Defense Tech: Why the U.S. Must Share
By Stan Crock
Pentagon procurers have long employed a tried-and-true tactic to shield weapons programs from budget-slashers: The prime contractor doles out work to subcontractors in as many congressional districts as possible to enlist support from the maximum number of lawmakers.
Now that ploy is going global. To bolster support for the Joint Strike Fighter (JSF), a new tactical aircraft, the Pentagon is inking deals with as many foreign governments as possible to help develop the plane. The more international signatories, the broader the support -- at least that's how the theory goes. Missile-defense contracts may fly across borders, too.
There's just one problem: lingering concerns in the Bush Administration about the worldwide proliferation of technology, especially after September 11. At stake are transatlantic defense-industry partnerships that could help preserve close ties between the U.S. and Europe in the post-Cold War world. And if the Bushies get any more suspicious, plans for a truly international development of the Joint Strike Fighter could be dashed.
SAFETY IN NUMBERS.
With more than a half-dozen foreign countries signing up, the game plan for the JSF at first blush seems to be working. Pentagon officials already are saying the JSF can't be a bad plane if so many foreign countries are lining up behind it. Supporters also point out that killing the aircraft, or paring back purchases in a way that would raise allies' costs, would cause a diplomatic furor.
For Lockheed Martin, the prime contractor, foreign participation is a godsend. Any subcontracting work not already allocated domestically is likely to go to a foreign company, rather than to archrival Boeing. As long as Lockheed Martin follows tradition and puts dollops of work into a lot of congressional districts, the Bethesda (Md.) defense giant would be protected on its domestic and international flanks.
Political protection wouldn't be the only benefit. Other countries -- Britain, the Netherlands, Denmark, Norway, Italy, Turkey, and Canada -- will help Washington pay the development tab for the $225 billion JSF program. For all the money being lavished on the military, the Defense Dept. still could use help paying for some of the bigger weapons programs.
The participation of these countries also creates likely export markets and could freeze out potential foreign competition. That, in turn, raises the odds that NATO allies would buy the same gear and increase "interoperability" -- the capacity to work smoothly together in battle.
This is hardly the first time that the U.S. has cut deals with foreign countries on weapons. In the past, however, they have been limited largely to indirect offsets (the U.S. buys bananas to offset the sale of tanks) or direct offsets (the tank buyer gets to assemble part of the vehicle). In the JSF deal, foreign countries will be involved much earlier -- in the development stage -- and actually will be investing billions of dollars in the project. One industry executive calls the JSF model "ingenious." "You've created this early pressure and an early market to buy the airplane, which is very different from the usual way of doing it," he says.
The Pentagon is said to be mulling a similar approach for missile defense. Parceling out the work would have the same advantages as with the JSF, only one better: It could help defuse diplomatic tensions over missile defense between the U.S. and Europe, which isn't an issue with the JSF.
Yet this JSF blueprint has a huge obstacle to overcome. Cold War-era laws designed to safeguard technology -- which ignore the increasing globalization of weapons components -- still hamper joint efforts among allies. These laws make information sharing and real partnerships difficult or even impossible in certain circumstances. "We are facing a serious state of affairs in the transatlantic community," warns former Deputy Defense Secretary John J. Hamre, now president and CEO of the Center for Strategic & International Studies, which has created a blue-ribbon panel to explore transatlantic security and industrial cooperation.
Dutch government and industry officials are already up in arms. They fear curbs on exchanges of information and technological knowhow could prevent them from getting clearances from Washington to share data vital to developing the JSF. The fighter plane already is on a tight schedule, with the first flight expected in three years. A joint effort "is not possible if you don't open the gates to bring foreign industries in," Dutch Deputy Defense Minister Henk A.L. van Hoof told me recently.
Aad W. Veenman, president and CEO of Stork, a Dutch technology company, notes: "Any delay will jeopardize the program." If the U.S. is unwilling to share information, he adds, the plan to bring in real foreign partners "is not serious."
While these officials say top Pentagon leaders are aware of the problem, the Bush Administration continues to show a wariness about transatlantic defense mergers that many Europeans see as signs of continued reluctance to loosen control over technology and information. That's a shift from the Clinton era, when Hamre and others had tried to make such deals easier, especially for trusted allies such as Britain.
Good reasons existed for making deals easier then, and there are now as well. An influx of capital from abroad would bolster defense-industry shares, which were in the dumps during the '90s. While the industry's market capitalization has improved, the Pentagon still doesn't have the money it needs to fund everything on the table. And from a diplomatic viewpoint, such acquisitions could help keep the NATO alliance from fracturing in the absence of the Soviet threat -- the diplomatic glue that held alliances together during the Cold War.
Old habits are hard to break, however. Ever since Inauguration Day, the Bush Administration has shown an inclination to try to do the opposite of whatever policies the Clintonites pursued. While the Clinton Administration approved BAE's purchase of some Lockheed Martin units and Tracor, which makes a lot of highly classified hardware, sources say the Bush team looks askance at BAE's interest in TRW. Last year, when Dutch chipmaker ASM Lithography wanted to buy Silicon Valley Group, the Administration forced ASM to sell an SVG unit that made lenses for spy satellites.
The message is clear, at least to many Europeans: There are limits on how much Washington trusts its allies. The events of September 11, some experts fear, may have made the Administration more reluctant to share. This is ironic, given that the U.S. needs to keep its allies happy as they wage their joint campaign against terrorism.
TIT FOR TAT?
Such a stance isn't practical when another country makes something the U.S. needs. And that's happening more and more often as weapons use software written in India and chips from, say, Israel or Korea. If the U.S. is reluctant to share, a country we depend on may at some point reciprocate and not sell us something we want.
"The U.S., Europe, and Russia all need to be cooperating to get the best product," says Veenman. He, for one, is less concerned about mergers than about cooperation. But if the attitude toward mergers is evidence of a broader attitude toward cooperation, the U.S in the end may have far less control over its destiny than it thinks.
Crock covers national security and foreign affairs for BusinessWeek from Washington. Follow his views in Affairs of State twice a month, only on BusinessWeek Online
Edited by Patricia O'Connell