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American Enterprise Institute (Defense Spending)

As Delivered by Secretary of Defense Robert M. Gates, Washington, DC, Tuesday, May 24, 2011

Thank you Arthur, and thanks for that introduction.  And my thanks to the American Enterprise Institute for hosting this event on relatively short notice.  In many ways it is appropriate that AEI be the setting for my last major policy speech in Washington.  The recent history of this institution and some of its more prominent figures is inextricably tied to the war in Iraq, the conflict that pulled me out of private life and back into the public arena nearly four and a half years ago. 

As you know, and as Arthur just said, I am in the final weeks of the greatest privilege of my professional life, serving as America’s 22nd Secretary of Defense.   Most of my time and attention in this post has been dominated by America’s two major post-9/11 conflicts – each marked by swift, exhilarating victories against odious regimes followed by grinding, protracted counter-insurgency and counter-terrorism campaigns.

In the course of doing everything I could to turn things around first in Iraq, then in Afghanistan, from the early months I ran up against institutional obstacles in the Pentagon – cultural, procedural, ideological – to getting done what needed to get done on behalf of those fighting the wars we are in.  Whether it was outpatient care for the wounded, armored troop transport, medevac, ramping up intelligence, surveillance and reconnaissance support, or any number of urgent battlefield needs.

It became evident over time that changing the momentum of these conflicts – and increasing the odds of military success in the future – would also require fundamentally re-shaping the priorities of the Pentagon and the uniformed services and reforming the way they did business:  How weapons were chosen, developed and produced, how troops and their families were cared for,  how leaders were promoted and held accountable – and, related to all of the above, where money was spent (or misspent as the case may be).

It is the health and future of the military as an institution – an institution confronted with complex and evolving array of threats abroad while adjusting to an era of debt and austerity at home – that I would like to discuss with you today before taking some questions.

I’ll start with America’s fiscal situation and how it relates to defense.  It is no secret that the United States faces a serious fiscal predicament that could turn into a crisis – of credit, of confidence, of our position in the world – if not addressed soon.   On April 13th, President Obama announced his framework for tackling these challenges.  As part of that deficit reduction effort, he set a goal of holding the growth in base national security spending slightly below inflation for the next 12 years, which would save about $400 billion, the preponderance of which would come from the Department of Defense.

The President’s directive – as well as a number of other proposals such as Simpson-Bowles that could cut defense by up to $1.2 trillion – have stirred a debate in some quarters about the size, use, and cost of our military, and by extension, the appropriate role of the United States in the world.

For starters, I have long believed – and I still do – that the defense budget, however large it may be, is not the cause of this country’s fiscal woes.  However, as matter of simple arithmetic and political reality, the Department of Defense must be at least part of the solution. 

There is an important body of opinion – including, I suspect many people in this room – that would disagree.  This view holds that not only should current defense spending levels be maintained, but if anything, they should be increased.  That the reason we face tough choices and trade-offs with respect to military programs is because the top-line isn’t big enough.  As an old Cold Warrior known for most of my career as a national security hardliner, I understand this perspective.  Defense expenditures are currently a lower share of GDP than most of the last half century, and a much lower percentage than during previous major wars.  When President Eisenhower warned of the “Military Industrial Complex” in 1961, defense consumed more than half the federal budget, and the portion of the nation’s economic output devoted to the military was about 9 percent.  By comparison, this year’s base defense budget of $530 billion – the highest since World War II adjusted for inflation – represents less than 15 percent of all federal spending and equates to roughly three and a half percent of GDP – a number that climbs to about 4 and a half percent when the war costs in Iraq and Afghanistan are included.

But, as I am fond of saying, we live in the real world.  Absent a catastrophic international conflict or new existential threat, we are not likely to return to Cold War levels of defense expenditures, at least as a share of national wealth anytime soon.  Nor do I believe we need to.

First, the world is different.  Our primary adversary then was a comparably armed super power, bristling with millions of troops, tens of thousands of tanks, and thousands of advanced combat aircraft – not to mention a vast arsenal of nuclear weapons – that was poised to overrun Western Europe and could directly threaten our allies and interests around the globe.  I know – as head analyst at CIA I signed off on the studies of Soviet military power.  The threats and potential adversaries America faces today and down the road are dangerous and daunting – for their complexity, variety and unpredictability.  But as a matter of national survival, they do not approach the scale of the Soviet military threat that provided the political and strategic rationale for defense expenditures that consumed a significant portion of our economy. 

