Big Stick Economics

The United States must restore its industrial depth to sustain national power.

By Mark A. DiPlacido and Oren Cass

In a well-known passage of the Old Testament, Isaiah prophesizes, “They shall beat their swords into plowshares, and their spears into pruning hooks, that nation shall not lift up sword against nation, neither shall they learn war any more.” While peace continues to be the ultimate aspiration of rational defense and foreign policy, such peace, even in the passage mentioned, is the result of unity under a common authority. In a world of competing great powers, a lesser known exhortation from Joel is the more practical advice for policymakers: “Beat your plowshares into swords, and your pruning hooks into spears; let the weak say, ‘I am a warrior.’” 

Implicit in this appeal is a recognition that preexisting resources must be harvested in times of war. No nation can afford to maintain a defense sector at permanent wartime scale, nor would such a sector—dependent entirely on government funding and direction—be an innovative, efficient, or flexible one. National power must rest on a foundation of productive peacetime economic activity that not only spreads prosperity but also provides the prerequisites of military force.

In a world of competing great powers, a lesser known exhortation from Joel is the more practical advice for policymakers: “Beat your plowshares into swords, and your pruning hooks into spears; let the weak say, ‘I am a warrior.’”

Unfortunately, no economic principle holds that actors pursuing their self-interest in a free market will necessarily serve the needs of national security along the way. When incentives are well aligned, so that those things most profitable are also broadly beneficial, markets work unparalleled wonders. But the same markets will gladly permit, if not promote, offshoring production to adversaries, financial rather than product engineering, and consolidation rather than productive investment when those are the activities that offer the highest returns. The industrial commons is just that—a commons—and one easily susceptible to tragedy.

Since the Cold War’s end, the United States has adopted an economic model incompatible with its defense commitments and global interests. This problem has been especially acute on the right-of-center, which has both taken more seriously the imperative of “peace through strength” and fallen more fully for a blind faith in free markets to deliver optimal outcomes. The nation has seen its manufacturing output stall and productivity decline, lost its leadership in vital sectors from semiconductors to aerospace to batteries, and now finds itself unable to produce ammunition, build ships, or repair submarines effectively. The cost of maintaining the armed services has continued to rise while its credible threat as a fighting force steadily falls.

Thus, while contradictions between market fundamentalism and social conservatism have received the most attention in the ongoing breakup of the Reagan-era coalition, the radical free-market philosophy should be equally unacceptable to anyone with a genuine concern for national security. At the local level, a dysfunctional capitalism that celebrates cheap labor and rewards financial engineering over productive investment has strained working families and devastated communities. At the national level, these same forces of globalization and financialization have eroded the industrial base critical to our defense.

Likewise, the obsessive focus on abstractly defined economic growth has obscured not only the declining quality of life for the typical American, but also the declining capacity of the nation to project power. The same mindset that equated GDP with American prosperity, without reference to the distribution of income and opportunity across classes and regions, has also created a misplaced confidence that the nation is powerful, without reference to the composition of output across sectors and occupations. An automotive factory or a wellness spa may contribute equally to the national income accounts, but only one represents fungible industrial capacity that could reload the arsenal of democracy.

Thus, while contradictions between market fundamentalism and social conservatism have received the most attention in the ongoing breakup of the Reagan-era coalition, the radical free-market philosophy should be equally unacceptable to anyone with a genuine concern for national security.

The big stick of President Theodore Roosevelt’s dictum is not an exorbitantly expensive fighter jet that takes 40 years to develop, is impossibly difficult to maintain, and depletes the munitions stockpile after a few sorties. Security at home, functional alliances, and deterrence all require industrial depth: a diversified resource base capable of meeting the demands of wartime production, flexible supply chains in competitive markets without single points of failure, a skilled workforce with a strong talent pipeline, and an industrial commons that fosters the interaction and investment necessary for constant innovation. The measure of the conservative commitment to a strong defense is not the size of the Pentagon’s budget or the number of invasions launched, but the willingness to adopt economic policy that ensures market forces strengthen rather than erode the foundations of national power.

The Eroded Foundations of National Power

During WWII and the Cold War, the United States was the world’s industrial powerhouse and the leading producer of most cutting-edge technologies; the elements of industrial depth were mostly taken for granted. For example, after the oil crises of the 1970s, the American push for energy independence was a bipartisan priority that embraced a range of industrial policies from tax incentives and direct subsidies to research and development and project financing. Concerns began emerging about the international competitiveness of the education system and its students, but the workers who had entered the labor force in the 1960s and 70s were at the peak of their powers. When the Japanese made inroads in automotive and semiconductor manufacturing, the Reagan administration took corrective actions. The symbiotic relationship between academic research, corporate labs, and defense programs had won the space race, launched the microelectronics revolution, and built the Internet.

