Innovation falls short at crucial time for security; federal government gets ‘F’ in report card

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“Major warning signs” in the national security sector could hold back America’s ability to innovate at a crucial moment in the intensifying global competition with adversaries such as Russia and China, according to a report made public Tuesday.

The National Security Innovation Base (NSIB) Report Card, released by the Ronald Reagan Institute’s Center for Peace Through Strength, offers a deep dive into the overall health of American defense innovation. The Reagan foundation’s National Security Innovation Base Program said the report card examines “national security agencies and organizations, various research centers and laboratories, universities and academia, traditional defense ‘primes,’ commercial sector disruptors, venture capital and the innovative systems of American allies and partners” around the world, providing a comprehensive snapshot of the national security sector.

The results aren’t encouraging in many instances, the report’s authors said.

The U.S. defense sector remains a global technology leader, but the breakthroughs do not always translate into greater security. The government’s broken budgeting process is a prime culprit.

“Maintaining America’s edge over our pacing competitor, the People’s Republic of China, depends on our ability to integrate new technologies into our national security ecosystem,” Roger Zakheim, director of the Reagan Institute, said in a statement Tuesday. “While the American private sector still leads in global innovation, and the U.S. government has made some progress over the last year, we are at an inflection point when it comes to translating innovation priorities into capabilities.

“The defense budget — both the top line … and its allocation within the president’s budget request — is stifling the health of the NSIB.”

The report card was released just days after the Biden administration submitted its $850 billion Pentagon budget request for the next fiscal year, which begins in October. The figure amounts to a 4.2% increase over its base level request in the 2023 fiscal year — $815.9 billion — and a 4.2% increase in the $817.3 provided by the fiscal year 2024 continuing resolution, a stopgap measure that freezes spending at the previous year’s level and prevents Pentagon officials from initiating new programs.

The Reagan study faulted the federal government for failing to provide “sufficient and stable funding” for national security innovation vital to “acquire and scale critical technology” in the sector. As a result, the U.S. government got an F- for its inability to provide sufficient and stable funding needed to fund cutting-edge technology. That is the lowest mark in the sweeping Reagan study.

Other defense industry subsectors also received less-than-stellar assessments.

Defense modernization, generally defined as the ability to modernize U.S. armed forces and national security capabilities for the 21st century, received a D, down from a C in the inaugural report card last year.

“Failure to act on innovation priorities and pull through technologies at scale is materially affecting overall readiness levels and the ability to fight and win against a pacing competitor,” the report reads in part.

More specifically, the report says the U.S. “failure to act on innovation priorities and pull through technologies at scale is materially affecting overall readiness levels and ability to fight and win against a pacing competitor.”

The U.S. did receive an A for its innovation leadership, citing the country’s global leadership in patent filings and other key indicators. It received a B in the innovation capital category, reflecting a widening pool of available money from venture capital firms and other avenues. Such funding streams have especially benefited high-tech initiatives, such as those in the artificial intelligence realm.

Systemic challenges

The NSIB report card was created at a crucial moment for the U.S. defense industry. Major production and logistical challenges stemming from the COVID-19 pandemic have continued to dog the sector.

Concerns are growing in national security circles about inadequate investment to stay ahead of U.S. rivals, particularly communist China. Stockpile shortages appear to be rising as weapons are shipped to allies such as Ukraine.

Specialists say the proposed $850 billion Pentagon budget request is not as impressive as it appears.

“It’s a little smaller than I would prefer … because it does not really provide any real growth. People who say that’s a huge amount of money are correct, but relative to the size of our economy, it’s only 3.1% of GDP,” Michael O’Hanlon, senior fellow and director of research in foreign policy at the Brookings Institution, told The Washington Times’ “Threat Status Podcast.”

“As long as we hold flat in nominal terms, that means we’re going down relative to inflation,” he said. “Meanwhile, the economy is still growing, so we’re going down even faster relative to the size of GDP.”

The federal government’s inability to provide long-term funding stability for the Defense Department and private-sector defense firms and Congress’ reliance on short-term funding resolutions are major concerns, the Reagan Institute report said. Even in areas with substantial progress on defense funding, uncertainty has plagued modernization.

The report card gave a D to “customer clarity.” It warned that progress at the Pentagon, CIA and other key arms of the national security infrastructure has been largely “negated by congressional failure to pass a budget, which is limiting progress and the strength of the demand signal to industry and investors.”

The national security talent base also received a D. The report warned that “the industry continues to face a graying talent pool and demographic trends that foreshadow persistent talent pipeline challenges like inefficient skills matching and manual, burdensome vetting processes.”

The struggle to attract talent and quickly get applicants through the necessary security checks to work in the defense industry has become a leading concern for the sector.