Second, we’re not going to see a return to Cold War-level defense budgets, at least as a share of GDP, because America is different:  Our economy, our demographics, and our fiscal predicament – whether measured in the size of debt and deficits, ratios of retirees to workers, or the share of the federal budget consumed by entitlements.  The money and political support simply aren’t there.

Seeing the bleak fiscal outlook ahead, I have for the past two years sought to prepare our defense institutions – accustomed to the post 9/11 decade’s worth of “no questions asked” funding requests  – for the inevitable flattening and eventual decrease of the defense budget. This entailed creating as much “head room” as possible under the existing defense top line to protect the size and fighting strength – the core capabilities – of the U.S. military.

The first stage, beginning in Spring 2009, dealt with procurement – the weapons the military buys or plans to buy in the future.  We cancelled or curtailed modernization programs that were egregiously over-budget, behind schedule, dependent on unproven technology, supplied a niche requirement that could be met in other ways, or that simply did not pass the common sense test:  A $200 billion future combat system for the Army that, a decade after IEDS and EFPs began to kill or maim thousands of our troops, was based on lightweight, flat-bottomed vehicles that relied on near-perfect information awareness to detect the enemy before he could strike.  Or a missile defense program that called for a fleet of laser-bearing 747s circling slowly inside enemy air space to get off a shot at a missile right after launch.

All told, over the past two years, more than 30 programs were cancelled, capped, or ended that, if pursued to completion, would have cost more than $300 billion.  At the same time, we made new investments in higher priorities related to the current wars and, in some cases, re-started efforts that filled a genuine military need for the future – such as a follow-on bomber for the Air Force, the Army’s Ground Combat Vehicle, and a new Marine amphibious tractor.  We also invested in new technologies and capabilities to address emerging sophisticated threats.  But our new starts and new investments are on a far more realistic footing that relies on proven technology and can be produced on time and on budget.

This process also forced the Pentagon’s leadership to confront this vexing and disturbing reality:   since 9/11, a near-doubling of the Pentagon’s modernization accounts – more than $700 billion over 10 years in new spending on procurement, research and development – has resulted in relatively modest gains in actual military capability.  In fact, most of the significant new capabilities that have come online over the past decade were largely paid for outside the base budget, via supplemental war requests.  In particular, larger ground forces and specialized battlefield equipment such as MRAPs, body armor, and other gear.  

Reversing an unsustainable course – where more and more money is consumed by fewer and fewer platforms that take longer and longer to build – meant reforming the acquisition process and the department’s buying culture.   The goal is that any new weapons system should meet benchmarks for cost, schedule and performance while minimizing “requirements creep” – the kind of indiscipline that leads to $25 million howitzers, $500 million helicopters, $2 billion bombers, and $7 billion submarines. 

There is another factor to consider.  The Reagan build-up of the 1980s fielded a new generation of weapons platforms that continue to be the mainstay of the force today – the M1 tank, Bradley Fighting Vehicle, Apache and Black Hawk helicopters, Burke guided missile destroyers, F-15 fighters, and much more.  In contrast, the 1990s represented basically a procurement holiday, except for important developments in precision munitions and UAVs.  And, as I mentioned earlier, the post 9/11 defense spending surge resulted in relatively little new recapitalization of the force.

The current inventory is getting old and worn down from Iraq and Afghanistan.  Some equipment can be re-furbished with life-extension programs, but there is no getting around the fact that others must be replaced.  Most of these Reagan-era platforms are still best in class relative to the rest of the world, so with the important exception of air superiority fighters and other high-end systems, pursuing costly, leap-ahead improvements in technology and capability is not necessarily required.  Our guiding principle going forward must be to develop technology and field weapons that are affordable, versatile, and relevant to the most likely and lethal threats in the decades to come, not just more expensive and exotic versions of what we had in the past.

