The Pentagon and defense contractors are wrapped up in a broader macroeconomic arc that is crucial for understanding where DoD is today.
Rise of the Managerial Class
In the commercial industry, tremendous innovation and the industrial revolution were led by the competitive spirit of individuals who built massive companies by the first half of the 20th century. Many even named the companies after themselves, like DuPont, Ford, and Sears. Presidents Wilson and Roosevelt represented a similar entrepreneurial mentality that vastly grew the administrative activities of the federal government.
It was with this new scale of business and government at the height of the industrial age that the managerial profession emerged under thinkers like Alfred Chandler, Frederick Winslow Taylor, and James Burnham. In their view, small “bourgeois” entrepreneurs could tinker on innovations and create the kernel of large enterprises. But they would inevitably be replaced by a managerial class that used enlightenment methods of scientific management. Production methods, costs, and even innovation could be objectively optimized for using data, planning, and mathematics. The “visible hand” of central planning would replace Adam Smith’s antiquated “invisible hand” of self-organizing market behavior.
These managerial leaders, while fine at optimizing routine production methods, are unsuited to move to new paradigms. The rise of venture investment and new tech giants over the past 30 years attests to that idea that small groups of individuals can build tremendous value – a rebirth of “bourgeois” capitalism.
Consider the difference between the entrepreneur who builds a factory, and the third-generation son who inherits the factory. Without that knowledge of building it from scratch, the third-generation son who likely got an MBA cannot react to new opportunities or environmental change. When Covid-19 hits, he cannot pivot the production line to masks or ventilators.
Application to Defense
The tremendous expansion of the military establishment and defense industry in World War II catalyzed an age of entrepreneurs. Famed names in industry like Kelly Johnson, Jack Northrop, James McDonnell, and others led military developments. Defense programs were also associated with the government men who ran them, including Leslie Groves, Bernie Schriever, Hyman Rickover, Bill McLean, Red Raborn, and many others.
These organizations had about 20 to 30 years of steam before the managerial class took over. The leaders of the Planning-Programming-Budgeting movement sought to optimize the portfolio of weapons through economic analysis, measurement, and control. Its leaders swept the Pentagon despite never having built anything themselves. Robert McNamara, Alain Enthoven, Charles Hitch, David Novick, and Robert Anthony were analysts, economists, and comptrollers.
They inherited big organizations and sought to direct them through systems analysis. No longer would individuals take responsibility for programs. Complex systems were run by a process and a consensus of bureaucratic analysts.
Impact on Innovation
Institutions led too long by the managerial class will stagnate and get competed out of the private sector. Even today’s most successful tech firms might be overstaffed by 50-80 percent, making them ripe for disruption. Yet there is no equivalent of a market signal in defense. Those with the best innovation do not necessarily find funding or get fielded. There are many examples of defense officials resisting change.
A classic example comes from Elting Morison’s Men, Machines, and Modern Times, where Lieutenant William Sims invented continuous-aim firing for ships at sea. It increased gunfire accuracy by literally 3,000 percent, and yet the Navy resisted it for many years due to a confluence of how training, promotions, manufacturing, and doctrine worked. It took 25 years and a generational shift until the technology was forced on the Navy by President Teddy Roosevelt.
The core concept of technological adoption is that it disrupts status and power. Unmanned and autonomous systems are a perfect example of this. While China is fielding an incredible variety of autonomous systems across domains, only the Army has an unclassified program of record for an autonomy system. It disrupts military billets, concepts of operations, and standard DOTMILPF processes. It disrupts functional analysts who can’t plan for it with historical data. It disrupts politicians who want to protect current jobs in districts.
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