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<TITLE>U.S. Under Sec. of Def. Jacques S. Gansler's Address to 1998 NATO
Workshop, Vienna, Austria</TITLE>
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<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="6" FACE="Palatino">Military
and Industrial Cooperation in a Transformed, NATO-Wide Competitive Market</FONT></P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="4" FACE="Palatino">Under
Secretary of Defense Jacques S. Gansler</FONT> </P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">We meet at
this Workshop, on the eve of NATO’s 50th anniversary, to determine
how our Alliance will meet its mutual security obligations in an
increasingly dangerous and unpredictable world. As we discuss the
future of our expanding and evolving partnership, we must also consider
the reality of our defense resources and precisely how the new reality
will affect our commitment to future defense cooperation. We must
determine what <I>changes</I>—not only in our force structures, but
also in our weapons and our procurement postures and defense industry
structures—are required to meet the <I>likely threats</I> of the
early 21st century. We must also determine how we can produce <I>affordable</I>
systems to meet our strategic objectives and how we can achieve the <I>synergism</I>
required for a collective security arrangement such as NATO to succeed.
</FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">I would
therefore like to outline what I see as the Alliance’s future major
acquisition and technology challenges and to provide some perspective on
where I believe we are headed in the early 21st century. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>THE
NEW DEFENSE SCENARIO</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Today, we
find ourselves in a world that is far removed from the Cold War era, when
our defense strategy was based on a relatively predictable high-attrition,
extended-duration Central European scenario—one backed up by the
threat of massive retaliation to any nuclear-armed ballistic missile
attack. <I>Early 21st century warfare will be dramatically
different</I>.<I> </I>The new environment calls for a radical change in
the way we plan to fight. In the future, we will most likely be
involved in more limited—but almost always, coalition—engagements.
Such engagements will be fought with smaller, lighter, more mobile
forces and equipment; with concentrated firepower precisely delivered from
long range. Wars of attrition will be replaced by so-called
reconnaissance/strike engagements. Information-based systems will
enable continuous, all-weather awareness of battlefield situations, and
precision strikes will direct massed <I>weapons</I> instead of massed
<I>forces</I> against enemy targets. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">On the
defense side, we will need to be able to counter the enemy’s likely
use of multiple delivery systems to direct not only conventional warheads
but also chemical, biological, and even nuclear weapons against our forces
and against civilian populations in our homelands. These weapons and
acts of terrorism—which may be combined with widespread use of
information warfare against both our forces and our domestic
infrastructure—will become significant threats to our collective
security in the early 21st century. While we would prefer a future
that looks more like the past, and which therefore would require only
minor adjustments in our overall security posture, this will not be the
case. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Already, we
face a world in which individual terrorists, transnational actors, and
rogue nations can unleash firepower in ways as terrifying as that of a
major global power. These terrorists are not disorganized bands of
political zealots armed with pistols and hand grenades. Rather, they
are well-organized forces armed with sophisticated, deadly weapons (often
purchased on the world arms market), with access to advanced information
and technology (often available commercially) and the skills to utilize
them (or the ability to purchase the skills). They have few moral
inhibitions about such weapons’ use. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">These
hostile forces are unlikely to attempt to match our overwhelming
superiority on a plane-for-plane, ship-for-ship, or tank-for-tank basis.
Rather, they are more likely to use asymmetric strategies against us—weapons
of mass destruction, “information warfare,” urban warfare, and
large numbers of low-cost cruise and ballistic missiles. They will
use commercial navigation, communication, and imagery satellites; buy
advanced weapons technology and skilled labor on the worldwide market; and
project their destructive power anywhere and anytime—including at our
citizens at home. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>THE
NEED FOR A WAR-FIGHTING “REVOLUTION”</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">To combat
such threats, we must achieve and maintain total information superiority—not
just on the battlefield, but before and wherever there is the potential
for danger. One clear requirement is to incorporate <I>advanced
information systems</I> into every weapon system we acquire. Information
superiority is critical to our survival in an increasingly dangerous
world. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Thus, the
likely scenarios of future combat require nothing less than a revolution
in our war-fighting capability: a revolution, in many ways, as fundamental
and as sweeping as the introduction of gunpowder to the battlefield.
