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National Defense Industrial Association

As Prepared for Delivery by Deputy Secretary of Defense Ashton B. Carter, Ritz-Carlton Tysons Corner, McLean, VA, Friday, May 03, 2013

Thanks very much Sean.  When Sean told me I would have this honor, I said “feed everyone.”  I went to an NDU dinner a couple of months ago, and Henry Kissinger was also one of the guests, and it went on and on and on, and they didn’t get us anything to eat.  We were all wilting.  I spoke.  And Brent Scowcroft spoke.  And then my wife Stephanie and I left, actually.  And Kissinger, I understand, finally got up later in the evening and said, “Well, I thought I might be the breakfast speaker.”  [Laughter]

So I’m not going to do that to you.   I do encourage you to eat.  I will be brief.

Let me first of all thank and honor Sean O’Keefe.  Sean has been a public servant in the government and a public servant through his service to our industry for decades now.  I admired him when he first served in government – he probably didn’t know it, but I knew who he was.  We have a special gift because Sean is with us.  For those of you who know his story, he came close, in a plane crash, to not being with us.  I remember that time and I remember his recovery, and wishing him strength in his recovery.  And he got strength.  And so Sean, thank you very much. 

And I’d also like to welcome Congressman Moran, who has been a hero of mine.  You read these editorials about how there’s no one in Congress anymore who understands defense, or cares.  It’s just not true.  Witness Congressman Moran.  Thank you, sir. 

And Larry Farrell, Arnold Punaro, David Melcher, and all the members of NDIA’s Executive Committee, Board of Directors, and Trustees, thank you for this honor. 

Sean’s right, I got into this business through physics.  That’s how I started.  Everyone has to start somewhere, and I started in physics because I found that having a technical background allowed me to make a contribution to our national defense.  And years later, I remember that.  And so everybody here that is starting out – and there are a few folks on my staff who are just starting out – thanks for working in defense, and I hope you make it your career also.

It’s a great privilege for me to join previous award recipients and patriots like Bill Perry, one of my lifelong mentors, the late Senator Danny Inouye, Congressman Ike Skelton, and last year’s awardee, Chairman Buck McKeon -- all recipients of the Eisenhower award.

To those of you from our industry, let me just start the evening by saying thank you.  Thank you for what you do for us.  We don’t take it for granted.  I’d ask you to go home tonight and tell your kids or your spouse that you were thanked for what you do for national defense.  We tend to thank the troops, and I understand that second only to the quality of our men and women in uniform, what makes our nation’s military the best in the world is the quality of our defense industry.  And that’s you.  So thank you.

Your success, your technological vibrancy, and your financial success are in the national interest.  The long-term interests of the defense industry and the long-term interests of the department are aligned, as we work together in defense of the nation. 

Now as many in this room know, perhaps President Eisenhower’s most famous quote is drawn from his farewell address, in which he warned of the dangers of an outsized “military industrial complex.”

While memorable, this quote has been reduced to something of an absurdity.  Eisenhower was, of course, one of our nation’s most accomplished generals and the man responsible for the allied victory in Europe some 15 years before he gave that speech.  He clearly understood the vital role played by the defense industry in securing our nation’s defense.    

The larger point of his farewell address—largely lost today—was that the interests of the country are served when leaders take the long view, properly align ends with means, and seek what is in the national interest, rather than what is in the special interest of some.    

Eisenhower captured each of these thoughts when he spoke of the need to maintain:

“balance between the private and the public economy; balance between cost and hoped for advantages; balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between the actions of the moment and the national welfare of the future.”

He went on to say:

“Maintaining balance involves the element of time. As we peer into society's future, we – you and I, and our government – must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow.” 

This is what I’d like to speak with you about tonight:  how the Department of Defense is taking the long view, and how we are differentiating between “the clearly necessary and the comfortably desirable,” in a time of unprecedented fiscal turbulence.

***

Taking the long view begins with an understanding that we’re operating at the convergence of two historical currents. 

First, as President Obama made clear in the new defense strategy we announced last January, we are turning a strategic corner from a post-9/11 era dominated by two wars—in Iraq and Afghanistan—to the challenges and opportunities that will define our future in security.

We know what many of those challenges are: continued turmoil in the Middle East, the persistent threat of terrorism, enduring threats like weapons of mass destruction, and a range of new threats such as cyber.