Oil is now the least of the nation’s problems—indeed, the United States has become a net exporter of oil, natural gas, and petroleum products. But other natural resources and energy technologies face new bottlenecks. The failure in battery technology provides a case in point. Whatever one thinks of electric vehicles, energy storage has critical applications in both infrastructure and military mobility where American producers have fallen woefully behind. As legendary Intel CEO Andy Grove observed in 2010:

…A new industry needs an effective ecosystem in which technology know-how accumulates, experience builds on experience, and close relationships develop between supplier and customer. The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices. Whoever made batteries then gained the exposure and relationships needed to learn to supply batteries for the more demanding laptop PC market, and after that, for the even more demanding automobile market. U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up.

In other words, innovation and industrial leadership concentrates where production occurs. The battery challenge illustrates simultaneously the problems of inadequately developed resources and fragile supply chains. The United States has plentiful deposits of most minerals and materials its industrial base might need, including for leadership in battery production, but burdensome regulation and environmental restrictions have sharply limited resource development and, worse, the capacity for processing and refining. China has no particular advantage in access to critical minerals, but has nonetheless established a near monopoly in the processed forms for many, including rare earth elements (80%), gallium (99%), and graphite (nearly 100%).

The loss of engineering expertise and component suppliers, meanwhile, has made the United States a difficult place to build anything new. Advanced semiconductor manufacturing went overseas entirely and has started to return only with intensive federal support through the Chips and Science Act. Boeing outsourced most of the work for its commercial airliners and quickly found itself suffering catastrophic delays, cost overruns, and safety issues. Producers of newer technologies, from flat-panel displays to drones, never even attempted to build here.

Policymakers have traditionally spoken of a “defense-industrial base” (DIB) in isolation from a broader industrial base, implying concern only for those parts engaged directly in defense production, which could be nurtured directly through defense spending, even as market forces were allowed to weaken the rest.

Industrial atrophy has also meant declining career prospects, including for top talent, and a badly weakened talent pipeline. The decade-long slide in manufacturing productivity has suppressed wage growth. The education system has oriented itself overwhelmingly toward preparing college graduates for professional careers, while ignoring entirely the skills necessary on shop floors. As the workforce’s prior generation heads toward retirement, an enormous amount of embedded expertise is vanishing. Developing a strong supply of workers depends upon the presence of healthy demand for them.

Without supply chains, without talent, without labor demand, innovation has predictably stalled. Declining productivity is not the result of some defect in the American character, but of a failure to invest in progress. Industrial robotics density in the United States lags far behind advanced manufacturers like Germany and Switzerland; China’s density is 50% higher; Korea’s density is more than 200% higher. In infrastructure, transport, communications, materials, processes, and so on, the United States is no longer a leader. The trailblazing research on “economic complexity” by the Massachusetts Institute of Technology’s Cesar Hidalgo and Harvard University’s Ricardo Hausmann has shown this in concrete form: the breadth and sophistication of the industrial base today dictates growth and innovation tomorrow. “Countries grow based on the knowledge of making things,” says Hausmann. “It’s not years of schooling. It’s what are the products that you know how to make.”

The economic and security challenges posed by these shortcomings are inseparable. Policymakers have traditionally spoken of a “defense-industrial base” (DIB) in isolation from a broader industrial base, implying concern only for those parts engaged directly in defense production, which could be nurtured directly through defense spending, even as market forces were allowed to weaken the rest. But a strong DIB cannot possibly persist in the face of widespread industrial stagnation. An effective DIB rests atop an enormous capacity for processed minerals and steel, semiconductors and batteries, trucks and planes, which must be oriented first and foremost toward commercial applications and filling civilian, peacetime demand. Suppliers for all the components of missiles must also make other things too, so that they have viable commercial businesses in times when large numbers of missiles are not being built.

An isolated DIB also suffers from all the worst maladies of a state-dominated sector. If the government is the only customer, if bureaucrats are defining the product specs, if profits depend on decisions in Congress more often than decisions in the market, sclerosis is inevitable. The ironic result is that the market fundamentalists who most aggressively resist efforts at channeling investment toward the industrial sector then find themselves having to place their faith in a far more centrally planned economic model for the sake of national defense.

