tv Atlantic Council Discussion on Defense Industrial Policy CSPAN December 5, 2018 6:33pm-8:01pm EST
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office in january it will have the youngest, most diverse freshman class in recent history. new congress, new leaders. watch it live on c-span starting january 3. now a discussion on the current details of the trump administration's industrial defense policy. representatives from the industry detail what the branches and companies are doing to ensure that all us defense and national security tools are being optimized and prepared to address potential threats. held by the atlantic council, this is an hour and a half.
>> good morning, we are about to begin. i'm sorry that we are starting late. but, that might accommodate those who suffered through metro goodness this morning. good morning, and welcome to the atlanta counsel. i am steve grundman, senior fellow at the center for strategy and security. i am the producer of this defense industrial policy series. thank you all for coming. thank you very much, for those in the room and those who may be watching on the live stream. the purpose of this morning's event is to engage in discussion about implementing defense industrial policy and to that end we will hear from the deputy assistant secretary of defense, eric chewning, who will make prepared remarks teeing off the discussion. following his presentation, eric will be joined on stage by three other distinguished voices on this topic, carolyn collins, the chief executive officer of ui labs based in chicago.
those of you following the nation's weather might know that they got a snowstorm last night. and, so she was not able to be here in person, however, by the magic of telecommunications, she is going to appear on that screen and participate nonetheless. oh and serafin, staffer on the armed services committee and jeff will cost wilcox from lockheed martin, they will comprise a panel that will mount the stage and engages in a discussion after eric's prepared remarks. the release in early october of the administrations report the president on the defense industrial base, it looks like this. it is entitled assessing and strengthening the manufacturing and defense industrial policy and supply-chain resiliency of the united states. focuses attention on a number of its shortcomings, the shortcomings of the defense industrial policy, and vulnerabilities which could adversely affect military preparedness and performance. there remain imperatives to
shoring up fragile nodes in the supply chain and incentivizing the developed of capabilities which the national defense strategy identifies as differencingãdifferentiating -- needed the report or itself addresses in much greater detail how exactly the pentagon and the rest of government, for that matter, which is germane here are going to respond to these imperatives. it is the purpose of this event to drill into what you might call the nuts and bolts of defense industrial policy's. and, we have the perfect panel by which to do that. before we move to that substance, i have just a few administrative notes .1 -- i have indicated the agenda. eric is going to make a few remarks and we will have a panel discussion that i will lead and then take questions from the audience at or about 1130. about 25-30 minutes within the agenda for questions from those of you in the audience.
the event is on the record, needless to say, you can see cameras in the back and i have indicated that we are live streaming. the cost is for the rest of you in the audience is that if i call upon you to offer a question during the q&a, please wait for one of our staff to bring you a microphone and then identify yourself and affiliation before asking her weston. finally, note that we must conclude afternoon. i would ask all of you to join in helping me paste your questions as the hour approaches so that we can and on time .2 days event is the 14th in the atlanta counsel's series. it is an initiative to make a preeminent platform available to public officials and others who can address governments stewardship of defense industrial policy resources. we have the acquisition officers of the army-navy air force in the special operations command, also the secretary of the air force, now former secretary of the air force,
deborah james, and the current secretary of the army, mark esper has been speakers in this series. it should suffice to say that the series is a further expression of what brent go craft had in mind for us. which is to be an institution which creatively cultivates a transatlantic constituency for strategic thinking about and practical solutions for the problems of international security throughout the globe. today's discussion, is about implementing defense industrial policy plays directly to that mission. and, i want to think again, the entire panel for adding their names to the illustrious alumni, thank you. now, let's welcome eric chewning, the deputy or assistant secretary of defense for in which capacity he served as the director responding to executive order 13806. as i have said or implied, that
is the impetus for today's discussion and eric will discuss parts of it in his prepared remarks. but, more generally he is the under principle for ellen lord, about capabilities, health and policies concerning industrial resources, the industrial resources on which the dod relies. prior to taking this position in 2017, eric was the partner with the consultancy, mckinsey and company. he also is a former u.s. army officer and served in operation iraqi freedom with the fifth calvary regiment. thank you for coming. we look forward to hearing your remarks. [ applause ] >> thank you, and think the atlanta counsel for convening the session and providing me with the opportunity toãthe panel discussion. i would like to say that i have had the pleasure of working with all of them on defense industrial
policy and i look forward to hearing their perspectives as well. so, for the next 10 minutes or so i would like to do three things, one -- define and characterize defense industrial policy. the concept, not the organization, because the concept transcends any single office or authority. two, i'm going to talk about five different levers that we use to implement defense industrial policy. and then, three, will talk about how we are going to apply those in the context of the risks identified in the nato report. and, understand defense industrial policy, it is important to start with strategy. as many of you are aware, the nds, with its focus on great power competition clearly laid out three priority areas. increasing the lethality of the joint force, strengthening alliances and building new partnerships, and reforming how the dod does business. defense industrial policy plays a critical role in all three. because, defense industrial policy is the strategic effort to generate and convert economic power to fulfill
military were fighting requirements now, and in the future. it is how we generate and allocate resources to modernize the force and the means for strength and in our industrial base, and industrial base cooperation with our allies and partners. and, it is a process that can be made more efficient. now, our war fighters have a broad set of requirements. the dod buys everything from cell phones to nuclear weapons. healthcare services to spacecraft. the nds in particular, highlighted key capabilities for force modernization as we retooled the industrial base for great power competition. capabilities like hypersonic's, advanced autonomous systems, nuclear forces, space, and cyberspace. as noted in the nds, our ability to modernize this force requires changes to culture, investment sources, and protection of our national security innovation base.
