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Nancy Pelosi, China and the Slow Decline of the U.S. Military

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Matt Stoller writes in BIG:

As military tensions flare between the U.S. and China over Taiwan, it’s easy to put all eyes on Nancy Pelosi and her visit to the island. Symbolism matters deeply in international relations, and this event is setting the direction for how Chinese and U.S. leaders will relate to one another. But six weeks ago, an obscure military bureaucrat named Cameron Holt offered another, equally important signal about this relationship. Holt is the head of acquisitions for the Air Force, which means he oversees the buying of everything from drones to nuclear missiles. And in a fascinating and spicy speech, he said that if the U.S. doesn’t get better at buying weapons, America will lose in a future conflict to China. “It’s simply math,” he argued.

The reason is that China is better at procurement. China is getting weapons “five to six times” more rapidly than the United States. “In purchasing power parity,” he said, “they spend about one dollar to our 20 dollars to get to the same capability.” This problem is directly related to market power in the U.S. Holt went over the business strategy of U.S. defense contractors, noting their goal is to lowball contracts but keep control of intellectual property. Then, he said, they create vendor lock-in, and raise prices later. In other words, they underprice upfront so they can eventually exploit pricing power over the Pentagon. Chinese acquisition strategies are more efficient and less brittle, which means over time their military will overtake ours.

Nothing Holt said is a surprise. Everyone knows how screwed up U.S. procurement is, the warnings come in almost daily. For instance, the U.S. can’t replace its stocks of Javelins and Stinger missiles sent to Ukraine, it’s going to take years to restart some of the assembly lines. Raytheon and Lockheed are having supply chain issues, and are unable to deliver weapons despite strong orders. We can’t even make the chips for weapons systems like the B-2 bomber, because semiconductor firms are shutting down the fabs that made the old parts. One could argue these are anomalies, unusual situations, but war is the ultimate moment of supply chain disruption, so that’s cold comfort.

To put the problem simply, we spend massively on weapons and get too little for it. Why? Just like health care or most other bloated sectors, it’s the prices, stupid. We consolidated economic power in the hands of a few dominant defense contractors and financiers, and they have become slothful and expensive. Fortunately, since it’s a problem caused by policy, it’s also a problem that can be solved by policy. And there are useful legislative attempts to do so.

Let’s start with how the U.S. organizes its defense thinking around procurement and economics. Traditional American strategy was laid out after the Revolutionary War, when U.S. policymakers recognized that to be an independent nation required domestic manufacturing and shipping capacity to reduce dependency on foreign actors, which through much of the 19th century was Great Britain. The idea we should be able to supply ourselves with industrial goods that could be repurposed for weaponry was key to every U.S. war, both then and since. For instance, in World War II, the U.S. became the ‘arsenal of democracy’ largely by transforming its peacetime industrial capacity to focus on industrial-scale warfare. Instead of cars, Ford factories churned out tanks and aircraft. Similarly, the Cold War aerospace industry in the form of Boeing and regulated airlines such as Pan Am served both civilian and military purposes.

Until the early 1990s, this basic strategy held; retain an industrial base for security purposes, so as to be able to produce lots of cheap interoperable machines and weapons if necessary. Public control over the defense part of this base occurred through competition; during World War II, there were more than a dozen prime contractors for every major weapons system. So if one entity screwed up or under-invested, military officers could procure elsewhere.

In the late 1980s and early 1990s, U.S. strategists changed this successful model of governance. The national security world and Wall Street, whose relationship had always been somewhat tense, became more aligned in their vision of how to project U.S. power. They coalesced around . . .

Continue reading.

Written by Leisureguy

3 August 2022 at 11:41 am

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