Opinion: Long captured by a select group of the “in group”, the Western world’s defence and national security ecosystem has seen a costly consolidation of industry heft, leaving little competition – now big tech is seeking to shake that reality up, explains Strategic Analysis Australia’s Michael Shoebridge.
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Palantir chief technology officer (CTO) Shyam Sankar has put out a compelling diagnosis of Pentagon capability acquisition and the resulting US defence industry structure.
It’s called the 18 theses. Don’t be put off by the grandiose title echoing Luther’s battle against the Catholic Church. This is a digital publication, not something nailed to a church door. But maybe the Pentagon has got as sclerotic and out of touch as the Catholic church of the 1500s…..
Sure, the Palantir CTO has a dog in the fight – the company is on the verge of becoming the first new “defence prime” in the US for decades, but his view is still that of someone who knows he and his company are still considered uncomfortable interlopers by many across the military-industrial system – hence the Martin Luther reference.
It has parallels here in Australia and direct implications, too, because under the current government and Defence Department’s plans, Australia’s deep dependence on this slow, consolidated US defence industry is increasing.
For evidence of this, here are two key exhibits:
1. The ironically named Defence Industry Development Strategy.
2. The plan that directs how actual dollars get spent – the 2024 Integrated Investment Program.
The resulting cash flow to US and UK primes is analysed by my Strategic Analysis Australia (SAA) colleague Marcus Hellyer here.
Sankar covers the mass consolidation of US defence companies at the end of the Cold War from 51 major companies to the familiar five big primes.
Out of this, he tells us the most important consequence “wasn’t a reduction in competition in the defence industrial base, but the decoupling of commercial innovation from defence and the rise of the government monopsony. Consolidation bred conformity and pushed out the crazy founders and innovative engineers”.
The lesson: cosy incumbency is bad. Companies outside the closed defence bubble need to be reconnected to the US military.
Here in Australia, we’re building bigger walls between our remaining defence industry and productive companies in our wider economy through the misguided export control and International Traffic in Arms Regulations-related “reforms”, at the perfectly wrong moment in history to do this.
So it’s getting harder for any companies outside the highly regulated Defence bubble to do business with the Defence bureaucratic machine, let alone work with an actual military end user of their products.
And it’s almost impossible for medium and small companies to equip our military unless they can sell their products to a big defence prime as the intermediary that is trusted and contracted by Defence officials.
Sankar contrasts the diversified Chinese companies that bring cheap, rapidly developed products and mindsets from their large commercial operations to the defence sides of their business with the approach of the five big consolidated US defence primes who orbit one big, slow customer – the US military – and build hugely complex, expensive products for their one big customer as a result.
Bill Greenwalt – someone with deep knowledge of how the Pentagon rolls when it comes to capability development, budgeting and industrial law, is quoted on the clunky, now counterproductive approach the Pentagon takes to working out what it wants, budgeting for this and then acquiring it.
Most of these processes were built by then Secretary of Defense Robert MacNamarra, translating ideas from the 1950s Ford Motor Company to the DOD:
“Centralised, predictive program budgeting, management, and oversight were then thought to be superior to the trial and error and messiness of time-constrained, decentralised experimentation and the seemingly wastefulness of having multiple sources rapidly prototyping potential solutions.”
His conclusion: the Pentagon runs “a centrally unplanned process that neither has the supposed advantages of a planned economy nor the (far superior) advantages of a free market”.
Here in Australia, we run a subsidiary version of that Pentagon system and surf on the Pentagon’s outcomes. That makes things like where the money goes and how long it takes to equip our military quite predictable.
On small business and defence, he’s refreshingly direct:
“Small business programs should not be welfare.
“The goal of our founder-driven, creatively destructive market system is for small business to get big, not to remain indentured servants.
“The department should judge its small business efforts through the lens of market cap creation: wealth for Americans. The point of national security is to underwrite freedom and economic prosperity. Small Business Innovation Research (SBIR) programs should measure how many of their small business got big, not how many programs received follow-on funding.
“We want to have a vibrant, dynamic group of companies with many new entrants.”
Sankar’s diagnosis and prescriptions for change have plenty of similarities to the latest Blueprint for the Next Government report that the IPA-SAA partnership released last week, so it’s not a surprise I’m writing something positive about them.
It’s interesting that there are such parallels between recent SAA work and the thoughts of this US big tech CTO. Coming from such different experiences and vantage points and reaching similar conclusions maybe means something.
And maybe, given the urgency of our dangerous times, we should act on these thoughts and change the Australian Defence machine to take advantage of capable companies and technologies that are changing our world outside the closed defence bubble.
Michael is director of Strategic Analysis Australia. This was republished with the approval of the author.