some technologies we will continue to drive through government-funded r&d, but others we will need to learn to be fast followers and taylor's of those advancements. in order to fill those were fight requirements, the department interacts with a range of industries with different market structures. for example, our power as a customer in microelectronics is different than our role in nuclear ship building. so, the potential of new entrants in artificial intelligence is different than that of man fighter aircraft but, what is more is the nature of our participation in these markets and that is unique because we are a customer as well as an oversight authority. this position creates a range of levers for dod to use to cultivate its supply base. some of the levers are the same strategic source and tools that are used by large procurement organizations while others reflect the distinct nature of our mission. and i will briefly touch on what i consider to be five of the most important. the first is the acquisition
policy lever. the rules of the game for how and what we buy. this includes how we set requirements, the acquisition process, and supporting regulations and altercation standards. currently, the department is incrementing the largest body of reforms since the cold waters nichols act in that positionãrecognition that the legacy way of doing things need to involve -- evolve .2 better support the war fighter, the rules of the game need to enable fasting capabilityã faster capability and a broader set of technology providers. the second lever is the procurement decisions. the choices we make about what system to buy, who to buy it from and when to procure it, these decisions send the demand signal to industry so they can coinvest. and the choice of where we're putting our money, often for decades ultimately, these
funding levels determined the market level opportunity in a particular area. the third lever is direct investments. money and human capital, we inject directly into the roots of the industrial base to stimulate growth or correct a market failure. examples include defense production act title i and title iii authorities, the manufacturing technologies program, manufacturing usa institutes, our industrial base analysis, sustainment grant. our small business technology transfer program. our small business innovation research programs, as well as the work dod funds through research and universities as well as the national lab. the fourth lever is our ability to review business combinations that shape and affect national security. the two central authorities at
play here are the antitrust acts, and we work with ftc, the department of justice, as well as the committee of foreign investment in the united states with our colleagues at the treasury. and, finally, our fifth lever, international trade, armament cooperation and control. the government to government agreements to ensure supply matiriel, cooperation on military capability of element, prohibition of companies from the national security supply chain, and control technologies of military application. so, when we think about these five levers in the context of the 13 nato six report, the 13 nato six report started with a discussion around what we would consider the five mac drivers creating risk within the industrial base. sequester and uncertainty around spending. the decline of euros manufacturing capabilities and capacity. the adverse impact of us government business impactã
policies and competitor states, most notably china, and diminishing us stem and trade skills. within that transition of discussing how does macro forces work together to create industrial base risk. and, that risk was characterized by 10 different archetypes. i think it is in the text of the archetypes that it is important to talk about the levers. and, those application levers become clear. so, for exampleãtwo of the archetypes we discussed were single or sole sourced providers. and, there are instances where it might make sense for the department to have a single or sole sourced provider based upon -- the amount of money that we are spending, or the barriers of entry for particular entry. but, in instances where that does not make sense, we need to ask the first order western, why is only one company able to -- qualified to provide a particular capability to the department? could we pull a lever? for example, acquisition policy. is there a specific defense
unique requirement that is preventing other suppliers from entering the market mark could we harmonize this was something that is more commercial to lower the barriers to entry and expand the potential to folks who could provide the capability? or, the procurement decision lever. could we use a different supplier than the one that we have traditionally used? recognizing that while it might create risk for a given program, it will buy down risk across programs. or, is this market opportunity appropriately sized and, would we need to potentially increase what we are spending and in particular capability area to entice more market entrants? direct investments. can we use our defense title iii authorities to augment a business case to bring in and qualify a second supplier? review business combinations. was there a consolidation event that reduced competition? will they be a potential consolidation event that will further reduce competition?
and, finally, international cooperation control perspectives -- our allies provide the capability. is there an opportunity for the supply agreement to buy down concerns that we may have around access to that capability? so, one can apply a structured approach across the archetypes and that is the reason why we use the risk archetypes in the report. quite simply, while we identify 300 discrete risks, there are others that we did not find. and, these known unknowns are likely going to fall into one of these risk archetypes. so, by the thinking about the application of the levers in the context of the star types, we start the pattern recognition in the institutional muscle memory next dealing with the problems as they arise and i think it is an important note about the report. it is just a snapshot in time. right? i think that everyone who has managed a large industrial supply chain knows that supply- chain risks are evolving. so, as a snapshot and if you, as best we had when we had it.
and, it is going to be updated and reviewed as we move along. risks will come, risks will go. but, what is important that we are building the institutional capability to address challenges as they evolve. as i mentioned earlier, these defense industrial policy levers run across the department of defense. insight into the longitudinal view. a perspective that says are we pulling them as an enterprise in a way that is most effectively addressed the way they have been identified. if we are not uniformly pulling the levers, why? can we do it better and more coordinated fashion to just address the concerns that we have in our immediate future? with that, steve, pass it back to you. >> thank you very much. [ applause ] wait there, eric.
and hopefully, we will have caralynn join us. there she is. hello, caralynn. >> all right that's great, i think that is exactly what i had hoped for our purposes which is to key up on our discussion for those of you who have not yet delved into the 13 806 report, i'll preview, the archetypes is the key thread to be aware of and to help us understand what the administrations industrial policy is, so perfect set up, the rest of our panel, if you didn't figure it out represent different perspectives all the same problem.
a perspective of industry, from the hill, let's call it the independent sector or, collaborating both with private and public entities in order to address some of these problems. so, let me give as i have offered that they do each of the other panelists a few moments to introduce themselves and their sort of core perspective on the topic before we begin a discussion. i have asked jeff to start that. jeffrey wilcox, let me give a little introduction, okay jeff standby, he is the vice president and i said for digital transformation at lockheed martin, and he is responsible for transforming system design, production and sustained operations of the countryãhis company. he is also chairman of the manufacturing national advisory board of nifty, the national institute of standards and technology and serves on the advanced robotic for manufacturing board. jeff.
