PHIL EWING, POLITICO REPORTER: Thank you so much to Dr. Ash Carter, deputy secretary of defense, for joining us this morning.
Let's jump right into it. Everyone wants to hear about sequestration, so let's talk about sequestration.
We've heard from some people this morning that there could be some discussion potentially about delaying or compromising for more months or more weeks on the onset of a sequester. And I'm curious where you are and where the Pentagon is about that prospect.
DEPUTY SECRETARY OF DEFENSE ASHTON B. CARTER: Well, we're obviously not part of any of those discussions. But we've urgently hoped that something could be done to avert sequestration. I don't know how many months, I think, Secretary Panetta and I have been railing about what sequestration would do to national defense -- since last winter. I think then a lot of people didn't know what the word meant. But he did, we did.
And the word we use is “devastating.” I can't say anything good about it. It is, in its size and the manner in which it is applied, senseless. And so it makes the job of people like us who are trying to manage your security to a reasonable -- reasonable result well, nigh impossible.
It's very frustrating for all of our managers in the department, for me and for Secretary Panetta, 'cause you're -- you're trying to do everything just so, get our program just so, get our -- our -- all the things we're trying to do for the troops and their families just so. Obviously -- a war -- just so, and in comes something like this -- that just makes orderly disposition of the public's business impossible.
So I very much hope that some something might work out in the next few months to stop it.
MR. EWING: If Congress cannot avert it altogether before the end of the year, could you live with a delay into the end of the fiscal year or the end of the next calendar year?
DEP. SEC. CARTER: Well, a delay is better than having it. And if the delay leads to ultimately dispel this cloud - that's all the better. So for sure.
MR. EWING: I want to pick up something that you just mentioned, which is the opportunity costs that this has meant for you and the department. You and your managers have been working on this and a C.R. and other unexpected eventualities for a long time, and I'm curious what that has meant in terms of not being able to do things. The bandwidth that you've used on this end has not been spent on what?
DEP. SEC. CARTER: Well, yeah, you're absolutely right. I mean, we had threatened shutdowns of the government, we had continuing resolutions, we had a dangerous sequester, and all of these things mean that we in the management and all of our components of command -- also, by the way, industry, our industry partners also trying to do their jobs.
You're working on these contingencies at the same time you're trying to do the bedrock business that we're supposed to do, which is to support the warfighter and deliver value for the taxpayer. So it's annoying, it's frustrating, and it's counterproductive.
And, of course, if sequestration happens, it is a -- not only disruptive in many ways that I’d (inaudible) to describe, but it's a hidden tax all by itself, because it forces us to be uneconomical and our industry partners to be uneconomical in the conduct of our affairs. That's not -- that's not good.
MR. EWING: On the sequestration, one of the things that you told Congress is that this has a real effect for warfighters, for troops that are downrange, for units that are getting ready to go overseas, set to deploy.
Do you worry, with all of us kind of being in our Washington world, that people don't realize the wider implications, the wider consequences of this thing?
DEP. SEC. CARTER: I do. The -- a lot of them actually -- a lot of attention, a lot of -- writing to the effects on our programs. People all are very familiar with our aircraft programs and our vehicle programs and so forth. And that's all true. It is extremely disruptive, uneconomical and wasteful the way it affects them that people may not appreciate, but also in the operating accounts, which are also affected.
This has real impact potentially on the warfight itself. We would do everything we could to protect spending for the wars. That, as you all know, is an account– the operations and maintenance account, and what we would need to do under sequestration is, in order to service the wars, take extra amounts of money out of the rest of Army -- (inaudible) -- Army operations and maintenance, which will get at training, which will get at readiness, which means that later deploying units might be affected in terms of their readiness and the force will not be as ready – to do things elsewhere in the world.
So this is not only economically a very abstract thing, it really has an effect on security, has an effect on people. What about our people and their families? What expectation are they supposed to have, both civilian and military?
And then, as I mentioned, and as I imagine there are some in the audience in this category, our industry partners, I mean, they're the ones who build the things that make our military the greatest in the world. What affects them affects their employees. So just across the board it is -- it deserves the word “devastating.”
MR. EWING: I want to move on to something that I know is another priority of yours, which is exports and FMS for the American defense industry. You went to India early this year and made a speech there where you talked about how the department wants to get on board with helping American vendors not only improve their relationships there, but around the world. Can you please tell us more about that and what you can do from the DOD perspective to make that work better?
