Rebuilding US Hands Manufacturing – Can a brand unusual Approach Restore the Arsenal of Democracy?

When it comes to arms manufacturing, the US has more than a bit of historical form. Over the course of two world wars, the immense productive capacity of the United States earned it a reputation as the so-called “arsenal of democracy”. And over the course of the Cold War that followed the defence industrial base would evolve and innovate as part of a broader competitive arms race against the Soviet Union. But after the Wall came down things began to change. The defence industrial base contracted and settled into new missions, and a world where great power competition and attritional conventional war fighting was hopefully a thing of the past.

Unfortunately, February 2022 demonstrated they absolutely weren't. Leaving the US and its allies to look for ways to reinvigorate their defence industrial production to meet the challenges of this new reality. Earlier this year we found out how the US plans to do it with the release of the National Defence Industrial Strategy. It was a 59 page blueprint aiming to at least partially re-ignite that old arsenal of democracy. And today we are going to crack it open and ask what it might mean for the military-industrial struggle between the United States, their allies, and major military competitors like Russia.

OK, so to do that, I'm going to break this up into a couple of sections. I'll start with a brief intro to the US defence industrial base and its experience of the peace dividend after the fall of the Soviet Union. Then I'll have a more detailed look at the main topic of today's episode, the National Defence Industrial Strategy, and three of the core priorities that sit within it. What you buy and how, so acquisition strategy. How you build things, which is your supply chain. And who you get to build it, which is your workforce component. Once that's done I'll zoom out to ask some of the big-picture practical questions.

Like is any of this working, and is US defence production actually ramping up since 2022? And if the answer is yes, how should we expect that trend to evolve going forward? And what might it mean for global competition and the balance of military power? As a quick note on scope though, for the purposes of this episode I am going to pare down the definition of the defence industrial base. In the NDIS and this episode, the main focus is going to be on the manufacturing component. The process of designing, building, fielding and sustaining specific pieces of kit. What I'm not going to be going into so much are things that sit more on the research and theoretical side. That's not to say that the R&D side of military development isn't interesting or important, it is,.

But today the focus is on the parts of the system that gets stuff built. OK, so before we start talking about how America is aiming to rebuild its defence industrial base, it's probably worth talking for a moment about how it shrunk in the first place. Keeping in mind of course that even in a shrunken state it's still absolutely massive, just much smaller than the leviathan it was in the mid-1980s. One day I do want to do a full video on the peace dividend and the way it impacted defence industries and arms stockpiles around the world. Ranging from the merely very serious downsizing we saw in some countries, to the outright fiscal axe murder we saw in places like Germany.

The US military and its defence industrial base didn't suffer as badly from the peace dividend as some other countries. The US was still in the business of being a global power, and even if it didn't have a major competitor any more, being able to project military power anywhere in the world was always going to come with a price tag. But that price tag was always going to be considerably cheaper than facing off against the Soviet Union all the time. And so US funding for the Department of Defence, which had been 6.5% of GDP in 1965, 8.5% during the war in Vietnam and 5.7% during the Reagan build-up of the mid-1980s.

Was steadily slashed over the course of the 1990s to an almost European 2.7% in 1999. That was nowhere near enough to provide the order base to support the US defence industrial base that had been built up over the course of the Cold War. Without a Soviet-scale threat, it just didn't make sense to procure on the same scale any more, and now the military had a massive stockpile of shit left over that it had built preparing for a war that never came. That was obviously fantastic news for humanity, and I'm very happy I was born into this world rather than a live-action Fallout game. But for a lot of US defence firms and their workers it was a time of reckoning.

In 1993 there was an event that's come to be called the “Last Supper”. Representatives from a wide range of US defence firms were called together for a meeting. The Secretary of Defence reportedly invited them all over to the Pentagon, and was kind enough to give them all a meal before telling them their world was about to come crashing down. They reportedly were essentially told in no uncertain terms that the government was very grateful for their service, but most of them were now surplus to requirements. Government would not be putting out subsidies to sustain the industrial base in the absence of orders, and so in reflection of the new reality it was time for a lot of these firms to sell up or shut down. What followed was a sustained period of massive consolidation.

Where significant parts of the defence industrial base, some of it with names dating back to the Second World War or beyond, were consolidated into what we now know as the “big five”. Lockheed Martin, RTX, General Dynamics, Boeing and Northrop Grumman. You can see an illustrative chart from a CRS report that I'll link in the description on screen there. By fiscal year 2022, those big five firms reportedly accounted for about a third of all US DoD contract value. And of the 78 major weapon systems covered in the 2024 budget, about 3/4 of them had one of those big five as the prime contractor.

In the 1990s size through consolidation was going to be one of the paths to commercial survival. And it wasn't just firms that were consolidating and downsizing, it was productive capacity as well. Some production lines slowed down to a crawl, others were shuttered entirely. Without Soviet super-subs to hunt, the US shut down Mark 48 torpedo production. Without the Soviet Air Force in the picture, the Stinger production line was also allowed to go cold. The defence industrial base as a whole reconfigured around the goal of supporting foreign military sales, counter-insurgency efforts, and the reduced requirements of conventional military deterrence in a world where there was no longer a major threat.

Of Moscow invading countries and starting a major war in Europe. Which must have seemed like a fantastic assumption, until Moscow started invading countries and started a major conventional war in Europe. That invasion and its lessons, coupled with the steady increase in Chinese military power, was a shock to the US system. Suddenly the global security environment felt less late-1920s and more late-1930s. And demand for just about everything in the US and abroad went absolutely ballistic. Following February 2022, the US showed some of its massive capacity. It was able to become Ukraine's largest arms supplier, make additional sales to allies,.

And work on re-equipping its own forces all at the same time. But it was also forced to seriously confront some of its limitations for the first time in decades. Where, metaphorically at least, the government and a bunch of foreign buyers turned up at the old ammo factories, asked for a couple of million rounds of artillery ammo, and were basically told, “Sir, this is a Wendy's.” A lot of the old munition production capacity, especially for things like unguided artillery shells, just wasn't there anymore. And while stockpiles and allied production could probably cover things to an extent, it was still probably an uncomfortable revelation for a military superpower.

And so with the Russian tank armies rolling around the place making it fairly obvious the world might just be back in an era of great power competition, a major focus in the US and many foreign capitals was how to get the defence industrial base to now change course. One thing to say up front is that while February 2022 was obviously a massive shock to the system in the US and around the world, it wasn't like every policy maker in Washington DC suddenly woke up on the 1st of March 2022 and was like, “Shit, where do I put all the factories?” Successive American administrations have prepared studies on US manufacturing and the defence industrial base,.

The challenges they were facing and the way they were evolving. Strategies and reports ultimately can be fairly easy to write. And a Defence Industrial Base Strategy will sit alongside a Defence Small Business Strategy, a National Defence Strategy, an Advanced Manufacturing Strategy, and a range of other plans, reports and strategies aside. Indeed, if you could fire strategies out of cannons, global militaries would probably never run short of ammunition. But looking at some of the reports and strategies released in the past does demonstrate the extent to which the understanding of a given problem might have evolved over time.

