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American Institute of Aeronautics and Astronautics
As Delivered by Deputy Secretary of Defense John J. Hamre , Crystal City Arlington, Virginia , Wednesday, May 05, 1999

Let me at the outset say a bit about our ongoing operations [in the Balkans]. Fifty years ago we had an army that was raging across Europe, displacing countless civilians, traumatizing civilian populations, rousting people out, painting identifying symbols on their doors of who was an enemy, separating men from women, brutalizing women in unspeakable ways, making men kneel in long lines and have the women walk away only to hear gun shots over the hill. That was 50 years ago. At that time, we responded with the 8th Air Force, which was flying out of England. [It] would grind away and deliver ordnance in an air campaign.

It is a familiar image 50 years later. It is still the same 8th Air Force that today is trying to bring a response on behalf of the free world to deal with this problem in Kosovo. American pilots this day are again flying in harm's way trying to deal with a very evil presence. They are doing a very good job. I think they are doing a terrific job.

I am astounded at the pains that we go through to minimize collateral damage when we undertake an air operation. We grieve, genuinely grieve, when we have five or ten people who through an accident are unintentionally killed in an air operation. And yet, we are confronted by an opponent who is trying to maximize collateral damage. That is the objective of our opponent. So I am very proud of what our troops are doing and what the allied forces are doing. We are doing a tremendous job. I don't think that story is being entirely told here in Washington.

Last week, we lost an airplane; the second one we lost to hostile fire. What isn't being told is that in the meantime, we flew 10,000 sorties. Our opponent has launched over 300 SAMs [Surface-to-Air-Missiles] at us. We lost two airplanes. I don't think there's an air campaign in history that has been this successful. It is been remarkable. [Our forces] are doing a terrific job. So while we celebrate the achievements of our pilots, the air crews that back them up and the support personnel behind them who are making this entire operation work, I think we ought to take genuine pride in what is being accomplished as well.

This tremendous success of being able to inflict pinpoint punishment while minimizing casualties would not have happened without the genuine partnership that the Department of Defense has had with American industry. I know that there is a public icon in America about the military industrial complex as being something to worry about.

Frankly, I think it is a tremendous benefit. In World War II when the 8th Air Force flew to knock out a single bridge, they'd send out an entire wing of aircraft and drop hundreds of bombs. Today, a [single plane] can fly and can drop out every single span of a bridge crossing the Danube with one pass and still have half of the load left for another target. That wouldn't have happened had it not been for the partnership between the scientific community, our military professionals and our defense industry partners. And so, while our pilots are doing a lot of the hard work right now and flying in harm's way, they are able to accomplish their mission because of all of you. And for that, I would like to thank you.

You have been our indispensable partner during these past 50 years. It has not always been an entirely happy marriage, I'll agree with that on both sides. We have had our frustrations, but by in large, it has been a tremendous success. But we do have to look out and ask ourselves where this relationship is going. Where is our partnership with defense industry heading? I personally feel that this is an enormously important issue for us. I think so much of the technical innovation that we are now taking advantage of in the air campaign came from industry initially.

Indeed, I think our defense industry partners in many ways have been the well-spring of innovation that now typifies this military; a military that is able to precisely engage when it wants to with confidence, able to minimize collateral damage on the ground and protect our own forces at the same time. No one in the world is as good as we are now, and that excellence could not have happened without industry. So my question to myself and my question to you is this: "Is that going to be in place for the next 50 years?" I think there are genuine questions that we need to explore with each other about that. That's what I want to discuss today.

I think if we look back over the last ten years we can have genuine satisfaction with how well we have managed a difficult [Post-Cold War military] draw-down. We had not done as well in the past. In the past, when America demobilized, it basically threw away both its military and its arsenal. We have not done that this time. I think we have managed to do well; not without strains, but quite well.

There were three events during this last year that were very important in my thinking about our future. Not where we are right now, but where we're going to have to be in the next 10 and 15 and 20 years.