DEP. SEC. CARTER: Yeah, it's part of the broader what we call rebalancing. We're now coming to the end of an era in defense where we have been preoccupied of necessity with two wars of a particular kind and with fighting terrorism. And one of those wars has wound down. The other one is by no means over, but you can see the beginnings of the reduction of effort out at 2015 [sic: 2014]. The war on terror will go on forever. But we’re getting good at it now and have gotten very good over the last 10 years.
So we're beginning to be reaching a strategic turning point now where we're looking up from the era of Iraq and Afghanistan to the challenges that will define the next chapter, that will define our nation's future. That's what we're trying to do.
And when you look up and you look out and you look forward, one of the things that all of you immediately think of is the role that the Asia-Pacific region is going to have on our security future. That's what the rebalancing is all about. And the President was out there, the Secretary of State was out there, the Secretary of Defense was out there, the Secretary of Defense is out there right now. They've all said how important to us it is for us to realize this vision.
I'm the guy who always said to the Secretary he's -- he's up on the bridge and I'm down in the engine room, so my job is to make sure that we are not just talking the talk, but we're walking the walk. And that's why I've been out there, including to India. And there are lots of aspects to what we're doing. It has to do with our force posture and all the stuff that we're putting out there, some of which comes from Iraq and Afghanistan. It's now available to move to that part of the world.
Some of it comes from a reprioritization of our investments in the kinds of things that we've been investing in for the last 10 years for those two wars, to the kinds of investments that are relevant to that theater. Some have to do with new basing arrangements, like in Australia. So it's a very multifaceted thing. It's not just a defense thing.
But to get to your question, an important part of it is our security partnerships there and helping the countries of that region to build their own capabilities and capacity so that they're capable of doing things and we don't have to do everything.
And that's one reason why arms sales are important to us. And the other reason is that they are good for the economy for our competitiveness. And so we do support them, and we do encourage them. India is a particularly interesting case because India, and really -- this is a question about the export control system. I won't take the time to rail against the export control system. I've done it before. Probably everybody in this room has taken an emotionally satisfying whack at it. So -- (laughter) --
MR. EWING: Oh, please. It’ll make you feel better.
DEP. SEC. CARTER: Secretary Gates used to say this; Secretary Panetta does, Secretary of State Clinton, and so tremendous frustration with how arcane the export control system is. And those problems are particularly acute when it comes to India because India and we were separate industrially and technologically for a long time, all during the Cold War.
So we are trying to match up how they do things and how we do things. There's no history there. We have to create that history.
Now, Secretary Panetta went there and -- and talked to the Indian leadership about a fact which is true, which is that we believe that we are destined to have in India an enduring security partner just because of who they are and the natural affinity we have with India. And then when he turned to the question of, "Okay, what do we do next?" how do we make that vision real, we became familiar with all of this mismatch. And what he said was, “I want Carter to pay attention to this and work on fixing it.”
So I went out a few weeks later, and we are indeed and there are a number of different aspects to it, some of the things that we need to change, many things that we need to change, and others are ones that India needs to change.
But I think our objective -- the joint objective we have with the Indians is to make sure that only our strategic differences -- and we'll always have them -- (inaudible) -- and not our bureaucratic impediments stand in the way of how this relationship be all that it can be. And that's the kind of central idea and down in the engine room make that happen.
MR. EWING: So from your position at the throttle of the ship and trying to deal with the bureaucratic obstacles that you mentioned, how much can you do inside the Pentagon and how much can the State Department do, how much can the executive branch handle this and how much requires our friends in Congress to help as well?
DEP. SEC. CARTER: That's an excellent question because even if we, as I think we are, succeed in making the DOD part of the export control system everything it should be: intelligent, prompt, thoughtful, responsive, aware of the different needs in different countries. We’re only one player -- so there's the State Department, there is the Commerce Department, -- (inaudible) they are intent upon improving their procedures.
And then, of course, we can't do anything without the Congress. So this is one of these management problems which has many fingers in the pie, many animals in the herd, or whatever the metaphor you'd like. I think it's difficult to get everybody pointed in the same direction.
I think if they see us being managerially crisp and efficient, and the vision is out there, I think eventually everybody will come along. Because as I said, for the country it's a twofer. It increases the capacity of partners around the world, which means we don't have to do everything for everybody. And it's helpful for the competitiveness of our economy and the health of our country.
MR. EWING: On the defense industry in the United States and the Pentagon specifically, another one of your priorities has been acquisitions reform and improving the way the Pentagon selects and buys everything, in your current job and previous job. I wanted to ask for your report card about where you and the rest of the building are in that process? And specifically, about the services -- the Army, Air Force and Navy departments -- how are they doing in terms of getting better at ships, airplanes, vehicles, et cetera?
DEP. SEC. CARTER: You’re right. I was undersecretary for acquisition, technology and logistics before becoming deputy secretary, I always used to tell our people your second priority -- your first priority is making sure that there isn't anybody in Iraq or Afghanistan who doesn't have something that will make them more effective or save their lives that they don't have because you didn't get it to them. That's job one. Next to that, your job is to deliver the best value to the warfighter for the money that taxpayer has given us. And that has a lot of different dimensions. I believe we needed to start scrutinizing the cost structure of our programs and we needed to stop wishing for things we couldn't afford, which means making affordability part of the requirements process right up front.
We needed to provide the proper incentives for industry so that doing what we needed was also profitable and beneficial -- we understand our companies. You know, we don't make anything at the Pentagon. All of our stuff is made by industry. And our industry has to exist in the economy and in capital markets. And so our industry has to be technologically vibrant and also financially successful.
And so we incentivize -- what we -- through contract structure and everything else, what we need, which is productivity improvements. And almost -- almost everybody gets that, and I mean not just our managers in all of our Services, but all of our industry partners as well -- very few exceptions. All of my colleagues in industry, and we talk about this, they say, "Yes, I get it. That's the key to, Ash, for you to be able to keep doing what we are doing together." Because that's what I want. I want us to be able to do everything we're doing and afford it, and that's a joint project that we need to undertake -- ourselves and industry.
As you go around the Services, you know, it's a matter of training our acquisition workforce. It's making sure that our senior military leadership knows enough about acquisition that they can participate and support. It's a matter of backing our people up when they're making a difficult decision. And -- and all of that is happening because, I think, it's dawned on everybody that the era that we enjoyed for 10 years which is one of ever-growing defense budgets -- in which, believe me, I long for -- is over. And so it's not going to be like this. It's -- we're not going down but we're staying steady -- at least that's the plan we've been given in the Budget Control Act by the Congress. And that's a different world.
And what it means for our managers is getting to a technical problem or a managerial problem of some kind. You just can't reach in the till and fix it with money. You have to get your other management tools out. And most of them again, I'll mention one area where I think that we in particular needed to improve and are improving, which is in the acquisition of services.
You probably know, about half of our contract spend is for services as opposed to goods. And when people think about acquisition reform they think (inaudible) shipbuilding and aircraft and so forth -- and all that's very important. But just a reminder that half the money is for services. And I found that we were not nearly as good at that as we were at buying things.
And a couple of reasons that -- the number one, key one, is that a lot of our people who procure services are not procurement people. They're people out of some other responsibility, and they buy services as a way of accomplishing their mission.
They're not experts at the acquisition services. We're never going to make them experts. I don't want them to be experts. And I don't want to encumber them with a lot of bureaucracy and so forth. You just want to give them the basics of good tradecraft in the area of buying services. And you all know what that is: figuring out how to do requirements; it's figuring out how to give the proper incentives to competition -- run competition; do market research before you do comp -- all that kind of stuff. Just the basics of good buying.
And we wanted to get that into all the Services we have.
MR. EWING: On that question, one thing the Services have been doing at their level is adding more acquisition professionals, literally hiring people who have expertise in doing that (inaudible). Has that leveled out or is that process still underway?
DEP. SEC. CARTER: It's still underway. In fact, it's quantitative but it's also qualitative. We looked very hard about four years ago at which skillsets we were short of. Certainly, engineering disciplines, pricers -- and -- and various skillsets in each of the components and each of the commands separately, and then tried to hire the right people and train the right people to do that.
We were helped by the economy in which -- which allowed us to hire terrific talent that's geographically distributed, some places it’s easier, some places it’s harder to get good engineering talent. In general we were very successful. And that makes all the difference in the world, because if you don't have smart people who know what they're doing, you know, you can write all the regulation in -- in the world and have the acquisition system of any kind you want -- without good people it's not going to do what the taxpayer wants.
The taxpayer wants to see the good money being spent on defense in a way that they can be proud of. That's what we -- (inaudible).
MR. EWING: Definitely.
I wish we had more time with Dr. Carter this morning. But I would like to thank him so much for coming in and taking a few questions.
Thank you to all of you for coming in this morning. And thank you to everyone who's watching on Politico and on C-SPAN and the Pentagon Channel, all you millions of audience members out there.
I'm Phil Ewing, I'm the editor of Pro Defense. And I hope that you will check out our site at politicopro.com
Thanks a lot to Raytheon for sponsoring this event this morning. And I hope everyone has a good day. (Applause.)