There was a 2018 report for example, which identified 5 so-called “macro factors” that were placing pressure on the DIB. These included the decline in US manufacturing more broadly, shortages of STEM skills in the workforce, government procurement practices, industrial policies in competitor nations, and what the report described as the increasing “sequestration and uncertainty of spending”. Which was basically a polite way of saying that the US Congress at the time seemed to be getting progressively worse at passing budgets, you know, one of its main jobs. To the point where in 2017 the Department of Defence actually spent 217 days operating under a Continuing Resolution,.

Which is basically the budgetary equivalent of just kicking the can down the road. The report also included some pretty stark figures around labour shortages in manufacturing. With, as the chart on the top right there shows, a steady increase in the gap between newly advertised manufacturing jobs and successful hires into those jobs. Then in 2023 we got something a bit different: a Defence Industrial Base Strategy. It also included a long list of reasons that the defence industrial base might be facing a couple of challenges. You know, just the casual inadequate workforce, non-competitive practices, long lead times, sub-par readiness, fragility of sub-tier suppliers, lack of market share, over customisation,.

Obsolescence, instability of procurement, funding uncertainty, limited visibility of allied and partner requirements, and underutilisation of multi-use technologies, you know, no biggie. But as much as that is a pretty intimidating list, it is worth remembering that a lot of countries are dealing with those problems, and some are dealing with entirely unique and distinct problems. So while the US defence industrial base was obviously under pressure, it was also starting from a baseline of being the world's largest arms exporter, primary supplier to the best-funded military in the world,.

As well as being embedded in the world's largest economy with easy access to finance and capital. So it wasn't all bad, it just wasn't 1985. So what that National Defence Industrial Strategy did was set out four priority areas, along with actions intended to address them. Those were resilient supply chains, workforce readiness, flexible acquisition and economic deterrence. And while that last one probably belongs in a different sort of video, today I do want to take a solid look at at least the first three. OK, so let's then start with the supply chain part of the picture. Before the pandemic, the word “supply chain” probably didn't come up much in casual everyday conversation,.

But after going through the novel experience of toilet paper shortages and massive inflation, everyone is probably just a little bit more appreciative of just how important supply chains are. And the defence industrial base has some of the most complex and interconnected ones that you will ever see. So if you're wondering what a resilient supply chain might mean in a defence context, the strategy defines what it is trying to achieve here as a situation where “The defence industrial base can securely produce the products, services and technologies needed now and in the future at speed, scale and cost.” Now two things stand out in that statement, firstly, it very much wants it all.

Usually speed, scale and cost are things that you'd see traded off against each other. If you want low cost for example, you buy slowly and at scale. If you do want a rush order, you are going to have to be prepared to pay through the nose, or temper your expectations on quantity. But here the US is basically saying in black and white that it wants an industrial base that can do it all. The second thing that stands out is that it sort of hints at the supply chain trauma we have seen over the last 2 years. For years you could argue the Western defence industrial bases were just quietly turning over. Delays and cost blow-outs were often costly and embarrassing, but not necessarily mission critical.

And a lot of major orders out there had very long lead times and relatively small quantities involved, at least by historical standards. Then Vladimir Putin kicks off his Special Global Defence Demand Stimulus Program, and then suddenly everyone is rushing off to their prime contractors saying they no longer want a small number of weapons over the next decade, what they actually want is all of the weapons in the next week or two. And even though some countries were willing to start flashing the credit cards at that point, as the demand surged in all sorts of things started to creak and break in those supply chains. If you want to illustrate that point, look at perhaps the most.

High-profile consumable of the war in Ukraine: artillery ammunition. With a couple of exceptions, in the lead-up to February 2022 most NATO nations were basically treading ammo when it came to artillery purchases. They were covering annual expenditure on training requirements, and perhaps the retirement of old ammo, but that was pretty much it. There was certainly some slack production capacity in various European states, but when everyone wanted to start adding zeros to their annual production orders on short notice, that was never going to be enough. And the problem some countries have discovered is that even if you're willing to.

Throw money at the problem in the short term, which countries have done, (the price of new-build artillery ammunition in Europe has increased several times over in many cases since February 2022) having slack capacity for one input to a shell, say for example the metal casings, doesn't help you very much if you are missing a source of, say, fuses, or the energetics to pack in the shells. And a difficulty in getting an adequate supply of energetics has been one of the major drags on the ramp-up in US artillery ammo production. US plants might be able to build a certain number of metal casings, but generally speaking most artillery rounds are considerably more effective when they explode.

Which means, in the US case, getting your hands on enough TNT (or preferably an insensitive munition) that lets you convert those 155mm metal casings from cannonballs into artillery shells. Part of the answer there has been tapping the US alliance network, but we'll come back to that a little bit more later. Sometimes the supply chain bottleneck has been a little bit more high-tech. The US is currently in the midst of an effort to ramp up the production of various missile systems, particularly for the Navy and the Air Force. It's been reported the medium-term goal for Standard Missile 6 production for example, is to roughly double it from 100 to 200 per year.

And while there are a variety of pinch points across different programs, as US Rear Admiral Okano reportedly put it, “The bottleneck is rocket motors.” And part of the challenge in getting enough of them is that there just aren't that many companies in the US supply chain that are qualified to make them for US contracts. And in the worst cases the supply chain wasn't cool, concentrated or under stress, so much as just dead. Some of the systems in US inventory have been out of production for years. The original networks of subcontractors and suppliers may be out of business or have moved on to different things. Making some parts of the US inventory basically lost tech.

In real life, unlike a video game, when you discover a new technology you don't just have it forever. Industrial expertise instead is often a use it or lose it situation. If you lay off everyone who knows how to do a certain task, no one's going to be spending their lunch break at their new job brushing up on their old “how to build a Stinger missile” skills just in case those ever come in handy again. So when a production line goes cold, like for Stinger or the Mark 48 torpedo, a lot of stuff might have to be relearned and systems potentially redesigned before that line starts cranking out product again. OK, so you might have overstretched supply chains that are a little fragile,.

That might struggle to provide enough of the stuff you want as quickly as you want it, if indeed it can remember how to build it at all. The next question, provided you don't want your military to revert back to bayonet charges during a major war in order to save on ammo, is how might you go about ruggedising those supply chains? The US strategy puts forward 8 action areas to make that happen, you can see them on the right there, but for the sake of efficiency I think some of them can be bundled together. Step one is just establishing extra capacity, aka building up the system so it can make more stuff. This might seem intuitive and sounds very simple.

If you think you might need 500,000 shells per annum in a crisis, make sure you have enough slack capacity in your system to make 500,000 shells, even if you are not doing it all the time. The problem is that that's often much easier said than done, especially when you are talking about private sector facilities. In this area the strategy leans on two distinct actions, continuing to expand support for domestic production on one hand, and incentivising industry to improve resilience by investing in extra capacity on the other. Those might sound similar, but a lot of the sub-actions for that first one,.