An isolated DIB also suffers from all the worst maladies of a state-dominated sector.

Bill Greenwalt, a nonresident senior fellow at the American Enterprise Institute with experience on all sides of the procurement process, characterized the result as follows:

[The] approach, now deeply engrained in defense management culture, process, law, and regulation, is based on the concepts of scientific management that were once fashionable in the Soviet Union… Centralized, predictive program budgeting, management, and oversight were then thought to be superior to the trial and error and messiness of time-constrained, decentralized experimentation and the seemingly wastefulness of having multiple sources rapidly prototyping potential solutions… it [now] takes 15 years to deliver marginal incremental capability improvements to existing systems [and] seven years in decision time just to start work on a new program… Time is an afterthought as process, compliance and a false confidence in long-range predictions drives decision making in the Pentagon, Congress, and the defense industry.

In practice, unsurprisingly, this strategy has failed.

The Failure of the Military-Industrial Complex

Shortly after the Cold War ended, in 1993, Defense Secretary Les Aspin gathered the CEOs of America’s top defense companies to a “Last Supper,” announcing the United States would be lowering defense spending and consolidating contracts. Soon after, a series of mergers—the costs of which were billable to the Pentagon under former undersecretary John M. Deutch’s interpretation of federal acquisition regulations—brought the number of major contractors from 51 down to the 5 modern “primes”: Lockheed Martin, Raytheon, General Dynamics, Boeing, and Northrop Grumman. These companies, which together received $122.5 billion in Department of Defense (DOD) obligations in FY2022, contract directly with the federal government and then subcontract to smaller vendors.

As defense contracts shrunk, not only did defense companies merge, commercially-focused companies also began divesting their defense businesses, many of which the metastasizing primes acquired. This trend continued even as defense spending increased by 50% to support the War on Terror. When the Berlin Wall fell, firms specializing solely in defense accounted for only 6% of the Pentagon’s major programs. That figure is now 61%, or 86% if including companies like Boeing whose only commercial activity is in aerospace.

Ideally, most defense contractors would have extensive commercial business serving customers besides the federal government and its overseas allies. The private sector’s market pressures would promote innovation and efficiency, while also leaving companies less reliant on, and enthusiastic about, war for profit. Conversely, isolating the defense industry from the wider economy “limits capital investment in defense-related technology, curbs the DOD’s access to the dynamism of emerging commercial technology sectors, and leaves traditional defense companies with enormous leverage vis-à-vis their government customers,” as analysts Gregory Allen and Doug Berenson argue in a recent essay at the Center for Strategic & International Studies.

The collapse in capital investment at the consolidated primes parallels a larger trend in the U.S. economy. In prior American Compass research (see The Corporate Erosion of Capitalism, March 2021), we analyzed the financial data of publicly traded firms going back to 1971 and classified each firm in each year based on its interaction with financial markets. Most could be classified as either a “Grower,” which taps financial markets for needed capital; a “Sustainer,” which uses its profits both to maintain or grow its capital base and to return capital back to shareholders and creditors; or an “Eroder,” which disgorges profits so rapidly, in lieu of investment, that it consumes its fixed capital faster than it makes new capital expenditures. From 1971 to 1985, Sustainers accounted for 82% of total market capitalization and Eroders for 6%. By 2000, these shares had shifted to 59% and 19%, respectively. In 2009, Eroder market capitalization surpassed Sustainer market capitalization for the first time. In 2017, Sustainers accounted for 40% of market capitalization and Eroders for 49%.

Focusing this analysis specifically on the defense primes produces a similar story, but on a distinct timeline. For the 20 years from 1974 to 1993, the primes collectively operated as a Sustainer in every single year. The individual firms were Sustainers in 69% of years and Eroders in 18%. After 1993’s “Last Supper,” that behavior flipped on its head. In both 1994 and 1995, all five primes were Eroders. For the next decade, the primes collectively operated as an Eroder every year. Over the 25 years from 1994 to 2018, the individual firms were Sustainers 33% of the time and Eroders 67% of the time. They returned $240 billion to shareholders through buybacks and dividends while making less than $90 billion in capital expenditures.

But this predictability comes at a (severe) cost to innovation and efficiency as procurement regulations and contracting models eliminate incentives for the risk-taking, capital commitments, and cost savings driven by competition in a well-functioning commercial sector.

