The debate in Congress regarding budget sequestration will have long-term implications on national security and military planning in the next decade. Sequestration will result in defense cuts across the board on nearly all military programs and operations. It would require the DOD to cut spending by about 50 billion dollars in its next fiscal budget and be required to cut anywhere from $500bn to $600bn over the next decade.  While sequestration is to begin this January, the Pentagon has failed to provide a detailed strategy or scenario on how sequestration would affect their specific operations.

Senator John McCain has recently introduced an amendment which would require the DOD to outline how sequestration would impact the military and has vowed to introduce it along with every other bill in the Senate. This may be a positive step, but the broad implications are already somewhat known. Joint Chiefs chairman, General Martin Dempsey has already commented on the broad implications of sequestration and has warned that the uncertainty of the cuts is a significant issue. The DOD, however, hasn’t provided a very specific contingency plan for contractors in the event of sequestration, perhaps predicting that Congress will eventually arrive at a bipartisan solution.

The budget cuts to the DOD will not only affect the research and development for new weapons systems, but will also require cuts in existing programs which will inevitably lead to significant cuts in the industry. Lockheed Martin’s CEO, Bob Stevens, has warned that the “fog of uncertainty” facing defense contractors has required them by law to send notices for potential layoffs.  As the war in Afghanistan begins to wind down and the U.S. faces a fiscal climate where all sectors of government are facing cuts, the reductions to the defense budget were predictable. Stevens also commented that as a high tech driven manufacturing sector of the economy, the defense industry should be viewed as a vital priority for Congress and urged against dramatic cuts to other “national priorities” such as education.

While consolidation may be the ultimate trend in industry, the uncertainty of sequestration has prevented any new acquisitions or mergers. Once again industry leaders have difficulty predicting which programs are likely to succeed and require greater investment.  Mr. Stevens also argued that a defense budget must be in alignment with an overall national security strategy.

The nature of such a future strategy appears to be in a significant transition. The military has begun to engage in strategic regional shifts with counterterrorism operations in Africa, naval operations in Asia, and has begun to increase its military presence in other areas of the Middle East. Investments in technology have also been important for counterterrorism operations through asymmetric operations such as drone strikes, cyber warfare, and special- forces operations.

In general, there is a broad question regarding the need for greater investments in “heavy” footprint operations requiring conventional forces or unconventional forces better suited for asymmetric threats. Gen. Dempsey has provided some guidance on the military’s needs and stated:

“We need to find that balance between investing in technology, investing in manpower and not become enamored of shiny objects.”

The effects of sequestration on the industry as well as long term national security strategy remain unknown. While budget cuts are probably inevitable, the current lack of planning for specific programs is perhaps the most dangerous aspect of sequestration. Not only does sequestration affect the defense industry’s trajectory, but it also affects the ability of the U.S. to match military capabilities with a national security strategy in the coming decade. As the United States begins to reduce its involvement in Afghanistan and precariously shifts to other regions, the defense budget requires the some level of urgency so that national security priorities are balanced with fiscal realities.

Gen. Martin Dempsey, Source: DOD

As a result, the uncertainty facing the defense industry is not only a byproduct of the fiscal environment, but also of the difficulties in formulating a national security strategy after the war in Afghanistan. Will asymmetric operations and counterterrorism technology be the centerpiece of national security policy or will heavy conventional forces still be the most relevant for national security priorities in the future? Defining these priorities through strategic assessment of threats will be critical for defense policy and broader national security strategy.

The United States must continue to evaluate how to formulate a defense budget which enhances the efficacy of all the instruments at its disposal, and reasonably matches capabilities against emerging threats. This is the challenge of a large military facing dramatic cuts and a nation with interests that extend to all regions of the globe. How Congress will ultimately formulate the budget remains to be seen, but in the meantime the DOD must provide industry with realistic projections of what areas will be reduced as a result of inevitable cuts. These projections must be intertwined with the realistic future priorities of a national security strategy.

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