Expanding support for domestic production, have to do with government-owned facilities. Those GOGO or GOCO sites for example that manufacture a lot of the army's barrels and artillery ammo. GOGO facilities, by the way, are not in fact as fun as they sound, it just stands for Government Owned, Government Operated. While GOCOs are hybrid facilities where the government owns it but contractors operate it. Here the US is investing pretty heavily in modernising and recapitalising sites that in some cases date back to the Second World War. The Army is getting about $4.5 billion over 15 years to modernise.

Its organic industrial base, focusing on things like barrels and munitions. But by far the bigger line items here are the billions of dollars going to modernise America's four public shipyards. As publicly-owned facilities modernising them may not be cheap, in fact it's likely to be very, very expensive, but at least the investment logic is simple. You take government money to buy a new asset, which will be owned by the government, and you can be pretty sure that asset will be used the way you want it to be used because, you know, you own it. If the government wants slack capacity it just has to buy it and pay for it.

But if you're talking about that second objective, incentivising private industry to improve resilience by investing in extra capacity, things get a little harder. In part because if you are a private company driven by profit motive, oftentimes having a bunch of spare capacity that you are not actively using 90% of the time may be about as popular with shareholders as heating company buildings by burning massive pallets of cash. The problem runs deeper than just paying a workforce to hang around even when you don't have work for them, the deeper problem is what yield you expect to get relative to the capital you've invested.

Imagine you operate a private military shipyard. Ideally, when you have contracts and you are building ships, life should be good. Your contract should be calculated to give you a profit margin so that you do come out ahead even accounting for all of your cost base and things like depreciation. That should then translate into a chunky return on equity, which is basically how much profit is the company generating relative to the equity invested in it. If everything works as intended, the shareholders provide the capital, the company invest it in productive infrastructure and uses that to make profit. But here's the kicker, what if those shareholders instead invested.

In a bunch of productive infrastructure that you don't end up using? Even if you didn't borrow to pay for the assets, and this is some dystopian future where you can put all the workers and their families into stasis pods rather than pay them their salaries whenever they are not needed, you still might have a multi-billion dollar facility that isn't generating profit. Meaning that financially and in the short term, the company may have been better doing almost anything else with the money, including potentially just putting it in the bank rather than in a shipyard. So how do you potentially convince companies to invest.

In slack capacity that may only be profitable during a major crisis or war, and take on the risk of it just becoming a massive drag on their return on assets and return on equity ratios? If you are not sure, that's OK, this strategy isn't either. It simply says that encouraging defence suppliers to build substantial spare production capacity will require coordinated effort by industry, Congress, Department of Defence, etc. It also says that Defence will seek to establish risk sharing mechanisms and technology sharing structures with industry. But the words “risk sharing” there might provide something of a hint.

Basically government needs to find a way to make it less risky for private industry to maintain infrastructure and assets that may not be generating profit all the time. That might mean predictable long-term demand that guarantees even if an asset isn't going to be fully utilised, it will be at least reasonably utilised most of the time. Or you can have a situation where payments are made for example, to compensate for maintaining that extra capacity. Think of it as like the industrial equivalent of paying a lawyer to be on retainer. You are not buying a product or service, you're buying the right to access it quickly when you really need it.

Another element of the supply chain focus part of the strategy is to deepen the bench of suppliers that are selling into the defence ecosystem. Basically find firms that are already active in the civilian market and get them to start bidding for defence work or integrating into supply chains. In theory that's a great idea because you might be introducing new talent, new capacity, and also new competition. One of the great pricing threats in any defence industrial base is when you only have one or two suppliers for some sort of critical input. What might happen then is they can name their own (sometimes extortionate) price.

That gets rolled up into a bigger overall bid by a prime contractor, a profit margin is then applied on top of that, and government ends up buying what should be a $100 spare part for the price of a used car or something. Getting more suppliers into the system reduces the risk of that happening, but it can also be difficult. There might be massive barriers to entry, to getting your firm into the defence ecosystem. Perhaps the investment in cyber-security that's required or adhering to defence standards, which might just not be worth the hassle, especially if you are something like a small business. Plus it doesn't help that between 2011 and 2020, the DoD went from contracting with more than 40,000 individual small businesses to less than 25,000.

So when the strategy talks about the need to minimise barriers to entry and get more businesses through the door, there's probably going to have to be a little bit of care taken to make sure that the door in question is not in fact the exit. Then once you have brought more businesses into the defence ecosystem, it's a matter of finding bottlenecks and aggressively troubleshooting them. This is a role of organisations like JPAC, the Joint Production Accelerator Cell. Officially the role of JPAC is to “spearhead efforts to increase munitions, weapons, platforms and other materiel production rapidly by coordinating across the department and with other agencies and production partners.”.

They might look at the supply chain for an essential munition, figure out why it's not working, get everyone to accept that “Yeah, that's probably a problem.” And then they throw money at that problem until the problem goes away. JPAC is actually a successor to something that was set up pretty soon after the Russian invasion of Ukraine called the Munitions Industrial Deep Dive. But it was all a bit MIDD, so soon after we got JPAC and a significant amount of deployed capital and effort. But even if you have a good plan to make sure there's extra productive capacity there just in case you need it, ramping up production is never instant.

And so a resilient supply chain probably needs a cushion, a shock absorber, a bunch of stuff you have stockpiled and ready to go to cover you in the short term if there is ever a major disruption. And so as the strategy describes it, there's a need to “Manage inventory and stockpile planning to decrease near-term risk.” And that isn't just about keeping completed systems like spare tanks in storage, it's about stockpiling strategic materials and industrial inputs so the defence industrial base can keep rolling even if the global supply chain has a sudden seizure. This is where the Defence Logistics Agency comes in.

A part of the US defence ecosystem I'm sure you all knew existed before this video. And among other things, what the DLA does is maintain some truly massive storage sites where the government basically puts aside a whole bunch of shit that it might need in order to make stuff in an emergency. For the truly curious, every financial year the DLA publishes a list of materials that it expects to want to buy or sell in the coming 12 months. And so if you just happen to have a spare 1,300 tons of lanthanum, 15,000 tons of titanium, or 20 million pound of explosives handy, you know, for home defence purposes or something, keep an eye out – Uncle Sam might be buying.

And the list really does cover a lot of ground, going from relatively basic goods everyone has probably heard of, like tyre cord steel, through to stuff that probably doesn't make the Sunday shopping list – like samarium-cobalt alloys. But for me, perhaps the most interesting element of this priority and one of the things that sets the European or American defence industrial bases aside from that of, say, Russia's, is the role of leveraging foreign connections and resources in order to build supply chain resilience. This may or may not be a surprise to some of the Americans listening, but even an economy the size of the United States can sometimes struggle to do everything itself.

Fortunately, when it comes to defence production having friends can be a bit of a superpower. For example, what are two things you really want to have in order to make an efficient, reliable, scaled supply chain? Well, you want lots of demand, and you want it to be fairly reliable and constant. The problem is for a lot of systems the US might not buy enough to provide the necessary scale, and with Congressional spending debates being what they are, you can't necessarily guarantee smooth demand either. And so one element the strategy leans on then is improved foreign military sales, simplifying the FMS process to ensure commercial viability.