The dynamics of today’s defense procurement system reinforce the Eroder model. With the five primes competing only amongst themselves (and often with no one at all), under a procurement system that only they can navigate, and with low (but guaranteed) profit margins dictated by cost-plus contracts, their primary attraction for investors has become reliability. But this predictability comes at a (severe) cost to innovation and efficiency as procurement regulations and contracting models eliminate incentives for the risk-taking, capital commitments, and cost savings driven by competition in a well-functioning commercial sector.

But holes and chokepoints in U.S. supply chains demonstrate that America’s commercial sector also is not competitive or well-functioning. For example, a recent explosion at the sole U.S. black powder mill left ammunition contractors to rely on black powder stockpiles for two years as the mill was rebuilt. An assessment by an interagency task force in 2018 found 280 vulnerabilities in U.S. defense supply chains, with the industrial base offering only one firm to produce and restore shafts for naval ships and submarines and one production facility for large-caliber gun and howitzer barrels and mortar tubes. In total, the defense supply chains have lost 20,500 manufacturers since 2000. A healthy U.S. commercial market for raw materials and shipbuilding would yield more options when military needs arise.

In some cases, fragility has given way to outright reliance on an adversary. Raytheon was able to withdraw all operations from Russia within a few weeks of the Ukraine invasion, its CEO noted last year, but decoupling from China would be “impossible.” He continued, “If we had to pull out of China, it would take us many many years to re-establish that capability either domestically or in other friendly countries.” A letter from Representatives Robert Wittman and Elise Stefanik to the Secretary of the Air Force in September further highlighted the U.S. military’s reliance on Chinese manufacturers, citing a Govini report that indicated the U.S. Air Force had increased its dependence on Chinese suppliers by 69% over the previous year.

The conflict in Ukraine, as well as Israel’s battles with Iranian proxy groups, has further underscored woeful American capacity. A few months after the Russian invasion, the United States had already sent one-quarter of its Javelin missiles and one-third of its Stinger missiles to Ukraine. More concerning than the diminished size of the U.S. stockpile is its inability to restock. In 2024, two years after the invasion, the U.S. had only managed to increase standard 155 millimeter shell production from 14,400 to 36,000 per month. (In 1980, the U.S. could make 84,000 shells per month with a wartime escalation capacity of 438,000.) At current levels, replenishing the drawdowns that were required to support allies in their relatively small-scale conflicts could take up to seven years. A recent CSIS war game further projected that, in a hot war with China, the U.S. would run out of basic ammunition after one week.

China, meanwhile, has used its broader industrial surge to support an enormous expansion of defense production capacity. Shipbuilding is illustrative, and of particular concern for two nations staring each other down across an ocean and focused on a possible amphibious invasion of Taiwan. Over the past decade, China has produced more than eight warships per year while the United States has struggled to build two. And again, that military imbalance cannot be understood, or addressed, in isolation from its commercial context. From 2011 to 2015, the U.S. shipyards accounted on average for only 5 of more than 1,400 commercial vessels produced worldwide while China now produces nearly half.

A Bigger Stick

Policymakers cannot throw more money at a broken process and expect better results, especially given the precarity of the nation’s fiscal position and the possibility of real budget constraints in the years to come. They must instead find ways to reinject the kind of market competition found in commercial markets into the defense sector while at the same time improving the alignment of private sector incentives with U.S. security interests. Lawmakers must fundamentally reform the defense contracting process to introduce greater competition, reward for risk-taking, and diversification into the commercial sector. Economic policy must incentivize domestic manufacturing more broadly to ensure reshoring of the supply chains that could support what the defense sector must accomplish.

Economic policy must incentivize domestic manufacturing more broadly, to ensure reshoring of the supply chains that could support what the defense sector must accomplish.

These goals are doubly important in an era when the United States could find its top weapons systems and technologies rendered obsolete at any time. The space race of the Cold War was fought quite differently than the counterinsurgency operations of the War on Terror. The missiles and drones dominating the wars in Ukraine and Israel differ from what will be needed for a potential conflict in the Pacific against a peer advisory with advanced hypersonic capabilities. Much like nuclear weapons created a new era of warfare, new technologies and security breaches could facilitate mass destruction without a single bullet being fired. Defense procurement must become less cumbersome and less rooted in existing programs and better leverage the innovation and responsiveness that only a market economy can offer.

