US MILITARY TECHNOLOGICAL

SUPREMACY UNDER THREAT

M ACKENZIE E AGLEN AND J ULIA P OLLAK

AMERICAN ENTERPRISE INSTITUTE

US MILITARY TECHNOLOGICAL
SUPREMACY UNDER THREAT

M ACKENZIE E AGLEN
AND

J ULIA P OLLAK

November 2012

A M E R I C A N E N T E R P R I S E I N S T I T U T E
 Acknowledgments

This paper is the product of a true team effort. Throughout the

process, we have been indebted to numerous individuals, including
Danielle Pletka, Arthur Herman, James Cross, Charles Morrison,
Lazar Berman, and Alex Della Rocchetta. We also owe a special debt
of thanks to Jared McKinney and Andrew Houston-Floyd, whose
keen eyes and helpful edits immeasurably improved this paper.
Lastly, we are grateful for the support of the entire AEI family, with-
out whose help this paper would not have been possible.

ii
 Executive Summary
D efense research and development (R&D) spend-
ing has long been a cornerstone of American
security, bringing important advances to military hard-
ware such as the jet engine, real-time communica-
tions, and precision munitions. Yet advanced
technologies do much more than simply support
America’s men and women in uniform. In fact,
throughout the 20th century, many military innova-
tions ended up playing key and sometimes revolution-
ary roles throughout the broader civilian economy.
Despite the benefits of military research spend-
ing, there tend to be powerful short-term incentives
to reduce defense R&D investment. After all, cuts to
R&D provide immediate returns for a favorable
balance sheet, and the negative effects of underin-
vestment are not felt until years later. As Washington
enters a period of deficit reduction, the defense
budget will likely face further cuts on top of the
close to $900 billion already being implemented
or proposed.
Including the pending FY 2013 budget, the
defense Research, Development, Test, and Evalua-
tion (RDT&E) account has declined by 17 percent
in real terms since the start of the Obama adminis-
tration and will decline by another 12 percent, or
$8 billion, in real terms from 2013 to 2017. This
largely follows a sustained trend of the moderniza-
tion accounts bearing the largest burden of cuts.
From 2010 through 2013, procurement experienced
a real decline of over 24 percent and will further drop
by over 5 percent through 2017. In comparison, mil-
itary personnel was cut by 6 percent from 2010
through 2013 and will fall another 9 percent through
2017. For operations and maintenance, these figures
are 12 percent and 23 percent, respectively. The
reality is that defense R&D will continue to face a
large share of the burden as legislators struggle to
preserve procurement, personnel, and operations
accounts in their districts.
Political pressure is mounting from lawmakers
who believe that government money could be better
spent elsewhere and that defense R&D “crowds out”
private-sector R&D efforts. Such opposition to
defense research, however, ignores the larger picture:
that military research and development, as a founda-
tion of national security, is a constitutionally man-
dated public good as broadly articulated in the
Preamble. It ensures a technologically dominant mil-
itary that underpins global economic stability, and as
a positive byproduct provides the resources for com-
mercial technology. Although it may appear ineffi-
cient, such innovation would not be possible without
government involvement. Other nations understand
this, such as China, whose R&D spending is pre-
dicted to surpass the United States’s by 2023.
There are many options available to further struc-
ture defense research and development spending to
maximize security and economic benefits, including
longer-term funding stability, reform of human cap-
ital recruitment, and the multiple potential methods
of facilitating research and technology transfer from
the DoD to the private sector. Reform, along with a
budgetary commitment to continued R&D, will
ensure the innovation that has made America great,
and safe, will continue to enjoy robust support into
the future.
iii
 US Military Technological Supremacy under Threat
A merica’s defense budget exists to fulfill the
first responsibility of government under the
Constitution—to provide for the common defense.
Without a military with adequate and sufficient
resources, America would no longer be the master of
its own fate. As Thucydides observed so many years
ago, “The strong do what they can and the weak suf-
fer what they must.”
In practice, however, defense spending does
much more than simply guarantee the independ-
ence and autonomy of the United States. Defense
spending, especially during the 20th century, has
acted as an important driver of technological inno-
vation and commercial progress. Increasingly,
defense research and development (R&D) has pro-
duced important and often-overlooked innovations
within the broader civilian economy. Some of these
innovations, such as hairspray and plastic bags, have
made our lives more convenient. Others, such as
electronic computers and the Internet, have
changed our planet and economies.
The buildup in defense-related federal R&D
spending that began in the 1940s and persisted
through the 1980s was responsible for propelling
many of the pivotal technological breakthroughs of
the 20th century, including jet engines, avionics sys-
tems, weather satellites, electronic computers, the
Internet, computer software and graphics, global posi-
tioning system (GPS) facilities, and cell phones. Spin-
offs such as these have been an important channel
through which defense spending has bolstered Amer-
ica’s larger technological advantage and positively
affected economic growth. The rapidity with which
military technologies diffused to other economic sec-
tors between the 1940s and 1980s owes largely to the
unique scale and structure of US defense research and
development investments during those years.
This is not to say that the government built the
modern economy through defense investment. The
point of defense innovation is not to build a strong
economy or promote economic growth. Defense
investment has a simple and irrefutable constitu-
tionally mandated role: to provide for the common
defense. Yet, just as it would be simplistic to cite
examples of defense innovation as evidence that
government spending built the modern economy, it
would also be simplistic to say that defense spend-
ing had no role in promoting useful technologies
that happened to spin off into commercial products.
When it comes to the defense industry, the public
and private sectors are mixed in a way that does not
really exist in any other market. The unique buying
conditions that exist in the defense industry inher-
ently mean that the “market” is not a true market at
all but, rather, a complex arena in which a sole
buyer determines the near total demand and suppli-
ers are entirely at the mercy of the customer’s prefer-
ences. Consequently, defense R&D must be kept in
perspective: it is not the end-all, be-all of the mod-
ern economy—but it has played an important role.
Today, the United States still dominates the world
of R&D, but it spends far less as a percentage of
gross domestic product (GDP) than in the 1960s,
when the Cold War and the space race were driving
America’s pursuit of technological supremacy, and
only half as much as a percentage of GDP as it did
during the mid-1980s. Spending is spread across
fewer companies, channeled toward narrower goals,
and tied to more stringent requirements.
Moreover, R&D funds are calculated differently
today than during the first part of the 20th century.
Throughout World War II and the beginning of the
Cold War, research and development spending was
narrowly interpreted as scientific research and
1
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
development. This changed following the launch of
Sputnik when public pressure for increased scientific
funding prompted the expansion of R&D funding to
include testing and evaluation (T&E)—creating the
modern Research, Development, Test, and Evalua-
tion (RDT&E) account in the defense budget.
Because the new RDT&E category included many
items beyond basic and applied research, increased
budgets made the overall R&D investment appear
larger. Today, less than one-tenth of RDT&E funds
go to basic and applied research.1
In the coming years, US government research
and development budgets are set to shrink further
amidst mounting fiscal pressures. The debt-ceiling
agreement reached by Congress last summer—the
Budget Control Act of 2011—mandates $487 bil-
lion in defense spending cuts over the coming
decade.2 Another $492 billion in automatic budget
cuts are also scheduled to take effect through the
sequestration measure, a result of the super commit-
tee’s failure to come up with $1.2 trillion in deficit
reduction measures in November 2011.
These reductions come on top of numerous pro-
gram cuts and “efficiency” savings already imple-
mented throughout the Department of Defense or
banked as savings regardless of outcome. As many
defense experts have noted, so-called “across-the-
board” reductions will affect R&D and procurement
(together, what are commonly called the moderniza-
tion accounts) disproportionately because other
parts of the defense budget are buried more deeply
across multiple accounts and organizations or more
politically sensitive and therefore more difficult to
cut. Under President Obama’s proposed fiscal year
2013 budget, the defense RDT&E account would
decline by nearly 5 percent to $69.65 billion.3 As
figure 1 illustrates, this represents a real (inflation-
adjusted) decline of more than 17 percent since the
start of the Obama administration, the fifth decline
in real terms in as many years. The rest of the
Obama administration’s five-year defense plan con-
tinues this trend. RDT&E spending will continue to
decline by more than $8 billion in real terms
between FY 2013 and FY 2017. At the same time,
2
under the administration’s proposed budget, domes-
tic agencies such as the Departments of Health and
Human Services and Energy will receive a larger
share of R&D funding than the Department of
Defense (DoD).4
In contrast with American military R&D trends,
a study by the Battelle Memorial Institute forecasts
that China’s rate of spending on R&D will remain
strong and continue to grow faster than 10 percent
each year, as it has done consistently over the past
15 years. At this rate, China’s R&D spending can be
expected to match or surpass ours by 2023.5 Other
countries, including Russia and Israel, are also start-
ing to gain a technological edge in certain sectors.6
In a New York Times op-ed titled “Will China Out-
smart the U.S.?,” Adam Davidson speculated on the
threat China’s rising investments in R&D could pose
to America’s economy:
Our global competitiveness is based on being
the origin of the newest, best ideas. How will
we fare if those ideas originate somewhere
else? The answers range from scary to scarier.
Imagine a global economy in which the U.S. is
playing catch-up with China: while a small
class of Americans would surely find a way to
profit, most workers would earn far less, and
the chasm between classes could be wider
than ever.7
Not only are other countries outpacing the
United States on research and development, but
they are also thinking about the very idea of future
investment differently. Nowhere is this more pro-
nounced than in simple accounting practices. In the
United States, R&D spending is expensed, meaning
that money directed to R&D adds an immediate
negative to a firm’s balance sheet and reduces prof-
its.8 In Japan, on the other hand, R&D spending is
capitalized, meaning that its cost is spread out over
several years, reducing the incentive to cut invest-
ment as a short-term strategy to increase profits.9 In
other words, the Japanese accounting system is pre-
disposed to value long-term success over short-term

FIGURE 1
INFLATION-ADJUSTED US DEFENSE RDT&E SPENDING DECLINES FOR FIVE CONSECUTIVE YEARS
90,000
80,000
$ Millions
70,000
60,000
50,000
2009
Source: US Department of Defense, National Defense Budget Estimates for FY 2013, Historical Table 6.8.
gains, while its American counterpart does precisely
the opposite. This predisposition to think about
R&D spending as a burden and not as a source of
strength only makes America’s challenge even
greater going forward.
Before Congress signs off on further defense
spending reductions, which senior Department of
Defense leaders and military officials have warned
would have devastating effects, members should
review the indispensable contributions US defense
R&D and procurement spending have made
historically—and continue to make—not only to
US national security, but also to technological inno-
vation and economic growth. With the right level
and composition of defense R&D and procurement
spending, and the right policy framework, Con-
gress can ensure that the military continues to pro-
vide the best defense, as well as the maximum
incentive to technological advancement and eco-
nomic growth.
MACKENZIE EAGLEN AND JULIA POLLAK
2010 2011 2012 2013
How Federal Spending on Defense R&D
Increases Economic Growth
Congress supports the modernization efforts of the
US military with appropriations for RDT&E and
procurement. Although they primarily support the
development and acquisition of the nation’s future
military hardware, software, IT, and consumables,
these investments spill over into the wider economy
through three main channels: the development of
human capital or research infrastructure, technology
transfers or commercial spinoffs, and foreign sales.
Human Capital and Research Infrastructure.
Roughly 17 percent of the total federal defense
RDT&E budget (nearly $12 billion in FY 2013) goes
toward basic and applied research, referred to as the
Science and Technology (S&T) program. The pro-
gram supports a large share of university-based
research and education, particularly in fields such as
3
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
mathematics and materials engineering. This funds
the training of scientists and engineers and develops
the future expertise that the DoD—as well as indus-
try and universities—rely upon.
Federal spending on defense R&D was originally
concentrated in government arsenals, but during
World War II, weapons production largely shifted to
private companies while basic research moved to
universities. For instance, in 1980, at the height of
the Cold War, about 70 percent of federal R&D
spending was located in industrial laboratories and
between 10 and 15 percent in universities.10 The
human capital, research infrastructure, and indus-
trial base that have emerged as a result provide a
means of acquiring new technology across a wide
range of sectors and growing further industrializa-
tion and innovation.
Not only does defense-related spending fund the
training of scientists, but it also creates an incentive
for young people to study science by providing
lucrative employment opportunities. Overall, the
defense and aerospace industry supports some 3.53
million American jobs.11 Defense-related science
and engineering jobs attract some of the nation’s best
and brightest and pay commensurately high salaries,
with the median annual salary above $77,000.12
Defense-related jobs employ about one in ten of the
nation’s computer software and electrical engineers,
one in five of its physicists, one in four of its
astronomers and mathematicians, and one in three
of its aerospace engineers.13 R&D spending on
human capital at all levels helps retain US scientific
competitiveness, an extremely important asset in a
competitive global economy.
Technology Transfers and Commercial Spinoffs.
The second channel through which defense research
and development spending benefits the wider econ-
omy is technology transfers and commercial spin-
offs. The RDT&E budget supports seven budget
activities: basic research, applied research, advanced
technology development, demonstration and valida-
tion, engineering and manufacturing development,
management support, and operational systems
4
development. Each of these activities has yielded
scientific knowledge, organizational innovations,
and technologies first used in military products that
later found their way into civilian or commercial
applications in the private sector.
Technology developed in the military can be
transferred to other parts of the government or to
the private sector in a number of different ways. One
way is through the patent system, which was
designed to promote the disclosure of inventions.
Various organizations take advantage of technologi-
cal knowledge embedded in military patents. A
recent study, which sampled 582 military patents
from around the world registered between 1998 and
2003 with both US and European protection, found
that the United States makes the greatest use of mil-
itary technology for civil purposes, followed by Ger-
many.14 The study measured the dual use of military
technology by analyzing citations of military patents
in subsequent civilian patents. It notes, however,
that current intellectual property laws worldwide
are in many ways “inadequate for favoring technol-
ogy transfer.”15
Another way military technologies have often fil-
tered into commercial products is through the govern-
ment’s use of defense contractors with both military
and commercial divisions. US aerospace manufactur-
ers, for example, have often been involved in military
and commercial aircraft production simultaneously,
allowing for rapid technology transfer and shorter
learning curves. In some cases, the production of mil-
itary and commercial aircraft has even taken place
within the same facility. The airframe design for the
Boeing 707 drew on that of Boeing’s KC-135 military
tanker, for example, and Boeing’s ability to design
large, advanced composite structures benefited from
the military R&D it did as a subcontractor to Northrop
Grumman on the B-2 stealth bomber.
Yet another source of technology diffusion is the
tendency of defense companies to subcontract work
to small and medium commercial enterprises.
Today’s military purchases numerous commercial,
off-the-shelf products, thereby supporting high-
technology private-sector companies involved in