So if you are a military supplier during one of those months where the US government is deciding if it wants to voluntarily default or not, fear not, you might have a cushion of foreign demand and a place to keep shipping your product in the interim. The strategy also talks about the importance of minimising customised solutions where appropriate, and standardising systems for exportability. Basically don't overdo it with the custom features and gold plating, build something for the US military sure, but which you are probably going to be able to sell abroad too. And if all of those elements come together, you might also start to realise the third benefit.

Where, as the strategy puts it, you “develop, grow and sustain multiple redundant production lines across like-minded nations.” Because the more US allies that are out there building US designed systems, or components for US designed systems, the more options you might have in a crisis. For example, both Germany and Japan are going to be manufacturing Patriot missiles. Unless you are in a World War Three scenario, it seems very unlikely that a crisis that affects Germany would directly affect Japan and vice versa. So if there is a crisis in Europe you might see exactly what we've seen with the war in Ukraine, where America goes to Japan and says “Hey, Asia's not on fire right now,.

Can we have some Patriot interceptors?” And then later on if the situation is reversed, Europe has quietened down a little bit while Asia is flaring up, you can reverse the process and go “Hey, Germany, how about some of those interceptors?” We've talked recently about how some Korean firms leverage this strategy, but it's also long been part of the American defence industrial model. This is where we've seen the increased focus on the concept of friend-shoring when it comes to defence industrial production. In recent years a number of countries, including the United States, have publicly become a little bit more nervous about the way their supply chains often rely on foreign inputs.

Sometimes the solution might be to try and bring some of that supply chain back home, called on-shoring or re-shoring. But if you are facing severe workforce shortages, or talking about a raw material that is literally in the ground somewhere, you can't exactly move everything. So a compromise position might be friend-shoring, where you take things that you can't move back home, and instead you just move them to friendly countries. You build F-35s in Italy, Patriot missiles in Germany, and then you go and invest heavily in rare-earth metal production projects in countries like Brazil and Australia because a) they are both pretty good at digging shit out of the ground.

And b) they are probably less likely to cut you off in a crisis than the currently dominant global supplier, China. OK, so you have your factory, your rugged supply chain, and a good understanding of what it is you want to build, that's great. But until the robots well and truly take over, having the best factory in the world doesn't mean anything if you don't have people to work there. So I think it's time we turn our attention over to the workforce side of the industrial strategy. As a bit of context here, the manufacturing workforce in the United States, and in the DIB in particular, has shrunk considerably from Cold War levels.

Between 1979 and 2023 the number of manufacturing workers in the United States fell by about 36%, or 7 million people. The defence industrial base lost an even greater share of its workers over a shorter period of time. A more than 60% reduction, roughly 1.9 million fewer people between 1985 and 2023. And in both cases, while those figures already look dramatic, they miss the point that over that time scale the US population as a whole increased considerably. And so if, leaving any other demographic factors out of it, the industries had just been treading water as a percentage of population, they actually would have expected to see significant increases, not sharp declines.

To illustrate that point, if the US defence industrial base employed about 3 million people in 1985, then holding constant as a share of population would have lifted that number north of 4 million by 2023. The actual figure for that year was closer to 1.1 million. And that defence industrial workforce hasn't just shrunk, statistically speaking, it's also become disproportionately reliant on older workers to fill a lot of the jobs that are there. We've talked a lot about militaries basically coasting on the capital and equipment they built up during the Cold War, but to an extent you could argue the industrial base is also still leveraging a lot of human capital from that era.

And when it came time to reactivate the Stinger production line for example, RTX found itself calling back retired employees, some of whom were in their 70s. The key issue here is that even though technology and automation has improved in many cases, a healthy defence industrial base still needs a significant supply of skilled and qualified workers. And while the US does have a lot of those, it may not be sufficient to meet the envisaged requirement. With the strategy saying, “The labour market lacks sufficient workers with the right skills to meet domestic production and sustainment demands.” A potential deficit of sufficiently qualified manufacturing workers is not a distinctly American phenomenon. There's one report, which I'll link in the description,.

Which predicts shortages of manufacturing talent across a range of industrialised countries. (basically everyone that isn't India) by the year 2030 if nothing changes. Russia was one of the countries expected to start suffering skilled labour shortages around that time, but the combination of emigration, conscription and the move over to a wartime economy has sort of moved that timeline up a bit. There are also some indications that the issue may stretch into the future. US students for example are reportedly about half as likely to do STEM degrees as those in Germany or China. But while those figures might seem pretty stark for the US.

And its industrial base, let alone its defence industrial base, there are a couple of figures that are starting to point in the other direction. Between 2010 and 2018 the Pew Research Centre found that the number of bachelor's degrees being awarded in STEM fields was growing at three times the overall average. When it came to master's degrees, the figure was four times as quickly. In recent years there have been some massive announced investments in US manufacturing, in part due to things like the CHIPS act which provided significant support for semiconductor manufacturing. As you can see on screen there, investment in constructing manufacturing facilities.

In the US increased massively from 2022 onwards. And as of early 2024, reportedly the number of US manufacturing workers was 200,000 higher than it had been right before Covid. For US manufacturing as a whole, or graduates interested in these sort of fields, that's probably fantastic news, but for the defence industrial base it might be something more of a mixed bag. There might be stronger and broader supply chains, and a larger overall supply of labour to draw on, but competition for that labour might be fierce. Now whether you're talking about the defence industrial base or the wider economy,.

There are a couple of factors that can sometimes make workforce policy particularly complicated from a policy perspective. The first problem, and please don't quote me out of context here, is that people tend to want to exercise free will. Outside of a few outlier examples, people generally have options as to what they study, what jobs they pursue, and what careers they try and take up. And while there are a huge range of factors that can help inform those decisions when they are made, everything from familial pressure, to personal passion, to rational or irrational calculus around expected rates of return.

I imagine there are not many young people out there making career choices based on what would be economically convenient for the nation's defence industrial base. So whereas government might be able to quickly intervene to solve potential capital problems, say by subsidising or investing in a shipyard or a factory, it can't just suddenly round up half the national supply of finance bros and tell them “Guess what? You are going to learn how to weld now.” The second fundamental problem is that skilled labour can often be a very, very long lead time item. We've talked before on this channel about how some supply chains can struggle with items that have lead times measured in years instead of months.

But if you have skilled workforce positions that require a degree and 5+ years of on-the-job experience, then that person needed to be picking the right university degree about a decade ago. While there might sometimes be fast tracking policy tools that nations can leverage, to a great extent the workforce you have today is a product of policies and choices that were made many, many years ago. To try and address that challenge the strategy sets out five actions. You can see each of them on the right there, but I'd summarise some of their core points as follows. Firstly, they want to work on getting more people into the pipeline.