Defense Supply Chains and Procurement

While the DOD’s funds all derive from one source (taxpayers), they should not be spent by one entity. Spending authority should be spread across branches, subunits, and command centers to ensure procurements match actual battlefield needs. Lower ranking officers and technicians closer to the line of fire are often in a better position to make those assessments than the generals and Pentagon bureaucrats who sit in Washington and pass regularly through the revolving door to industry and back again. Some coordination across the military is obviously necessary—especially in setting overarching priorities and topline budget numbers—but there is no reason for specific contracts to contain thousands of regulations and requirements unrelated to the problem at hand.

Likewise, the Pentagon should insist upon competition among several firms to offer the best solutions to discrete defensive problem sets and use rigorous antitrust enforcement where appropriate. While such competition may impose more upfront costs for research and prototyping, the long-term savings from bringing market forces to bear on cost-competitiveness and innovation are much larger. A milestone payment structure could further reduce risk and allow multiple firms to thrive while ensuring failures are culled. Private sector competition always creates winners and losers; the efforts made by the losers are not waste.

A competitive environment requires a simpler defense procurement process, beginning with radical reduction in the Federal Acquisitions Regulations. Newer and smaller firms without prime-scale teams of lawyers and compliance officers must be able to compete directly with primes, rather than acting only as subservient suppliers to them. The Pentagon should also create opportunities and provide necessary clearances and intellectual property (IP) protections for firms to problem-solve and troubleshoot earlier in the procurement process. The lines of communication between engineers and skilled tradesmen and the servicemembers on the front lines should not run through twenty layers of government bureaucracy.

The private sector should have obligations too. While commercial applications are a desired and expected result of government investment in R&D and production, companies should be expected to protect U.S. IP, reinvest profits to continue advancement in technology and efficient production processes, and manufacture cutting-edge products in the United States.

Israel’s early R&D programs provide a good model. To ensure that products derived from government projects were manufactured domestically, Israel prohibited the transfer of government-funded IP to foreign nations and required successful ventures to repay up to 150% of grant amounts in royalties calculated as a share of annual revenue. In the decades following Israel’s enactment of these policies, its high-tech exports surged and it became the OECD country with the highest percentage of tech employment. When Israel loosened IP transfer restrictions in 2005 at the behest of venture capital firms, its startups began seeing more acquisitions and less industrial scaling.

Firms that rely upon government contracts and benefit from publicly funded R&D should also be expected to pursue investment strategies that prioritize the long-run health and capabilities of their enterprises.

Firms that rely upon government contracts and benefit from publicly funded R&D should also be expected to pursue investment strategies that prioritize the long-run health and capabilities of their enterprises. If firms truly had no productive uses for capital, the problem would be harder, but in fact they are under substantial pressure from financial markets to adopt hurdle rates that prevent profitable projects from going forward. Using a framework like the one described above to distinguish Sustainers from Eroders, the Pentagon should consider a company’s use of capital as a factor in awarding contracts. If reinvesting in a healthy capital base was itself a prerequisite for winning government contracts, the economic case for doing so would become more evident.

Economy-Wide Industrial Policy

The Chips and Science Act has represented a good start for modern American industrial policy and an important proof of concept. But a revitalized industrial base capable of supporting robust supply chains will require much more. The U.S. should focus first on industries and commodities with the greatest vulnerabilities to shortages and the broadest applications across markets, especially at the level of inputs: fuel, metals and alloys, critical minerals, plastics, basic manufactured goods, pharmaceutical inputs, etc. Policymakers should then focus on more advanced essential goods like lithium-ion batteries, nuclear power technologies, motor parts, censors, forgings, drones, liquid crystal displays, air defense systems, legacy semiconductors, and shipping containers and cranes where China has established market dominance.

The United States should further ensure an independent or allied supply chain for key groups of procurement items like drones, missiles, explosives, and ammunition; ships and submarines; aircraft and spacecraft; software, AI, quantum computing, and other advanced technologies; electronic and communication equipment and hardware; and autos, military land vehicles, and transportation components.