We also see great opportunities: among them, to shift the great weight of the Department of Defense, both intellectual and physical, that has been devoted to Iraq and Afghanistan, to the Asia-Pacific region, where America will continue to play its seven-decade-old pivotal stabilizing role into the future; to develop innovative new capabilities from a vibrant defense technology effort; to capitalize on the lessons of the last decade on how to use forces innovatively, including special forces and the integration of intelligence and operations; to manage presence in new ways; to leverage the Reserve and Guard components that have performed so superbly over the past decade; and to build the capacity of partners and allies so they can shoulder more of the burden.

***

So as we draw down from the wars in Iraq and Afghanistan, our force needs to make a very difficult transition from a large, rotational, counterinsurgency-based force to a leaner, more agile, more flexible, and ready force for the future.

That’s not to say there’s anything wrong with the force that we built for Iraq and Afghanistan—it was the right force for the period.  This is a different period.

As we make this transition, we want to preserve what we have worked so hard to achieve in the last decade:

First, the tremendous strength that the all-volunteer force. 

Second, the integral application ofspecial operations forces in modern operations. 

Third, the contribution of the Guard and Reserve, who have performed superbly in all that we’ve asked of them. 

Fourth, the fusion of intelligence and operations – an area in which we have unrivaled capability.

 And fifth, new and disruptive technologies conceived and fielded over the past decade.

***

Our new strategy also has to do with protecting and prioritizing key investments in technology and new capabilities.  President Obama insisted that we go out of our way to protect our newest investments because these kinds of investments tend to have the shallowest roots, and are therefore most susceptible to being bureaucratically uprooted.  Because these investments are so important to keeping the technological edge upon which so much of our national security depends, the President wanted to ensure that we didn’t eat our seed corn in the process of reducing our budget.  

In this regard, we are continuing, even in our current budgetary environment, to grow our Special Operations Forces. 

We are increasing our investments in cyber, in recognition of the growing threat that cyber poses to our national security and critical infrastructure, and are concentrating on our space and counter-space capabilities. 

We are protecting our programs to counter weapons of mass destruction. 

We’re investing in Intelligence, Surveillance, and Reconnaissance platforms, including unmanned vehicles. 

Finally, in regard to new capabilities, we’re increasing our investments in certain areas of our science and technology portfolio, such as electronic warfare, anti-jamming capabilities, and command, control and communications. 

***

A third tenet of our new defense strategy concerns our rebalance to the Asia-Pacific region.

Our rebalance – to be clear – is predominantly a political and economic concept, not a military one.   But since I’m Deputy Secretary of Defense, I naturally focus on its security aspects.

In the security sphere, the logic of our rebalance is very simple: the Asia-Pacific region has largely enjoyed peace and stability for sixty years. 

A noteworthy exception to this general proposition – and a dangerous one at that – is North Korea.

We are, of course, responding to North Korea’s threats.  We’re doing it by defending ourselves and our allies.  We’re taking a firm but measured approach.  But North Korea is really an exception in terms of imminent nation-state aggression in the Asia-Pacific region.

This climate of peace and stability has prevailed in the Asia-Pacific region for so long despite the fact that there’s been no overarching security structure—no NATO—to make sure that historical wounds, which were deep in Asia, were healed after World War II.  And during those years, first Japan rose and prospered, then South Korea rose and prospered, then many nations in Southeast Asia rose and prospered.  And now, today, India, and in a different way, China rise and prosper too.  All this has been welcomed by the United States.

But none of this was a foregone conclusion when you consider where Asia was at the end of World War II.  

While the Asian political and economic miracle was realized, first and foremost, by the hard work and talent of the Asian people themselves, it was enabled by the enduring principles that the United States has stood for in the region, and also by American military power.

These principles include a commitment to free and open commerce; a just international order that emphasizes rights and responsibilities of nations and fidelity to the rule of law; civilian control of the military; open access, by all, to the shared domains of sea, air, space, and now, cyberspace; and the principle of resolving conflict without the use of force.

In addition to these principles, it was also enabled by the pivotal role of U.S. military power and presence in the region.  We believe that our strong security presence in the Asia-Pacific has provided a critical foundation for these principles to take root.  And in one sentence, our rebalance says we’re going to continue to provide this foundation for decades to come. 

Our partners in the region welcome our leadership and our robust engagement, and the values that underlie them, and therefore I believe that our rebalance will be welcomed and will be reciprocated.  It’s good for us, and it’s good for everyone in the region.  And it includes everyone in the region.  And by the way it’s not aimed at anyone in the region – no individual country, or group of countries.