That eventually produces trained DIB workers. Part of the challenge is just making sure that young people are aware of the career option and take it seriously. When a school teacher asks a bunch of kids what they want to be when they grow up, little Timmy might say he wants to be a teacher, a police officer, or (heaven forbid) an influencer. It's rather less likely he says he's deeply passionate about manufacturing precision guided munitions. Now the strategy doesn't set out to solve that travesty in particular, instead it just aims to do what it describes as “destigmatising industrial careers” in general. Partnering with institutions like high schools, colleges and universities.

To help reach more people who might consider a future career in the manufacturing sector. The strategy also talks about the potential value of making sure that reach extends to places and cohorts where historically participation rates in manufacturing or the DIB are below the national average. Then, once you've got more people in the potential pipeline, it's about providing them options to get somewhere. This is where things like the action to “increase access to apprenticeships and internship programs” comes in. Now if you want to pick up just any old apprenticeship skills, like doing the lunch run, taking the fall for mistakes at work,.

And discovering the unique experience of busting your gut at a work site while everyone else sort of slacks off a bit, then any serious Aussie tradie will be happy to take you on. But if you're an American and more interested in things like qualifications or something, there are apprenticeship programs like the one run by the USN Fleet Readiness Centre Southwest that aim to serve as a pretty direct pipeline for young people looking to get into the DIB workforce. That program I believe runs for 4 years, leaves participants with an associate's degree and a certification, pays an hourly rate, and reportedly has a 100% job placement rate for participants when they finish the program.

Of course the program does fall short in one significant area, namely it denies participants the traditional American experience of racking up a house deposit or three's worth of student debt over the course of their education. The strategy also acknowledges that the workforce problem doesn't end with the pipeline. It also acknowledges that you have to keep investing in defence-essential industrial skills and importantly, keep up-skilling and re-skilling the workforce that you have. Up-skilling and re-skilling are often a) a way to get more out of the workforce that you currently have in place. B) a way to make sure that your processes can more easily keep up with the state-of-the-art and best practice. And c) take situations where old jobs disappear.

And instead of losing the workforce from manufacturing entirely, instead try and retain some of those transferable skills and experience by retraining those workers, but retaining them inside the overall ecosystem. And that's something parts of the US DIB are probably going to have to be pretty good at doing, because some areas are expected to face pretty steep demand for qualified workers in coming years. If you want just one example of that, let's look at the US submarine industrial base. The US really only has two shipyards that can build the Navy's nuclear submarines. And as the strategy notes, a lot of the skills those shipyards need don't really have a direct equivalent in the civilian sector.

Some skills like nuclear welding are described as being “difficult to acquire outside of US Navy programs.” And it's not just that these shipyards demand valuable specialised skills, they're also expected to need them in very serious quantities. It's no secret that the US isn't currently producing subs as quickly as it would like to. There are ambitions to change that, coupled with significant investments in infrastructure, but the workforce requirements involved are expected to be extensive. It's been suggested that over the next 10 years the submarine industrial base will need to hire nearly 100,000 trained workers at its primary construction yards, and about 17,000 people at various vendors.

And that potential workforce shortage isn't just merely an inconvenience, it's a potential hard barrier against the US Navy hitting the force levels it thinks it needs, or the US being able to do potentially strategically advantageous things like sell some of its platforms to allies. As we've just discussed, the strategy document does have a range of actions that might address some of these challenges. But I think it's worth noting as an aside that, just as with supply chain challenges, one potential answer might be to lean to a greater extent on America's allies. A lot of them have workforces with valuable skills and considerable expertise.

So it might make sense in some cases for the US to find ways to access that foreign human capital and integrate some of those countries into the supply chain to take pressure off the US side of operations until the American workforce can be built up to where it needs to be. But as to what extent the US chooses to lean on that option in the coming years, only time will tell. What the strategy seems to accept however, is that even if you get the industrial part of the problem right, you build fantastic supply chains staffed by skilled workers with plenty of access to capital, there are still an enormous number of ways for things to go horribly, horribly wrong and a bunch of money to be set on fire with very little to show for it.

I know you all want to know the secret of how to do it, and the answer is procurement. Buy the wrong stuff, or buy it in the wrong way, and you will be amazed at just how little return on investment you can get on your military spending. Heck, take it to the extreme and you might even get complimentary Canadian citizenship. And so what the strategy sets out to do is, even as it's trying to reinvigorate the defence industrial base itself, is look at how you can also come at the problem from an acquisition angle. As the strategy puts it, “The Russian Federation's full-scale invasion of Ukraine highlights how protracted attritional conflicts can rapidly deplete military resources.”.

And so there is a need for a system of acquisition that ideally will reduce development time, cost, and increase scalability. Basically design things faster, buy more of them, and do it more cheaply. That's fantastic, and basically the holy grail of procurement reform. Although the strategy does include at least one sentence which is designed to not scare people, saying, “It is vital to establish that the term 'flexible acquisition' does not directly call for broad-based acquisition reform.” To some that caveat might be a little disappointing, especially those of you who've watched my video on all the ways.

Existing procurement practices can sometimes go horribly, horribly wrong. But as we'll see in a moment, while the report explicitly says that it's not about broad-based procurement reform, a lot of its actions and recommendations sound an awful lot like procurement reform. Or at least a significant cultural challenge to the way things sometimes might be done. As with the other sections, I've listed all the actions in the strategy on the right there. And as before, I'm going to bundle them up under some big headings for you. But here I might pick up the pace a bit, because if you've watched my video on how procurement can destroy armies,.

You are probably already across some of the issues the strategy identifies. OK, so problem one: unnecessary over-customisation. Every military has a tendency to think that it is special, that its needs are unique, and that it has a very specific way of doing things, and very specific equipment that it's familiar with. And as a result, even when the original intention is to go and buy something that is commercially available off the shelf, you will often still have a process to identify the minimum necessary changes you need to make in order to adopt it. When Polish crews are getting Korean equipment for example,.

They probably don't want all the controls to be in Korean. But once you start talking about changing a system in almost any way, there's pretty good odds someone is going to ask that innocent question, “Hey, wouldn't it be great if …” And then people start getting visits from the bloody good idea fairy, the tinkering starts, one thing leads to the other, and then suddenly they've pimped their ride so heavily that the price has been doubled, the number of spare parts in common has been reduced to 10%, the economies of scale have been obliterated, the procurement is many years behind, and by the way, the bloody thing doesn't work any more.

As the strategy notes though, the customisation problem goes well beyond individual projects. It can instead happen when the Department of Defence for example, creates a new standard for something when a perfectly reasonable existing industry standard already exists. Fragmenting your standards for things can be a catastrophically bad idea, because it cuts you off from a lot of the market, makes it harder to sell your components or your products to other countries with different standards, and generally risks making your supply chains more fragile and more expensive. For example, recently Admiral Rob Bauer, the head of the NATO Military Committee, complained publicly about standards when it came to artillery ammo.