The first was the decision we reached to reject the merger proposal of Lockheed Martin-Northrup Grumman. I am not going to plow a painful furrow again. We have gone through that many times. It wasn't a happy experience, but it was one we felt we had to do because we felt that the consolidation [of the defense industry] had proceeded to a point where it was genuinely at that stage of putting at risk our ability to hold competitions that we needed.

Some people have said, "Well, you changed policies on us. You shifted gears." No, we didn't. What had happened was the reality of the marketplace had changed fairly dramatically. We had always said we wanted consolidation, but not at the expense of being able to undertake competitions. Since that one merger rejection, we have entertained four significant ones. We agreed to three of them and we rejected one. So we're still in the business of aiding the sensible consolidation of our defense industry, but one where we can still retain a competitive framework.

There was a second event that was very important for us: when the Navy took steps to disassemble the so-called "dream team" that was going to compete for the next-generation destroyer. That was a worrisome development to us because it was a virtual exclusive teaming arrangement that would have precluded what we felt was viable competition. Let me just say that I am not going to get into this here, but we look with some anxiety at the informal teaming arrangements that seem to be dominating the industry right now. I don't know if Jack [Gansler, Under Secretary of Defense for Acquisition and Technology] talked about that in his remarks, but it is giving us some cause of concern. We would prefer not to have to be more directive in aligning how companies could work together, but we may have to if we continue to see exclusive teaming arrangements. That's a subject for another day.

The third event that was rather important for us in our thinking was an unfortunate merger in Europe between two large defense companies in England. I'll talk more about that in just a moment. Despite all the words to the contrary, I very much fear that we are seeing the emergence of a Fortress Europe in the defense industry. I think it is driven by two forces: by the positive elements of the economic consolidation that's underway in Europe right now and by the negative forces of paranoid about America's defense industry. I think these things are coming together and pushing European companies together into a single integrated entity.

Even worse in my mind is that European defense establishments seemed to be prepared to accept second best in terms of modernization in order to retain these defense entities. I see [that] it is not entirely alien to us. There is such a preoccupation with glamour projects that they squeeze out the modernization programs across the board in other elements of the services. I am not throwing rocks at our allies because we have some of this phenomena here. But I see it amplified right now in Europe for the sake of retaining these defense entities as symbols. Europe as an entity spends less than we do on R&D, but fritters away an awful lot of it through redundancy and duplication.

When I meet with my counterparts and when Secretary [Cohen] meets with his counterparts, we hear these private comments of worry that our allies are not going to be able to fight as equal coalition partners with us because they can't keep up. They haven't invested in what it takes to be able to fight in adverse weather or in day and night conditions.

This is a genuine source of worry for us. We do want to be able to fight as coalition partners in the future, but we can't slow down to stay in phase with our allies. They have to start moving faster. I think they know that, but it means they have to invest. Too often I meet with senior representatives from our allied countries who look at defense consolidation in Europe as a way of cutting back on modernization costs, not at getting more output. That's a source of concern for us as allies and as coalition partners.

Ultimately, and I've said this before, you can't have a defense industrial base if you don't buy anything. Ultimately, this comes down to modernization, not just simply the gestures of trying to eliminate redundancy. We ought to do that anyway, but you have to buy things if you're going to have an industrial base. Our partners have to realize that; this will have to be imperative.

I am not going to be sanctimonious about fortress Europe. Frankly, there is no fortress more formidable than fortress America when it comes to defense acquisition. I don't know if we have any attaches present, but they know what I am talking about. The United States is a hard market in which to compete. As a matter of fact, most European countries are uniformly more open to competition from foreigners than the United States. We are far more exclusionary. We always had the luxury of being such a large defense market that we could afford to be exclusionary. Most European defense establishments didn't have the luxury of a multi-disciplinary industrial base that they could protect. So they had to be open to competition. We have not had that experience here. We have not had to be that way.