Our rebalance is reflected in:

Force structure decisions we have made and are making – that is, what we keep and what we retire;

Presence and posture  – that is, where we put things and what we can do with them – the most visible part of our rebalance;

Investments—not just in technology and new weapons systems— but in human capital as well;

Innovations in our operational plans and tactics;

And perhaps most importantly, the work we are doing to strengthen our alliances and partnerships in the region.

When I discuss the rebalance, I’m usually asked two questions. 

The first is: can you do it?  Can you do it with the budgetary challenges you face?

And the answer to this question is yes – we can do the rebalance.  And here’s why:

First, as I mentioned earlier, we are shifting that huge weight that we have applied to Iraq and Afghanistan, to the region.

And a second reason is that within our budget, which is still substantial, we are making investments in this region a priority.

In addition to the current weight of our own defense spending you also have to take into account that it has accumulated over time.  It takes decades to build a military capability like ours. 

It’s also true that in addition to having substantial resources, our force has substantial operational experience, which no other military can match.

So for all these reasons, we can do it.

The second question I get is, “Isn’t our rebalance really about China?”

And the answer is no, our rebalance is not about China.  Our rebalance is not aimed at anyone – any individual country, or group of countries.  It’s about ensuring the peace and stability that the Asia-Pacific has enjoyed for sixty years.

***

So that’s the first current – a great strategic transition.

It coincides with a second current:  the need to absorb some reductions in defense spending in the interest of the nation’s overall fiscal situation.

Those two great historical currents are coming together, and my view is that they can, if managed properly, reinforce one another.  And that is the task before us in the Department of Defense.

In terms of our responsibility to the American taxpayer, we know that in making this strategic transition, we only deserve the amount of money we need and not the amount we have gotten used to.

That’s why, well before the current budget turmoil, we made reductions to the Department’s budget by $487 billion over the coming decade.

This half-trillion-dollar adjustment came on top of significant adjustments that Secretary Gates made to eliminate unneeded or underperforming programs. 

At the same time, our Overseas Contingency Operations funding – which is not included in the base budget and which is for Iraq and Afghanistan, otherwise known as wartime supplemental funding – is also decreasing, now that we have exited Iraq and are drawing down our forces in Afghanistan.

Taken together, these reductions compare in pace and magnitude to historical cycles in defense spending the nation has experienced in the past – after Vietnam, and after the Cold War.

***

In order to execute the President’s defense strategy and responsibly prepare for reductions in defense spending, we need to continue a relentless effort to make every defense dollar count.  As Sean stated so eloquently, we began this effort in acquisition when I was the Under Secretary of Defense for Acquisition, Technology, and Logistics under the title “Better Buying Power” that continues under Frank Kendall.  Extended from acquisition throughout the entire Department, this means making hard choices and persuading our own bureaucracy, and ultimately Congress, to support even the very hardest of them…whether they be changes in health care, compensation, basing and other infrastructure, IT consolidation, or headquarters and other staff functions.   

Making better use of taxpayer dollars is important not only in its own right, since every dollar that is wasted could be used for the nation’s defense, but is also important in order to win the taxpayers’ confidence that they are getting full value for their defense dollar.  This is a confidence we must earn to get the public and Congress to support our budget.  

***

In a normal budgetary environment, an efficiencies and strategy-driven approach, such as I’ve described, would together be sufficient to meet our nation’s defense needs.  But this budgetary environment is anything but normal, particularly because we are operating under the sequester.

Frankly, none of us—myself included—thought we’d be where we are today. 

It’s worth remembering what we all—lawmakers and senior Administration officials—said when sequestration was first proposed as the alternative in case the so-called “super-committee” failed under the 2011 Budget Control Act.  I don’t want to hurt any feelings, so I’m not going to name any names, but these quotes come from both sides of the aisle.  I’ll start with members of Congress:

“This would be devastating to Defense.  This is never going to happen.”

"The dumbest idea in a body known for dumb ideas."

 “Most of us will move heaven and earth to find an alternative that prevents a sequester from happening.” 

 “The sequester is ugly. Why? Because we don’t want anybody to go there.”

Now, as for senior Administration officials, here’s what we said:

“It will not happen.”

“The hope is that sequester won’t happen.”

“I used to be hopeful and optimistic, and now I'm just hopeful.”