production of goods and services not related to
defense. The leading sectors supplying the defense
market are the scientific research and development
industry, the engineering and architectural indus-
tries, the telecommunications industry, and the air-
craft industry. Private-sector aerospace product and
parts manufacturers design and construct many
component systems of military aircraft; navigational
and measuring device manufacturers develop many
of the complex electronics and guidance systems
used in military rockets and missiles; and search and
navigation equipment manufacturers supply the
military with many of its radar, sonar, and other
tracking systems. Defense companies create demand
for high-technology commercial products, and this
“spin-on” (the flow of technology from the commer-
cial sector to the defense sector) creates a favorable
environment for cooperation and various joint
efforts at two-way technology transfer.
During the Cold War, for example, the Pentagon
provided significant funding to electronics compa-
nies for R&D relating to integrated circuits, semi-
conductor materials, and transistors—technologies
that have since revolutionized electronics and made
computers, mobile phones, and many other digital
devices possible. The DoD acted as a lead purchaser
of these new technologies, making early acquisitions
in large quantities, which created new markets and
attracted new companies. High military demand for
semiconductor components during the Cold War
was largely responsible for the rapid growth of this
new industry. By providing a steady stream of
financing, defense contracts helped to fund risky
R&D for unproven systems and supported further
development and commercialization by allowing
firms to achieve economies of scale.
Finally, there are also less-direct sources of tech-
nology diffusion. Defense programs are frequently
on the cutting edge of scientific advancement. Sim-
ply by introducing or demonstrating new inven-
tions, the US military has sometimes sparked
significant technological transformations as other
organizations, and even other countries, have raced
to replicate or improve on them. Historically, military
MACKENZIE EAGLEN AND JULIA POLLAK
R&D has often demonstrated technological possibil-
ities that were previously in doubt. In so doing, it
has lowered the risks other investors perceived and
spurred related ventures in the private sector. One
study of 67 countries between 2000 and 2005 finds
that military technology was widely diffused to
other sectors and that military R&D had an espe-
cially positive and substantial impact on economic
growth in medium- to high-income countries,
where technological innovations were more likely to
be harnessed and commercialized.16
CHINA’S R&D SPENDING CAN BE
EXPECTED TO MATCH OR SURPASS
OURS BY 2023.
Foreign Sales. The third channel through which
federal investments in defense technology improve
the economy is international defense trade. Largely
because of the level of federal investment in cutting-
edge defense research and development, the United
States produces the most advanced and sought-after
defense and aerospace products in the world. It is
the top global exporter—and an overall net
exporter—in the aerospace and defense industry,
which is one of the largest positive contributors to
the US trade balance, enjoying a net export/import
balance of almost $8.2 million more than agricul-
tural products, the industry with the second-highest
positive net balance, in 2010.17
In 2010, US exports of aerospace products totaled
$77.8 billion while imports totaled $34 billion, lead-
ing to a trade surplus of $43.8 billion.18 This trend
continues today. According to the State Department,
2011 was a “record-breaking year” for foreign military
sales.19 US exports of defense products—including
military aircraft, satellites, communications equip-
ment, and electronics equipment—ranged from
about $19 billion to $22 billion annually each year
between 2005 and 2009. As figure 2 demonstrates,
most US defense exports are concentrated in a few
5
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT

FIGURE 2
TOP SEVEN COUNTRIES FOR EXPORTS OF DEFENSE ARTICLES, 2005–09

14

12

10

8
$ billions

0
Japan UK Israel South Korea Australia Egypt UAE

Source: GAO, Report to Foreign Affairs Committee on Defense Exports (September 2010), figure 3.

countries, with about half going to Japan, the United
Kingdom, Israel, South Korea, Australia, Egypt, and
the United Arab Emirates.20
Some of the benefits of international defense trade
include increased access to overseas technologies,
capital, and skilled labor; accelerated innovation as a
result of competition; employment for tens of thou-
sands of American workers by export-driven defense
companies and subcontractors; and a wider market
for American products, which generates economies
of scale and drives production costs down. Access to
international markets provides defense companies
with the opportunity to make additional sales, which
can sometimes enable them to keep their US-based
production lines open longer than their government
customer would support and sustain employment
levels, even during times of defense spending reduc-
tions and uncertainty at home.
US government efforts to promote interoperabil-
ity with allies and partner states have also enabled
defense companies to build important international
partnerships and pool scarce resources with like-
minded nations. These partnerships sometimes
allow US firms to obtain advanced foreign technolo-
gies that would otherwise take far longer to filter
into the US economy.
Defense R&D Investments That Have Spurred
Commercial Innovation
Some examples of technologies that emerged largely
as a result of defense R&D investments but have
since become ubiquitous are atomic energy, high-
powered batteries, night vision, digital photography,
radar, avionics systems, electronic computers, the
Internet, computer software, and GPS facilities. More
recently, the military has made significant strides in
developing remotely piloted or unmanned aerial
vehicles, and several of the technologies involved are