But I would say that if barriers go up in Europe and the barriers stay up in the United States, we're all going to be hurt. I think we'll be hurt in the United States and our European allies will be crippled by it. We have to deal with that. We have to start tackling that problem. If we drift into a fortress America and a fortress Europe, I am convinced we'll all lose when all is said and done.

We in the United States cannot effectively compete for defense business in Europe unless we actively partner with defense industry in Europe. I am just giving you my personal views. European companies can't hope to compete in the United States unless they are partnered with American companies. American business can't have it both ways; open markets in Europe and closed American markets. The European defense industry can't gain access to a dramatically larger U.S. defense market if they want to close the European defense market. European countries will never be able to acquire weapons through genuine competitive means if they let a single European defense industry consolidate into a single defense enterprise. American companies will never believe that it is a fair opportunity for competition if there was only one American company competing against a single integrated European defense entity.

I think if anybody needs an example of that, look at the recent Greek decision on what they did to buy an early warning aircraft. A United States company proposed a proven product -- hundreds manufactured and continuously updated technically for the last 30 years -- that would be sustained in our inventory for the next 30 years with continuous updates. We were defeated in a competition against a European vendor that was proposing a radar that had never flown in an airplane on an airplane that had never carried a radar. In theory it was cheaper. Now, if anybody believes that, well.

If American companies are going to compete, they are going to have to have an honest perception that it is an open and fair place to compete. The return is just as true. We are not going to be able to sustain a closed market in the United States under the same terms and still hope to compete overseas.

I would also say that while American companies may not like it, I think genuine competition from Europe would be healthy for us. This is one of the reasons why I was personally disappointed in the BAE-GEC merger. I think that BAE bought GEC to make sure that an American company wouldn't. Now, I can't believe that that's healthy for the [British] MOD [Ministry of Defense]. I don't think that's going to be healthy over time for British defense. Now, they are committed to making it work and I take them at face value. I think they really are committed to trying to make that work. The proof will be in the pudding. We're going to test that proposition every competition. We'll have to see if that really is going to work. I know they are deeply committed to making it work.

Let me also say that while I didn't personally think this was the best way to proceed, I harbor absolutely no ill will about this merger. We have great confidence in GEC as a company. They have been a reliable vendor and partner in the United States and they will continue to be so. BAE is the same way; [there are] absolutely no reservations whatsoever about having them work with us. So while I am personally skeptical that that represents a genuine bridge to a Trans-Atlantic industrial base, that should not in any sense be seen as a lack of confidence in BAE or GEC as genuine partners to us here in the United States.

As a department and as a country we are going to have to come to grips with this reality; that we are going to have to change the way we think about these problems in the future. Part of it is inevitable given the way we are moving ourselves. [Beginning] ten years ago with [then-Deputy Secretary] Bill Perry's pressure, Paul Kaminsky's pressure and Jack Gansler's pressure, we are trying very hard in the Department of Defense to eliminate the defense industrial base. We'd rather not have a hot-house industry as the defense industrial base. We'd rather have an industrial base that can produce defense goods. That's where we want to move. But when you do that, you have to accept the reality that America's industrial base is becoming global. So a nostalgic attachment to the security solutions of the Cold War will not work in the future.

I venture with some trepidation into commenting on the current situation with the Department of Energy. But a knee-jerk reaction to say that American scientists can never talk to a foreigner again is a move in the wrong direction. That is not the solution to our security in the future. It is not going to work. The fact that our intellectual industry, our universities, our think tanks are international means that we cannot adopt a nostalgic solution to the Cold War solutions of industrial security for the future. We are just going to have to go past that. We all have to talk about this. We can't be intimidated by this right now into adopting a decision that would be wholly counterproductive over time.

I spoke with my counterpart over at the Department of Energy the other day. Every year, of course, they go out to the best physics departments and graduates schools in the country trying to recruit people. They couldn't get a single front line graduate student to sign up to join the Department of Energy this year. That will be a problem for us in five years. That is not a healthy development. We are going to have to think about this as a country.

