Remobilizing the American Industrial Machine

Military deterrence in the twenty-first century will require a new synthesis of public and private interests.

Farrell Gregory is a non-resident fellow at the Foundation for American Innovation. He researches China and techno-industrial policy.

During the New England section of Pete Hegseth’s manufacturing-focused “Arsenal of Freedom” tour, the Secretary of War huddled with reporters outside of Bath Iron Works and explained, in candid terms, why the defense industrial base doesn’t work as it should.

“A lot of the hangup has been us,” Hegseth said, referring to the military procurement processes that developed in the post-war period and accelerated after the end of the Cold War. “The way we do business, we’ve been impossible to deal with, a bad customer.”

He’s right. As American security is challenged on multiple fronts, the military itself has become one of the biggest obstacles to readily procuring equipment and technology from private contractors.

Compare Hegseth’s dire assessment to how things looked in 1947, the year that the Department of War became the Department of Defense. America had defeated the Germans and Japanese in large part because of our ability to fire up a continent-sized war machine. When the moment called for it, the United States was able to rapidly increase war production from 2% of gross national product to 44%.

So when today’s Secretary of War says that the defense industrial base isn’t working and the government is partially to blame, one should ask: What went wrong?

Palantir Chief Technology Officer Shyam Sankar and Palantir deployment strategist Madeline Hart tackle that exact question in a new book: Mobilize: How to Reboot The American Industrial Base and Stop World War III. The authors argue that if the government would learn how to better utilize talent, competitive dynamics, and risk—much as venture capitalists do—both American industry and national security would be better served.

The book provides a detailed analysis of how America’s industrial base collapsed along with innovative ideas for how the government can revitalize it by empowering the private sector. But that’s only half of the new synthesis of public and private interests that will be necessary to protect American peace and prosperity in the twenty-first century.

The Monopsony Dynamic

The authors begin by assessing the grim state of the globe. Amid war in Ukraine, tensions rising in the Indo-Pacific, and constant upheaval in the Middle East, we could be in the early throes of a conflict that eventually engulfs the entire world. If we are in the early stages of World War III, the authors write, it will be a conflict enabled by our industrial weakness.

The United States is accustomed to fighting insurgencies that can’t hope to match our exquisite systems, but we’re entirely unprepared for the demands of modern warfare. The authors point out that it takes an average of 17 years for the U.S. military to go from targeting a new capability to fielding it. But as the war in Ukraine exemplifies, in armed conflict new weapons are fielded in a matter of days, without regard for the thousand-page binders of requirements and specifications that have become a feature of modern American defense procurement.

Mobilize first explains how America descended from a post-war manufacturing superpower to a deindustrialized and diminished military machine. Like Hegseth, Sankar and Hart lay the blame chiefly at the distorting influence of the military itself.

The entire techno-military system is shaped by monopsony—the condition where a market has many sellers but only one buyer, in this case the federal government. This dynamic creates a disconnect between the innovative parts of the private sector and the insulated defense sector.

It is something of an evolutionary split. Between the end of the Cold War and the present, U.S. military acquisitions from firms specializing in military defense went from constituting 6% of the budget to 86%. America’s previously unified industrial base diverged into isolated commercial and defense sectors.

When the Department of War is the only buyer, its particularities and senseless regulations reshape the sellers. In this case, America’s industrial base has been warped to meet the needs of its dysfunctional primary buyer. No defense firm can ignore the imperatives of the procurement process, especially with hundreds of billions of dollars at play.

Case Studies in Competence

The book’s most compelling demonstrations of bureaucratic dysfunction are its portraits of the exceptional individuals—simultaneously heroes and heretics—involved.

Sankar and Hart describe the trials of Colonel Drew Cukor’s vision for Project Maven: to use artificial intelligence for data-labeling and algorithms to serve Army intelligence in the Middle East. The obstacles to implementing this technology didn’t come from terrorists, but rather from the Army’s own internal systems. The book details the brilliance of figures like Bernard Schriever, Hyman Rickover, and Andrew Higgins, all of whom had to fight against entrenched military interests and procedures in order to make their revolutionary contributions in military technology.

On the flip side, the authors cycle through flawed attempts at military reform from James Forrestal, Robert McNamara, and David Packard, each of whom recognized the failures of military bureaucracy but ultimately failed to reform the institution themselves. This failure came at the cost of their wellbeing and, in the case of Forrestal, his life.

The authors finally turn to William Perry and the 1993 Last Supper, when the American industrial base was shattered and consolidated into major defense firms that would meet needs dictated by government. What remained were disconnected commercial and defense sectors, as well as a centralized military planning system that seems to have made little effort toward planning for future conflicts.

The individuals described in the book are exceptional not just because of their ambition and genius, but because they challenged the rigid established procedures in order to deliver results. Yet despite their successes, the American military maintains procurement and personnel systems that intentionally work against exceptional individuals rather than supporting them.

That’s what Sankar and Hart want to change.

Their policy solutions, almost all directed at Congress and the Department of War, focus on introducing competition and vitality into a military industrial complex that desperately needs both. If the government would stop inhibiting the productive tendencies of industry—and maybe even adopt a few of those efficiencies itself—America’s national interest would be better served.

It’s a compelling argument. After the early chapters exhaustively detail the inefficiencies of existing processes, it’s hard not to sympathize with firms that sell to the Pentagon. Palantir knows that difficulty firsthand—the company had to sue the Army just to be able to participate in the procurement process to sell its software.