Its basis is <I>information dominance</I> and <I>precision
firepower</I>. Our Joint Chiefs of Staff made this clear in “Joint
Vision 2010,” their 1997 statement on projected global defense
requirements. This blueprint for coalition warfare has profound
implications for the future of our mutual defense efforts as well as for
our overall armaments requirements. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">To combat
the new threats our nations will face in the early 21st century, a
fundamental strategic and tactical restructuring—a “revolution
in military affairs”—is now underway. But for this
revolution to succeed, we must also dramatically restructure our way of
doing business. Secretary Cohen has termed this a “revolution
in business affairs.” It necessitates a much more responsive
research, development, production, and support process—one that
adapts advanced technologies (both product and process) and modern
management innovations (often originating in the commercial sector) to
formerly defense-unique—and frequently costly and non-responsive—acquisition
and support processes. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">There are a
number of acquisition priorities that will be required to support the
revolution in military affairs in the coming years. These are to:
</FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">1. Modernize
our <I>current</I> weapons systems. Since they comprise the
majority of systems we will have to depend on for the next two decades, we
must update them to take advantage of the potential offered by the “digital
battlefield.” </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">2. Develop
and deploy major <I>new</I> systems and subsystems required for 21st
century operations. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">3. <I>Support</I>
all of these systems far more efficiently and effectively. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The
challenge is to do all three at <I>low cost</I> and within <I>drastically
reduced cycle times</I>. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">To meet the
unpredictable, but increasingly likely, threats to our Alliance, we must
have both <I>modernized</I> and <I>new</I> weapon systems and equipment
<I>on hand</I> to conduct multiple, concurrent contingency operations in
a much broader geographic area—NATO’s new area of interest and
influence. We must also be able to provide our war fighters with the
full protection of superior weapons and total information superiority in
any environment—but at much lower costs and reduced cycle times.
This is an urgent need; yet many in the Alliance appear not to sense
the urgency. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>SETTING
A NEW COURSE</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The dramatic—and
often troubling—changes taking place in our world clearly require the
Alliance to set a new course—as to how we structure our forces, how
we plan to fight, equipment we need to meet the new threats, and how we
will transform our defense industrial base to support us in this effort.
We must also change the focus of our partnership in order to bring
about a new and even stronger era of security cooperation—including
far greater equipment interoperability for integrated operations in
coalition conflicts. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">One way we
are doing this is by working closely with our NATO Allies to insure that
existing and future air and missile defense systems are complementary and
can share information and communicate with each other. While
developing a single, integrated air picture and joint operational defense
capability for our coalition operations of the future, I am confident that
we are up to it. But there is still far too much autonomy in the
systems we produce. We still want to design every weapon as a
stand-alone entity, and this of course increases costs. Far worse,
it increases confusion on the battlefield and greatly reduces war-fighting
effectiveness. Thus, we must develop and deploy systems built from
the ground up with the ability to communicate and fight side by side in a
joint battlefield environment. Promoting joint system development
and achieving interoperability with our allies are critical requirements
for likely coalition warfare scenarios in the early 21st century. We
may speak a dozen different languages, but we must communicate with one
voice in battle. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Further, we
must work to remove barriers that prevent effective operation of
competitive market forces. This will allow us to acquire equipment
and systems that we need for future coalition warfare with an eye to price
and performance, and not to protectionism. Cooperation in the
geopolitical, military, and industrial arenas must be matched by
efficiency and effectiveness in acquisition practices. Such a
situation is being facilitated by the current efforts to remove
inefficiencies within the North American and European defense industrial
structures and—most important—to <I>improve transatlantic
industrial ties</I>. These efforts will in turn create fair and open
competition for the best possible goods and services while recognizing the
political realities of providing countries a fair return on their
investments. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>COOPERATION
AND CONSOLIDATION</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Accepting
the fact that all of us throughout the Alliance face declining defense
budgets, we recognize the need to apply our limited resources more
efficiently and more effectively. Such work will require a
fundamental cultural change within the United States as well as coalition
governments. But it is a change we must make. European defense
equipment costs, according to one recent study, are rising at an average
rate of 10 percent each year (excluding the effects of inflation). That
means they double every seven years. With fixed or declining defense
budgets and rapidly escalating costs, it is becoming more and more
impractical for individual nations to consider independent major weapon
system development and/or production as a realistic option. And,
since coalition warfare is the most likely scenario for the future, based
on compelling <I>geopolitical, as well as military </I>arguments,
cooperation in the development and production of defense systems is the
only viable option. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Coalition
warfare, and interoperability of equipment and systems, have important
implications for each nation’s defense industry as well as for its
military establishment. It would appear that, in the future, nations
will rarely be able to afford a unique, independent industrial capability.