NATO has a number of standard artillery calibres, perhaps the most famous is the 155mm. But not all 155mm rounds can be freely interchanged between various 155mm guns. Which the Admiral objected to from the perspective of making sure the soldier on the battlefield was as well armed as possible. As the Admiral put it, when soldiers on the battlefield are looking at a box of 155mm shells, “they don't care who produced them, as long as they fit and can shoot straight.” And while there might sometimes be reasons for that sort of customisation, sometimes, the Admiral implies, it's because manufacturers of a particular artillery piece have an incentive to make sure it only accepts ammunition that they manufacture.

He actually compared some manufacturers to companies selling printers, saying they don't get rich selling the printer, they get rich selling the ink. In this case the shell. In any industry, if you manage to produce a proprietary solution to a generic problem, then commercially congratulations, you may just have protected yourself from future competition. But the Admiral is suggesting that countries in NATO now try and clamp down on this sort of thing in order to increase interoperability, and make it easier for the alliance to source additional ammunition. And the strategy does say that the US should try and avoid that sort of unnecessary customisation where at all possible.

As the strategy puts it, they should instead prioritise off-the-shelf acquisition where applicable and reasonable. But perhaps just as important as avoiding unnecessary customisation, is controlling when that customisation happens. Because one of the great enemies in defence procurement, regular procurement, or just about any business activity you care to name, is scope creep. Where people working on projects from the LCS to the Arjun main battle tank in India cannot resist, but continue to revise the requirements throughout the entire process. Sometimes even once people are already cutting metal and the production line is hot.

The strategy wants that to start happening less. Strengthening the requirements process so it is more likely that things are got right up front, everyone says their bit, and everything necessary is considered. And also so it's then harder for designs to be constantly revised once things are well and truly under way. I mean, my personal solution would be to station a pair of Marines to guard the principal design documents of every major weapon system with orders to repel any attempt to change those plans. Unless of course the Secretary of Defence himself walks in and does it himself.

Somehow though, that idea doesn't appear to have made it into official US government strategy yet. If scope creep is about preventing requirements from changing there's also some interest in just setting simpler requirements. Recently for example, it was reported that the US Navy might be interested in getting a second type of torpedo to go along with the Mark 48 ADCAP. The Navy's Program Manager for undersea weapons, Captain Chris Polk, reportedly described this as the Rapid Acquisition Procurable Torpedo, or RAPTOR. With the concept being a torpedo that doesn't cost $4 million like the ADCAP, but instead $500,000 or less. Plus preferably assembled from easily sourced components with lead times short of a year.

Now if that worked, RAPTOR almost certainly wouldn't be as capable as the Mark 48. It might be full of civilian components and probably have nowhere near the same performance characteristics. But the point Captain Polk, this strategy, and other sources have tried to make is that you don't always need a Mark 48. The ADCAP is what the Navy came up with to kill Soviet nuclear-powered submarines that could do 30-something knots submerged and dive so deep they accidentally find the set for the next Meg movie. If what you are shooting at isn't a Soviet super-submarine,.

Maybe you can make do with a cheaper option. Whatever products the US ends up buying, the strategy stresses they should probably consider buying the IP that goes along with it. With the document recommending that government, “Increase access to intellectual property and data rights to enhance acquisition and sustainment.” This is a hangover from an older procurement approach where to potentially save money on a procurement, the government might not buy all the intellectual property. And as a result have relatively limited options to sustain the platform, modify the platform, even understand the platform without the contractor's involvement.

Reportedly this issue has cropped up across multiple US projects, but most recently we discussed it in the context of the Littoral Combat Ships. There you had ships that were highly dependent on contractors for maintenance, and where there were some systems that crews literally could not maintain themselves. Which in some quarters did raise a number of important questions, like: why? And: is the expectation there that in the event of a major conflict there will be enough contractors out there willing to fly into the middle of a war zone in order to keep ships operational? Contractors are obviously still going to play a massive part in the US system.

But in the future DoD might be a little bit more insistent about buying things like the relevant IP. Next up, despite directly saying the strategy is not about broad procurement reform, there are some bits in the strategy that reading them sound awfully like, “Hey, wouldn't it be cool if we did some procurement reform?” There's discussion of things like flexible funding and procurement mechanisms, modifying contract authorities to better align with present defence production priorities, and the need to “Orient acquisition policy for aggressive expansion of production capacity.” But in the interest of time, and because even my audience probably starts to hit its limit when you begin discussing things like contract authorities,.

We'll leave the intricacies of this gem of an area for another time. Instead, we'll close out this section by looking at mobilisation authority and planning. If a lot of the time your procurement strategy and approaches are going to be about what you purchase during peacetime and how you go about doing it. Mobilisation planning is about how you convert your industry to meet your military requirements in the event of a national emergency. It used to be that many countries would specifically have defence mobilisation plans for wartime emergencies. The USSR for example had plans in place and a lot of excess machine tools.

So that if World War Three ever kicked off, a lot of those civilian factories could rapidly convert over to being military factories just in time to be nuked by the Americans. In the modern USA, that's very much not the standard. Instead the focus tends to be on good planning and modelling. And making sure that legal tools like the Defence Production Act, which basically allows the US government to go to a company and say “Hey, you are taking military contracts now, sign this one,” are up to date and fit for the intended purpose. So after all that strategy discussion, we move from the theory to the practical part of the discussion. Is any of this actually working?.

And the short general answer across the board is probably that things could be moving further and could be moving faster, but they are moving. US production of 155mm artillery shells has already more than doubled from pre-invasion levels. And plans are in place to potentially move to more than 6 times the pre-war rate over the coming years. The figures for a lot of major missile systems tend to sit around that same ballpark. Between fiscal year 2020 and 2022 the US was purchasing about 700 Javelin missiles per annum. As of early this year, the production rate has increased to 2,400 per annum, with a reported goal of going to nearly 4,000 by late 2026. To use the current estimates then, America is currently producing about.

1.5 Javelin missiles for every main battle tank that Russia is believed to produce or restore. Meanwhile Gimlers production, which was about 6,000 per annum in 2021, is expected to be about 14,000 per annum over the course of the multi-year buy running from fiscal 2024 to 2027. Meanwhile with long range missiles, we've seen a goal of more than doubling production of JASSM and its anti-shipping variant to 1,000 or more, and significant increases to production of the newest versions of Tomahawk. The US military does have something of a long-standing cruise missile habit, and the focus seems to be on making sure that industry can keep up.

I'll also quickly cover production of Patriot interceptors because the system is getting a lot of news coverage at the moment. Back in 2018 Lockheed Martin was reportedly making about 350 PAC-3 MSE missiles per annum. That's generally considered to be the best PAC-3 variant, which is the smaller missile optimised for incoming missile threats. Since then, the company has reportedly opened a new 85,000 square foot facility in Arkansas to crank these things out, and the new fully-funded production rate is a casual 550 per annum. Back in 2014, long before that 85,000 square foot expansion, the capacity of that Arkansas facility was about 240 missiles per year.

