How the DoD's Quest for Efficiency Turned into Monopoly
How Chasing Efficiency Crippled Defense Innovation
Most government departments are in the business of redistribution—reallocating tax revenues according to the government’s priorities. Taxpayers want the bureaucracy inside those departments to be efficient—their service is moving money around. The Department of Defense (DoD), however, is an exception. It has competition from our adversaries; it develops, buys, and uses weapons. To drive efficiency into this system, we unified procurement within service arms and introduced the concept of platform sharing. Counterintuitively, this specific quest for efficiency has led to ever-increasing costs for new weapon systems while simultaneously stifling innovation and creativity.
Department of Defense Inc.
In 2015, 74% of all products bought for the Air Force, Navy, and Army were acquired on a “non-compete” basis, according to the GAO. Since primes don’t compete with industry peers for a dominant share of purchases, they operate more like business units than independent companies in this regard.
Furthermore, in 2023, the DoD spent approximately $144 billion on RDT&E, while the top five aerospace companies in the U.S. spent approximately $6.3 billion of their own funds. The DoD and defense industrial base are integrated by design—specialization and the removal of duplication lead to efficiency. Such an arrangement, however, also artificially creates monopolies, inhibiting the otherwise healthy functioning of market forces. Today, Northrop has a monopoly on our nation’s nuclear triad, while Lockheed has a monopoly on stealth fighters.
In addition, the DoD also has a platform monopoly problem: it is not uncommon for major weapon systems to be co-developed by services—the F-35 is flown by the Navy, Marines, and Air Force, while the Blackhawk is flown by the Army, Navy, and Air Force. Cross-service usage of platforms would be considered an efficient use of resources. However, outcomes are far from efficient.
The F-35 took 23 years to go from contract award to full-rate production approval. Current per-hour operating costs are 40–60% higher than the F-16s and F-18s they are replacing. Because fighter development is such an expensive endeavor, the F-35 was designed to fit many mission profiles. Meant to be a jack-of-all-trades, some might consider it a master of none. Ironically, the quest for efficiency caused the F-35 to become the most expensive weapons program in the world. Another example is when the Navy replaced the Seasprite with the Seahawk—a naval variant of the Army’s Blackhawk helicopter. While improving capabilities, there was no competing platform, resulting in a 72% increase in unit cost.
According to the GAO, it now takes an average of 10 years to develop an initial capability for Major Defense Acquisition Programs, up from 8 years. It should be no surprise that development costs have increased as well. The commercial world operates by different rules—over time, product costs tend to decrease as capabilities increase due to healthy market competition.
DoD – Structured for Monopoly
The operational chain of command runs from the President through the Secretary of Defense to the Combatant Commands. Each Combatant Command relies on services (Navy, Army, Air Force, etc.) to provide assets for warfighting. Each service buys its own specific equipment through a single office, and efficiency is driven by, for example, the Army operating the same or similar equipment in different parts of the world. Uniform equipment leads to platform monopoly, which leads to a lack of competition in the defense industrial base.
Source: Wikipedia
Restructuring for Competition
If we want to introduce competition, we should restructure the DoD, break up the services, and integrate them into the Combatant Commands. The Army would be broken up into Army EUCOM, INDOPACOM, etc., and each Combatant Command would have its own centralized purchasing authority to buy the equipment it needs to conduct operations—without the need to consult other commands.
In the short run, moving away from uniform platforms might seem wasteful, but breaking platform monopolies will enable innovation by allowing defense contractors to compete for business and allowing Combatant Commands to develop their own specific needs. Platforms will be more specialized to local conditions and could be simplified—EUCOM and INDOPACOM would probably need advanced weapon systems, while AFRICOM may need less capable and cheaper systems. We would avoid deploying expensive F-35s to surveil targets in Africa, allowing for a better alignment of threats, capabilities, and costs.
Conclusion
As geopolitical priorities shift, so should the DoD budget. Combatant Commands facing tighter budgets will be under pressure to do more with less. This could lead not only to a reassessment of required equipment, but also to changes in how these commands approach procurement.
This is something that is truly lacking inside the DoD—experimentation with different acquisition processes. We shouldn’t be surprised to find that one size does not fit all, and that certain commands may perform better than others.
Large organizations only change when they are pressured into changing. The DoD is no different. Given the current changes in the federal government, the Overton window for change is open. If we are serious about innovation, we should not settle for half-measures.