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Fiscal Crisis Requires Responsible Approach, Lynn Says

By John D. Banusiewicz
American Forces Press Service

PARIS, June 19, 2011 – A fiscal crisis that’s putting the squeeze on defense budgets and related industries requires difficult choices for leaders and a responsible approach that manages the spending slowdown while retaining military effectiveness, Deputy Defense Secretary William J. Lynn III said here today.

Click photo for screen-resolution image
Deputy Defense Secretary William J. Lynn III discusses the difficult decisions faced by government and industry leaders during the Aerospace Industry Association dinner, Paris, France, June 19, 2011. Lynn talked about the challenges of maintaining an effective military as defense budgets dwindle in the face of a fiscal crisis.

(Click photo for screen-resolution image);high-resolution image available.

In a keynote speech at an Aerospace Industry Association dinner, Lynn said he’d received a letter from a 9-year-old boy named Hunter, who enclosed a drawing of a futuristic bomber he had designed.

“Hunter’s letter highlights the issues confronting us,” Lynn said. “Our future security is inextricability tied to the technology we produce, but we are entering a period of significant resource constraints.

"For the past decade, we have lived in a world where when we faced new security challenges, we could meet them with increased resources," Lynn said. "We have lived in a world where when we wanted to build systems with new technology, like Hunter’s bomber, we could increase our budget. Going forward, we will not have that luxury. We are going to have to make hard choices.”

The central challenge in defense planning, the deputy secretary said, is how to manage a slowdown in spending responsibly in the midst of two active conflicts, other commitments and numerous threats. He noted that the United States and almost all of its European allies are experiencing a significant fiscal crisis that requires everything to be on the table -- including revenues, entitlements, domestic discretionary spending and defense spending – in regaining solid financial footing.

“Managing our militaries under these circumstances will challenge defense policymakers and industry executives alike,” he said. “We have at present the most capable, professional fighting force the world has ever known. Our challenge is to accommodate our changing fiscal circumstances without undercutting our military effectiveness, now or in the future.”

History is instructive in showing the way, Lynn said, noting that this is the fifth inflection in U.S. defense spending since the end of World War II. The first three, he explained, came after that war and after conflicts in Korea and Vietnam.

“Then in the mid-1980s, we faced a situation somewhat analogous to today,” he added. “Deficits during the Reagan administration led Congress to impose spending caps. The end of the Cold War then accelerated defense reductions.”

In all of those transitions in defense spending, Lynn said, the U.S. military suffered a disproportionate loss of capability as a result. “Each time, we had to rebuild much of the capability we lost, often at great expense and under urgent circumstances. In other words, we have gone 0-for-4 in managing the drawdowns to date.”

Four broad lessons can be drawn from prior drawdowns, the deputy secretary said:

“The first is to make hard decisions early,” he told the group. Things are not going to get better. In a drawdown, there will be less money than we anticipate in the future, not more. He noted that even well-managed programs experience some cost growth.

“The bottom line is that if we cannot afford it now, we will certainly not be able to afford it in the future,” he said. “To live within our expected resource levels, we need to make the hard decisions now. Every dollar we spend on systems and programs we ultimately do not need or cannot afford is a dollar we cannot spend on the systems we must have. The equation is that simple.”

And although the U.S. Defense Department is aggressively pursuing efficiencies to help in making the most of limited defense budgets going forward, Lynn said, the second lesson from prior drawdowns is that it is impossible to generate the needed savings through pure efficiencies alone.

“By pure efficiencies, I mean where you perform the same function for less money,” he explained. “For instance, cloud computing holds out the potential of generating greater capability at lower cost across our information technology enterprise. But we are not going to find enough pure productivity gains to generate all the required savings. This means that we have to prioritize. We will have to eliminate programs that, while valuable, are not valuable enough to sustain in this budget environment.

“The ‘nice to haves’ must go,” he added.

The third lesson, Lynn said, is that reductions must be balanced.

“Reductions focused on a single area, like operational accounts, hollow out the force by depriving it of needed training and maintenance,” he said. “Similarly, reductions that single out investment accounts, which are easy to target, effectively force a procurement holiday. Outdated equipment then needs to be replaced at great expense a decade or so later. To avoid this from coming to pass, we need to balance reductions across force structure, operating and investment accounts. We do not want a force that is the same size but does everything less well.”

The final lesson from prior drawdowns is not to cut too much, and to not cut too fast, especially from core mission areas, Lynn told the audience.

“Rebuilding capabilities five, 10 or 15 years later comes with a cost multiplier,” he said. “And cost alone is not the only price we pay. We have paid for some of our prior drawdowns with the lives and welfare of our troops, who find themselves in conflicts for which they are neither prepared nor equipped. This was particularly true in the 1950s, when the drawdown after World War II caused our forces to pay a high price in the initial stages of the Korean conflict. We do not want to make precipitous cuts today that we will come to regret in the future.”

The Defense Department has begun a comprehensive review that will frame its choices in terms of strategy, missions, and capabilities, rather than budget targets alone, Lynn said, adding that the lessons of the past will loom large as the review progresses.

“We need to avoid across-the-board cuts that will weaken all capabilities, whether critical or secondary,” he said. “Instead, we must make vertical rather than horizontal cuts, based on strategic assessments of what must be retained and what can be sacrificed.”

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William J. Lynn III

Related Sites:
Special Report: Travel With Lynn


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