>> outstanding. will first i would like to thank be atlantic council for convening this important conversation. i would like to start with an historical overview and this is a new conversation in many ways. it goes back to alexander hamel's message hamilton who understood the importance of an industrial base and the person who was in charge of acquisitions it was a big deal to him. when he reported to congress there was a report on manufacturing, he really focused on the role of that defense industrial base for our security. but he also talked about its role in prosperity and i think that is important to keep in mind. we have to have this conversation about national security. but if you look at history, the aerospace and defense communities has really done a tremendous amount to advance our prosperity as well. you just have to look at things like the internet and
global positioning satellites and the apollo program drove the early chip industry. so this industry does what is at the edge of what is really hard, because we end up introducing building productsã ice blocks that can be leveraged for us prosperity. in a few hours nasa is going to land a device on mars and the technology it takes to do that are incredibly challenging. and that ends up driving a lot of technology and that is what broadly in the us industrial comments. so the thing to keep in mind is this is a big deal to lockheed martin because we are system integrator and we have tens of thousands of suppliers. and so the help of the supply change is an existential issue for us. we have spent a lot of time stewarding it and addressing it and working with the government
and academia to make sure that it remains robust. i would say that that is getting particularly challenging because of the before the industrial revolution you may have heard it referred to as 4 .0. it's augmented reality, virtual reality, artificial intelligence and so forth, all of which leverages data and fundamental and new commodity in many ways on the scale and the processing scale we have to deal with that. for companies like lockheed martin and the resources to move in the industry, it's an exciting time and it's a great challenge. an opportunity, but for the supply base a lot of the small to medium enterprises as they are referred to, which is where this innovation comes from. oems like lucky -- lockheed martin reply on this.
they have all they can do to meet payroll find workers that can show up to start a second or third ship, they have a lot of challenges on their hands and entering the work industrial revolution is not they wake up every morning thinking about. and yet if they do, there is a risk of getting left behind. and we have addresses for the past couple of years so we really welcome this report and the study and the effort to a address the risk to that base. i would add is kind of an introduction to carolyn, there's a number of mechanisms that we use to stewart, foster and nurture that industrial base, one that steve mentioned is the partnerships and the other is manufacturing which have been tremendous, lockheed martin wasn't early advocate and support of the initiatives with top-tier members i'm on
the board of the advanced robotics and that's a place where we can all come together in government, academia and industry and shape a roadmap that will lead us all together into fourth industrial revolution. with that overview, i will pass it on. >> okay jeff thank you very much there were several things you mentioned that we will come back and develop in our discussions. i am indeed going to turn turn to doctor caralynn nowinski collens who i said is the ceo, caralynn will surely explain what ui labs is all about but but by way of my introduction ui labs leads the consortium that was awarded the dod contract to operate the digital manufacturing and design innovation institute as we will come to call it here.
as jeff alluded is one of the manufacturing institute of the dod manufacturing technology. prior to her appointment, she was associate vice president for economic development at the university of illinois and it is also worth noting that she spent the early part of her career in venture capital incorporate finance. thank you very much caralynn i'm sorry you're able to make it here due to the weather but you are here, rest assured. please, give us your introductory or remarks. >> thanks so much stephen. thanks for the detail and accommodating for me to join you despite the weather. that's what digital technology is all about. and i appreciate you keeping that up as i mentioned lockheed martin is one of our partners as well so that really does embody the true public partnership nature. and at ui labs we are using digital collaboration which as
you mentioned the dmdi is the way that we will be using the future of manufacturing. but let me back up and say dmdi is part of the larger effort in two ways. one, it's part of a network of manufacturers of 14 institutes across the us. and they are all focused on one particular manufacturing capability. recognition of many groups, public and private who recognize several years ago that our manufacturing capabilities were eroding. and we wanted to maintain national security. if we want to increase manufacturing capabilities in the us we needed to make sure that we were both developing these technologies and also figuring out how to put them into practice from a manufacturing standpoint. so we are part of this broader
manufacturing network we are also one of eight institute that are part of the dod manufacturing institute. and these institutes are within the office of manufacturing technology within the dod. so the office broadly has the obligation or requirement to maintain us manufacturing capability needed for us fighter readiness, and so how do we make sure that our manufacturing base has the capabilities to make sure that we are the most competitive and we are the most capable? so, as part of that mandate, these institutes that take on different types of manufacturing capabilities, plus at the institute we take on digital manufacturing. the industry is bringing the
physical and physical worlds together. so the digital manufacturing what we want to do is we want to connect every part of the cycle. we want to use data to create what is called the digital trek and that is the threat of data on design through making and assembling. and so, there is an incredible amount of data that is helping along on this thread that allows us to make that to better understand and to understand what is happening within our factories and our supply chain and ultimately in ways that readiness to raise the capabilities of our industrial base. it is through partnerships that the department of defense and through our leading manufacturing partners like lockheed martin who are working hand-in-hand and we can understand what is the need for
the fighter and what is the need of the manufacturing base. what is the need for the commercial manufacturing base. so we can tie all of these rings together, create a ecosystem that develops these technologies in advance and also transitions and allows these technologies and ultimately created workforce. and by bringing together in our case more than 300 different organizations alongside the department of defense including universities, startups and technology companies, manufacturing companies that we can ultimately do what our job is, which is to accelerate the development of these visual manufacturing technologies. and being able to make these investments public and private side-by-side, this way we won't have that readiness necessary in this industrial revolution. so with that, steve i will turn
it back to you. >> that's great although, i'm going to impose on you one further question only because i think the answer will surprise, what does the ui in ui labs stamp work? >> university industry. the early recognition that by connecting the great innovations that are happening out in our research universities we have real competitive to industry and we can hopefully transition this technology more quickly and more efficiently and ultimately more cost-effectively. >> is there a time to the university of illinois? >> university of illinois was one of our founding universities but today we partnerships at over 45 universities and technical colleges. so it really is that broad set of partners that are necessary for us to be able to do our
job. we don't believe that any one organization can solve this problem and it really is about bringing together the collective that allows us to accelerate this development. >> okay, thanks very much. finally, hardly least, let me introduce doctor arun seraphin who is a professional staff member and is responsible for those portions of the annual defense authorization bill concerning among other things, he has a big job, acquisition policy, management at the pentagon, the science and technology program, information technology systems, the labs, the aforementioned small business and innovative research program and test and evaluation programs. he also previously served in the white house office of science and technology policy as its director for national security and international affairs. arun give us a b perspective at least your experience not
speaking for at lease the whole capitol hill at least her experience there. >> thank you to the atlantic council for having me here today and with your prodding i will do my standard disclaimer. nothing i am saying here represents the views of all of the people i have worked for in the past for work or now or will work for in the future. in fact, some of the things i say don't even reflect what i think, i am just trying out ideas on the crowd here and we will see how it goes. >> excellent. >> this topic is very important on capitol hill, of course. and it is before because it ties to two of our biggest drivers jobs and national security. there is no set of issues that focus on them members minds more than jobs and national security unless eric got into the business of working in healthcare, also.
and so therefore you see a lot of activity on the hill because of that. the other thing about these sets of issues is that they are very local. every member experiences dealing with the industrial base, dealing with manufacturing issues, every time they go home. they hear about these issues from a wide variety of constituents, ranging from state and local government officials to working for federal investment, working for federal investments who are looking to strengthen their employment basis to companies for the same reasons to the actual workforce and labor itself. and then of course, there is the overlay of the defense, department of defense and the constituents like the depose and the -- that pose, so therefore you see the members very interested and act in this
set of issues. what we are sometimes struggling with is the line between industrial policy which is it something we usually engage in actively on the hill. and national security policy, which is something we always engage in on the hill. so when those two things overlap, it gets to be very interesting set of policy and is best estimate. looking back over the years even in my time on the hill, we have been on this interim services and very active in these areas. particularly through support of some of the programs that the other panelists have mentioned, the manufacturing technology program, manage data for the pentagon and the defense production act and the investments being made in the industrial based defense act.
including those managed by the department of defense. the manufacturing programs and the active support and funding of those areas and active support of policies and the authorization of the programs themselves reflects the interest of the hill in the past and i think going forward. we have over the years written a lot of legislation in various targeting areas of manufacturing, for example, there was an md aa that originally mandated the creation of the manufacturing office within the pentagon and that was to try to strengthen the role of the voice of industrial policy within decisions made in the broader acquisition programs. we have tried to strengthen the tech program and the joint vince manufacturing program and a plan to coordinate those
efforts and try to connect those programs to the manufacturing extension program and the department of commerce and to push forward manufacturing strategy. that can help guide congressional investment in manufacturing in targeted sectors. we've also focused on the workforce portion of the manufacturers industrial base program. most recently through an initiative called the manufacturing education engineering program which tries to connect university education programs to meet the needs of the industrial base. and in thinking about the organic industrial base which is the depots and the shipyards which represent the manufacturing strength within the department of defense , we have tried to strengthen the
pentagon's ability in the military services ability to hire the talent they need by promoting faster hiring authorities within the government to make them more competitive with the private sector. another whole area of effort over the years has been in acquisition reform. this has been a perpetual effort on the hill and in the last few years like eric mentioned, there have been hundreds of provisions written to try to reflect the changing nature of both the global industrial base and the increasing speed by which technology is changing to try to move pentagon recruitment processes that will reflect that environment and that speed. we tried to create faster contracting methods to connect the pentagon to small businesses, the it universities and nontraditional defense contractors, companies that usually work with the pentagon, but are working a very important technical areas like
cyber security in robotics and artificial intelligence. we tried to increase the flexibility of the existing procurement tools within the pentagon so that the federal acquisition regulation is not noted as being the most adept and agile way of buying things for the pentagon but it turns out that for those of you on the hill and in the pentagon that is an actual tailorable set of tools and processes and we have tried to write legislation that points out some of the flexibility that exist within the federal acquisition regulated. the contracting officials can use to try to get to the right company to try to get the right product delivered at a fair price and in a timely fashion. so you saw over the last few years a set of legislation that tried to push at those kinds of authorities and that kind of behavior. then, in terms of workforce, the real focus of the last few years has been hiring in the stem world. so you see the hill over the past few years have given
enhanced authority to places like darpa, i mentioned the depots and shipyards and cyber security to try and make the government a more attractive employer to that highly sought after technical workforce. so then looking forward, the kind of things i that we are taking about or probably summarizes more of the same. of course we are going to continue to tweak acquisition processes and practices as we see problems arising or previous legislation that needs to be adjusted to reflect the new needs of the pentagon. i think a major emphasis will be trying to help the pentagon actually implement all of those different provisions that have been written over the years, and that is some function of
training workforce and just the standard process of congressional oversight over the use of some of these new flexible acquisition tools. in terms of looking at the manufacturing and technical workforce, i think in addition to the hiring of parties that have been given out over the years, i think we are going to try to think about things like making use of the vast numbers of talented foreign nationals who come to this country to study engineering and science and manufacturing, which gives us an advantage over some of our global competitors. those same people aren't going to every country, but working with the defense department haven't really figured out how to make use of all that or national talent and put it to affect improve national security innovation. in the struggle for talent i think one of the things that we were concerned about was that the government is at a standard and fundamental and
maybe structural compensation disadvantage when thinking about hiring specialized talent in fields like artificial intelligence or robotics or advanced manufacturing with respect to the private sector. so, thinking about the compensation packages which entice people to come and work in the public sector, and the kinds of careers that people want in the public sector to work in these important fields, we are probably past the age where people want 30-your careers in the government anymore so can we think about the different strategies to hire people for different and shorter periods of times? while at the same time making the government and particularly the department of defense a more smarter buyer, a smarter regulator of these kinds of industries. and then in the work force piece i think the other thing that we are struggling with is in office is like eric, you know, he may need a few really
smart artificial intelligence people but i would assert that with people like eric need in offices that think about the industrial based need is real management, financial, almost wall street expertise. and so how is it that we can get that kind of business expertise into the pentagon to think about these complex industrial relationships? to think about how the public sector should be interacting with the globalized technology base. in the same way that we for decades, have had a strong relationship with the university community and bring in talent in engineering to support our international science foundation and more recently we have planted outposts like silicon valley to tap into an innovative community that the pentagon hasn't had a relationship with. should we be thinking about the
same thing with places like wall street? with places like the banking community? to reach out to get a better understanding of their drivers and hopefully, to attract some of that talent to come back and work with the pentagon on these challenging issues. in particular, for example, can we get data analytics experts like caralynn was talking about to help not with technical data on the battlefield but data as it reflects to manufacturing problems. data as it reflects to procurement policies and industrial based policies. and the last thing i mentioned i will mention is money. we think about money on capitol hill, of course. the hill is very comfortable in thinking about spending money on fundamental science to promote all the technology that is driving both economic security, national security,