I revisit this history because it leads to an important point for the future:  when it comes to our military modernization accounts, the proverbial “low hanging fruit” – those weapons and other programs considered most questionable – have not only been plucked, they have been stomped on and crushed.  What remains are much-needed capabilities – relating to air superiority and mobility, long-range strike, nuclear deterrence, maritime access, space and cyber warfare, ground forces, intelligence, surveillance and reconnaissance – that our nation’s civilian and military leadership deem absolutely critical.  For example:

  • We must build a new tanker.  The ones we have are twice as old as many of the pilots flying them;  
  • We must field a next generation strike fighter – the F-35 – and at a cost that permits large enough numbers to replace the current fighter inventory and maintain a healthy margin of superiority over the Russians and Chinese; 
  • We must build more ships – in recent years, the size of the Navy fleet has sunk to the lowest number since before World War II, and will get smaller as more Reagan-era vessels reach the end of their service life;
  • We must recapitalize the ground forces – the Army and Marines – whose combat vehicles and helicopters are worn down after a decade of war; and
  • At some point we must replace our ballistic missile submarines – a program that illustrates the modernization dilemmas we face.  

Over the past two years, a dedicated effort by DoD acquisitions experts to reduce requirements and costs brought down the projected price tag of these new boomers by $2 billion each.  But that still leaves us with a projected cost of $5 billion per sub – and we’re planning to build 12 of them, presenting some serious issues for the Navy’s shipbuilding budget down the road.

So as we move forward, unless our country’s political leadership envisions a dramatically diminished global security role for the United States, it is vitally important to protect the military modernization accounts – in absolute terms, and as a share of the defense budget. 

But sustaining this “tooth” part of the budget – the weapons and the soldiers, sailors, airmen and Marines who use them – is increasingly difficult given the massive growth of other components of the defense budget, the “tail” if you will –operations, maintenance, pay and benefits, and other forms of overhead.  America’s defense enterprise has consumed ever higher level of resources as a matter of routine just to maintain, staff, and administer itself – the other key reason that major increases in the total base defense budget since 2001 have led to relatively modest increases in usable military capabilities.

As a result, starting last spring, we began to take a hard look at the department’s overhead costs, in particular the massive administrative and support bureaucracies – within the military services, and across the defense department as a whole.  The purpose was to carve out more budget “headroom” that could be allocated to force structure and modernization.

The results of these efforts were, frankly, mixed.  The military services, in my view, successfully leaned forward and found nearly $100 billion in efficiency savings – by closing facilities, combining headquarters, reducing energy costs,  and much more – over five years and allocated those funds to make new priority investments and deal with higher than projected expenses.  Across the department as a whole, we were able to save another $54 billion through freezing civilian staff and pay levels, eliminating one 4-star command and downgrading two others, eliminating or down-grading more than 350 generals, admirals, and civilian executive positions, reducing reliance on contractors, getting rid of unnecessary reports and studies, and more.

Then there was the effort to pare down the overhead costs of DoD components outside the military services – in particular, the Office of Secretary of Defense, the Joint Staff, the defense agencies and field activities, plus the major regional and functional military headquarters – referred to as Combatant Commands – apart from Iraq and Afghanistan.

With respect to these components, known internally as the 4th Estate, the efficiencies experience was something akin to an Easter egg hunt.  My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as “how much money did you spend” and “how many people do you have?”  For example, when I launched the efficiencies effort in August 2010 we projected the savings from closing Joint Forces Command to be about $250 million.  That number doubled over the next four months as more details trickled in out about how this organization was funded and staffed from dozens of sources across the department.

Overall, the 4th Estate savings were disappointing – less than a billion dollars in annual projected savings from a group of organizations that consume at least $64 billion a year by our latest estimate.  I believe we can and should do much better.  There are still too many headquarters, offices, and agencies employing too many high ranking personnel and contractors consuming too many resources relative to real military missions and measurable results.

The efficiencies project also showed that the current apparatus for managing people and money across the DoD enterprise is woefully inadequate.  The agencies, field activities, joint headquarters, and support staff functions of the department operate as a semi-feudal system – an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results relative to the department’s overall priorities. 

I have always believed inspired leadership can overcome deficient organization charts.  But in this case, it may be time to consider new governance structures and arrangements.   Here, the Congress has been ahead of the Department by pushing us to establish a centralized structure led by a Chief Management Officer.

So I believe there are more savings possible by culling more overhead and better accounting for, and thus better managing, the funds and people we have.  But one thing is quite clear.  These efficiencies efforts will not come close to meeting the budget targets laid out by the president, much less other, higher targets being bandied about.  Some perspective is important.  What’s being proposed by the President is nothing close to the dramatic cuts of the past.  For example, defense spending in constant dollars declined by roughly a third between 1985 and 1998.  What’s being considered today, assuming all $400 billion comes from DoD over 12 years, corresponds to a projected reduction of about 5 percent in constant dollars – or slightly less than keeping pace with inflation.

