Technology is the key to our nation maintaining its global competitive advantage. We are accustomed to hearing about corporate strategies, but do nations have strategies as well? They do, and a nation’s strategy is commonly referred to as an industrial policy. The United States’ industrial policy includes vertically integrating defense manufacturing by reshoring semiconductor production and investing in research and development to create the technology needed to compete globally, providing the bandwidth, tactical prowess and speed to defend our nation.

As tensions continue to rise between the U.S. and China, and conflicts persist elsewhere in the world, our nation’s leaders are assessing the current state of our military. The technology our defense industrial base provides will be vital in maintaining a competitive military advantage over near-peer threats with greater size and scale.

The government will likely leverage the rapid advancement of artificial intelligence (AI) and further development of unmanned vehicles to accelerate military capacity while improving tactical prowess. Government contractors, in turn, will need to align their strategies and enhance their functional operations to meet the demands of their federal government customers with equal speed and technical advancement. 

According to Global Firepower,  our nation still has the most powerful military in the world. However, the U.S. has experienced a steep, continued decline in military capacity due to decreased government funding. In 1953, the U.S. military funding was 11.3% of gross domestic product (GDP), but it is projected to be only 2.7% in 2024, according to the Department of Defense (DoD). Multiple factors contributed to the decline, including the rising costs of mandatory spending and net interest driven higher by elevated inflation without increased taxes. U.S. defense spending and GDP are trending opposite of China, where GDP is expected to grow by 4.5%, and defense spending is set to be 7.2% of GDP in 2024.

It's anticipated that inflation and caps in defense funding will decrease DoD purchasing power in the coming years, leading to a cut in personnel. As shown in the graph, our U.S. military strength has declined slightly since the Cold War ended. In December, the Congressional Budget Office provided three alternatives to reduce the DoD’s annual budget. All three reduction alternatives would be achieved by decreasing the number of full-time military personnel between 18% and 21%, primarily affecting the U.S. Army and Air Force. 

In 2022, China surpassed the U.S. with the largest navy fleet, 348 principal combat ships compared to 296, respectively.

So how does the U.S. bridge the capacity gap while reducing the workforce? The answer is technology. As opportunity costs rise in a time of declining budgets, it is imperative to leverage technological solutions. In this case, the solution is using unmanned vehicles under the DoD’s Replicator program. Deputy Secretary of Defense Kathleen Hicks said the initiative will use “existing funding, existing programming lines and existing authorities to accelerate production and delivery at scale.” This program will put fewer people in the line of fire by utilizing self-piloting ships and unmanned aerial vehicles.

Middle market companies will need to escalate production quickly to support the government’s strategic vision. This new approach to scaling military power will open the door to emergent technologies, increasing military bandwidth. Service providers and manufacturers will face increased operational demands such as workforce planning and inventory optimization, requiring these middle market businesses to transform their corporate strategies and functional operations. 

The power of computational processing will dictate the future of defense. A data-driven future will help the U.S. anticipate each move of its adversary like a chess match. A few years ago, the vision of the Joint Staff National Military Strategy included the ability to outthink, outmaneuver and outfight any adversary. With the rapid evolution of AI, Bloomberg’s analysts have coined a shorter version of this vision: “Outthink to outfight.”