6

appearing in a growing number of civil applications,
such as firefighting and mineral exploration.
The commercial aircraft sector—one of the
nation’s largest net exporters—is perhaps the most
noteworthy legacy of civil spinoffs from military
R&D. Federal defense R&D funding has accounted
for well over half of total aerospace R&D investments
since 1945,21 and countless examples exist of military
technologies that have made their way into
passenger airliners, agricultural planes, traffic helicop-
ters, and other civil aircraft in use all around the world.
Indeed, the rapid growth of commercial aircraft for
passenger and cargo transport after World War II
began largely with the conversion of ex-military air-
craft, such as the US Air Force’s Boeing B-29 Super-
fortress. It would take several volumes to mention all
of the military inventions and technological develop-
ments that have filtered into the commercial sector,
so we will focus here on only some illustrative exam-
ples from the information technology sector.
Electronic Computers. The first general-purpose
electronic digital computer in the United States, the
ENIAC (Electronic Numerical Integrator and Com-
puter), was developed during World War II by the
US Army Ordnance Corps for the purpose of
quickly calculating trajectories and firing tables for
artillery. After initial successes, the military funded
the development of additional computers in the
1940s and 1950s that soon gained a wide range of
applications. The US armed forces believed that fully
exploiting the new technologies would require a
substantial industrial infrastructure. As a result, they
supported the broader diffusion of the new calculator-
computer technologies to researchers and firms and
supported further computer technology develop-
ment projects throughout the 1950s.
One such project was the SAGE (Semi-Automatic
Ground Environment) interceptor early detection
air defense system. In 1952, the International Busi-
ness Machines Corporation (IBM) began working
with Massachusetts Institute of Technology’s (MIT’s)
Lincoln Laboratories to finalize the design of a digi-
tal computer and radar system designed to defend
MACKENZIE EAGLEN AND JULIA POLLAK
the United States against missile attacks. The sys-
tem was seminal to the development of the com-
puter and opened the doors to many military and
civilian spinoffs.
IBM used much of the pioneering research it
gained access to in building its later commercial
computer hardware. In particular, military R&D on
SAGE produced technologies such as magnetic core
memory, large operating systems, integrated video
display, algebraic computer languages, analog-to-
digital conversion techniques, digital transmission
over telephone lines, light guns, among many others.
OVERALL, THE DEFENSE AND AEROSPACE
INDUSTRY SUPPORTS SOME 3.53 MILLION
AMERICAN JOBS.
Integrated Circuits. During the Cold War, the
Department of Defense and Atomic Energy Com-
mission provided significant funding to electronics
manufacturers for R&D relating to integrated cir-
cuits, semiconductor materials, and transistors. Inte-
grated circuit technology has since revolutionized
electronics and made computers, mobile phones,
and many other digital devices possible. Military
demand for semiconductor components supported
the commercialization of integrated circuit technolo-
gies by generating price reductions, which facilitated
commercial demand. The military also awarded pro-
curement contracts to new companies, which
encouraged competition and birthed many small,
nimble, entrepreneurial firms. In addition, the mili-
tary’s “second source” policy (which required sup-
pliers to develop additional domestic producers
capable of producing identical products) led to con-
siderable technology transfer between companies,
fostering rapid growth and competitive strength in
the industry.
Software. The US software industry also benefited
substantially from defense R&D and procurement.
7
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
Beginning in 1959, the DoD was partly responsible
for funding and overseeing the development of
COBOL (common business-oriented language), one
of the oldest computer programming languages. The
DoD required that all computers purchased by the
military support the language, resulting in the wide-
spread diffusion of COBOL as a programming lan-
guage in both military and civilian applications.
DoD demand for custom software also facilitated the
growth in custom software firms between 1969 and
1980. Initially, DoD funding accounted for the bulk
of the software industry, growing dramatically until
it was finally outstripped by commercial industry in
the 1990s.
The Computer Mouse. The first computer mouse
was invented in 1963 by researcher Douglas Engel-
bart at the Stanford Research Institute’s Augmenta-
tion Research Center, funded by the DoD’s
Advanced Research Projects Agency (now DARPA).
The mouse enjoys widespread use with personal
computers today, but the technology remained rela-
tively obscure until it was exploited by Apple Mac-
intosh in 1984. Military-funded technologies and
patents often sit on the shelf for many years before
the private sector takes advantage of them. For
example, the personal assistant Siri began as a
DARPA-funded initiative to support military person-
nel long before Apple bought its parent company,
SRI International, and adapted the technology for
the iPhone.22 It has long been a matter of concern
inside the Pentagon to find ways to improve com-
munication with the private sector and expedite the
military-civil technology transfer process.
The Internet. Although French and British scien-
tists made important contributions to the develop-
ment of packet-switching and computer-networking
technologies, the Internet was primarily invented
and commercialized in the United States, with the
DoD playing a critical role. During the 1960s, sev-
eral researchers at MIT, the Stanford Research Insti-
tute, and the RAND Corporation, among other
institutions, made significant developments in the
8
field of packet switching. DARPA saw the potential
for military applications in the technology and
funded the development and deployment of the
world’s first electronic computer network.
ARPANET, as it was named, was the earliest forerun-
ner of the Internet. By 1975, it had grown to more
than 100 nodes, as universities and other defense
research facilities were linked to it.
The Internet’s core technological innovations dif-
fused widely through the US research and industrial
infrastructure and led to the development of many
supporting technologies. The US Internet industry
soon became a place of rapid innovation, constant
market entry by new firms, and intense competition,
largely because of DARPA’s willingness to fund proj-
ects in many different universities and private R&D
laboratories and to buy products from numerous
different companies. The spinoffs of these invest-
ments are ubiquitous today in numerous Web-based
technologies and applications and represent a major
portion of the US economy.
Email. Email was an accidental spinoff of DoD R&D
funding. In 1971, programmer Raymond Tomlinson
invented a system for sending electronic mail over
the DoD’s ARPANET. It was the first system able to
send messages between users on different hosts,
which it achieved by using the @ sign to separate
users from their machines. Tomlinson was working
on other programming required for ARPANET and
was not specifically assigned to develop an electronic
mail system—the idea arose in the course of his other
research. Email is a perfect example of innovations
that can transpire when federal defense R&D brings
together the nation’s brightest scientists, engineers,
and computer programmers on pioneering research
projects using new systems and materials.
The Global Positioning System (GPS). In 1973,
the DoD developed a space-based satellite naviga-
tion system in an attempt to improve on earlier nav-
igation systems such as the US Navy’s 1960s Transit
satellite navigation system. GPS was originally run
with 24 satellites and proved capable of supplying

FIGURE 3
RDT&E SPENDING CONTINUES FREEFALL
72,000
70,000
68,000
66,000
$ Millions
64,000
62,000
60,000
58,000
56,000
2013 2014
Source: US Department of Defense, Fiscal Year 2013 Green Book, table 6-8.
location and time information anywhere on earth in
all weather conditions, given an unobstructed line of
sight to four or more satellites. The system initially
gave the military critical new navigation and surveil-
lance capabilities, but its military and commercial
impact has since exceeded anything the initial
researchers could have envisioned. Through features
such as highly accurate clock synchronization, GPS
has revolutionized the global air traffic control sys-
tem, cellular telephony, and numerous other civil
functions. It has many advanced scientific uses, but
it also has applications in everyday products such as
television and radio, mobile phones, cars, and bank-
ing systems.
Current Trends in US Defense R&D Spending
As figure 3 illustrates, overall federal government
spending on both defense- and nondefense-related
MACKENZIE EAGLEN AND JULIA POLLAK
2015 2016 2017
R&D is projected to decline in the coming years
because of significant budget reductions. Research
and development sponsored by the DoD is expected
to see the steepest decline.23 More than ever, the
RDT&E account will have to compete with other
priorities in the shrinking defense budget, such as
rising personnel and operations costs. Whereas var-
ious procurement programs may manage to halt
funding reductions, or at least delay them temporar-
ily, the RDT&E account is likely to absorb the brunt
of defense cuts because it is often easier for short-
sighted politicians to get away with cutting pro-
grams when their benefits are delayed.
Amidst tightening defense budgets and a steadily
shrinking RDT&E account, even traditionally popu-
lar accounts such as Science and Technology (S&T)
funding are coming up short. The Obama administra-
tion’s FY 2013 request represents a 2.5 percent cut
from 2012 S&T funding levels.24 When defense
spending began to decline in the late 1980s, Congress
9
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
initially defended S&T funding and continued to
authorize increases for several years. After FY 1993,
however, President Bill Clinton’s steep defense reduc-
tions started to cut into S&T funding as well, ulti-
mately driving it back down to FY 1987 levels by the
end of the decade.
IN 2010, US EXPORTS OF AEROSPACE
PRODUCTS TOTALED $77.8 BILLION WHILE
IMPORTS TOTALED $34 BILLION, LEADING
TO A TRADE SURPLUS OF $43.8 BILLION.
The George W. Bush administration reversed the
downward trend and made it official policy in the
2001 Quadrennial Defense Review to stabilize S&T
funding at 3 percent of the overall defense budget,
although it never actually achieved that bench-
mark.25 Although S&T spending initially continued
to increase under the Obama administration, recent
defense cuts have made even this bipartisan priority
a casualty of falling toplines. This is in spite of the
warnings contained in the administration’s own
defense strategy documents, which state, “Even at
current, relatively robust levels of investment, the
DoD S&T program is struggling to keep pace with
the expanding challenges of the evolving security
environment and the increasing speed and cost of
global technology development.”26
The S&T program is widely believed to be imper-
ative to maintaining technological superiority, but it
is difficult to calculate the return on investment of
each outlay because the time between initial
research and resulting new operational systems is
often long and technological developments often
follow an indirect path, as some of the examples we
have given illustrate. As a result, congressional sup-
port for S&T spending is likely to wane in the face
of a falling topline and competing internal budget-
ary demands.
Moreover, these cuts can be expected to hit at a
time when the private-sector industrial research
10
base is least able to make up the shortfall. Today’s
defense industrial base is under strain and lacks
depth. After 1993, Clinton-era defense cuts forced
the 30 major defense firms to consolidate into 5 and
saw many companies exit the business altogether.
Although successive Pentagon strategy documents
have pledged to maintain a robust and capable
defense industry that can thrive and compete in the
global marketplace,27 recent studies and emerging
trends raise doubts.
In the defense aerospace industry, for example,
congressional language requires “that the United
States must ensure, among other things, that more
than one aircraft company can design, engineer, pro-
duce and support military aircraft in the future.”28
As a recent RAND Corporation study illustrates,
defense R&DTE funding is almost as important as
procurement contracts if a defense contractor is to
retain the capabilities to produce fixed-wing air-
craft.29 This same study cautioned that “unless very
purposeful and structured program decisions are
made soon, the congressional objective . . . may not
be achieved.”30 According to RAND, smaller pro-
grams as currently planned (a combination of train-
ing aircraft, tankers, and a Navy unmanned aircraft)
would sustain only one company (Boeing), and even
if aerospace competitor Lockheed Martin were to
rely on a strategy of selling the F-22 jet to foreign
partners (which it cannot), international sales would
sustain the company for only four years (2016–19).31
The stark reality is that there is just not enough busi-
ness to go around. Aside from the optionally
manned long-range strike bomber, for the first time
in history, the US military has no new manned air-
craft under design.32 Keeping two prime firms
healthy and competitive past 2025 would require
substantial R&D and procurement investments in
large-scale programs, such as a next-generation
bomber and sixth-generation fighter. In the absence
of such programs, the DoD will struggle to keep
suppliers in a low-rate delivery status and will likely
see its manufacturing sources diminish.
In addition to firm closures and consolidations,
several other trends have emerged over the past