health care outcomes. investments in universities, and basic research that lead to things like internet and gps, we are good with that. we are also good with procuring the things that the defense department needs to equip the military to fight the next battle to ensure our international security. it's everything in between that we are struggling with. we don't have a good sense of how to fund what is called valley of death things. the commercialization or production. we don't have a good sense of where government procurement dollars can be used as a tool to spur and stimulate and preserve innovation in this country. in the same way that we are very comfortable using r&d dollars to stimulate innovation, should we also be thinking about procurement to stimulate markets to create domestic suppliers of artificial intelligence capabilities, robotics abilities going forward? i think one of the things we're going to taking about and struggling with is how to invest, how to budget for that kind of gray area where we
traditionally call that industrial policy and kind of seated duty over to the private sector. maybe the government is changing and they need to start thinking about doing more of that from the inside. so with that i will stop and be happy to take questions. >> great, your remarks reflect the activism i think we could call it on capitol hill over not just the recent year but for a few years in industrial policy which are indicating well not speaking for anyone, is likely to continue. here is my first question which i will direct and eric but any of the of the three panelists may weigh in as they like. i wanted to remark upon the renaming of your office as industrial policy. when i had this job almost 20 years ago, the name of the office with industrial affairs.
and that subtle difference actually marks a really fundamental cultural divide, i would almost observed. and i wanted to draw you out, eric on where we are in a culture which actually, to pick up on a point that arun made, industrial policy kind of traffics in a culture that mostly gravitates toward laws i fear. the reason my office was called and industrial affairs is because if you can imagine in the 1994 congress, no democrat was going to try to pass off and industrial policy. it is not what we do, culturally. and by the same token, national security policy is very much has acceptable i will call them command economy instincts. and so these two things are kind of intentions with one another and i'm wondering does the denomination now forthrightly of our office as
industrial policy, does that mark a turn of the culture at least in this administration? >> yes, i think building on arun's points, i think it does. industrial policy is a bit of a false dichotomy to say there's either this politburo top-down driven centralized approach, or is this this no intervention at all when it comes to defense. we oversee a range of different markets. we are a customer, we are a regulator, we are all different shades of levels of state intervention and management of those things across the board. so, i think the point we are trying to make with this subtle renaming is we need to be more thoughtful around our role as both a customer and some of those markets where we are very determined, because we are potentially the only customer or one of a few handful of
small ones, trying to differentiate where we are a derivative buyer heading to build off arun's point also, there is a need for a subject matter expertise at the intersection between economics and national security, right? and we have allowed to certain the degree to develop silos around an economic perspective, everything is about positive outcomes from a national security perspective. we need the ability to be able to talk in bridge across because in every competition we need to be able to talk both in terms of positive economic relationships and what implications that might have from national security. >> let me insist, arun could you give us a temperature or industrial policy up on capitol hill, and then i will ask jeff and caralynn if you can account
or testify if you will to any resistance to industrial policy. if we can just put that behind us, which i think we could. >> even if you just take away the term industrial policy and call it better supplier management. >> right. >> because that's what it is. they cut but there is an active component just the way as any of us would walk into a global industrial organization today and ask to see can i see your strategic sourcing, who is your sourcing executive, it's a different person than they have in category management? because you need to cultivate the supply base. >> arun what is the temperature on this topic to make mi hearkening to something we have gotten over? >> no, i think resistance to the government can take winners and losers in an intelligent manner is still on the hill. having said that, if you invoke the phrase national security and the idea to do intelligence
management and protection of the technology that will be in the future, preserve the need for the search production of whatever is in the future, then members get more interested. and industrial policies are in the third person? industrial policy back home tends to be more support. so i think there is an appetite it's just how you talk about it and are you actually specifically promoting it? >> caralynn, off of your comments, particularly if you haven't experience of having to overcome obstacles one might be regarded as one of the expressedãas main expressions? >> i think what we are hearing from our parsons specifically are our industry partners that we need to have an industrial
policy. and that means the us is going to fall behind from an industrial and an economic standpoint if we don't do something. the folks that we work with, is what other choices do we have? what are the alternatives? and the reality is we are joining with global nash i multiple companies and have a choice of where to go to do business. and if we give our industry a choice and that choices easier for them to go get investment from china or germany, singapore, name the country, rather than the choice to make that investment here in the us where they can develop new innovations and more importantly transition those innovations, i think we're talking in terms of the value. we don't have a policy that bridges that value of that. so it's not just about developing the technology but
it's how do you get them into the hands of workers of people that are using those technologies? so i would say there is a real pull right now from the organizations that we work with to have this strategy, to have this policy in place that really allows us to, manufacturing still matters here in the us and we are going to build a competitive capable workforce and in industrial base here. >> you know jeff i think it must be said that industry itself is sometimes resistant to defense policy especially the big incumbents when one respects the policy is creating competition. again, i would like to think that i overplay this but what is the perspective were generally in industry on industrial policy? >> policy versus outreach, it's a bit of a red herring, personally. engagement is always good, and
caralynn said it good we want to be at the table with the government. we want to know what they are thinking we want to help shape where we are going together. and so i don't since this resistance to the word policy and industrial policy, i would put it into two camps, one is engagement in articulating advanced needs that commercial is never going to do it like hypersonic comes to mind. there are commercial hypersonic programs i'm pretty sure there are. that's really important that the government says we want to do these things nobody in the commercial world is addressing this. let's find them, i think that's really important. the other one and this being at the table conversation. one of the things is that you are at the table with the government and they are actually a few places where we go with the government and
within academia and industry for reasons that were never quite clear to me there were a lot of forms where that happens but it is so important because that dialogue is really what shapes the public needs so we understand public needs and so they understand our capabilities as well as our challenges, especially in the supply chain and our ability to hire. so i guess i don't hear the angst personally everywhere that i go in general the more we talked the better, the more we engage the better, the more we shape the future together, the better. >> will i want to put the elephant right in the room, go in case lest we avoid talking about it. now, let's move on to, i'm sorry, eric? >> strategic sourcing? let me turn now to a different question, and that is, where you may see or anticipate dealing with the tension between industry for .0 -- 4.0
, or it's a vision of 20th century industrial capabilities and industry 1999. my own experience again, managing industrial policy is that particularly with respect to constituent interest and on the hill, industrial policy tends to be as much about protecting and retaining and cultivating yesterday's capabilities as it is about curating capabilities for the future. do i get that wrong? how do each of you witnessed it and work past it? >> if it should be worked past, i should presume that it is. what i see about this industry dropped 12 -- 4.0 is what are we doing about it? do we provide standard qualifications to unlock the role that digital can have for us that you're not going to
affect the broader digital additives, that type of energy 4.0 capability so our broader sense. with our role as a customer to help catalyze that industry that is hope for for a broader us manufacturing ecosystem and then two, what investments are we making internally to be the benefits of the digital thread that will ask industry to put together. so i think it will be very easy to ask industry to move forward with an industry 4.0 model , like intellectual property rights and all the rest of that. but if you are going to use it on the front and get the value out of lifecycle costs as far as investments and our own capabilities for management, so i think about it what can we do to catalyze, and then are we making the right investments internally to keep pace with what we are asking the industry to do?
>> okay let me take the harder part of this question and give it to jeff. which is, will the realization of industry 4.0 initiatives that you are responsible for at lockheed, it is their job to put out of business 20th century capabilities that we can innovate around essentially? or we can succeed with a 20th century solution, a software solution rather than a hardware solution. >> yes, i am trying to think in terms of that. i think first i would say that the great attention of realizing 4.0 is mostly working, methods of how we work together to leverage those technologies. if you look at past industrial revolutions like the second one, it was decades before when we started to introduce
electricity in the factories and productivity improve. you're not seen them yet with the fourth industrial revolution, so you have to think in terms of the tension is expectation and methods of working with our customers and with our supply chain that are just outdated. because if you force new technologies in the old ways of working never sees the benefit of it, the example i always like to give his email. i started working, you type and enter office memo, you put that little red string around it, yes, you send it around. so then the digital revolution comes along and what do we do now? we type an email and we send it around the office. it's the same thing. i'm not sure it's more productive, quite frankly. so that's not quite as independent as computer technology. we're just now seeing the types of tools that let offices work together that are starting to overcome that. so the long way of answering
your question, the tension is can we accept and put into language literate statutes or ways that let us work in this revolution. there ways that you might go to model-based development for a certain product, but then your customer will say that's what you do that, but you still have got to provide me with artifacts because you been doing that for 20 years and i still need to see that particular artifact. you end up doing the work twice and that doesn't help activity. at this point, i have forgotten your question. >> i am sure the room will not because it has got to be the case on the hill that the constituency for industrial policy around anchor chains and buggy whips, this is a real part of life up there, right? >> our institution is moving into the future and we struggle with the military services on anchor chains, buggy whips and aircraft carriers, for example
as well. >> i think what makes the members interested and excited about industry 4.0 is the fact that it's going to be a different model from where you perform the innovation. so whatever the technology is that you are interested in next week, i guarantee you, it won't be developed in a government- owned and operated behind fences like things used to be done in decades past. i guarantee you that the folks developing it won't be the corporate research lab that are trying to mature the prototypes. they don't exist anymore. it will be some strange combination of universities and small businesses and entrepreneurial professors with private tech money. and i bet you that they won't be reduced for the military for large primes sort of cornered
the market in production. the models by which dod and the government are invested in innovation and stimulated innovation to prototyping and then get it into production are all going to be more hybrid. they are going to be from beginning to and have a big prime presence, have a university present and have a small innovative business presence. i think that interests the members. the other thing is that all of these things revolve around work force, so that been involved the state and local governments much more than the federal government. so, from beginning to end, whatever that technology is next week, you are going to have a different kind of model of development in ip and the workforce to manufacturing, and i think that is something members will get behind. >> the tension there i don't see will the buggy whip go
digital? it's a question of are we going to put in place the incentives so they will go digital. that, to me is where the work is. >> it will go digital if we make it in our best interest to do so. but to do that requires us to change our mode of work which is a much harder left. >> caralynn did you want to weigh in on buggy whips versus industry 4.0 ? >> i think clearly talking about the technology and the people we have every industrial revolution with the new jobs come and all jobs go. and i think in the industrial revolution there are a whole host of opportunities it's really hard to use the technology and as jeff said, it's changing the way that we work and is going to take time and i think we need to make sure we have an eye toward programs that allow us to
accelerate that timeline. and five years ago when we got off the ground, there was in some cases digital, some companies were saying it's not going to apply to me come i can't worry about this because i don't have the right workforce, the resources were quite frankly am just trying to get production out the door. and today, i think there is an increased recognition that digital is going to affect all industrial companies and how are we going to make sure that we have access to those technologies and that we can put them to practical use and very importantly that we have a real business case for these. and back to what eric was saying, there's a way to re- incentivize this so that maybe the incentives are aligned with what is the case that we are trying to evolve for? and, there's actually a host of
case studies of many of which we are developing with our partners here atdmdi tells us there is a product increase. it's not about one-to-one, it is a one to many. and in that sense we have got to figure out a way that many can have access to the solutions. >> >> will suffice to say we are going to take questions from the audience and if we can unabashedly embrace the idea that the government is going to incentivize constituents of the economy to do things that are strategic to our staff, that would be an important advance in the industrial policy in this country. i'm hearing all four of you say yes, we can. sorry to coin the phrase. >> we don't have any other choice. >> i will start here, unless there is a question in the back
i will start here with arun on the first row and wait for the microphone >> and then give a microphone to the gentleman in the third row. >> i'm with the atlantic council it's good to be reminded so thank you for your comments. my question has to do with the two black holes and achilles heel in all of this, mainly what you do in times of war for retention and replacement and repair? in world war ii, the navy started with five aircraft characters and lost all but one and by the end of the war we had more than 100. the air force lost 1000 fighters and bombers. you could build them in days if not weeks. mccain and fitzgerald were badly damaged and will take two years to bring them back and as you know, keeping our current advanced inventory of fighter and helicopters even operational in peace time is difficult. so what are your thoughts about
what happens in a real war and you're looking at china and russia and these are not going to be the type of work that we fought in vietnam in terms of battle damage repair and indeed, replacement of these advanced systems? >> eric can we start with you? >> the ability to kind of measure the resiliency of the system is very important. and one of the efforts we have taken on his to try to model out certain elements of the industrial scenarios to try to identify where we have problems at. and how we make that part of the system. because to your point, it's really a good question, it's to identify where the constraints are and they may be at the prime levels but did it might be at a sub- tier. and if we are talking about munitions versus man fighter aircraft. >> jeff? >> is industry ready to mobilize as needed?
>> it comes back to technology when you think about it. we have gotten a lot better recently doing things quickly. i mentioned that we were able to develop these things in a matter of months. and it used to take years and years. so we have gotten better at using technology like 3-d printing so i think that will help address that. anything you can do that to develop is good. and we've seen tremendous progress in data analytics and being able to, especially now the commercial rowãi swirled in the helicopter industry. it is critical. so they put a lot of investment into analytics for that. but the same algorithms can drive significant percentage point availability of access. if you have them all, that
helps. i guess i'm optimistic about the role technology provides and we can deal with the acquisition and the method of work-related issues we can go a lot faster, is what i'm trying to say using this new technology to deal with surge. and it's not so much about the technology there it's about methods of work that need to be addressed to get there. >> okay this question right here on the third row. and then i'm going to come to the woman in the fifth row if you would give her a microphone please, sir? >> thank you, jeff, the take away that i got from the report among other things is that we can't do it alone. the national technology and industrial base was expanded with fy 20, 2017 to include uk and australia. i'm wondering about how you deal with other partnering and i like countries you have
mentioned australia and other venues like japan and south korea will come to mind countries are very very strong industrial based. how do we take competitors and incorporate them into a strategy. my sense is we have a lot of catching up to do. >> eric, and then arun if you could weigh in on that , i would appreciate it. >> it becomes a very important element. like structure, as far as the reports are concerned, we have shared our view on where allies can play a role. at this point there are five other ally countries that you mentioned, some of them you haven't. because some of our concerns are concerns that they share. and we have had dialogue with all of them about what portion of the risk we identify, could we work collaboratively with
them to address peer mike. but without a doubt our allies are part of the answer. and just to build on that and to bring that back to a specific conversation, participation within our own industrial base comes with the need for certain level of foreign direct investment detection. so, we are also working with our allies on updates to their own regimes. we have seen progress on that front from a range where you can look at update invest in canada and therefore protections i think there are elements of how do we work together to address the concerns tactically, but also to put in place the structures necessary for deeper integration. >> arun up on the hill, using allied and even other industrial bases to fill in some of these gaps, is that going to go down okay? >> i'm glad you mentioned that
the hill was in support of advancing this. in the past few years the struggle is always going to be is the politics of spending money overseas and creating jobs overseas as opposed to jobs here. and that is a big political driver. and then some of the issues that eric mentioned, so if i'm short of technical work in this country to support innovation in this country, spending money overseas may or may not stimulate more development of network force in this country. that is an interesting western to ask. i think there are concerns with even our domestic small manufacturers and small businesses in terms of cyber security issues. and to expand our industrial base to include other countries does that mean we have to worry about cyber security? so all of those elements. this engagement with domestic
companies is already overwhelming and taxing to the government and its ability to track transactions, understand transactions, understand complex ownership, what does that do then if i expand the industrial base to these other jurisdictions? so, the other piece tying back to the previous question is that if you do need surge production and repair in times of conflict, someone needs to explain to my bosses then what does this concept of a global industrial base mean in those kinds of. u and then getting back to eric's creating simulations and what with this globalized industrialization, these groupings i will have to consider to expand further. >> it must be said that in the
summer of 2017 executive order 13806 was promulgated , some, among them me, saw it as a pretext for protectionism. it came in the context of other uses of section 232, and i want to be one of the first to say, i hope i'm not the first to say that is not the way the report came out at all. the report is acknowledges a need for particular allied bases to participate and serve as a strategic head as a principal supplier and a strategic hedge and i commend the administration for the way that ended up landing on his feet. there's a question in the fifth row and in that gentleman in the same row with the beard will get the next question. >> the question is we were
reporting last week that we had some concerns about the expansion through firm a and i know that's a treasury department rule but is your office kind of getting involved related to this allies involvement? >> sure we have had that conversation with our allies and what i suggest to folks is what was implemented on november 10 with a pilot program for how we would exercise some of the new regulation. were going to go into a writing process over the next year where the finalized regulations will be finalized and if there are concerns they will be raised and we will work with treasury to write the process to make things consistent with the national security concerns. >> a question from that gentleman there and then we will come to the side of the room. >> for the defense production act, do they typically have an
allocated funds at the end of the year for emergency matters? and how long does it typically take to allocate money from those funds to the company? >> again, we will prevail upon eric and then caralynn i'm going to ask you to talk about how the mpi finance ss institute is financed. >> it is uninspiring money. so one of the things that i have done with the team since i have come into the role is increase our ability to get transactions done. i think prior to, historically it was almost 2 years on average were we took the application and in a modern since your average company is an average capital allocation cycle. then how do we reduce the time spent necessary so it is relevant to a company within a year? >> explained to the audience what is a title i and a title
iii? >> since the 1950s the production asked designed for us to address shortfalls in the industrial base. recently, we authorized i think to make the most of it we have to increase the speed by which we are able to deploy. >> okay, caralynn so it's not part of a defense production act the manufacturing technology for which dmdi is part, how did that comes to pass? >> they envisioned a program that was a pure private partnership. i believe that across manufacturing what we have seen is actually two-three dollars that every dollar that the government has put in his continue to grow. the thing with us is that we
