Will proposed mergers put our national defense at risk?Secretary Gregory Slavonic
As President Biden’s team at the Department of Defense (DoD) starts settling into their new roles, one of their first priorities will be to address what the stated U.S. defense strategy will be. They must not only determine the best course of action to bolster the nation’s defensive posture while working within budgetary guidelines authorized annually by National Defense Authorization Act, but they must also determine whether or not to continue the existing National Defense Strategy of the Trump Administration.
Beginning with the Clinton Administration, the new senior civilian leadership team of every incoming administration has also been required to review and address mergers, acquisitions, and consolidations. The proposed merger between Lockheed Martin and Aerojet Rocketdyne, and whether or not to approve it, will likely be at the top of their list for consideration. Given the negative impact consolidation has previously had on readiness and competition within the defense industry, these officials would be wise to give this merger an extra level of scrutiny.
In the summer of 1993, John Deutch the Under Secretary of Defense for Acquisition and Technology lead an effort to encourage consolidation between the Department of Defense and industry. His office introduced rules for sharing savings from future consolidation with industry and a task force was formed composed of executives and government lawyers to address antitrust issues raised by this consolidation policy. In a five-year period during 1993-1998, many major defense firms merged or were acquired, setting off a steady drumbeat of consolidation that continued for the better part of the next twenty years. What followed was a rise of sole-source contracts and increased costs of weapons systems, the opposite of what Mr. Deutch intended.
When Ellen Lord was selected as the Trump Administration’s Under Secretary of Defense for Acquisition and Sustainment in 2017, it appeared that trend might change. During her DoD tenure, she looked for new ways to introduce competition into the defense industry and worked tirelessly to develop new small and medium suppliers who could provide much-needed dynamism. With the recent Senate confirmation of Kathleen Hicks to succeed Lord, and the particular interest from lawmakers in addressing the issue of competition, I am hopeful that trend will continue.
During her confirmation hearing, a number of lawmakers expressed concern about the significant amount of consolidation that has occurred in the industry. They told Ms. Hicks they wanted an easier path for smaller, cutting-edge innovative companies from outside the Beltway to do business with the DoD. Connecticut Democratic Sen. Richard Blumenthal, whose state host General Dynamics Electric Boat, even challenged Ms. Hicks by noting the “drop in the number of submarine suppliers from 17,000 to 5,000 over recent decades suggested broader problems for the defense industrial base, problem that were extremely alarming.”
Market competition and diversity of suppliers is critical in creating more innovation. The vertical integration proposed in the Lockheed-Aerojet merger would do the opposite. We are already woefully behind other countries when it comes to next-generation technologies, and this merger would further exacerbate that problem by in effect allowing one company to corner the market.
Now more than ever, there is a sense of urgency to ensure the DoD makes smart decisions about where to invest. Undersecretary Hicks needs to follow through on her Senate testimony where she promised to “increase the speed and scale of innovation in the DoD.” Continued military overmatch of our armed forces will require a commitment to modernizing the defense industrial base. Maintaining a healthy pool of contractors and fostering competition between them is an essential part of ensuring that right formula for success is achieved.
At the end of the day, these decisions are about bolstering our nation’s security. In a recent interview with the Wall Street Journal General Mark Milley, Chairman of the Joint Chiefs of Staff, stated China is “developing their military in all of the domains, space, cyber, air, sea and land.” He went on to note the niche areas where the Communist country is moving out quickly including “artificial intelligence, hypersonics and a variety of things that they’re doing in space and cyber.”
Twenty years ago, China moved into development of hypersonic weapons, while the U.S. choose not to address this issue. Now America needs to play catch up, and some say that time is not on our side. When setting policy for the next four years and reviewing proposed mergers, acquisitions, and consolidations, the new Biden appointees at the Pentagon must ask themselves what level of risk they are willing to accept to keep our nation safe.
Rear Admiral Greg Slavonic (U.S. Navy – Retired) previously served as the acting Under Secretary of the United States Navy.