Options for Maintaining a Robust, Adequate and Efficient Industrial Base: Free Market vs. Controlled Competition Models A Systems Approach The Heritage Foundation Washington, D.C. Sheila R. Ronis, Ph.D. President The University Group, Inc. February 23, 2005

Copyright: The University Group, Inc. 2 A Systems Approach “We are now concerned with the peace of the entire world, And the peace can only be maintained by the strong.” - General George C. Marshall

February 23, 2005 Copyright: The University Group, Inc. 3 A Systems Approach – Lessons Learned and Options The question isn’t, “Should we have a free market driven industrial policy or a controlled competitive one?” it must be taken the in context of “How do we assist the United States in remaining strong so we can be concerned with ‘the peace of the entire world…’ and remain a superpower…?”

February 23, 2005 Copyright: The University Group, Inc. 4 A Systems Approach U.S. military industrial base is a subsystem of the overall industrial base system U.S. military industrial base is a subsystem of the overall industrial base system U.S. industrial base is a subsystem of overall economy U.S. industrial base is a subsystem of overall economy U.S. economy is a subsystem of the global economy U.S. economy is a subsystem of the global economy Systems are hierarchical… Systems are hierarchical…

February 23, 2005 Copyright: The University Group, Inc. 5 A Systems Approach Military Industrial Base U.S. Industrial Base Global Industrial Base

February 23, 2005 Copyright: The University Group, Inc. 6 A Systems Approach U.S. military industrial base system is also a component of the overall National Military Strategy U.S. military industrial base system is also a component of the overall National Military Strategy The National Military Strategy is a component of the overall National Security Strategy The National Military Strategy is a component of the overall National Security Strategy The National Security Strategy is a subsystem of the U.S. National Strategy that includes all elements of national power; foreign policy and diplomacy, global security structures that the U.S. is a party to, trade policies, etc… The National Security Strategy is a subsystem of the U.S. National Strategy that includes all elements of national power; foreign policy and diplomacy, global security structures that the U.S. is a party to, trade policies, etc… Systems are hierarchical… Systems are hierarchical…

February 23, 2005 Copyright: The University Group, Inc. 7 A Systems Approach National Military Strategy National Security Strategy U.S. National Global Strategy

February 23, 2005 Copyright: The University Group, Inc. 8 A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base

February 23, 2005 Copyright: The University Group, Inc. 9 A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization

February 23, 2005 Copyright: The University Group, Inc. 10 A Systems Approach Globalocalization System Characteristics Globalocalization System Characteristics Non-linearNon-linear Complex adaptive system – continuously adapting to environment through knowledge and learningComplex adaptive system – continuously adapting to environment through knowledge and learning Very “messy” in the Russell Ackoff senseVery “messy” in the Russell Ackoff sense All real world systems are openAll real world systems are open Only as strong as their weakest linkOnly as strong as their weakest link Cannot control or manage, but can influenceCannot control or manage, but can influence Must have an aim….Must have an aim…. The only way to influence is to understand the unique system capabilities and issues…and act on that knowledge by learning faster than the competition…

February 23, 2005 Copyright: The University Group, Inc. 11 A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects

February 23, 2005 Copyright: The University Group, Inc. 12 A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects A Systems Approach National Military Strategy Military Industrial Base National Security Strategy U.S. Industrial Base U.S. National Global Strategy Global Industrial Base An example of Globalocalization Influencing Effects

February 23, 2005 Copyright: The University Group, Inc. 13 A Systems Approach – Lessons Learned and Options The military industrial base… Cannot be separated from the other systems that it is a part of Cannot be separated from the other systems that it is a part of It can be influenced, but not managed or controlled, though many federal agencies and departments as well as Congress contribute to its influences; sometimes with forces that are opposed to one another or conflicting… must understand 2 nd, 3 rd, and 4 th order effects of our decisions It can be influenced, but not managed or controlled, though many federal agencies and departments as well as Congress contribute to its influences; sometimes with forces that are opposed to one another or conflicting… must understand 2 nd, 3 rd, and 4 th order effects of our decisions

February 23, 2005 Copyright: The University Group, Inc. 14 A Systems Approach – Lessons Learned and Options Other nation’s actions and policies influence our industrial base whether we want them to or not Other nation’s actions and policies influence our industrial base whether we want them to or not Controlled competition is a misnomer in a world of globalization; it accomplishes little to assist U.S. companies in becoming globally competitive especially since the system cannot be controlled, only influenced Controlled competition is a misnomer in a world of globalization; it accomplishes little to assist U.S. companies in becoming globally competitive especially since the system cannot be controlled, only influenced