also have funding that comes from our private sector partners. and that funding comes in two bastions. one, it comes to support the operations of the institute, support that around the table conversation that jeff mentioned. convening on the various partner groups and then also the workforce development and education that comes along with our mandate. and there's also investments in that the private sector makes and technology development and transition. so i would say what began as a way to make it faster we are now beginning to see a transition where the dod is seeing increasingly more a partner and ultimately a customer role where we can work together to define how can advanced manufacturing technology in our case, digital, increasingly i think we are going to see more investment from dod with
military services tied to the office of the secretary office. >> arun you want to put a tag on that? >> i think one of the ways the government handles money so if you think about how to best invest in a basin anything like bio technology, how would you have the government budget for it? would you actually come up with the arcane color that money rules and management regulations that we use today. i would assert, probably not. i think going forward like we are talking about partnerships between universities and universities and government. he also need to think about how that money can be seamlessly
flowed. when that money can show up so that it is actually there when the opportunity presents itself, so i think going forward, if i had to rethink to financial management budgeting rules within the government and appropriation rules on the hill, what would be a more optimal set of rules to let them know how to stay ahead of these technologies? to the way we do it now are and how significant they are? there is a question here and the gentleman with the blue shirt will get probably the last question. >> iq, jon harper with national defense magazine. three questions. can you flush out a little bit how wall street and the community can contribute to defense industrial-based policy
and what they can do to facilitate that and -- >> it's a kinds of things we have been talking about. we need better understanding of how to think about changing industrial base, i would assert that that expertise is sitting in place one targeted investments when the public sector is needed to shore up investments in the private sector and at what point in the pipeline you need to make those kinds of investments with places like the hill or finnegan -- pentagon, we have a good system of bringing in technical experts from universities to support r&d, we have a great system of using the service to shore up talent needs and the pentagon. maybe we should be thinking about reservists who have the kind of business expertise that would allow for this kind of industrial-based analysis or financial management analysis
to reshape pentagon policies going forward. >> it must be said one of the reasons eric is so effective in this job is that a part of his biography i didn't mention is before he was an army officer he was an investment banker. last question? >> i am retired, this question is on industrial policy to manufacturing base, in 1866, u.s. congress adopted the metrics system and today we are using the old system, every mechanic has to own two sets of tools and we have lost not only dollars in failures because of conversion between the systems, the federal government and the dod has the motivation and the leverage to get manufacturers to actually adopt the metric system. this is happening, if not, why not. >> jeff, you have this in your bio. >> thank god for that. >> i have no idea, probably not the idea.
we have the bulk of our product support made, roughly 93% we have a global, industrial footprint, canada, uk, we have had to wrestle with these issues and as you point out, there is a history which is complete with losses and expensive losses because of that failure. this plays an important role in establishing standards and i am sure they will continue to be on that. >> this question does resonate with one of the tensions, we will not go back over it. it resonates with the tension that there is an instant culture that sometimes has to be overwhelmed or overturned in order for us to have an effect on industrial policy, everyone is nodding, and i think everyone disagrees but it's harder than that. it is harder than nodding.
we are within a couple minutes of the and and i want to give each of the panelists around of grateful applause, and grateful to each of you but also to give a last word. we will start over there in chicago with carolyn and eric. carolyn, last word? >> thanks. something that has resonated throughout the panel's room connectivity and coordination. this is a real opportunity for us right now to be able to coordinate a cost of public sector, defense and private sector in academia and small business. beginning to not just coordinate the programs but also coordinate the people and the culture change that will be necessary for us to really realize industry and the opportunity. thanks for the opportunity to provide comments today.
>> thank you for the opportunity, the administration has put out and the hill has directed a series of documents that have recently come out like eric's study and the white house advance manufacturing plan and the national defense strategy commission report, it will be interesting to see how both the executive branch and the hill turn those high-level documents into technical policy actions. i think we are looking forward to seeing how that plays out over the next 12 months. >> the game is afoot, publication of the document a month ago almost marks the beginning, hardly the and or stopping point. jeff, i will close with my thanks. >> workforce is something we haven't talked enough about. i think we could, it features prominently. as to the ability to realize the benefits, is workforce, training, a program that will
be different but we have to fundamentally come together and look at things like certificate programs, alternate paths to careers so if we could spend another hour and a half on people that would be great. >> talent is bar nunn the dominant recurring theme of all of the events that i do around topics of defense industry and industrial policy. >> thank you for the opportunity to be up here with my colleagues. a couple quick plans, you're right the game is afoot. if you weave it through there is an element of what is implied to the competition to end of ourselves across the national security innovation base which was intentional. this report intentionally focused on the fight tonight,
if you go to the 19th there is requirement for emergent colleges. we wanted to focus on an explicit thing and the third is you have a resistance for whatever reason to determine industrial policy. think of it in terms of strategic sourcing or management which to your point around wall street the expectation that she had to do that because it mindful in terms of how you cultivate. >> let's go forth and be mindful about cultivating a great u.s. defense industrial base. thank you very much.
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