Industrial base a part of force structure.

• Author: McKinley, Craig R.
• Position: President's Perspective

In this column last spring, I discussed the reflections offered by former Defense Secretary William Perry about the defense industry consolidation of the 1990s that he had encouraged, and to no small degree stimulated. I thought it might be useful to offer a reminder of what happened back then, what has resulted and what it might mean going forward.

It was clear in the early 1990s that with the collapse of the Soviet Union, the presumed end of the Cold War and the election of President Bill Clinton, that strategic circumstances had changed and with them the expectations and priorities of Americans. There was much discussion of a "peace dividend," and indeed the administration of President George H. W Bush began crafting one. It established a new force structure construct called the "Base Force," and began canceling or reducing major programs--most notably the B-2 bomber and the Seawolf submarine. The B-2 shrank from a planned purchase of 132 aircraft to 75 and then to 21, while the Seawolf went from 30 ships to three.

Other programs were cut in similar scale, leading to a reduction in modernization spending of nearly 70 percent between 1989 and 1998. With such a significant market reduction, Perry thought it prudent to advise the leading defense industry players that a major consolidation combined with overhead reductions were necessary. Accordingly, between Perry's announcement to a group of industry executives at a 1994 dinner, which came to be known as the "Last Supper," the defense industrial base consolidated from over 30 companies down to five.

In comments given last spring that I referenced in an earlier column, Perry now fears this consolidation has been too drastic, too broad and too comprehensive. If the current aspirations of the Pentagon are to have increased technological innovation and increased cost control, a smaller industrial base is not conducive to achieving them in terms of simple economic behavior. More innovation and greater cost competition comes from a larger number of players in a market, not fewer.

The current Secretary of Defense Ashton Carter--a key advisor to Perry and an attendee at the "Last Supper," has frequently commented about the nation's defense industrial base. He has said having an innovative and world-class defense industry is not a "God-given right," and that the industrial base must be treated as a key "part of the force structure." In short, in some way and at some level, the Defense Department...