The Industrial Context

The paucity of S&T funding in the last decade has eroded traditional Air Force technology strengths like electronic warfare. At the same time, industry basic research has shrunk dramatically, with a much shorter time horizon than 20-30 years ago. The Air Force's aim, as one planner said recently, should be to "maintain a technological lead of 5-10 years" over potential adversaries, but the Air Force "can't rely dominantly" on industry for basic research. "Alarming"⁵³ DoD reductions in 6.1, 6.2 and 6.3 funding are being made based on the apparently invalid premise that industry will pick up the difference. As Gen. Lawrence A. Skantze has noted, DoD was the "dominant" user of U.S. industrial technology 25 years ago and on the "leading edge" of avionics and software development. "That has totally changed. DoD is now a minor user, and today the avionics and software state-of-the-art is the most dynamic and dominant technology development in the industrial world."⁵⁴

The commercial space market has also grown about 50% since 1988, with increased associated R&D into, for example, microminiaturized components and new data compression techniques. There definitely are potential military benefits here in the area of avionics and navigation. OSD maintains that DoD "absolutely" has to start "depending more" on industry so that the military can "focus more on those things that industry is not going to do."⁵⁵ But defense industry leaders point out that the market drives industry towards research only in areas where it sees a profitable market. If the military has voiced a requirement, research is likely; without a clear need—indicating a future market—such research is unlikely.

For its part, the Air Force clearly needs to push those unique technologies that are not being funded internally by industry. This situation has not changed since the 1980s, when it was pointed out that the defense technology base was becoming "largely inseparable from" the national technology base.⁵⁶ The Aerospace Industries Association reports that DoD now accounts for only 29% of aerospace industrial sales, down from 53% in 1988.⁵⁷ Since 1989, the government role in RDT&E has been receding, and R&D has more and more become an industry-financed program—"up about 50%"—with "spin-on"⁵⁸ benefits accruing to the government. In 1977, industry invested $1 for each $4 in federal funding. Today this is $1 to $2. The federal contribution to industry R&D has held steady since 1994 at about $20 billion, but the overall portion has dropped to about 17% of total investment. Overall U.S. R&D, as a percentage of gross domestic product, is at about at the same level as it was in 1983.⁵⁹

Government reliance on industrial R&D is not without risks. The Committee for National Security found that industries were devoting 80-90% of their R&D resources to short-term product development and process improvement. "We are thus seeing a gap in the innovation system, in funding for mid- and long-range R&D, which threatens to dry up the wells of new technology. Pressure to realize near-term returns is aggravating, in particular, the gap in R&D in the 5- to 7-year time frame."⁶⁰

Business now looks for return on investment in as little as 6-12 months.⁶¹ Industry also considers defense-related R&D to be highly unstable, excessively complex, and characterized by high risk, restricted cash flow and low financial return.⁶² Whereas, over the last few years, particularly because of widespread mergers and the resulting economics, industry has adopted an R&D philosophy that is "relatively short-term" (less than 10-15 years), DoD needs to concentrate on "long-term," "unique" research. Industry views the DoD as a customer but no longer as the customer. It will not undertake unique military-related R&D unless funded, because the resulting technology is "different" from civilian needs: tolerances and precision requirements are higher, the market is too small, and funding is too erratic.⁶³

There are, however, strong arguments for government risk-sharing with industry. In fact, industry's response to shared funding seems to be positive: AFRL reports that its government-industry programs are very active and that industry is proposing more funding for projects than is required. Today's industry chorus is "show me the money": the military must at least share R&D costs.

The investment of such "seed money" is a tremendous enabler leading to technology beneficial to the Air Force, the government, and the nation. In some technical areas—communications, information technology, microelectronics—such funding is no longer needed. But in other areas—like propulsion, space engineering, directed energy, nuclear power, and stealth—industry still depends on the DoD to fund exploratory S&T. Additional areas where the Air Force needs to continue funding vital interests are large system integration and information protection, both of which are fundamental to development of the future military "system of systems" called for in Joint Vision 2010.

Since industry is extremely market focused, technology development may be at risk if the government pulls out of research altogether. For example, the Boeing Company's recent decision to withdraw from research on the High Speed Civil Transport was dictated by what Boeing perceived as the lack of a customer, and it preceded the withdrawal of NASA from the same research after Congress canceled its funding. All work on this crucial technology was thus suspended.

"If government fails to support advances in pre-commercial technologies, at least on a cost-shared basis, it is very likely that they will not get developed."⁶⁴ Meanwhile, the industry asserts that, "right at the same time when DoD is divesting itself of all of its applied research, so is NASA and so is FAA."⁶⁵ And no one is looking at the "big picture"—the national research and development investment in aerospace.

