Tech bros to the rescue? Reagan Institute 2025 scorecard dings Pentagon on ‘scaling’ innovation

WASHINGTON — As Defense Secretary Pete Hegseth pushes dramatic changes at the Pentagon, the thinktank named for the icon of old-school conservatism urged President Donald Trump to hit the gas on high-tech weapons built by non-traditional industry players.

The Ronald Reagan Institute determined its recommendations before Sec. Hegseth’s order to reallocate $50 billion in funding, said the institute’s director, former Pentagon official Roger Zakheim, in a breakfast briefing with reporters, but they’re “highly complementary” to what the new administration is trying to do.

The Pentagon has made real progress in reaching beyond its typical contractors to “maturing defense startups” the institute’s report said, with Zakheim specifically calling out Anduril, Palantir, and Elon Musk’s SpaceX as “trailblazers.” But, it goes on, a sclerotic defense bureaucracy and a rusting US industrial base make it hard to scale up production to the levels required for major war.

Meanwhile, China not only dominates heavy-metal manufacturing — with twice America’s manufacturing capability output and 230 times the capacity for building ships — but is investing heavily in cutting-edge R&D to catch up to America in AI, quantum technology and hypersonics.

Those are the principal takeaways from the Reagan Institute’s latest “report card” on what it calls the “national security innovation base” — a clunky but carefully chosen term for something much larger and more complex than the traditional “defense industrial base.” First issued in 2023, the annual report looks not only at Pentagon procurement and R&D, but across the US economy at metrics like most-cited scientific papers and amount of 5G spectrum.

This broad view catches some strong positives that traditional military metrics miss. “[The] US leads with 61 notable machine learning models,” the report says, “followed by China with 15 and France with eight.” And venture capital investment in defense-related fields, it says, has risen from $4.4 billion in the first quarter of 2024 to a whopping $14.7 billion in Q4, “four consecutive quarters of growth” driven almost entirely by rising interest in AI.

“There’s plenty of capital in the system,” said McKinsey & Co. consultant Dale Swartz, an advisor on the report. “You increasingly have very large rounds being being raised — on both sides of the Atlantic, by the way. At this point … some of the largest VC-backed companies, both in the US and Europe, are in the defense and space arena, which is actually a pretty novel development over the past couple of years.”

It’s private-sector innovators like those funded by venture capitalists that the Reagan Institute sees as driving much-needed change and preserving America’s high-tech edge. That said, not all the good guys in the report are Silicon Valley upstarts: It notes the leading role played by “corporate venture capital” investments by long-established defense contractors like Lockheed Martin and Raytheon/RTX.

Even the Pentagon bureaucracy has made progress, according to this report, especially compared to the Reagan Institute’s first scorecard in 2023. There’s money moving through streamlined acquisition pipelines that were under-used in 2022, for example a 22 percent increase in Other Transaction Authority (OTA) awards. There are also new channels for faster funding of non-traditional contractors, like over $4 billion provided by the Small Business Investment Company Critical Technologies Initiative (SBICCT, a joint initiative of the Small Business Administration and the Department of Defense).

But, the report laments, these streamlined processes and innovative technologies remain a relatively small part of the massive Pentagon budget. (Since the Reagan study looks back at 2024, it doesn’t comment on the recent announcement that Trump’s new Defense Secretary, Pete Hegseth, has ambitious plans to reallocate $50 billion from “legacy” programs to new priorities).

And while American tech has kept its cutting edge, mass production remains anemic. In fact, to emphasize this issue, the 2025 report adds a new category for “Manufacturing Capacity and Industrial Base” — for which it gives the United States a “D.”

Meanwhile, the US defense industry — upstarts and established players alike — has been thrown into uncertainty by Trump’s suspension of aid to Ukraine. Also Congress has yet to pass regular appropriations for the fiscal year which began Oct. 1st, forcing the Pentagon to operate on (slightly modified) funding lines from 2024.

But Zakheim insisted there was light at the end of the budgetary tunnel, in the form of proposed “reconciliation” bills that could add up to $200 billion to defense. “Reconciliation is something that is not dependent on president’s budget request,” he told reporters. “It’s Congress generating it, and doesn’t require the 60-vote threshold [in the Senate]. And of course, why it’s so critical.”