OODALoop: Will Military Aid Abroad Accelerate the Disintermediation of the U.S. Defense Industrial Base?

Before and after the recent passage of military aid for Ukraine, Israel, and Taiwan, The Center for Strategic & International Studies (CSIS), Defense-Industrial Initiatives Group, The German Marshall Fund, and the Wilson Center (amongst other credible outlets) offered wide-ranging perspectives on the impact on the domestic U.S. defense industrial base by continued aid to the world from the “Arsenal of Democracy.”  Details here.  

Background

The Disintermediation and/or Self-cannibalization of the Defense Industrial Base

Exponential Organizations’ (ExOs), platforms, ecosystems, and sources of new value creation are based on the disintermediation (innovation that undermines established or incumbent structures) of a market, organization, or industry sector.

There is an argument that some of the information-enabled kinetic technologies, intelligence operations, and cyber warfare activities in Europe signify the disintermediation of war (i.e., the role of commercial drones in the war in Ukraine, the democratization of access to open-source intelligence tools typically only available to intelligence agencies or the powerful cyber war weapons available to non-nation-state actors).

A strategic suggestion to organizations experiencing the disintermediation of their industry and/or marketplace is to aggressively self-cannibalize (early and assertively), with ecosystems and platforms as the new value creation and capture architectures of a new business model (or—to start—a standalone but scalable business unit).

Based on direct experience and history, we know for a quantifiable fact that most stakeholders in traditional industries and markets have shown a strong cognitive bias against disintermediation as a “thing” and the idea that self-cannibalization is actually a “thing” as well – and even necessary.  Call it market or company hubris or the result of “The Worst-Case Scenario is the Least Probable and Other Cognitive Biases.”

For more on our research and framework on the disintermedation of the defense industrial base, go to this link.

Excerpts and Data from Recent Analysis

The German Marshal Fund on How US Military Support for Ukraine is Helping Put American Industry Back on Track (September 2023)

While some argue that Ukraine aid is a drain on the US economy, the numbers suggest that sustained support is a win-win for Ukrainians and the American people. A large portion of the money designated for Ukraine is being reinvested at home, bolstering the defense industry and sustaining American manufacturing jobs. This translates to more business for US companies and sustained employment for rural communities in which they operate.

Amid claims that the United States cannot foot the bill of a long, drawn-out war in Ukraine, a faction of Republican lawmakers is threatening to shut down the US government if further Ukraine funding is included in a continuing resolution. But this approach does not take into consideration the benefits to US strategic interests and the American economy. A large portion of the money designated for Ukraine is being reinvested at home, bolstering the defense industry and sustaining American manufacturing jobs.

So far, the American people have provided the lion’s share of Ukraine’s military aid—$46.6 billion with an additional package of $10.5 billion now under consideration. This support has been essential to Ukraine’s war effort, enabling its forces to reclaim occupied territory. And, critically, it serves key US interests—first and foremost, by defeating Russia’s imperialist ambitions and preserving territorial integrity in Europe. Beyond this, supporting Ukraine brings its own economic benefits.

For instance, Lockheed Martin, maker of the HIMARS—which has been central to Ukraine’s counteroffensive—plans to increase its Camden, Arkansas facility’s workforce by 20%, and recently announced increased profit projections through the end of the year. Similarly, General Dynamics has committed to building new production facilities in Mesquite, Texas, bringing money and jobs to the region. Change like this takes place only when the Pentagon sends strong and stable market signals to the defense industry, giving it the confidence to expand and hire.

How Russia-Ukraine war is boosting US economy, defense industry

• The top five global arms manufacturers hail from the US, with Lockheed Martin, Raytheon, Boeing, Northrop Grumman, and General Dynamics leading the pack. Remarkably, the US is home to half of the world’s top 100 arms producers.
• Major US defense contractors, including Lockheed Martin, Raytheon, Boeing, and Northrop Grumman, are at the forefront of supplying high-demand and costly weaponry to Ukraine amidst its ongoing conflict.
• The war has significantly boosted the stock values of these companies.
• Lockheed Martin has ramped up production of its Javelin anti-tank missiles, affectionately known as “Saint Javelin,” from 2,100 to nearly 4,000 units annually, highlighting its critical role in Ukraine’s defense strategy.
• The surge in demand for advanced weaponry like the High Mobility Artillery Rocket Systems (HIMARS) reflects the substantial business gains for US defense firms.

Between the lines

The defense industry’s boom underscores a wider economic narrative where geopolitical conflicts inadvertently fuel industrial growth. European spending on US military hardware is described as “a generational-type investment,” with recent years’ expenditure matching the total of the previous two decades.  Beyond immediate defense sector gains, the conflict and subsequent US aid to Ukraine are reshaping global economic landscapes. The WSJ report said that from surging LNG exports to Europe to increased foreign direct investment in the US, the war’s economic implications are vast, albeit with a nuanced impact on national employment and income levels.

The summary above provided by the Times of India is based on the following SWJ report (subscription required):  How War in Europe Boosts the U.S. Economy.

Ukraine aid benefits arms industry, not the U.S. economy

…much of America’s military aid comes in the form of in-kind contributions, such as arms and ammunition taken from existing U.S. stockpiles. If Congress votes to finance more support for Ukraine, the lion’s share of this funding will go to domestic firms tasked with replenishing the Pentagon’s own armories.

READ MORE HERE