The interesting thing with Patriot is it's one of those situations where the company has put forward its own capital to go further than the government has funded it to go. While the Army has funded up to 550 missiles per year, Lockheed Martin is putting up its own money to go to 650. That's a pretty big bet when you are talking about missiles that are so expensive it would probably be cheaper to fire Aston Martins at your opponent much of the time. But as Brenda Davidson, the company's head of PAC-3 production reportedly put it, “Lockheed could see the demand out there.” In other words, they are pretty confident that even if the US Army doesn't want these missiles, someone will.

And it's worth noting that that Arkansas facility is not the only global location that's going to be manufacturing Patriot interceptors. The somewhat sobering point of course, is that the war in Ukraine is demonstrating that even 650 interceptors per annum might not be enough in the event of a protracted major war. But by the standards of even just a couple of years ago, these are some pretty serious numbers. And of course while the focus has often been on missiles and munitions, there's also been an increase in production of things that fire those missiles and munitions. RTX has reportedly indicated that their production capacity for Patriot system fire units is about 12 per year,.

Something which might put Ukraine's request for 7 of those systems into perspective. HIMARS production was about 48 per year pre-invasion, and should roughly double to 96 by the end of 2024. Of course in percentage terms that's far from the largest increase, that award would probably go to systems like Stinger or M777 that are having their production lines resurrected from a complete shut-down. Just about anyone can increase production of their system by 100%, but it takes real effort to manage “math error” percent. But it needs to be pointed out that progress is by no means uniform.

Some systems have already seen massive increases and probably have a significant way to go. Other areas are US shipbuilding, where announcing new delays is starting to feel like a bit of a tradition at this point. And where the massive investments being made haven't yet been enough to even chew through the existing backlog, let alone get the US Navy to where it thinks it needs to be. But hey, we'll save the details of that one for when we eventually do a video on US military shipbuilding: the good, the bad, and the over budget. But the big picture is while it hasn't always been pretty, simple or cheap, some US systems, particularly munitions, are starting to see very serious output increases.

And because this is the US we are talking about, it doesn't take significant percentage increases to get from large numbers to ludicrous numbers. The reported goal for AIM-9X production for example is about 2,500 missiles per year. Enough to fire more than one missile at every combat aircraft in the Russian inventory, and then do it all over again the next year in the event that they have magically re-spawned. These changes however won't be enough to resolve stockpile issues in the US or various allied states overnight. Even if the war in Ukraine doesn't ramp up the rate at which it's consuming a wide array of munitions, it's still probably going to take a significant number of years.

For NATO countries to get their magazines to where they want them to be. But we can see the production rates are lifting, and they've probably got a way to go yet. OK, so we've now spent most of an episode on how America is trying to reboot everything from its procurement process through to how it manufactures weapon systems. But what I want to do in closing is zoom out a bit and ask why that matters? Who are the major geopolitical winners in this process (other than Lockheed Martin shareholders)? And on the other hand, who has the most to lose from a reinvigorated American defence industrial base? A lot of the current discussion about American rearmament takes place in the context of the war in Ukraine, and that's entirely understandable.

But as I set out right at the start of the episode, challenges in the defence industrial base was a problem that many American administrations, Republican and Democrat, saw coming. Ukraine didn't really create the problem, it just shone a spotlight on it. And it also at, least for a while, created a bipartisan political imperative to fix the problem and a mechanism to do it. I say that because since 2022, some of the biggest blocks of funding to get the US defence industrial base rolling again have come in Ukraine aid bills. According to the US government's own figures, as of 15 January 2024 the US across various aid packages has appropriated approximately 26 billion US dollars.

For Presidential Draw Down replacements, and about 19 billion for USAI funding. That Draw Down funding basically covers situations where the US sends older munitions or weapons to Ukraine and then appropriates funding to get fancy new weapons to replace them. The key thing there is that sometimes the definition of “replacement” has been fairly flexible. The Army might for example and indeed has, sent hundreds of M113s to Ukraine, a design dating back to the 1960s. But when the Army gets given a bunch of money to replace those M113s, it can instead use it to invigorate the production line for the new Armoured Multi-Purpose Vehicle. And you'll remember I reported back in 2023 that the Army's plan at the time.

Was to fund more than half of AMPV production in fiscal year 2024 using Ukraine funding. In other words, “replacement” has often become code for getting modernisation programs moving at larger scale sooner. Similarly, those billions of dollars in USAI obligations are when US industry is being paid to manufacture new systems for Ukraine. But not only does all that money obviously go to the US DIB, a lot of it is then used to expand productive capacity to meet those contract requirements. Meaning that after Ukraine gets its order, the US is the one left with the extra production capacity. Then there are billions of dollars of other investments.

Made directly into the DIB in the name of Ukraine aid funding. Almost $2 billion for 155mm ammo, $360 million for Gimlers, $350 million for Javelin, $60 million for Stinger. More than $200 million for solid rocket motors through the Defence Production Act, and about half a billion dollars for strategic and critical materials. The list really does go on, and I've included an infographic on the right there. The key point here is that while some nations have focused their Ukraine aid on stabilising the Ukrainian budget or providing humanitarian assistance, a lot of American aid dollars are never leaving the country.

As a notable aside there, it actually got to the point where back in February Chinese state-owned news agency Xinhua published a piece titled “Revelation that most American aid to Ukraine flows to the US defence industry sparks uproar.” In which it reported that about 64% of the aid in the currently stalled aid package for Ukraine would actually be spent in the United States, funnelling money to 28 different states with major winners being Pennsylvania, Texas and Arizona. And while the article was obviously focusing on some of the criticisms of that particular arrangement, I think that figure it reports on highlights just how significant Ukraine aid has been to the defence re-industrialisation process.

And here's the thing, the investments going into the US defence industrial base go way beyond just the systems that Ukraine is using to defend itself against Russia. A lot of those investments in missile production and rocket motors we discussed earlier for example, are for systems that America hasn't supplied to Ukraine and has given no indication they ever would. Production of JASSM and its anti-shipping equivalent might be doubling for example, but one wonders if those are much more likely to be deployed in the Pacific than in Europe. And somehow I doubt the Navy's effort to expand torpedo production has anything to do with supplying a Ukrainian navy that doesn't have any submarines. Unless Pavel and his mates decide to start taking inspiration from.

The Italian frogman of World War Two, those weapons as well are probably going to the Pacific. By invading Ukraine, Vladimir Putin gave a massive wake-up call to a Western defence industrial base that at that point was mostly comfortably dozing. The process of getting funding and then going about industrial re-expansion has been a slow one. And generally speaking, Western governments haven't thrown anything like wartime emergency funding levels at that problem, but the ball is rolling and momentum is building. The problem for Ukraine is that a lot of this additional production is still months or years in the future. Knowing production is coming might give governments some confidence to release further items from storage in the here and now,.

But for the most part Ukraine is probably more interested in having a sufficient supply of munitions in 2024 than a massive supply in 2026 or 2027. On those timelines, and given some of the systems that are being ramped up, you might argue Beijing has more to lose than Moscow. A lot of studies around major security threats in the Asia-Pacific tend to highlight the risk of something going terribly, terribly wrong in the latter part of the 2020s or the early 2030s. And while all this additional productive capacity may not be that useful against Russia in the here and now, all the additional productive capacity that is being built because of Russia.

