Commentary on Political Economy

Tuesday 28 November 2023



The Old Military-Industrial Complex Won’t Win a New Cold War

China’s rapid advances as a military superpower demand a more creative partnership between Western governments and companies and universities.

Yesterday’s weapons won’t win tomorrow’s wars.
Yesterday’s weapons won’t win tomorrow’s wars. Photographer: HUM Images/Universal Images Group Editorial


The West has long assumed that it enjoys a substantial technological advantage over any potential military rival. But for how much longer? The People’s Liberation Army is not only challenging the West in terms of conventional and nuclear weaponry — China’s navy is now the biggest in the world, and its nuclear arsenal may reach 1,000 warheads by 2030, according to the US Department of Defense. It is roaring ahead in high-tech. China has overtaken the West in hypersonic missiles — those capable of traveling at five times the speed of sound and evading air defenses. It is also pioneering lasers, orbiting space robots and high-altitude balloons.

The phrase du jour in the PLA is “intelligentized warfare”: that is, applying AI techniques, such as machine learning and human-machine teaming, to military decision-making or to weapons systems (drone swarms or unmanned vehicles); “cognitive domain operations,” combining psychological warfare with cyber operations to shape public opinion); and something called “brain science.” The invaluable 2023 US Department of Defense report on military and security developments in China claims mysteriously that “in 2021, Beijing funded the China Brain Plan, a major research project aimed at using brain science to develop new biotechnology and AI applications.”

I recently spent a couple of days at a conference on security in a Scottish country house — the sort of meeting where people wear medals with their dinner jackets and greet each other with “the last time I saw you was in Tora Bora.” I was struck both by how worried my fellow guests were by the pace of China’s military advance (“they can innovate and scale up more rapidly than we can”) and by the strength of China’s President Xi Jinping’s determination to reshape the global order. Serious people thought that an invasion of Taiwan before 2030 was more likely than not. I was also struck by how frustrated people were about how blase the general public (and consequently many politicians) are about the problem, given that it could lead to war or, at the very least, a change in the balance of power between liberalism and authoritarianism.

There was a general consensus that we urgently need to speed up the West’s progress and slow down China’s if we are not to see such a shift. No consensus emerged about how exactly we can do this but, as I listened to the discussion, two points kept leaping out at me.

The first was that we need to harness what is best in Western capitalism to revitalize our military-industrial complex — in other words, disrupt ourselves in order to improve ourselves. The defense industry often embodies everything that is worst in modern capitalism: Giant incumbent companies carve up the military market between themselves and offer comfortable jobs to senior military people when they retire. Their chief expertise often lies in gaming the Pentagon’s convoluted procurement system rather than in developing innovative weapons systems — and they have little relationship with the vortex of creativity that goes under the name of “Silicon Valley.”

Indeed, some cynics joke that the real communists are now in the US rather than China: The Pentagon operates a command-and-control system while the Chinese are trying to reach out beyond state-owned enterprises to a new generation of entrepreneurs, venture capitalists and “new-type” laboratories that draw funding from both the public and private sectors. But in some ways, this caricature understates the problem: The most talented Western tech people naturally flow into the private sector — why defend civilization when you can make a fortune designing video games? — whereas the Chinese military has the pick of the country’s top tech talent. The most significant breakthroughs with space travel and satellite communications are all being made by the private sector.

Thankfully, the US is making some progress in re-introducing the spirit of capitalism into the military-industrial complex. The Pentagon’s attempt to cultivate relations with Silicon Valley companies is finally paying off, despite internal opposition: Witness the successful deals struck with Palantir Technologies Inc., a data manager, and Anduril Industries Inc., a startup that makes drones and surveillance systems. The Army’s new Futures Command has also been situated in the tech hub that is Austin, Texas. Last year, the Biden administration blocked Lockheed Martin Corp.’s $4.4 billion acquisition of engine maker Aerojet Rocketdyne Holdings Inc. on anti-competitive grounds and requested $115 million to fund an office of strategic capital.

Real capitalists are also discovering the defense sector. Elon Musk’s Space X is doing work for the Pentagon. Several venture capital funds such as America’s Frontier FundShield Capital and Lux Capital Management are focusing on the defense sector, in part because other openings such as crypto have fizzled out. One of the most positive developments is the emergence of a new generation of military high-flyers who see their post-retirement future not in working for one of the principals but in establishing defense-focused companies or venture funds.

The second is that the West needs to make much better use of its leading universities. We are unperturbed about students from the People’s Republic studying high-tech in our top universities. Yet whereas from 1978-2007 only 25% of the 1.2 million PRC students who went abroad to study returned home, providing a brain boost for the West, from 2007 to 2017 that proportion had risen to 80%. A growing proportion are sent by the Chinese military in order to gather advanced know-how. We should start replacing them with students from friendlier countries.

At the same time, we are negligent about cultivating relations between academia and the military. There are some notable exceptions: Stanford University can boast the Gordian Knot Center for National Security Innovation, the Stanford Center for International Security and Cooperation, the Stanford Technology Ventures Program, and the Hoover Institution. “Hacking for Defense,” an academic curriculum that focuses on defense innovation, is taught in more than 60 US universities.


But too many universities remain defense-free or defense-hostile zones. Several conference participants lamented that strategic studies have all but died in the United Kingdom outside King’s College, London, and Sandhurst. There was also a strong feeling that business schools do remarkably little to focus on military-related themes given the size of the defense industry and the easy gains to be had from making the sector more entrepreneurial. Where are the lectures on applying “lean” or “agile” to the Pentagon? Or the case studies on the danger of consolidation in the defense industry? Or the articles on the importance of the case for adding another “S” (security) to the ESG (environmental, social and governance formula)?

The West’s success in the Cold War depended on the creative relationship between the Pentagon and two other elements: mighty corporations and leading academic institutions. The companies made sure the West was ahead in manufacturing high-tech weaponry. And the universities provided innovative brainpower. Now that the world is settling into another Cold War, this relationship must be reinvented for a new world of faster innovation and more flexible corporations.

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