20 years as a result of funding strains, market turbu-
lence, and other factors. One notable trend is that
large defense companies have moved away from in-
house R&D, conducted in industrial laboratories or
in R&D subdivisions, toward greater competitive
outsourcing. The RAND Corporation says that the
old model was “a successful model for a corporation
in a stable environment,”33 but because of greater
uncertainty, much of what companies produced is
now outsourced to lower-tier contractors, both for-
eign and domestic. Instead of managing internal
research divisions and staff, larger companies in both
the defense and nondefense sectors increasingly find
themselves managing and organizing complex inno-
vation networks of smaller external suppliers. They
also invest in small start-up companies that are more
technologically cutting-edge and whose investors are
more prepared to bear the risks of innovation.
RAND defense analysts worry that, despite some
encouraging public statements, the DoD currently
appears to have no policy for increasing innovation
that acknowledges these changes and has no frame-
work for what such a policy should look like.34 Pol-
icymakers should consider expanding R&D funds
to small firms as a way to encourage innovation,
progress, and efficiency. This is especially true in
areas like software and cyberwarfare, where the mar-
ket changes so quickly that only highly specialized
firms have the agility and personnel to stay on top.
According to Frank Kendall, under secretary of
defense for acquisition, technology, and logistics, the
DoD plans to become more selective with its R&D
resources in the face of declining budgets. To that end,
the Pentagon has directed the Defense Science Board
to conduct a study to determine which technologies
to prioritize. The study will seek to identify technolo-
gies that will be pivotal over the next two decades to
the sustainment of innovation and superior warfight-
ing capability. The assessment could influence the
allocation of R&D spending as soon as the fiscal year
2014 budget is made public in February.35
Even amid cutbacks, there are some promising
developments. In mid-March, for example, the Navy
opened a cutting-edge laboratory devoted to research
MACKENZIE EAGLEN AND JULIA POLLAK
on robotics and autonomous systems, such as
unmanned underwater vehicles, firefighting robots,
and sensor networks.36 Nevertheless, it will be a
challenge for the DoD to sustain the scale, scope, and
quality of research projects such as these unless
funding remains robust.
Obstacles to the Development of a Sound
Defense R&D Strategy
While Pentagon leaders and pro-defense members
of Congress try to navigate these challenges and
develop strategies to deal with new budgetary and
economic trends, they also face mounting political
opposition from those who argue that the govern-
ment’s money is better spent on other priorities. One
common refrain is that defense R&D “crowds out”
private-sector R&D.
However, defense is supported by four principles
that make it an exception to normal patterns of
government spending. For one, defense is the first
and most important responsibility of government
under the Constitution. In this sense, defense R&D
is a public good that cannot be considered part of
the normal economy.
A technologically dominant military guarantees
US companies undisrupted access to global mar-
kets. Moreover, defense spending operates on a
scale that is simply unknown to the civilian econ-
omy. No civilian corporation has the resources,
reach, or ability to sponsor the kinds of research
and innovation necessary for an organization that
employs more than 2.2 million individuals directly.
The scale, length, and purpose of defense programs
makes them unique to the public sector—defense
cannot exist outside of the public sector, but no
other public-sector organization could exist and
budget like the DoD. In this context, the alternative
to federal investment in national defense is not a
more efficient private market for national defense
but, rather, no investment in national defense at all,
which hurts the warfighter and our national deter-
rence and global presence.
11
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
Another common argument against the eco-
nomic benefit of military R&D is that defense tech-
nologies are becoming increasingly specialized and
therefore less relevant to commercial industry and
the civil sector. This argument, which has been
repeated throughout history, simply manifests a lack
of foresight and imagination. The US defense estab-
lishment once believed that harnessing flight and
developing aircraft would be too complex and risky
a proposition ever to have a military, let alone civil-
ian, use. The first studies suggesting that humans
might be able to send cameras into orbit for military
surveillance purposes were deemed similarly fanci-
ful and far-fetched at first. Today, of course, the
influence of airplanes and helicopters, as well as
observation, communications, navigation, and
weather satellites is ubiquitous. Similarly, technolo-
gies deemed excessively complex, specialized, and
quixotic today could become commonplace within
the coming decades.
A final argument in favor of redirecting defense
R&D funding toward other priorities or abandoning
them altogether is that defense programs are too slow
and expensive. It is true that a new piece of defense
technology can take many years to specify, test, and
acquire, but this is largely due to the onerous
requirements that Congress has established. It is also
true that defense systems can be excessively expen-
sive, but this is largely because defense contractors
supply their products in only the limited—and often,
changing—quantities that the government customer
procures, while being prevented from exploring
wider markets abroad due to congressional export
control restrictions. Defense exports can help reduce
unit costs and spread the burden, but different coun-
tries demand different specifications and Congress
often requires that US systems have unique features,
which drive costs back up.
Of course, some truth exists in all of these argu-
ments, as do pitfalls with defense R&D investments—
as with any undertaking. The following section lays
out some recommendations for how the govern-
ment can improve the effectiveness of defense R&D
and procurement and create an environment more
12
conducive to technology transfer between the pub-
lic and private sectors while still maintaining the
security of critical defense technologies.
How to Structure Defense R&D to Maximize
Multisector Benefits
The success of defense R&D investments and their
spillover benefits are strongly influenced by the level
and structure of funding, as well as by the policy
environment (such as intellectual property rights,
export controls, and other regulatory policy) affect-
ing the training of scientists, the development of
technology, and the transfer or sale of technology
among sectors and countries. Historically, defense-
civil technology transfer has been far more successful
in the United States than in other countries because
of the sheer magnitude of US defense-related R&D
and procurement spending, the prominent role
played by research universities and industry, and the
DoD’s willingness to work with small, start-up com-
panies. Falling budgets, a shrinking number of prime
defense corporations, and the changing locus of
innovation all present new challenges. Here are some
ways the DoD can address them.
Provide Adequate and Stable Funding for
Defense Modernization, Including RDT&E. His-
torically, defense budgets have experienced event-
driven booms but then been raided during
intervening periods of peace. World War II, the
Korean War, the Vietnam War, the Cold War, and the
September 11 attacks all followed periods of inade-
quate defense investment. Each event prompted
sharp increases in spending, most of which was
directed toward funding the technological and man-
power requirements of the war of the day. There was
no more hollow buildup in military spending than
the growth following 2001—which, while necessary
to fulfill urgent warfighting needs, did little to renew
the military’s aging inventories.37
This spending pattern has undermined the devel-
opment of a stable, coherent defense program

