to have access to technology from foreign sources but does not want to be dependent on it. Impediments to cooperation with allies-such as technology transfer, third party transfers, and the concept of just return-still exist. On the positive side, large international defense companies, such as EADS, BAE, and Thales, are increasing their presence in the U.S. The QDR must address the issue of global industry partners-a reality of the 21st century-in pragmatic way, while dealing with recurring "Buy American" legislative issues.

Politics: Parochial decision-making in procurement policy has not changed. When congressional appropriators make choices, based on what they consider to be their best interests, they are making industrial policy that affects acquisition. Unfortunately, these decisions are not always to the country's strategic benefit. The Department of Defense and QDR leaders must step up and try to influence this process, despite the contentiousness of the current political environment.

Areas of Concern

Budget: Congress and the Administration must come to grips with macro budget concerns. Current deficits, if they continue at along the projected path, will affect national security. While supplemental appropriations have been successful so far, it is not clear that the Global War on Terror and mandatory spending programs will allow Congress to maintain funding at the present level. A funding crunch in the future is likely. The QDR, as a process, must help planners think through and predict funding levels sufficient to fund operations and maintenance, requirements, personnel, and other priorities.

Investment: The revolutionary technologies favored by Pentagon planners require significant investment. Information technology, electronics, nanotechnology, directed energy, data storage, and biotechnology are all areas of potential leverage for the U.S. military, but they require considerable innovation and investment in research and development. This has important ramifications for the military industrial base. But research accounts may continue to erode under the pressure of competition from the private sector and other operational requirements. In 1995, the average cost of man-year per soldier was $60,000. In 2000, it was $150,000.

China: China is a growing economic power the center of most of the trade and technology discussions taking place today. Its increasing market share in the production of electronics and other commodities vital to the global military industrial base is a fact. Chinese companies operate under very few of the regulatory policies that affect American industry, and Chinese facilities and production processes are increasingly state-of-the art. The industrial and economic power wielded by China, and how this relates to the country's political and military aspirations, is seen as a cause for concern by planners, legislators, and policymakers.

The military industrial base has not been mentioned specifically as component of the 2005 QDR, and there is no "QDR Team" assigned to it. The general consensus among the experts at this event is that this is a potentially serious oversight. Despite recent increases, defense acquisition and procurement budgets will probably not be sufficient to maintain the military industrial base as it exists today. There will be continued stress between those who support the legacy systems, politically and economically, and those who support evolving systems. The future is likely to see increased transatlantic cooperation in development and production of defense assets, with major mergers between U.S and foreign defense companies. QDR requirements, whatever they turn out to be, will somehow translate into industrial orders. For years to come, these orders will influence the changing military industrial base.

For more information and analysis of the Quadrennial Defense Review, see Heritage Foundation WebMemo No. 728, The 2005 Quadrennial Defense Review: Strategy and Threats, Lecture No. 876, The Quadrennial Defense Review: Are Secretary Rumsfeld's Priorities Valid?, Executive Memorandum No. 954, Principles for the Next Quadrennial Defense Review; and Lecture No. 864, "The Quadrennial Defense Review: Some Guiding Principles, all available at heritage.org

Jack Spencer is Senior Policy Analyst for Defense and National Security in the Kathryn and Shelby Cullom Davis Institute for International Studies at the Heritage Foundation. Kathy Gudgel, Research Assistant in Defense and National Security, contributed to this piece. This paper is based on presentations given at "The 2005 Quadrennial Defense Review: The Military Industrial Base" held on April 20, 2005 at The Heritage Foundation.