February 23, 2005 Copyright: The University Group, Inc. 15 A Systems Approach – Lessons Learned and Options Free market forces aren’t free either, since all countries have various non-market forces on their markets as do we – a free market state is an ideal we may want to strive for… but at the present time, it does not reflect reality Free market forces aren’t free either, since all countries have various non-market forces on their markets as do we – a free market state is an ideal we may want to strive for… but at the present time, it does not reflect reality We need to understand that reality or in striving for free markets we could do irreparable damage to ourselves by not understanding what other countries, and are own, are doing within the complex system - sum total of all regulations, laws, etc… We need to understand that reality or in striving for free markets we could do irreparable damage to ourselves by not understanding what other countries, and are own, are doing within the complex system - sum total of all regulations, laws, etc…

February 23, 2005 Copyright: The University Group, Inc. 16 A Systems Approach – Lessons Learned and Options The question isn’t, “Should we have a free market driven industrial policy or a controlled competitive one?” it must be taken in the context of: “How do we assist the United States in remaining strong so we can be concerned with ‘the peace of the entire world…’ and remain a superpower…?” So, what should we do?

February 23, 2005 Copyright: The University Group, Inc. 17 A Systems Approach – Lessons Learned and Options To be strong we need to: Maintain a capability to be globally competitive in product and process innovation – we must regain our manufacturing prowess and leadership including low volume business Maintain a capability to be globally competitive in product and process innovation – we must regain our manufacturing prowess and leadership including low volume business Be world leaders in investment in R&D – nothing else will produce the leading edge knowledge, capabilities and patents the country must have to remain a superpower Be world leaders in investment in R&D – nothing else will produce the leading edge knowledge, capabilities and patents the country must have to remain a superpower Invest in manufacturing across government owned operations – re-think BRAC, perhaps, make manufacturing bases and depots GOCO’s as opposed to GOGO’s but don’t just abandon them – make them world class, purple and keep them world class Invest in manufacturing across government owned operations – re-think BRAC, perhaps, make manufacturing bases and depots GOCO’s as opposed to GOGO’s but don’t just abandon them – make them world class, purple and keep them world class

February 23, 2005 Copyright: The University Group, Inc. 18 A Systems Approach – Lessons Learned and Options To be strong we need to: Increase investment within the national laboratory system and throughout the higher educational system to maintain our knowledge and innovation advantage Increase investment within the national laboratory system and throughout the higher educational system to maintain our knowledge and innovation advantage Provide incentives to our young people to become scientists and engineers even if it means paying for their college educations Provide incentives to our young people to become scientists and engineers even if it means paying for their college educations Improve cooperation between government, industry and academia everywhere to leverage our knowledge assets Improve cooperation between government, industry and academia everywhere to leverage our knowledge assets

February 23, 2005 Copyright: The University Group, Inc. 19 A Systems Approach – Lessons Learned and Options To be strong we need to: Have DoD prioritize those technologies that are critical to regaining and then maintaining leadership and competitive advantage for our weapon systems Have DoD prioritize those technologies that are critical to regaining and then maintaining leadership and competitive advantage for our weapon systems DoD must understand its weapon system supply chain (its non-linear globalocalization system) down to raw materials in order to mitigate risks across its supply chain – you can’t influence a system, especially a complex one unless you are in a continuous learning mode using accelerated learning cycles, like those of Toyota DoD must understand its weapon system supply chain (its non-linear globalocalization system) down to raw materials in order to mitigate risks across its supply chain – you can’t influence a system, especially a complex one unless you are in a continuous learning mode using accelerated learning cycles, like those of Toyota DoD also needs strategies to reduce its dependence on foreign oil DoD also needs strategies to reduce its dependence on foreign oil

February 23, 2005 Copyright: The University Group, Inc. 20 A Systems Approach – Lessons Learned and Options To be strong we need to: Develop system-wide industrial base metrics to include Develop system-wide industrial base metrics to include Finance (we already have)Finance (we already have) Technological development on the edge (things)Technological development on the edge (things) Intellectual leadership and capabilities (people)Intellectual leadership and capabilities (people) Methodologies – both product and process capabilitiesMethodologies – both product and process capabilities Global supply chain (system) risk assessmentsGlobal supply chain (system) risk assessments New systems languageNew systems language

February 23, 2005 Copyright: The University Group, Inc. 21 Options for Maintaining a Robust, Adequate and Efficient Industrial Base: Free Market vs. Controlled Competition Models A Systems Approach Thank you!