designed with sufficient regard for long-term goals,
such as well-balanced modernization. The single
most important reform that would encourage innova-
tion and support a vibrant military R&D workforce
and infrastructure would be for Congress to ensure
that adequate and stable funding is provided for
defense RDT&E, even after current operations wind
down. A reasonable benchmark for RDT&E spending
might be roughly $73 billion in FY 2013 dollars—
just about halfway between the peak of 2008 spend-
ing and the low point of the current drawdown.
In addition, as Steven Hayward and colleagues
have argued, Congress should consider the benefits
of increasing the R&D budget of the Department of
Energy.38 Congress should also establish closer
links between the DoD and the Department of
Energy and between research and procurement, to
drive the successful commercialization and
improvement of energy technology on which the
military is so reliant.
Improve the Recruitment of Skilled Scientists
and Engineers. A skilled and highly trained work-
force is critical for continued innovation. Currently,
however, the defense industry’s workforce is declin-
ing in population and rising in average age, with a
large percentage nearing retirement. With fewer
defense programs and a smaller number of new
program starts, scientists are likely to work on
fewer projects than they might have in the past and
therefore find the defense sector a less appealing
work environment than high-technology firms such
as Apple or Google.
Current developments in unmanned aircraft sys-
tems are likely to sustain some excitement in the
coming years, but the DoD will need to introduce
additional programs to maintain its stated goal of
attracting the nation’s best and brightest. The Penta-
gon and Congress should also review security clear-
ance requirements, which pose a significant
challenge. With a third of all science and engineer-
ing doctoral degrees from US universities awarded
to foreign students, defense firms struggle to recruit
eligible graduates. Congress should take steps to
MACKENZIE EAGLEN AND JULIA POLLAK
increase the number of H1-B visas for highly skilled
workers, and the DoD should make an effort to
reduce the backlog for security background checks.
Reform Export Controls and Promote Defense
Exports to Friends and Allies. Export regulations are
meant to keep sensitive technologies from falling into
the wrong hands, but they often prohibit our defense
contractors from sharing technologies with allied and
partner states. They also prevent defense manufactur-
ers from selling products that are already widely avail-
able on the open market. American workers suffer this
loss of business and opportunity as a result.
The administration has proposed a number of
reforms to address this problem, as have numerous
independent defense analysts.39 Export control lists
should be consolidated and reviewed frequently so
that items can be promptly “de-listed” once they no
longer need to be restricted. The administration can
also explore closer partnerships with our friends and
allies on the joint development of weapons systems
and through foreign sales. Instead of shuttering the F-
22 fighter production line, Congress should have pro-
moted sales to countries like Israel, Japan, Australia,
and Canada. Congress should also encourage the sale
of F-35 fighter aircraft to India. Such foreign sales
would not only strengthen the United States strategi-
cally by making our allies more capable but also
reduce unit costs for the US military and taxpayer.
Accept More Risk to Develop Novel Systems.
Many defense companies report that a major hin-
drance to undertaking R&D on risky, new technolo-
gies is the government’s growing emphasis on
maximizing the return on investment, minimizing
cost overruns, preventing schedule slippages, and
penalizing companies for poor performance, as meas-
ured against strict performance measures. The DoD
may need to develop a different set of metrics for tech-
nological innovations than those used for ordinary
programs, such as lower performance standards or
investment return thresholds. Novel systems involve
uncertainty, and often the full benefits of cutting-edge
research are realized only decades after the initial
13
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
research. According to a recent RAND Corporation
study on weapon system acquisition:
Current acquisition policies and processes are
too risk averse to enable the effective develop-
ment and timely employment of novel sys-
tems. Consequently, DoD needs a separate
acquisition strategy that is less tied to achiev-
ing precise cost, schedule, and performance
outcomes. The new strategy should include a
focus on unique integrations of existing and
emerging technologies, a willingness to accept
risks, easy and quick termination of programs
not yielding expected benefits, and early test
and demonstration of military utility.40
Keep R&D Funding Honest. The Pentagon should
consider restoring the original intent of research and
development funding by making it distinct from test-
ing and evaluation. By establishing a separate budget
category for testing and evaluation, the Pentagon
could provide increased transparency for funding lev-
els spent on research and exploratory development as
opposed to industrial development, testing, and eval-
uation. This would allow the Pentagon to more read-
ily prioritize potential breakthrough research while
controlling testing and evaluation costs.41
Modernize and Internationalize the Safety Act.
The Heritage Foundation has long been calling on
Congress to “revitalize, broaden, and internationalize
the Safety Act,” a piece of legislation that encourages
innovation by providing liability protection for coun-
terterrorism technologies. According to Heritage’s
James Carafano, Congress should broaden the act to
apply to cybersecurity and other security technology
needs, and the administration should encourage
other countries to establish comparable regimes to
promote global innovation and open new security
technology markets.42
Preserve Federally Funded Research and Devel-
opment Centers (FFRDCs). Nearly 40 FFRDCs
14
sponsored by the US government exist. Their studies
have played a central role in the development of
numerous critical technologies. For example, the
RAND Corporation, the original US think tank,
played a central role in researching satellites for space
reconnaissance and prompting investments in tech-
nologies such as infrared detection sensors, space
vehicles, rocket propulsion, orbiting television cam-
eras, and electronic transmission. RAND was also
largely responsible for developing packet switching
and digital networks, the technologies that led to the
creation of ARPANET and ultimately the Internet. In
addition, RAND made significant contributions to
the development of computer software. As a recent
paper summarizing RAND’s contributions con-
cluded, “[these advances] make a persuasive case
that an organization whose sole job is to generate
ideas can promote the advance of technologies with
the power to change the life of an entire culture.”43
In a May 2011 memorandum, then-Under Secre-
tary of Defense Ashton Carter emphasized the high
value and unique capabilities that FFRDCs provide
the Department of Defense. He also released new
guidelines covering areas such as nondisclosure
agreements, information access, and postemploy-
ment restrictions for FFRDC researchers. Congress
should ensure that these restrictions are targeted and
do not unnecessarily impede the flow of nonsensitive
technologies between the DoD and the private sector.
Ensure Intellectual Property Laws Are Adequate
and Favorable to Technology Transfer. The struc-
ture of a country’s patent laws strongly influences
the technology transfer process and the dual use of
military technology. Congress should work with
defense researchers to ensure that the US patent sys-
tem is modern and adequate for the task of protect-
ing intellectual property while also publicizing
inventions and fostering the use of military knowl-
edge in other applications.
Improve Incentives for Technology Transfer from
the DoD to the Private Sector and to State and
Local Governments. For the past 25 years or so,