May have a significant impact on the power balance in the Asia-Pacific several years down the track. So, yeah, I bet Beijing is probably absolutely thrilled with Moscow getting America and Europe to sink billions into long-term investments in defence production. So the potential future strategic impacts are there. If it all works out as the strategy says, the US will end up with a reinvigorated and ruggedised defence industrial base, more resilient supply chains, and potentially a stronger position in the global arms market, more ability to deter competitor states. All while doing major damage to the military of one of its major rivals, Russia, as part of the process.

If you are trying to project forward though, I'd be careful not to jump the gun. Because while there's generally been an upward trend in US military production, the path to get there is proving fairly bumpy. The speed of the ramp-up in US artillery ammo production for example is now in doubt, because the funding to keep it moving is trapped in the Ukraine aid bill. We've also already seen timelines slip on a number of procurements. In early 2023 it was reported the Navy was going to ask for 120 long-range anti-ship missiles in fiscal year 2024, they ended up actually buying just 27. The Navy would then fire off 4 of those missiles in a final test for the latest configuration,.

Which at over 12 million US dollars for the 4 pack must have made it one of the world's more expensive graduation exercises. And the Navy is now saying they want to push to a goal of procuring 115 missiles in fiscal 2025. There's also signs that some old procurement habits might be pretty well dug in at the Pentagon. One example that got media recently were the new Constellation-class frigates, meant to be based on the European FREMM. Basically after the disaster that was the LCS, the US Navy's intention was to take an existing system that was proven and worked, change it a bit, but start building it while other next generation ships were designed.

Now however we are at a point where the hull has been lengthened, the bow redesigned, the generator and propeller swapped out, the displacement increased, the top side modified to accommodate US Navy warfare systems, plus the design of the ship has been broadly adjusted where necessary to meet US Navy combatant design standards. And as you can see on the right there, the silhouette of the final Constellation-class design will mostly be related to the original FREMM silhouette mostly in the sense that they are both undeniably warships. The great pain of these sort of processes is that you can imagine that.

Each of those changes individually probably had some very reasonable arguments behind them. It's just those changes tend to compound together, and often don't all get made at the same time. On a completely unrelated note, the program is now reportedly 3 years behind schedule. And while strategies like the one we've looked at call out the importance of predictable long-term procurement that give companies the confidence they need to invest in additional capacity, pressures like budget caps have already seen a range of programs slash their predicted buys in the request for fiscal year 2025.

Cuts like these can save money and help the Pentagon hit its spending targets. But they also spend a lot of that currency which can be at an absolute premium when you are trying to promote defence industrialisation: confidence that if they build it, you'll buy it. So when we come to that final question of what should we expect from the US DIB in the future, and what does that mean for the wider world, I'm sorry, but there are probably too many dependencies and contingencies for me to give you a definite answer. But instead what I thought I could do is illustrate three potential futures.

Three broad endings if you will, for what the defence industrial base will look like once this strategy plays out. One possibility is that all of this basically turns out to be a flash in the proverbial pan. Ukraine aid in the US remains caught up, funding for the defence industrial base isn't forthcoming, and all the grand plans that were developed in part because of the Ukraine invasion ultimately sort of peter out. That's obviously contradictory to the goals of this strategy, but in the end, strategies are written all the time.

And if they are not implemented, glossy PDFs alone don't tend to have macro-economic impacts. In that scenario you will still see some increases in production, a lot has already been achieved. But the follow on expansions may not happen, and procurement reform remains a giant question mark. The US defence industrial base certainly doesn't disappear in this scenario, it probably remains the most formidable on planet earth, at least for a period of time. But it ends up in 2025 or 2026 looking very similar and having a lot of the same problems that it used to have back in 2020. Another option would be a result that's somewhere in the middle.

Where you still see very significant investments, modernisation of productive techniques, firmer supply chains and greater output figures, but not to the scale of what could have been. There are plenty of ways you might get to a middling scenario, but here's just one. You could hypothetically have a case where reform, investment and rearmament efforts in the United States itself fizzle, but the sheer scale of foreign demand for US-built systems is sufficient to justify investment and industrial expansion. As we covered in our episode on arms transfers, foreign buyers are currently snapping up US weapons basically as quickly as they can be built.

In fact they are snapping them up faster than they can be built, causing a massive backlog. If companies are sufficiently confident in that order pipeline, they might decide to invest and expand even if they are not sure if the Pentagon is going to be buying. Poland looks to be buying more than 800 JASSMs, enough to basically book out the production line for an entire year. Japan wants 400 Tomahawks. The international order book for the F-35 is extensive. And in at least one system category, demand for US-built systems is so extensive that a foreign country is willing to hand over billions of dollars to expand the US industrial base, so the US can increase production of new systems for the US Navy,.

So that more used platforms can become available for international sale. Obviously there is nothing in this sort of scenario which is certain, it relies on the US alliance structure holding together and other countries continuing to view the US as a reliable supplier. But it does mean there might be a massive demand signal there for US defence firms even if domestic US efforts encounter delays or difficulties. Finally of course, there is the possibility that everything does in fact come together. Procurement processes are reformed, supply chains are strengthened, workforce constraints are overcome, demand is made more predictable,.

And US industry is able to invest in providing cost-efficient scale, not just relatively small runs of occasionally gold-plated solutions. You see a reinvigorated US defence industrial base that is well connected and leverages its various allies and friends around the world in order to establish the sort of supply chains it needs to output not just enough systems for US requirements, but for various US allies around the world as well. And it's that sort of scenario, where the old arsenal of democracy is at least partially reborn, that probably gives US competitors the most cause for concern. The US DIB may have seen some atrophy and consolidation, but globally it's still the heaviest hitter.

And so if it is able to shake off some proverbial cobwebs, relearn old skills, and move at least a little bit closer to its full potential, there's not going to be any realistic way for countries like Russia to keep up. While the competitive balance with Beijing would likely shift in Washington's favour. But whether the US reaches that point, or falls a little or far short only time will tell. And OK, let's add in a channel update to close things out. So recently I put up a poll of I think more than 20 topics for patrons to consider, and this one won by an absolute mile. When I was originally speccing up this video I thought about trying to cover.

Everything that's in the strategy, including areas like cyber-security and economic deterrence. But in the end I'm happy with the result of this more focused look, and I hope you are too. I've obviously already been working for some time on a number of the other topics that went up in that poll, and if I do run into the challenge of trying to prioritise topics that came very close to one another in the vote then I may throw those questions up to a general poll of the YouTube audience to act as a tiebreaker. Meanwhile, for those of you who might be waiting for the return of the gaming channel, expect to see that coming, fingers crossed, in the coming week. That's obviously contingent on scheduling and the postal service, but fingers crossed.

In any case, let me as always extend my great thanks to all of you who continue to watch and engage with the channel. And with any luck I will see you all again next week.

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