Nonetheless, meeting this savings target will require real cuts – given the escalating costs of so many parts of the defense budget – and, as a result, real choices.  I am determined that we not repeat the mistakes of the past, where the budget targets were met mostly by taking a percentage off the top of everything, the simplest and most politically expedient approach both inside the Pentagon and outside of it.  That kind of “salami-slicing” approach preserves overhead and maintains force structure on paper, but results in a hollowing-out of the force from a lack of proper training, maintenance and equipment – and manpower.  That’s what happened in the 1970s – a disastrous period for our military – and to a lesser extent during the late 1990s. 

That is why I launched a comprehensive review last week to ensure that future spending decisions are focused on priorities, strategy and risks, and are not simply a math and accounting exercise.  In the end, this process must be about identifying options for the President and the Congress, to ensure that the nation consciously acknowledges and accepts additional risk in exchange for reduced investment in its military. 

Part of this analysis will entail going places that have been avoided by politicians in the past.  Taking on some of these issues could entail:

  • Re-examining military compensation levels in light of the fact that – apart from the U.S. Army during the worst years of Iraq – all the services have consistently exceeded their recruiting and retention goals;
  •  It could mean taking a look at the rigid, one-size-fits-all approach to retirement, pay and pensions left over from the last century.   A more tiered and targeted system – one that weights compensation towards the most high demand and dangerous specialties – could bring down costs while attracting and retaining the high quality personnel we need;  and
  • It will require doing something about spiraling health care costs – and in particular the health insurance benefit for working age retirees whose fees are one-tenth those of federal civil servants, and have not been raised since 1995. 

But, above all, if we are to avoid a hollowing effect, this process will need to address force structure – the military’s fighting formations such as Army brigades, Marine expeditionary units, Air Force wings, Navy ships and supporting aviation assets.   The overarching goal will be to preserve a U.S. military capable of meeting crucial national security priorities even if fiscal pressure requires reductions in that force’s size.  I’ve said repeatedly that I’d rather have a smaller, superbly capable military then a larger, hollow, less capable one.   However, we need to be honest with the president, with the congress, with the American people, indeed with ourselves, about what those consequences are:  That a smaller military, no matter how superb, will be able to go fewer places and be able to do fewer things.  

For example, the assumption behind most of our military planning ever since the end of the Cold War has been that the U.S. must be able to fight two major regional wars at the same time.  One might conclude that the odds of that contingency are sufficiently low, or that any eruption of conflicts would happen one after the other, not simultaneously.  What are the implications of that with respect to force structure, and what are the risks?  One can assume certain things won’t happen on account of their apparent low probability.  But the enemy always has a vote.

These are the kinds of scenarios we need to consider, the kinds of discussions we need to have.  If we are going to reduce the resources and the size of the U.S. military, people need to make conscious choices about what the implications are for the security of the country, as well as for the variety of military operations we have around the world if lower priority missions are scaled back or eliminated.  They need to understand what it could mean for a smaller pool of troops and their families if America is forced into a protracted land war again – yes, the kind no defense secretary should recommend anytime soon, but one we may not be able to avoid.  To shirk this discussion of risks and consequences – and the hard decisions that must follow – I would regard as managerial cowardice. 

In closing, while I have spent a good  deal of time on programmatic particulars, the tough choices ahead are really about the kind of role the American people – accustomed to unquestioned military dominance for the past two decades – want their country to play in the world. 

Since I entered government 45 years ago, I’ve shifted my views and changed my mind on a good many things as circumstances, new information, or logic dictated.  But I have yet to see evidence that would dissuade me from this fundamental belief: that America does have a special position and set of responsibilities on this planet.  I share Winston Churchill’s belief that “the price of greatness is responsibility…[and] the people of the United States cannot escape world responsibility.”  This status provides enormous benefits – for allies, partners, and others abroad to be sure, but in the final analysis the greatest beneficiaries are the American people, in terms of our security, our prosperity, and our freedom.  

I know that after a decade of conflict, the American people are tired of war.  But there is no doubt in my mind that the continued strength and global reach of the American military will remain the greatest deterrent against aggression, and the most effective means of preserving peace in the 21st century, as it was in the 20th.

My thanks again to AEI for providing this venue and opportunity for my remarks today, and I look forward to your questions.

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