In an era of finite resources and declining national defense
budgets, greater cooperation represents a tremendous opportunity for
creating greater efficiency, increased interoperability, and much less
duplication—if, as I stated earlier, we can inspire the cultural
change necessary to encourage cooperation and establish procurement
practices that put the benefits of international market forces above
autarchy. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">In the
United States, we have seen widespread defense industry consolidation
during the past few years. Ten years ago, there were more than 50
independent defense firms as opposed to today’s top five. This
dramatic consolidation is the inevitable result of a dwindling defense
procurement budget that has seen a 70% decrease during the past ten years
and is only now turning around as we struggle to commit resources to
modernization. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">There are
certainly similar opportunities for consolidation among our NATO partners,
and some are already being taken advantage of. Consolidation will
certainly increase European firms’ competitiveness and capacity for
independent action. We encourage caution on this road, however,
because we are increasingly concerned about the potential for exclusivity
(on both sides of the Atlantic), which could result in counterproductive
transatlantic competition sometimes characterized as “Fortress
America versus Fortress Europe.” </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">We
recognize, however, that with static or declining defense procurement
budgets, consolidation can be beneficial. We also know that
consolidation has its limits. While we believe that there are still
opportunities for consolidation in our domestic defense industry—especially
in the lower tiers—we are concerned that, in some instances, we may
consolidate to the point where we no longer have an effective, <I>competitive</I>
marketplace. This fear applies to both horizontal and vertical
integration within a specific sector. But opening markets to <I>international</I>
competitive teams can assure continued competition in the face of
consolidation. We firmly believe that, without competition, there is
less innovation, and little incentive for adopting the efficiencies that
result in downward pressure on prices and cycle times. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">We
understand, of course, that many weapons programs will remain regional.
On the other hand, cooperation must be the choice for those systems
that require interoperability in coalition conflicts—for example, in
areas such as air defense, communications, intelligence,
chemical/biological defense, and information security. While our
threat assessments may differ, we must implement programs efficiently and
effectively where we do agree and where opportunities for cooperation do
exist. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">To achieve
success, we must work toward cooperative international defense programs
that apply the lessons learned from successful international commercial
alliances. Essentially, <I>we must adopt a new international
armaments cooperation model</I>, one in which <I>governments</I>
establish the military requirements and business rules but <I>industries</I>
choose the best international teams to bid competitively on the work.
Such an arrangement will forge a more balanced partnership, one that
guarantees each individual member’s independence while recognizing
the Alliance’s interdependence. It will also take full
advantage of the efficiencies and effectiveness of competitive market
forces. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">We can learn
many valuable lessons from commercial industry structures that are
operating in the increasingly global economy. Parochial institutions
and practices have been swept aside as these world-class industries have
taken on more international structure and market perspective. Many
global strategic alliances are being formed and successfully implemented.
Industrial consolidations and excess capacity reductions are now
taking place, along with significant privatization of public sector
industrial activities. There is also the potential for significant
reduction in vertical integration, consistent with the concept of
worldwide sourcing to the “best in class.” Additionally
there is widespread integration of engineering and manufacturing to
achieve high performance at lower cost and with greatly reduced cycle
times. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>INCREASING
CIVILIAN/MILITARY INDUSTRIAL INTEGRATION</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Perhaps most
essential for the transformation of our defense acquisition practices and
industrial structures is the need to bring about far <I>greater
civilian/military industrial integration</I>. In the United States,
we are building a greatly expanded partnership with a revived and
prospering commercial industry through what we refer to as “acquisition
reform.” In many respects, the advanced technology and
production and support processes we need to meet our defense needs can be
better satisfied by commercial capability. This is especially true
in the information systems arena, where the best world-class companies are
way ahead of us in many essential technologies. We must expand our
supplier base to include these firms. At the same time, we must
encourage our traditional suppliers to also address the commercial
markets. Both of these actions require significant “cultural
change” in government procurement practices and in industrial
business practices. Today, we see a commercial industry that is
becoming global in its reach and forming partnerships with other
world-class companies to cut costs, increase efficiency, and provide
better performance. This natural trend toward globalization must be
accommodated by greater civil/military industrial integration on an
international scale. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">To produce
lower-cost, higher-performance defense equipment, we must remove the
existing significant barriers to expanded civil/military industrial
integration. We must also move away from the old military/industrial
axis of defense suppliers creating defense-unique products based
exclusively on defense-produced technology. We must seek a new
civil/military partnership, not one in which we become simply purchasers
of commercial products and processes, but a dynamic and vigorous
engagement that, through R&D, creates advanced products and systems
with common technological bases. Through flexible manufacturing,
this new partnership would allow us to produce low-volume, defense-unique
items on the same lines with high-volume commercial items. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">In the
United States, civil/military defense industrial integration is one of our
top acquisition priorities, an important part of an expanding
acquisition-reform effort that has already saved billions of dollars.