Congress has established numerous legislative initia-
tives to encourage collaborative ventures and tech-
nology transfers between federal R&D programs,
industry, academia, and state or local government
projects. These have included tax credits for indus-
trial payments to universities for research and
antitrust laws that facilitate cooperative research and
joint manufacturing.
One important incentive for the transfer and
commercialization of technology, for example, is the
law allowing government-operated laboratories to
enter into cooperative research and development
agreements (CRADAs) with universities and private-
sector companies.44 Approximately 2,600 to 3,000
DoD CRADAs were active each fiscal year between
2004 and 2008, according to the Department of
Commerce.45 A CRADA is a legal document defin-
ing the rules and regulations governing collaborative
ventures. Some of these rules include “revolving
door” restrictions and checks on conflicts of interest.
Some may need to be modernized and relaxed to
allow government and industry to communicate
more easily about future needs. Congress should
explore ways to update these laws to facilitate rapid
technology transfer and commercialization.
Develop a Comprehensive Strategy for Private
Sector Investment in Defense Innovation. The
defense RDT&E account is not the only source of
funding for defense innovation. For example, the
private sector also invests through venture capital
and private equity. Yet the private sector often faces
severe obstacles when it comes to cooperating with
the federal government, especially with regard to
dual-use technologies. One way to deepen coopera-
tion is through transparency, which should be pur-
sued on a number of levels.
For one, the Pentagon should compile a common
index of all existing dual-use technologies within its
purview. This can range from GPS satellites to
switches in cockpits. The idea is to gather an exhaus-
tive list that illustrates how many programs—and
how much money—goes into dual-use technologies
department-wide. Second, the Pentagon should
MACKENZIE EAGLEN AND JULIA POLLAK
conduct an internal review that determines which
existing requirements could be met by dual-use
products that are not already. Although many pro-
grams will not have an obvious civilian counterpart,
components of even sophisticated platforms may
exist elsewhere in the civilian economy, often at a
cheaper price point than if the DoD were to issue a
requirement for that part to be constructed from
scratch. A third solution is on the civilian side. The
DoD should send representatives to major research
hubs and survey existing civilian technologies that
may have a dual-use role. Many companies have a
vision to market dual-use technologies to the Penta-
gon but have not been able to gain access, while oth-
ers may have perfectly usable dual-use technologies,
but never had it occur to them to pitch the idea to the
DoD. By being proactive and surveying what already
exists in the civilian economy, the DoD can more
effectively leverage its resources by utilizing tech-
nologies that have already been developed for com-
mercial applications.
THE STARK REALITY IS THAT THERE IS
JUST NOT ENOUGH BUSINESS TO GO
AROUND. ASIDE FROM THE OPTIONALLY
MANNED LONG-RANGE STRIKE BOMBER,
FOR THE FIRST TIME IN HISTORY, THE
US MILITARY HAS NO NEW MANNED
AIRCRAFT UNDER DESIGN.
The Pentagon can also improve its marketing to
the commercial world. All too often, potential suppli-
ers are intimidated by mountains of red tape, hassle,
and unpredictability when it comes to working with
the government. One solution is for the DoD to com-
pile a list of potential projects that the private sector
can contribute—and then market it as an open com-
petition to industry. This would have the effect of
encouraging outside ideas while forcing the DoD to
15
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
streamline the process through which commercial
technology is adapted to military use. The end
result of this, coupled with the measures above,
would be a more efficient—and more effective—
dual-use strategy.
The Pentagon is not the only stakeholder with the
ability to encourage closer cooperation with the
private sector. Congress should collect data on
defense investment through venture capital and
private equity, meeting with firms involved to get an
overall sense of the defense R&D environment and of
the ways in which Congress could create more attrac-
tive conditions for domestic and foreign investment.
Second, Congress should also develop a better
understanding of how a defense company’s stock
market performance and treatment in capital mar-
kets affects its innovation strategy. Congress should
investigate whether defense contractors—which are,
after all, private companies with shareholders—will
be able to sustain R&D and maintain financial per-
formance, profitability, and capital access as they
confront procurement cancellations and delays and
reduced federal spending on RDT&E.
Develop a Strategy for Mitigating the Negative
Effects of Monopsony. As a monopsony, the DoD
has a unique opportunity to shape the future of the
defense industry and its long-term R&D invest-
ments. Congress should beware of the lessons from
other international experiences with monopsony,
such as single-payer health care systems, many of
which have exhibited reductions in innovation.
Congress should also encourage the DoD to explore
the management lessons it can learn from other
private sector “monopsonists,” such as Walmart and
Amazon.com.
16
Conclusions
Defense research and development spending is a
vital component of military modernization that can
pay tremendous dividends through spinoffs and
applications throughout the broader civilian econ-
omy. Despite these positive externalities, the Ameri-
can way of thinking about R&D provides powerful
short-term incentives to reduce investment—after
all, cuts to R&D provide immediate returns for a
favorable balance sheet and any potential conse-
quences would not show up for years down the line.
However, those responsible for the national
defense are charged with thinking beyond the pass-
ing concerns of today with an eye towards the salient
problems of tomorrow. Cutting R&D now may have
short-term benefits but in the long run may lead to
dire consequences. Military R&D spending has been
responsible for many of the great technological
breakthroughs of the 20th century. From computers
to planes to GPS systems, investment in defense
R&D has produced things we use every day and
tremendous economic and social dividends.
As we have argued, defense R&D help drive inno-
vation and results in economic growth. It underpins
the information revolution, vitalizes the American
economy, and keeps America safe. But defense R&D
spending is declining precipitously—at a time when
the private sector is least able to take the hit. Nonethe-
less, there are options: first among these is to stabilize
R&D funding. Though this may squeeze other
accounts in the short term, investment now will help
ensure the long-term safety and prosperity of Amer-
ica. The choice before Congress is simple: will it make
a strategic investment in the future, or will it concern
itself only with the troubles of the present?
 Notes
1. United States Department of Defense, “Research,
Development, Test, and Evaluation Programs,” February 2012,
at http://comptroller.defense.gov/defbudget/fy2013/r1.xlsx.
2. Budget Control Act of 2011, Public Law 112-25, §365,
112th Cong. (August 2, 2011).
3. AEI Calculations based on table 6.8 of US Department
of Defense, National Defense Budget Estimates for FY2013
(Green Book), March 2012, 139–40, http://comptroller