There are other "warning signs" of a "real structural problem." Total investment in aerospace R&D is now "less than 8%" of national R&D investment. The president of the Aerospace Industries Association puts the structural issue this way: "Can we live in a long-term competitive global economy with only 8% of our national investment going into aerospace?"⁶⁶

To counter reductions in military R&D budgets and keep industry involved, the DoD espouses a Dual-action Technology Policy, recognizing that we "can no longer afford two distinct industrial bases." This process "allows our armed forces to exploit the rapid rate of innovation of commercial industry to meet defense needs."⁶⁷ At the AFRL level, this philosophy is represented in programs including dual use, Independent Research and Development (IR&D), and Small Business Innovation Research (SBIR): "the flagships" of Department of Defense research which "everyone else benchmarks against" in government-industry relations. AFRL manages these programs and monitors areas where the Air Force should be doing research and where industry research can be used.

• SBIR research concentrates on concepts leading to products in 3 years or less: 9 months for a Phase 1 first look and 2 more years in concept development if chances look good. Ideas come from industry but respond to military requirements.

• IR&D includes some 4,000 programs run by 100 companies—about 95% of the aerospace industry—totaling some $2 billion. IR&D proposals are submitted voluntarily to the Defense Technology Information Center, where they are extensively researched against all U.S. Government R&D, using 170 specific Air Force needs centered on operational systems. IR&D is done by industry with government funding, and this program allows the military to ride along. Information is proprietary. As General Skantze has pointed out recently, such a shift to commercial technology "is critical," especially in avionics, where the "capacity growth rate in both memory and processor chips is 40% per year."⁶⁸ He makes a good point. Other industrial R&D of government interest totaled nearly $140 billion in FY 1998.

• The dual-use S&T program is congressionally mandated, facilitated by the OSD Director of Defense Research & Engineering (DDR&E) and funded jointly by the services. This program has opened up Air Force S&T to industry. Funding is 50% by industry, 25% by the DoD Dual Use Science & Technology Program, and 25% by USAF (usually AFRL). The military pays until a technology matures (i.e., through 6.3), then leaves industry to carry it to market. The military then benefits by buying the products. If the technology is "too risky," this military contribution will often get industry "off the dime."⁶⁹ This also prevents the military from having to reproduce 6.1-6.2 testing leading to a military product. The FY 2000 USAF contribution is $17.9 million, and it will continue at the $19-20 million level through FY 2004. Duration and funding levels are proposed by industry, not government, so research can be tied to industry's return-on-investment time limits. The dual-use S&T program seems to provide a positive answer to the question: Will industry do R&D for the military? Industry has to spend a dollar for every military dollar spent. When DARPA recently went out with $500 million in seed money, it received $6.8 billion in proposals—a 13:1 exchange. Another example of this is "Warfighter-1," a commercial imaging program 74.5% paid by Orbital Sciences Corp. and 25.5% by AFRL. Hyperspectral images will ultimately be sold commercially and also made available to the military.

		NASA R&D INVESTMENT
At the same time that Air Force research and development investment has been dropping, so, too, has R&D spending by NASA. Source: Aerospace Industries Association.

Although some industries—like information technology—are driven by their markets into new areas of technology, the application of this research to military needs may be limited. Special research may be required for weapons systems, but, even in that case, future support for the resulting military systems will be problematic because of rapid generational turnover in the civilian technology marketplace. Also, market-based research is incremental, and does not provide the quantum leaps needed to keep ahead in military weaponry.⁷⁰

Additionally, knowledgeable Air Force oversight is essential for such industrial research into unique military applications. As the cadre of Air Force officers involved has shrunk, this oversight has become less comprehensive and informed, another consequence of the erosion in the stature of R&D as an Air Force career opportunity. To assure continued attention to its vital needs, the Air Force should identify critical core technologies and develop high-quality internal research capabilities to investigate them.

Several critical technologies are perceived as not being supported by industry, e.g., electronic hardening, ballistic missile protection, munitions, detectors, anti-chemical warfare (CW)/anti-biological warfare (BW) agents. Other technologies of concern include engines, avionics, precision-guided munitions, stores separation, aeromechanics, computational fluid dynamics, stability and control, aerodynamics, propulsion integration, analysis and testing, air vehicle design synthesis, operational flight software, manufacturing technology, and low observables (stealth).⁷¹ The following chart illustrates the broad areas and where research is expected to be funded: