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The US and international defense industrial sectors have faced many challenges over the last twenty years, including cycles of growth and shrinkage in defense budgets, shifts in strategic defense priorities, and macroeconomic volatility. In the current environment, the defense sector faces a combination of these challenges and must struggle with the need to maintain critical aspects of the defense industrial base as defense priorities change and as defense budgets reduce or plateau. Moreover, the defense sector in the US is interconnected both with defense sectors in other countries and with other industry sectors in the US and global economies. As a result, strategic decisions made in one defense sector impact the defense sectors of other countries, as well as other areas of the economy. Given her academic, corporate, and Department of Defense experience as a leading economist and policy-maker, Dr. Nayantara Hensel is perfectly positioned to examine the interrelationship between these forces both historically and in the current environment, and to assess the implications for the future global defense industrial base.
The U.S. defense industrial base is deteriorating. Long lead times to procure weapon systems, high costs, uncertain quality, and dependence on procurement of electronic components from other countries are symptoms of a decline in the capability of the U.S. defense industrial base. A primary cause of this decline is the failure of the Department of Defense (DOD) and its contractors in the U.S. defense industry to invest sufficiently in manufacturing technology. The lack of investment reflects DOD's history of concentrating its resources and attention on product technology rather than process technology. As we described in our initial report, The Role of the Department of Defense in Supporting Manufacturing Technology Development, existing procurement policies and regulations do not provide sufficient investment incentives to contractors. Therefore, direct funding for some manufacturing technology development will have to be provided by DOD.
In light of Section 881 of the National Defense Authorization Act for Fiscal Year 2017, which expanded the legal definition of the National Technology and Industrial Base (NTIB) to include the United Kingdom and Australia, this report informs NTIB partners on barriers and opportunities for effective integration. The expansion of the NTIB is based on the principle that defense trade between the United States and its closest allies enables a host of benefits, including increased access to innovation, economies of scale, and interoperability. In order to reap the greatest benefits of a new era of NTIB, this report uses the lessons learned from study of the present state of integration to identify areas of opportunity for policy reforms and greater cooperation.