.defense.gov/defbudget/fy2013/FY13_Green_Book.pdf.
4. Bill McMorris, “The One Thing He Wants to Cut,”
Washington Free Beacon, April 17, 2012, http://freebeacon
.com/the-one-thing-he-wants-to-cut/.
5. Battelle Memorial Institute, “2012 Global R&D Fund-
ing Forecast,” R&D Magazine, December 2011, 29, http://
battelle.org/docs/default-document-library/2012_global
_forecast.pdf.
6. See, for example, Arthur Herman, “How Israel’s
Defense Industry Can Help Save America,” Commentary,
December 2011, www.commentarymagazine.com/article
/how-israels-defense-industry-can-help-save-america/.
7. Adam Davidson, “Will China Outsmart the U.S.?,”
New York Times, December 28, 2011, www.nytimes.com/
2012/01/01/magazine/adam-davidson-china-threat.html.
8. Lester Thurow, Head to Head: The Coming Economic
Battle among Japan, Europe, and America (New York:
William Morrow and Company, 1992), 141–2.
9. Ibid., 142.
10. David Mowery, “National Security and National
Innovation Systems,” Journal of Technology Transfer 34, no.
5 (October 2009): 458.
11. Deloitte, The Aerospace and Defense Industry in the
U.S.: A Financial and Economic Impact Study, Aerospace
Industries Association, March 2012, 3, www.aia-aerospace.
org/assets/deloitte_study_2012.pdf .
12. US Chamber of Commerce, Defense Trade: Keeping
America Secure and Competitive, 2007, www.uschamber
.com/sites/default/files/issues/defense/files/defensetrade.pdf.
13. Ibid., 14.
14. Manuel Acosta, Daniel Coronado, and Rosario Marín,
“Potential Dual-Use of Military Technology: Does Citing
Patents Shed Light on this Process?” Defense and Peace Eco-
nomics 22, no. 3 (October 2010): 335–49 (quote from
347).
15. Ibid., 338.
16. Yi-Chung Hsu and Chein-Chiang Lee, “The Impact of
Military Technology Transfer on Economic Growth: Inter-
national Evidence,” Applied Economics 44, no. 19 (2012):
2445.
17. Deloitte, The Aerospace and Defense Industry in the
U.S., 21.
18. International Trade Administration, “Key U.S. Aero-
space Statistics,” August 29, 2011, http://trade.gov/wcm
/groups/public/@trade/@mas/@man/@aai/documents/web
_content/aero_stat_keyqtr.pdf.
19. US Department of State, “Briefing on Department of
State Efforts to Expand Defense Trade,” June 2012,
www.state.gov/r/pa/prs/ps/2012/06/192408.htm.
20. US Government Accountability Office, Defense Exports:
Reporting on Exported Articles and Services Needs to Be Improved,
September 2010, www.gao.gov/assets/310/309800.pdf.
21. Mowery, “National Security and National Innovation
Systems,” 462.
22. Adam Clark Estes, “The DARPA Project That’s Power-
ing the New iPhone 4S,” The Atlantic Wire, October 4, 2011,
www.theatlanticwire.com/technology/2011/10/darpa-
project-s-powering-new-iphone-4s/43315/.
23. Battelle Memorial Institute, “2012 Global R&D.”
24. US Department of Defense, Overview—Fiscal Year
2013 Budget Request, February 2012, 4–11, http://
comptroller.defense.gov/defbudget/fy2013/FY2013_
Budget_Request_Overview_Book.pdf.
25. US Department of Defense, Quadrennial Defense
Review Report, September 30, 2001, 63, www.defense.gov
/pubs/qdr2001.pdf.
17
US MILITARY TECHNOLOGICAL SUPREMACY UNDER THREAT
26. US Department of Defense, Quadrennial Defense
Review Report, February 2010, 94, www.defense.gov
/qdr/images/QDR_as_of_12Feb10_1000.pdf.
27. Ibid., 81–82.
28. See House of Representatives, Committee on Armed
Services, National Defense Authorization Act for Fiscal Year
2010 (Report 111-166, October 2009), www.gpo.gov
/fdsys/pkg/CRPT-111hrpt166/pdf/CRPT-111hrpt166.pdf,
380; and US House of Representatives, Department of
Defense and Emergency Supplemental Appropriations for
Recovery from and Response to Terrorist Attacks on the United
States Act, 2002, Public Law 107-117 (January 10, 2002),
section 8162, www.gpo.gov/fdsys/pkg/PLAW-107publ117
/pdf/PLAW-107publ117.pdf.
29. John Birkler et al., Keeping a Competitive U.S. Military
Aircraft Industry Aloft: Findings from an Analysis of the Indus-
trial Base (RAND Corporation, 2011), xxi, xxiv, www.rand
.org/content/dam/rand/pubs/monographs/2011/RAND_
MG1133.pdf.
30. Ibid, xxix.
31. Ibid, xvii.
32. Michael O’Hanlon, The National Security Industrial
Base: A Crucial Asset of the United States, Whose Future May
Be in Jeopardy, The Brookings Institution, February 2011,
14, www.brookings.edu/~/media/research/files/papers/2011
/2/defense%20ohanlon/02_defense_ohanlon.
33. Ibid., 50.
34. Ibid., 57.
35. Jason Sherman, “Kendall Commissions Study of
Technologies to Ensure Superiority in 2030,” Inside
Defense, March 20, 2012.
36. Alan C. Schultz, “Navy Opens Cutting-Edge Lab for
Robotics and Autonomous Systems,” White House Office
of Science and Technology Policy, March 16, 2012,
www.whitehouse.gov/blog/2012/03/16/navy-opens-
cutting-edge-lab-robotics-and-autonomous-systems.
18
37. Mackenzie Eaglen, “The Past Decade of Military
Spending: What We Spent, What We Wasted, and What
We Need,” American Enterprise Institute, January 24,
2012, www.aei.org/article/foreign-and-defense-policy
/defense/the-past-decade-of-military-spending-what-we-
spent-what-we-wasted-and-what-we-need.
38. Steven F. Hayward et al., Post-Partisan Power, Ameri-
can Enterprise Institute, October 13, 2010, www.aei.org
/papers/energy-and-the-environment/post-partisan-power.
39. See, for example, James Jay Carafano, “Five Steps to
Save America’s Defense Industrial Base,” Heritage Founda-
tion Web Memo, June 9, 2011, www.heritage.org/research
/reports/2011/06/5-steps-to-save-americas-defense-
industrial-base.
40. John Birkler et al., “From Marginal Adjustments to
Meaningful Change: Rethinking Weapon System Acquisi-
tion” (The RAND Corporation, 2010), xiv–xv, www.rand
.org/content/dam/rand/pubs/monographs/2010/RAND_
MG1020.pdf.
41. Arthur Herman, email to authors, June 20, 2012.
42. Carafano, “Five Steps to Save America’s Defense
Industrial Base.”
43. Virginia Campbell, “How RAND Invented the Post-
war World,” Invention & Technology 20, no. 1 (Summer
2004): 59, www.rand.org/content/dam/rand/pubs/reprints
/2009/RAND_RP1396.pdf.
44. See the Federal Technology Transfer Act, Public Law
99-502, 99th Cong. (October 20, 1986), which amends
the Stevenson-Wydler Technology Innovation Act, Public Law
96-480, 96th Cong. (October 21, 1980).
45. US Department of Commerce, National Institute of
Standards and Technology, Federal Laboratory Technology
Transfer, Fiscal Year 2008, March 2010, 8, www.nist.gov
/tpo/publications/upload/Fed_Lab_Tech_Transfer_Report
_Congress_FY08_3-8-2010.pdf.
 About the Authors

Mackenzie Eaglen is a resident fellow in the Marilyn Ware Center for

Security Studies at AEI. She has worked on defense issues in the US
Congress, both House and Senate, and at the Pentagon in the Office of
the Secretary of Defense and on the Joint Staff. She specializes in defense
strategy, budget, military readiness, and the defense industrial base. In
2010, Eaglen served as a staff member of the congressionally man-
dated Quadrennial Defense Review Independent Panel, a bipartisan,
blue-ribbon commission established to assess the Pentagon’s major
defense strategy. A prolific writer on defense related issues, she has also
testified before Congress.

Julia Pollak is a PhD student in policy analysis at the Pardee RAND

Graduate School. Her research interests include military intelligence and
defense manpower. Her most recent work includes studies of compen-
sation design in the military, Army intelligence organizational design,
and counter-WMD intelligence. She has also worked as a research assis-
tant for defense studies at the Heritage Foundation, where she studied
defense strategy and military budgets.

19
AMERICAN ENTERPRISE INSTITUTE
FOR PUBLIC POLICY RESEARCH

1150 Seventeenth Street, NW

Washington, DC 20036
202.862.5800 | www.aei.org

Cover: US Army Photo