Keeping Our Military Strong Through Free Markets

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Published August 15, 2005

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During World War II, products stamped “Made in USA” saved the allied cause. For everything from tanks and ships to bullets and food, the United States was the arsenal of democracy.

Today’s American military is stronger and covers ground more quickly than ever before. But, because of globalization, fewer and fewer products are actually “Made in USA.”

The president’s helicopter fleet is made by a foreign manufacturer, for example, while the Army and Marine Corps lease Australian catamarans. So it’s no surprise that the Department of Defense is often looking outside of America’s borders to meet our defense needs.

This raises some logical questions: Is globalization good for the military? Are we truly safe when so many critical systems and components are manufactured overseas?

To get the answers, The Heritage Foundation spent more than a year studying the military industrial base. We interviewed experts in military affairs and manufacturing and held forums with members of government and academia. We found that the best way to preserve our military advantage over potential foes is to take advantage of the free market.

That may seem surprising at first blush. After all, the country might appear to be safer if the government controlled all the facilities involved in the military supply chain.

But the fact is, Congress has tried repeatedly over the years to steer defense contracts in directions that would supposedly shore up or expand America’s military-industrial capacity. Yet these efforts have nearly always interrupted the natural tides of the market and led to unintended consequences, including inefficient practices, high prices and limited choices for the military. America’s war-fighting institutions have consistently achieved better results when they have relied on the free market to decide where and how products should be made.

As proof, consider what happens when the government owns a defense-related manufacturing facility and guarantees the income of its employees. While the military can count on a steady stream of products, the plant’s employees have no incentive to consider their global competition. The plant will continue to receive appropriated funding as long as it produces articles that meet government specifications.

In the same way, when a government subsidizes or guarantees the existence of a manufacturing facility and -- in some cases, the income of its workers -- the Department of Defense has no incentive to make further investments in the plant’s facility or people. The plant continues to receive funding as long as it produces articles that meet government specifications. But there’s never an incentive to make better products or ones that cost less.

In both cases, innovation and competition are sacrificed to maintain guaranteed supply.

Rather than fear supply competition, the military needs to encourage it, to ensure our troops always have the best equipment available. One way to encourage competition would be to create contests that reward those who develop critical technology.

Lawmakers could use the Ansari X Prize as a model. That competition, announced in 1996 offered $10 million to the first team to put a man into low-earth orbit. Twenty-six teams from seven countries competed for the prize, eventually leading to $100 million worth of private research and development and a manned, low-earth orbit last year.

For a similarly small investment, lawmakers could encourage groups in the public sector, academia and industry to work on critical projects. They could award prizes in the areas of energy efficiency, information systems, space launch and high-speed commercial shipbuilding. Eventually, for-profit R&D centers might even emerge. The innovations these prizes would generate would keep the U.S. military on the cutting edge as technologies advance.

It’s critical to get started before we fall behind, or further behind, the rest of the world. Consider the Navy. Ours is the most capable in the world, and no other nation builds warships as well as we do on the whole. But the U.S. does not manufacture aluminum-hulled ships, even though the Army and Marine Corps find aluminum-hulled catamarans manufactured in Australia to be of great value to their war-fighting strategies. So to get those weapons, we must look overseas.

Whether we like it or not, the United States military depends on the global free market. And while it’s impossible to guarantee the security of suppliers in other countries, if we pair our global outlook with an understanding of where products come from and how they get where they need to be, we can maintain a steady stream of cutting-edge military products.

That’s the best way to ensure that the United States remains the world’s defender of freedom throughout the 21st century.

Jack Spencer is a senior policy analyst for defense and national security issues at The Heritage Foundation, a Washington-based public policy research institute.

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