New defense budget commission could be last hope for fixing DoD spending

The National Defense Authorization Act holds the future of several high-profile weapons programs in its bureaucratic pages. But in this op ed, AEI’s Bill Greenwalt argues that a new panel the NDAA would establish, while less flashy, could rescue US defense budgeting from decades of decay.

As the NDAA inches closer to being enacted for the 61st consecutive year, hidden in its 2,165 pages is a requirement to stand up a commission to review how funds are budgeted and appropriated for defense. This one provision may well initiate the wonkiest, but also potentially the most important review of defense management since the establishment of the Department of Defense in 1947.

The new independent panel, made up of 14 commissioners named by relevant congressional committees and leadership and the Secretary of Defense, will make legislative and policy recommendations to reform the budgeting process “to enable the United States to more effectively counter near-peer competitors.” The panel will issue an interim report in February 2023, followed by a final report in September.

To ultimately succeed this new defense budget commission needs to be laser-focused on finding a better way to move faster and get greater military value out of each taxpayer dollar spent. Over the past six decades America’s defense innovation system has grown stagnant; our adversaries won’t wait for it to gradually revive itself.

Why focus on the budget process? Plain and simple, the budget is de facto policy. Detailed policy papers, strategies, speeches, well-meaning executive orders and laws are all meaningless without resources to back them up. For both national security and civilian goals, the budget limits, constrains and incentivizes the types of solutions to the many problems the country faces.

Done right the budget provides a forcing function and the discipline to invest in the right ideas and efforts that will maintain US technology supremacy and address existential problems such as climate or autocratic aggression. Done poorly, it devolves into a large trough where pigs belly up and gorge on inefficient programs that do not meet the nations’ needs.

It is not just how much you spend, but how you spend it. The most important question to focus on is, “What are we getting from our investment, specifically in terms of productivity per resource input and timely new innovation?” The goal of proportional value to taxpayer investment has over the last 60 years been undermined in defense and, unfortunately, rarely if ever existed in most civilian government programs.

An exaggerated focus on increasing the aggregate “top-line” amount of defense spending has bred complacency. How could we ever fall behind our adversaries if we continue to outspend them by large amounts? The answer is very easily.

When potential adversaries begin to achieve greater productivity and faster innovation per equivalent dollar spent on their defense, the balance of power begins to change and our national security is undermined. That is the situation the US is now facing and it will be a test of our institutions as to whether we can change course before it is too late.

Our current budget process is the primary factor behind the decline in US defense productivity and innovation. It is cumbersome and slow — the very opposite of the agility that is the leitmotiv of Silicon Valley and to which the Pentagon once aspired and achieved in the 1940s and 50s.

The foundational faith of the current US defense budget and appropriations processes is rooted in predictability, linearity, oversight compliance and risk aversion. Budgetary incentives based on these criteria have infected leadership, acquisition, contracting and requirements development as well, leading to eight-year-long decision times to start acquisition programs and a further 15 to 20 years to actually develop and deploy new military capabilities. Meanwhile, China is unabashedly leveraging the commercial market, innovating and deploying new systems and solutions at the speed of Moore’s Law.

The anachronistic Planning, Programming, Budgeting, and Execution system (PPBE) at the heart of how DOD allocates resources is based on private sector practices from the 1950s – a period where, in retrospect, the commercial market was actually less agile than the Pentagon at the time. PPBE was developed in this very unique period of US economic history and was brought to the Pentagon in 1961 by Secretary of Defense Robert McNamara from his perch as the head of the Ford Motor Company.

Based on centralized management and control, and a belief in the ability to predict with precision what could not be predicted, these program budgeting and management concepts dominated a US industry that had no real competition in a world where the industrial bases of Europe and Asia lay in ruins after World War II.

Once the rest of the world reindustrialized and US industry faced renewed international competition, the inadequacies of Byzantine processes become evident. As the US auto and other industries teetered on bankruptcy in the 1970s, those companies that survived were forced to ditch their centralized planning concepts and pivot to processes focused on agility, speed, productivity, greater risk taking and innovation.

The same should have occurred in the Pentagon after its defeat in Vietnam but the opposite happened. DoD and Congress doubled down on Soviet-style central planning. The PPBE and inflexible congressional micromanagement focused on the wrong things have flourished ever since. The result, unsurprisingly, is that greater productivity and disruptive innovation have been practically eliminated from an over regulated, risk averse, defense market. That is now the crux of today’s defense problem.

Meanwhile, the vast majority of research, ideas and talent that DOD now needs are concentrated in a globalized commercial market that is pursuing advances in space, fusion, data analytics, AI, quantum, biotechnology and autonomy. No longer is the US government the catalyst for cutting-edge innovation as it once was.

The archaic defense budget process based on five-year plans, long decision making and excessive time to revenue keeps the most innovative companies from ever wanting to partner with the US government. There are no pathways to prosperity dealing with the DOD, only a series of “Valleys of Death” waiting for funding to be programmed in three years hence.

While there now are acquisition, contracting, and requirements pathways that have been created to try and bridge these valleys, without funding flexibility they are effectively useless and even counter-productive when they create a false sense of hope.

The cutting edges of private industry will not give defense the time of day until it becomes a more attractive customer that better understands the incentives such as time to market that now drive the commercial marketplace. Secretary Austin’s plea at the recent Reagan Forum for greater commercial participation in defense programs is a futile gesture until DOD reforms itself and the most difficult roadblock to overcome will be its inflexible budget process.

Do we have to suffer defeat before we change our ways? Perhaps. But in the meantime, there is still a short period of time available to enact reforms that can incentivize more agile defense productivity and innovation.

The answers this new budget commission seeks, the recommendations it makes and the ability of DOD and Congress to actually change the system will determine whether we can compete in the future. This might be our last chance to do so. So, no pressure on Congress and DOD finding the right members to serve on this commission.

Bill Greenwalt, long the top Republican acquisition policy expert on the SASC, rose to become deputy defense undersecretary for industrial policy. A member of the Breaking Defense Board of Contributors, he’s now a fellow at the American Enterprise Institute.