[Laughter]

I will name one name.  That last quote was from yours truly, on February 2.  I meant what I said.  The effects of sequestration were—and are—so damaging that at one point I was optimistic that they would not come to pass.

Yet here we are.  This town never ceases to amaze me.   As Yogi Berra used to say, “you can observe a lot by just watching."

[Laughter]

Sequester is not only regrettable in its own right, but it distracts from the true strategic and managerial tasks before us.

You might ask, why does this turbulence hit so hard and so fast?  Why does an 8 percent sequester budget cut lead to a crisis in readiness, as the Joint Chiefs of Staff have aptly called it?

To understand this requires some explanation.  Sequestration commenced on March 1 and will reduce DoD funding for FY 2013 by $37 billion.  About $20 billion of that cut affects our operation and maintenance or O&M accounts – the accounts that most influence day-to-day military readiness.  But it gets worse for O&M.  The wartime or OCO budget is subject to sequestration.  To protect funding for our troops at war – which is a must – we will have to impose extra cuts on the base-budget portion of O&M.  Worse yet, two years ago when we were estimating the costs of wartime operations, we estimated low – due to higher than expected operating tempo and transportation costs.   So now we have to make further cuts in base-budget O&M in order to sustain wartime operations. The bottom line: cuts in the base-budget portion of O&M will be more than 20% compared to our request.  And we have only about six months to accommodate most of those cuts.  So much for the 8% sequester cut!

When we concluded last January that sequester might actually happen, we began taking action.  We imposed hiring freezes, cuts in travel and conferences, reductions in facilities maintenance, and much more.  Now that sequestration is in effect, we are preparing a reprogramming request to move money from other accounts into O&M.  But, unfortunately, all this isn’t enough.  We have also had to make large cuts in training and maintenance, which in turn are seriously harming readiness.

Let me start with the Army.  Among numerous training-related actions, the Army plans to cancel at least six remaining combat center training sessions for its brigade combat teams.  This means we are less ready for contingency operations, and it may interfere with our ability to replace units in Afghanistan next year.

The Air Force has or will soon stop flying for 12 combat-coded squadrons, which means that about one third of its active squadrons will be markedly less ready to meet contingency demands.  .

The Navy and Marine Corps are also cutting back on flight operations and fleet operations.  The Navy has imposed flying restrictions on some non-deployed carrier air wings and as you’ve seen, we’re not sending ships to sea as we had planned, because we don’t have the money.

Finally, we may have to consider furloughing many of our civilian employees in order to hold down operating costs.  Secretary Hagel has not made a final decision on furloughs.  But if we have to impose them, they will harm morale and productivity throughout most of our support functions.  This will in turn further damage readiness.

What's tragic is that all this damage to readiness and national security is not a result of economic emergency or a recession.  It's not because defense cuts are the answer to the nation’s long-term fiscal challenge—do the math.  It's not in reaction to a sudden transformation to a more peaceful world.  It's not due to a breakthrough in military technology or a new strategic insight.  It's not because paths of revenue growth and entitlement spending have been explored and exhausted.  It's purely collateral damage of political gridlock.

***

The sequester for FY 2013 ends October 1, but there is no way to know for sure what’s next in Washington.

 We can adjust and adapt to a wide range of contingencies, but this will be easiest if we have stability, time, and flexibility.  The President has submitted a budget that meets these goals.  The President’s budget reflects his overall approach to deficit reduction.   For defense, it contains $150 billion more in ten-year cuts compared to last year’s plan in addition to the $487 billion reflected in the Department of Defense’s Fiscal Year 2013 budget.  But most of these cuts occur beyond FY18, which gives us time to plan.  While no agency wants to cut its budget, the President’s plan is much more acceptable than the cuts that could occur under the Budget Control Act – cuts that could amount to $52 billion in FY 2014 alone and could total $500 billion over ten years.

 We urgently need an agreement to grant us stability, time, and flexibility.  The House budget resolution, the Senate budget resolution, and of course the Budget Control Act all confront us with a wide range of future scenarios for our budget.

Most immediately, as I said, we need reprogramming relief from Congress for Fiscal Year 2013 in order to shift money to meet our highest priorities.  This reprogramming will deal with the war cost problem, but it does not address sequester.  In the long-term, we simply must have Congress’s support to have the flexibility to make budget cuts where they are most in the interest of national defense.  Last year, Congress denied proposals ranging from health care efficiencies to force structure and modernization proposals that our leadership had proposed and justified.