At the same time, I have to tell you that I am not naive about security. I think we have spent the last ten years since the Cold War fooling ourselves, thinking that we were living in a benign environment. We are not. We have been under intelligence attack continuously. I believe it has grown into a more complicated environment. Our current security system is, I believe, obsolete to deal with the kind of problems we're dealing with right now. I think we need to develop a much more updated and risk-based approach to security than we currently have.

I have used this analogy before. The model that we currently have is one of a physical barrier around your yard. If you find a hole in the fence, you quickly [respond], put a patch on it, put another two feet of height on the fence and maybe another layer around it. We have this perimeter mentality about security in the United States. I don't think that's going to work anymore. [For example, look at] the Internet. Where's the boundary in cyberspace? I don't know where it is. We have an industrial security policy that's oriented around the nationality of the board of directors [of companies], rather than where things are done.

[The United States has] to update itself. I think we need to have more of an anthropomorphic model for security. This is an organism that's under attack all the time by microbes that are trying to do us ill. Some of them are serious and some of them aren't. You have to develop a basic immune system. You have to stay healthy, and the way you stay healthy is if you exercise, get good nutrition and run faster than anybody else. So you stay ahead of it. So you [stay ahead of] the normal little problems. When you're seriously under attack, you design a security system to deal with the problem; not a politically salable approach to the crisis of the moment. That's what we're going to have to develop.

We have done a lot of thinking about this in the Department. I wouldn't say that we're there yet. We have done a lot of thinking about having an updated risk-based security model to use for industrial security. Part of it means we have to shed ourselves of a lot of the[current industrial security practices]. We screen thousands and thousands of export license requests that are absolutely unimportant. In the midst of that, I am sure that there are some very serious and damaging things that could be slipping through because we're preoccupied with the volume of the transactions rather than looking out and finding which ones are a problem. So we will have to change and adopt a new model. We have done a fair amount of work thinking about that. Developing this new model is an active collaboration with us and law enforcement, customs and intelligence community.

I think we need to get over our hang-ups with the way we deal with FMS [Foreign Military Sales]. We currently have this paternalistic system for foreign military sales that punishes the customer for wanting to do business with us. We have to change that. We're wasting too much time and energy and money on a system that is not protecting America's security. We need to revise it and adapt it and change it. It is going to take a lot of work to do that.

I think there's a foundation to work from. We have done a lot in the last several years to adopt some regimes that really get at the risks posed to the country: counterproliferation materials, missile technology control regime, things of that nature. I think the foundation is there, but we do need to unbuckle ourselves from a lot of the useless work that we're currently preoccupied with.

That's when I come to all of you to say that we need your help to do that. You have been our partners in developing the hardware we count on today to carry out the defense missions of this country. We need your help on this as well. Some people will be skeptical of that because they will say we are self-serving. We have to overcome that kind of cheap criticism. We have to be partners in trying to find a new solution to the genuine security problems that we face, and not just get preoccupied with all of the mechanisms that we put in place during the last 30 years. We can't do that without your help. So I'd ask for that.

We celebrated, two weekends ago, the 50th anniversary of NATO. While the weekend was preoccupied with the alliance dealing with Kosovo, the biggest unreported event was probably the way in which the alliance had transformed its thinking about that future so it is viable for the next 50 years. That happened.

We need to do exactly the same thing here in the United States when it comes to how we deal with our security. We are at risk. But [we cannot afford] inappropriate solutions that don't work and which in the process are going to punish us and keep us locked into a hot-house defense industry that's going to become increasingly enfeebled because this market isn't big enough. So we need your help. And so I ask for that on our ongoing process.

We have had several of you participate in our FMS redesign effort. I am going to ask for your help in looking at the export issues with us. But we can't do it without you. And so, for that, I'd in advance ask for your help and thank you for participating.

Thank you very much. [Applause.]