Pentagon's new strategy to combat global rivals and industry monopolies

Russia is attempting to take over Ukraine. China poses a challenge in the Western Pacific. In the Red Sea, Iran-supported guerrilla groups are targeting civilian shipping. These are a few of the critical hot spots globally, each holding varying levels of significance for the United States, which may need to intervene to protect its interests or allies.

The dawn of a new era of superpower rivalry, following the end of the Pax Americana period, necessitates adjustments in policy, armed forces, and industry. The conflict in Ukraine has starkly illustrated the immense resources required for a modern, full-scale conflict and how quickly stockpiles can be depleted. Given these challenges, the American Department of Defense has implemented its first-ever industrial strategy tailored to reorganize, standardize, and streamline weapons procurement processes.

The post-Cold War era saw significant shifts in arms acquisition and the dynamic between the armed forces and industry, driven by a perceived reduction in the threat of unrestricted warfare. This led to a drastic reduction in arsenals, the closure or repurposing of numerous arms manufacturers, and the dismantling of production lines for cost savings.

Currently, as tensions escalate, changes made years ago are proving problematic, with Western countries' governments struggling to procure weaponry as efficiently as the centralized, authoritarian regimes of China or Russia. This issue also affects the United States, which, despite having the world's most formidable military and an annual budget of 800 million dollars, often faces resource shortfalls for operations.

In the United States, a critical error post-Cold War was allowing excessive consolidation within the arms industry. In the early 1990s, approximately 50 companies constituted the core of the U.S. defence industry. Today, this number has dwindled to five major corporations. This consolidation aimed at enhancing combat effectiveness and securing a dominant position in international markets. However, it also led to monopoly situations domestically. Companies like Lockheed Martin, Northrop Grumman, Boeing, and RTX (formerly Raytheon) now possess such influence that they can dictate trade terms to the Pentagon. For instance, the price of Stinger anti-aircraft systems has surged tenfold since the 1990s, outpacing inflation by six times, due to the lack of competition within the U.S. for similar armament systems. This trend is not isolated to the defence sector but is also prevalent in IT, where giants like Facebook, Microsoft, Google, or Amazon acquire startups and small companies early on to eliminate competition.

Many similar instances highlight a situation where even smaller subcontractors, being sole manufacturers of certain items, can demand prices multiple times higher from the Department of Defense without the Pentagon having alternatives. This issue was exacerbated by the shift towards fully digital transactions, moving away from specialized negotiation teams.

The most significant mistake, however, was reducing or entirely eliminating stockpiles of weapons systems, spare parts, or ammunition. This approach, akin to practices in other industrial sectors like automotive or home appliances, was supposed to save on storage and inventory management costs and boost efficiency. Often, the responsibility for storing these stockpiles was outsourced to the industry, under the assumption that private businesses could manage lower storage and handling costs. However, the reality proved otherwise, and in some cases, it was discovered that the stockpiles were nonexistent.

The industrial strategy recently announced by the Pentagon aims to reverse the detrimental trends previously mentioned. It intends to enhance procurement efficiency and force availability without increasing the budget. The strategy involves reestablishing large stockpiles of spare parts, particularly ammunition, and reintroducing specialized negotiation teams for managing contracts and supplies. This will serve as a buffer, aligning operational needs with production capabilities.

In a crisis or war, the armed forces will have immediate access to the resources needed for intensive operations, allowing industry time to scale production. This approach is also meant to benefit the industry; maintaining stockpiles ensures orders for longer production runs, providing stability to companies and potentially lowering costs due to scale effects. Ordering in bulk makes military contracts more appealing and encourages new firms to enter the market, fostering competition among defence companies.

Department of Defense officials believe the savings from better-negotiated contracts will outweigh the costs of establishing and maintaining stockpiles. This is expected to significantly improve the availability of parts and ammunition, enhancing the armed forces' capabilities.

The Pentagon's primary challenge now is to persuade defense industry leaders and Congress of the merits of its plan. Convincing these stakeholders may be difficult, considering the substantial profits the leading defense corporations make under the current system. American weaponry, though more expensive than its Russian or Chinese counterparts, partly because of labor costs or superior quality, also reflects the high profit margins of the manufacturers.

The Department of Defense recognizes the urgent need for change. Success on the battlefield is critically supported by efficiency in factories. The United States has demonstrated its unmatched defence industry capabilities historically. The focus now is to steer the industry in the right direction, which is crucial not just for America's potential victory in future conflicts with powers like China but also for the security of its allies, who rely heavily on U.S. arms.