One tool to accomplish these goals, used during the COVID-19 pandemic, is the Defense Production Act. Title III of the Defense Production Act authorizes loans, loan guarantees, purchases, and purchase commitments to “create, maintain, protect, expand, or restore domestic industrial capabilities essential for National Defense.” The DOD’s Defense Logistics Agency provides a parallel mechanism for natural resources. The Marathon Initiative’s Robert Delfeld has recommended that DOD expand the current list of critical materials and strategic commodities maintained by the agency, creating incentives for further investment in production by guaranteeing demand. He explains:

The…effort would focus on expanding both the definition of “strategic commodities” and increasing stockpiles of these key inputs. One set of levers could feature a newly designated “DLA Strategic Commodities Portfolio” to receive long-term, renewable, guaranteed purchase agreements from the federal government (modeled on the Strategic Petroleum Reserve and primarily administered by DLA) in order to dramatically expand reserves of these commodities. [Another] would authorize federal funds for a combination of subsidies and purchase agreements between producers and the government.

More broadly, the U.S. should establish a national development bank along the lines of the American Innovation Fund proposed by Senator David McCormick. This fund would match private capital with public funding in key strategic sectors to channel investment toward rebuilding and rescaling domestic manufacturing. Rather than working around the existing financial system with new forms of government-created loans and subsidies, the fund would work through the existing market to ensure rigorous competition for financing and accountability for returns. But whereas private funds measure success only by return on investment, an American Innovation Fund would pursue a broader set of economic outcomes including domestic production capacity, supply chain resilience, skill training, and scaling of new technologies to commercial viability.

Local content requirements that mandate “buying American” are another complementary tool. The Buy American Act of 1933 and Trade Agreement Act of 1979 introduced domestic content requirements for U.S. military procurement above certain monetary thresholds. These laws have been amended over the years to provide waivers for eligible products from “designated countries” (i.e., allies) but still require 100% domestic content in some cases, including military uniforms and certain specialty metals. Rather than impose disproportionate compliance costs on defense contractors, who must depend on defense-specific supply chains that will never reach economically efficient scale, the requirements should be reserved for strategic sectors but then applied economy-wide.

Reskilling the American Workforce

Finally, reshoring American industry will require rebuilding skillsets that have been depleted alongside the U.S. industrial base. The Center for New American Security estimates that the U.S. will be short 300,000 engineers and 90,000 skilled technicians in the semiconductor industry by 2030 and that half of the U.S. mining workforce will retire or move on by 2029 without a strong replacement pipeline. In a recent report, Hudson Institute scholar Nadia Schadlow noted that, “In the case of just the Navy, 100,000 new employees must be hired by 2032 to fulfill its five submarine-per-year procurement goal.”

Finally, reshoring American industry will require rebuilding skillsets that have been depleted alongside the U.S. industrial base.

Such shortages are the result of wider American economic policy. Only 625,000 of the 28 million new jobs created between 1990 and 2008 were in the tradeable sector, economist Michael Spence estimates. Younger generations, receiving loud and clear the signal that American policymakers intended to allow the collapse of the manufacturing sector, have rationally declined to develop the skills needed to replace older generations of skilled workers. The share of skilled manufacturing workers over the age of 55 has doubled in the past ten years; more than half are now over 45. America is already short an estimated 240,000 welders, a figure that may rise by 50% in just the next few years.

Seeing as U.S. colleges and universities receive the lion’s share of government research grants and DARPA funding—on top of tuition subsidies that top $200 billion annually—lawmakers should ensure that recipients prioritize security needs and uphold American values and interests in not only their research, but also their education programs. Public funding should be redirected from schools that are failing to produce useful knowledge and skilled graduates toward career and technical education pathways for U.S. citizens in skilled and advanced trades. In some cases, defense contractors, government agencies, and educational institutions have already partnered to create effective apprenticeship programs. Policymakers should support more models along these lines by creating a workforce training grant for employers that offer training and practical experience to entry-level workers.

Conclusion

National security in the 21st century demands a framework that reintegrates notions of economic and military power. The size of the U.S. economy measured in aggregate GDP is not a guarantee of security. Military strength requires an economic strength based in productive capacity and resilience. American victory in World War II and the Cold War was achieved thanks to an industrial base that predated the wars and thrived independent of them. The erosion of that base came not because defense spending declined after the Cold War’s end, but because economic dogma renounced the need for an industrial base for any other purpose. 

Defense programs have been most successful when they have worked with private sector labs and research institutions, creating many of the technologies that citizens rely on today, from GPS and the Internet to microwave ovens and flat-screen TVs. The U.S. should recreate the economic incentives for the private sector to invest in research and scaled production, and then contribute to those efforts where partners understand they are partners in American competitiveness. When peacetime industrial depth provides the foundation for U.S. security, and defense-specific investments in turn generate wider value in the commercial market, the symbiotic relationship delivers greater prosperity and security at lower cost.