Knowns and Wildcards Will Create Challenges, Opportunities for Defense
The U.S. financial system is broken and the country is in dire fiscal shape.
The defense budget is under enormous pressure. The extent of future cuts is still unknown, so uncertainty abounds.
Much of the current circumstance is defined by existing problems. These can be assessed and analyzed. They are the “knowns.” But unanticipated events can also affect national security, finances and defense. These are “wildcards.”
We can posture more easily for the knowns. Wildcards are tougher. The best response to both knowns and wildcards is to develop robust and diverse capabilities. Robustness may be difficult to structure, but diversity has a robustness all of its own. One wonders what are the knowns and wildcards, and what do we do about them.
The list of knowns is rather long. Most serious observers of the security landscape will have come across them in one form or another. The most obvious is the descent of defense funding. Former Defense Secretary Robert Gates took $100 billion out of the budget to plow back into investment with no decrease in the top line. The president has announced $400 billion cuts from defense over the next 12 years, $100 billion of which comes from Gates’ “efficiencies.” The top line will come down. Unknown is where the cuts will fall.
Other challenges include overruns in weapons acquisitions, dealing with cyberthreats, energy security, the affordability of the all-volunteer force, and the rise of piracy, to name a few. The global nature of terrorism, technology diffusion, and nuclear proliferation, all add to the uncertainty about what the United States should prepare against. Finally, there are demographics. The planet’s population is predicted to go from 6.5 billion to 10 billion in the coming decades. Will there be enough resources, such as food and water, to sustain such growth?
Another big problem is the abysmal condition of the three engines of post World War II prosperity and growth: the United States, Europe and Japan. All three are in financial extremis. U.S. deficits grow unconstrained and debt piles up to dangerous levels. Interest on the U.S. debt, if not controlled, will begin to crowd out discretionary spending. European sovereign debt promises to crater a number of large European banks. And Japan has been in the financial doldrums for several years now. These engines are overloaded and have slowed way down.
As the United States works through current financial difficulties, some outlines of defense directions are emerging. Interestingly, defense spending is in play. Leaders of both parties seem to be willing to cut. Healthcare costs are on the table. Tricare retiree insurance premiums and co-pays will rise. The retirement system may well change from pay immediately upon retirement, to a delay to age 60. If the president is able to get $400 billion worth of cuts to defense over 12 years, the defense baseline could settle to around $500 billion.
These are just some of the knowns.
Next are the wildcards. Number one is a rapid, uncoordinated drop in the defense budget, which is guaranteed to inflict great damage on defense priorities and programs. Another is the “Arab Spring.” We have seen the effects of the Libyan uprising on oil prices. What happens if Saudi Arabia goes upside down? What happens in the event of the unanticipated collapse of states such as North Korea, Yemen or Mexico? Where does the world go for access to commodities — not just petroleum, but rare earth minerals? How does the world respond to another natural disaster? How does the United States handle the insolvency of many states? The situation in the Pacific, particularly China, is a big unknown. One concern is the disagreement over who owns certain islands in the South China Sea. Another issue is the security of the Strait of Malacca, where China finds itself uncomfortably relying on contiguous nations to secure the strait, through which 80 percent of China's oil flows.
Finally, how do we cope with a near default of the U.S. government, and the increase in interest rates sure to come, regardless of whether the government even comes close to that point? The expectation is that interest rates are sure to rise no matter what, and they will be accompanied by increased interest payments on the debt.
The implications for defense are of paramount concern.
First, defense does less with less, so choosing becomes important. As budgets come down and deployments draw down, defense should choose to preserve critical capabilities, in both near term operational and future capabilities — read robust research-and-development funding. Smaller forces are inevitable, so these forces should be robust and highly capable. Creative use of Guard and Reserve components should be featured.
Secondly, as forces will be coming home, force projection becomes even more important.
Thirdly, acquisition programs need to turn around — unobtanium requirements should be a relic of the past. Service chiefs need to step up.
Finally, it looks as if platform acquisition is slowing down. So emphasis is going to flow to upgrades to existing platforms. One sees advantages in this environment for investments in cybersecurity, energy, modeling and simulation, unmanned systems, sensors, networks, materials, biotechnology and artificial intelligence.
The ability of the country to respond to future challenges will be dependent to a considerable extent on getting U.S. finances back under control. If this crisis goes unanswered, even a $500 billion defense budget will be out of reach.