Ideally, we will have all three elements—stability, time, and flexibility—with which to make critical budget decisions.  But we must anticipate a wide range of possible contingencies.  In this regard, Secretary Hagel asked me to direct a Strategic Choices and Management Review, working with Chairman Dempsey, to define the major strategic choices and institutional challenges affecting the defense posture in the decade ahead that must be made to preserve and adapt defense strategy and management under a wide range of future circumstances that could result either from a comprehensive deficit reduction deal or the persistence of the cuts that began with this year’s sequester.

 Everything will be on the table during this review: roles and missions, planning, business practices, force structure, personnel and compensation, acquisition and modernization investments, and how we operate, and how we measure and maintain readiness.

We plan to complete our work and provide decision-points and recommendations to Secretary Hagel in the coming weeks.

The choices the Secretary and the President make in response to decision-points identified by the SCMR in the following months will then inform our FY15 budget submission and execution of the FY14 budget. 

***

The overarching theme behind our review is that we will need to make tough choices in the years to come, choices that will have significant impacts on the United States, particularly if sequester’ s effects remain in force. 

These tough choices, by necessity, must favor national interest over parochial priorities. 

What we cannot afford is a fiscal debate in which the American people are in favor of sequester, just not in their own back yards.  You wouldn’t believe the mail I get these days, asking to spare this or that sacred cow.  Lindsey Graham exposed this hypocrisy when he said:  “When it’s somebody else’s base and district, it’s good government. When it’s in your state or your backyard, it’s devastating.”

I couldn’t agree more.  Fiscal NIMBY-ism is exactly the wrong policy prescription for what ails us.  It is the opposite of the balanced, strategic, long-term view of which President Eisenhower spoke. 

***

As we face this reality together, we will need your help, and you will need ours. 

No one knows better than you your business, and the effects our fiscal and political challenges are having on your industry.  As we each grapple with these challenges, the more we’re able to align ourselves with one another – industry and government -- the better off we’ll be. 

We will continue to strive to provide you as much information as possible so that you may make workforce and resource allocations as smartly as possible. 

We understand that our strategic and budgetary transitions will have ripple effects across the industry. 

As we look to the future, we will manage our transition according to certain key principles to maximize industry health.

In the main, first of all, we will rely upon market forces to make the most economically efficient adjustments in the industry.

We will act to avoid any excessive short-term perspectives of the kind that have affected other markets like housing and the financial industry. 

We will continue to strive to protect the principal engine of productivity and value which is competition. 

We also understand that the defense industry, like industry everywhere, has to adjust to the forces of globalization, otherwise it will shrivel.  Even as it is rare that we will fight alone, it is rare that we make things alone anymore. 

We're also committed to promoting exports, as illustrated by the announcement Secretary Hagel made on his trip to the Middle East last week of the approved sale of standoff weapons to Saudi Arabia and the UAE, to go with the F-15s and F-16s these countries are buying.  Exports build the strength and power of our partners and allies, and they help build the strength of our industry. 

We also will pay attention to all tiers of the defense industry, especially so-called lower- tier suppliers.

Finally, we will welcome new entrants into the defense industry, making room for those with the best ideas in technology and services.  And here I applaud you for all that you’ve done to attract and develop the talent we need, including through hiring American’s veterans. 

So those are the principles upon which we're operating in as we turn this strategic corner to make sure that they health of the industry that supports us is protected as well.

***

In closing, I’m honored to accept this year’s Eisenhower Award as a symbol of the critical partnership between the United States’ armed forces and the defense industrial base.   We in the Defense Department are prepared to make difficult strategic and budgetary choices, and recognize that you are facing many of the same.  We also are committed to finding new ways to improve the way we do business, and obtaining greater efficiency and productivity in how we operate.  We are committed to the great strategic transition upon which we have embarked. 

Above all, we are committed to serving our troops who serve us.  Each and every day they risk their lives to keep our nation safe.   Stephanie and I frequently visit with them, here and abroad, in hospitals and on bases, posts, and installations.  Next week I will have an opportunity to visit our troops in Afghanistan, and thank them for all they do and will continue to do to defend our freedom.  Their work, ultimately, is what we’re all here to support.

So thank you for partnering with us through what I know are turbulent times.  Please extend my thanks to your employees, who demonstrate their skill and patriotism for us every day.  We don’t take it for granted.  We depend on you, and together, we expect to meet the challenges ahead.    

Thank you.

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