We are continuing and accelerating that effort. We are working
to reduce infrastructure and support costs that are now more than 60
percent of our overall defense budget. And we have initiated a major
effort to <I>reengineer our logistics system</I>, replacing excessive
inventory and infrastructure with advanced information technology and
rapid transportation. Our current logistics system—based on a
1950s model—does not provide the level of support, speed of delivery,
and economy of operation required for the early 21st century. If we
are to do the job right, and at lower costs, we must reduce our logistics
support costs and trim inventory and maintenance costs. World-class
commercial firms have shown the enormous changes that are possible—in
support performance improvements and cost, personnel, and inventory
reductions. We must pursue these opportunities aggressively. They
will free up a large number of dollars and people that we can shift from
support and infrastructure to combat and modernization. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>DEFENSE
DEPARTMENT REFORM</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">In November
1997, Secretary Cohen announced sweeping reforms in the way the Defense
Department will do business in the future. This effort, known as the
Defense Reform Initiative, radically restructures—or eliminates—many
functions within the Department in order to cut costs, improve
performance, and, most important, allow us to concentrate on those core
functions that are truly governmental: combat, policy, management, and
oversight. All other functions we will send out for <I>competitive
bids </I>and thus gain the performance and cost benefits of market forces.
</FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The Defense
Reform Initiative not only includes a 30 percent reduction in the Office
of the Secretary of Defense, but also significant restructurings. Three
of these, I believe, are critical to the future direction of our Alliance.
First, we have initiated a major reorganization of the Department’s
command, control, communications, and intelligence functions—C<SUP>3</SUP>I.
The reorganization, which recognizes the increased importance we
place on current and future defense information, surveillance, and
intelligence issues, gives the Assistant Secretary of Defense for C<SUP>3</SUP>I
a significantly broader portfolio encompassing such critical areas as
information assurance, infrastructure protection, and spectrum allocation
efforts. It also closely links the Assistant Secretary to our
weapons acquisition efforts to assure “sensor to shooter”
real-time capability on the modern, widely dispersed battlefield. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The second
restructuring effort, the new <I>Defense Threat Reduction Agency</I>,
will improve our focus on the complex new challenges raised by the threat
of weapons of mass destruction. This agency consolidates three
existing agencies—the On-Site Inspection Agency, the Defense Special
Weapons Agency, and the Defense Technology Security Administration—and
will be responsible for managing activities pertaining to
counterproliferation, the Cooperative Threat Reduction Program, and
compliance with arms-control treaties. The new agency will provide
expertise on weapons of mass destruction and assure that research
activities are carried out relative to our efforts to reduce
proliferation. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">The third
change, which is of particular importance to our allies, will meld two
existing agencies, the Defense Security Assistance Agency and our
International Armaments Cooperation Office, into a new agency, the <I>Defense
Security Cooperation Agency</I>. This new agency will direct our
international cooperative efforts, shifting our emphasis in armaments
programs from security assistance to security cooperation. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">As we make
the many radical changes in our war-fighting capabilities, we intend to do
it in a way that is compatible with, and provides benefits to, our overall
collective security. As part of this effort, I recently asked our
Defense Science Board to create a year-long task force to consider the
potential impacts of the “revolution in military affairs” on
coalition warfare. The study will evaluate such issues as how best
to use the benefits of the “revolution” for our coalition’s
war-fighting capabilities; achieving the required levels of
interoperability and technological advance within our Alliance
partnerships; exploring ways to foster and maintain mutual trust; and
weighing the effect of the “revolution” on our collective
tactics and training. </FONT> </P>
<P ALIGN="CENTER"><FONT COLOR="000000" SIZE="3" FACE="Palatino"><B>CONCLUDING
REMARKS</B> </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">Our NATO
partnership is a key element in both our “revolution in military
affairs” and our “revolution in business affairs.” Both
of these dramatic changes are required in order to meet the changing
military and budgetary environments. We are committed to achieving
these changes in cooperation with our allies. But as our Alliance
evolves to meet the new and uncertain threats of the early 21st century,
we must all work together to harness our tremendous combat force
superiority and war-fighting capacity. This work will enable us to
create <I>affordable</I> and<I> rapidly </I><I>deployable</I> defense
systems that match our future security requirements and our limited
resources. That combination of coalition capability and
affordability is the challenge before us. </FONT></P>
<P ALIGN="LEFT"><FONT COLOR="000000" SIZE="3" FACE="Palatino">We are
confident that the NATO Alliance will maintain its vast military
superiority during the next 50 years. To do so, however, it must
continue to adapt to the rapidly changing security and technology
environments. This is not an easy task. It will not be
achieved overnight. And there will be significant hurdles along the
way. But if I have any concern, it is only that we—collectively—will
not recognize the <I>urgency of beginning now</I> to make the needed
changes. </FONT></P>
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