Sankar and Hart’s proposed reforms are informed by all of these difficulties. They say the military should do away with cost-plus contracting—a form of procurement that typically reimburses all expenses and includes a percentage fee—which disincentivizes trimming costs. Further, the military should allow for more flexible hiring and deployment within the Pentagon, scale down its endless specification requirements, and recognize that trying to engineer away any possible failure will inhibit any possible success.

The authors also take principles from visionaries like Packard a step further. Rather than selecting multiple contractors for the prototyping phase to approximate competitive market dynamics—a practice that Packard advanced—they suggest breaking monopsony by creating competitive procurement between different parts of the military. A system like this, allowing different branches to compete against each other in the procurement process, would incentivize government buyers to deliver better results on a faster timeline.

Halfway There

The thesis in Mobilize is that if the government would just let business do what it does best—and adopt some of those best practices—American prosperity and strength would be well served. Sankar and Hart are correct, and the proposals they offer would be a welcome step in the right direction. But the threats to America in the twenty-first century can only be addressed by a novel relationship between firms and the state; this book only explores half of that new synthesis.

The authors, coming from the private sector, naturally focus on the ways in which the national interest would be advanced if the state learned from business. However, they touch only lightly on the other side of this issue—the incentives that firms have to behave in ways that harm the nation.

Efficiency and productivity are usually in the national interest, and as the book demonstrates clearly, are especially needed in matters of industrial production and weapons procurement. But following the profit motive is not a golden rule that ensures the wellbeing of Americans. In certain ways, the government can and should provide boundaries on the behavior of firms in order to represent the enduring interests of U.S. citizens.

Mobilize comes closest to addressing this concern when discussing the deindustrialization enabled by offshoring to China. The authors rightly note that national security is inseparable from the strength of our wider industrial base, and that weakness in the latter invites threats to the former.

It’s a reality ignored by defense executives more concerned with maximizing shareholder value than genuine innovation: as the authors note, spending on stock buybacks and dividends among defense contractors increased by 73% from 2010 to 2019. Over that same period, research and development spending slumped 14%.

In some ways, this story of deindustrialization—among others—provides a counterpoint to the book’s convincing examples of private sector practices that could revitalize defense procurement and bureaucracy. As much as American capitalism and government need each other, the authors would surely agree that what’s profitable is not always good for national security.

The state and firms each play a role in securing the homeland. Yes, the U.S. clearly must modernize its procurement process. But the government must also take a more active role in setting out its vision for American security and industrial strength, making clear which forms of reliance on foreign competitors are acceptable commerce and which are intolerable threats to our national security.

For all the criticisms of offshoring chunks of our industrial base to China—the jobs lost and subsequent deaths of despair that hollow out entire cities, the shrinking of industrial know-how, and the grave threat it all poses to American military readiness—nobody has ever argued that the process was not profitable for those who oversaw it, nor that it was bad for share prices in the short run.

Sankar and Hart acknowledge that companies may not always behave patriotically, but tend to respond to profit incentives. Yet they offer few answers for what to do when the demands of national security cut against the profit motive.

Tax credits and equity investments—while certainly merited in some cases—are tools that do not alone solve the wider problem: in a world where America is threatened in ways that it never has been before, caused in part by our industrial decline, what novel form will the interreliance between firms and the state take? How will those interests be synthesized and acted upon?

Ironically, another book by a Palantir executive, “The Technological Republic” by CEO Alex Karp and head of corporate affairs Nicholas Zamiska, also points at this missing coherent political vision. Karp calls for a “union of the state and the software industry,” yet he too does not articulate what that union would look like.

Mobilize describes one side of that new union. What the authors do explain, they explain well. The book recognizes the need for aligning the interests of firms and the state: if either government or business pursues their own narrow interests without restraint, America’s industrial strength and prosperity suffer. And the book offers plenty of specific reforms for how to empower the state with the practices of the private sector, a vision informed by Sankar’s decades of working within—and sometimes against—its confines.

Among his many contributions at Palantir across two decades, perhaps his most notable has been creating the firm’s oft-imitated “forward-deployed” model, which embeds Palantir engineers within the customer’s organization. As they spend time in the environment where the software will be deployed, the firm’s engineers can better appreciate both potential problems and available solutions.

That same insight underlies much of Mobilize. Palantir’s decades-long campaign to sell software solutions to the government and industrial clients involved embedding in both. This book is at its best when relating insights from that experience as part of the forward-deployed concept.

Modeling behavior is an important part of this book and Sankar’s career. His decision to commission into the United States Army Reserve is itself an example in line with several of the book’s heroes, including William Knudsen and David Packard, both technical innovators who applied their talents toward public service. Whatever the future relationship between firms and the state looks like, I expect it will be embodied by technologists like Sankar who devote their substantial talents to American prosperity and security.

In an excellent Colossus profile, Sankar speaks frankly about that purpose: “Please don’t let my tombstone just read defense tech… American Greatness’ is the thing I care about… You can’t achieve American Greatness through zero-sum divisiveness. There has to be a unifying vision. There has to be something positive-sum.”

In writing Mobilize, the authors offer part of that unifying vision, though a full articulation will require reevaluating the direction and bounds that the state must give firms. If that positive-sum relationship between firms and states is ever formalized, it would find a welcome complement in Mobilize and likely a vigorous proponent in Sankar.