But one of the most salient features of the global defense industry mostly eludes visibility in the Top 100 list: the rise of private capital as critical players in the defense sector.

Click here to see the Top 100, a ranking of the largest defense companies in the world.

Whether controlled by private equity firms or families, privately owned firms play an increasingly prominent role across numerous defense market sectors. Privately owned defense firms — as opposed to those that are publicly traded or government-owned — used to be a rarity in the defense sector.

The Washington, D.C.-based Carlyle Group was an early pioneer among private equity firms, having acquired defense-related properties in the 1980s. But it was in the 2000s that private equity firms started their rapid expansion into many sectors of the global economy, including defense, aerospace and government services.

Why are many of these players missing from the Defense News Top 100 list? Privately owned firms are not required by government regulators to disclose financial information, like revenue, margin or capital investment.

Open-source information is one of the principal means, along with a voluntary survey, by which Defense News compiles the annual Top 100 list. Many private firms choose to keep their financial indicators private. Those that do show up on the list — like Sierra Nevada Corp., ranked 57th in this year’s edition — do so for their own reasons, such as brand awareness. The presence of companies like ManTech, Amentum and Peraton show some private equity owners are willing to share at least some details about the size of their defense operations.

This means many increasingly prominent players in the global defense sector are absent from the Top 100 list. Publicly available U.S. Defense Department contract data suggests the scale of some of these missing companies (a contract value can be a proxy for revenue, but the two metrics are not equal):

• Atlantic Diving Supply: Family-owned ADS is a distributor of tactical equipment to military, law enforcement and emergency services customers. ADS generated more than $3 billion in contract value from DoD agencies in the U.S. government’s fiscal 2022, suggesting it could be in the top half of the Top 100.
• General Atomics: The maker of the Reaper drone rarely discloses its financial information. But in FY22, General Atomics was awarded DoD contracts valued at more than $2 billion. That does not count potential classified contracts. Further, General Atomics has exported the Reaper to international customers, which would add international sales to its defense revenue.
• SpaceX: The firm is a critical space launch provider to the DoD and NASA. In FY22, SpaceX generated nearly $760 million in contract value from the DoD alone. It is hard to know where this would put them on this year’s Top 100 list, in part due to international defense revenue.
• Cubic Corp.: Cubic was ranked 98th in the 2021 version of the Top 100 list, with about $635 million in FY20 defense revenue. But after Veritas acquired it in May 2021, the firm stopped publicly reporting financial information. In FY22, Cubic gained more than $568 million in prime contract value from DoD customers. Adding international and subcontract revenue, Cubic would likely take a position in this year’s Top 100 list, too.

Why are private investors drawn to defense? Defense firms usually do not generate margins much greater than low single digits, a fraction of those seen among, say, commercial technology firms like Apple (43.3% gross margin in 2022) or Microsoft (68.4%).

But defense companies can be valuable in other ways. Defense (and broader government) markets offer limited risk: Government customers generally pay on time, they cover most research and development costs, and they provide steady cash flow. This predictability and low risk can lead to a total shareholder value that is highly attractive.

The role of defense in private investors’ motivations can vary. Many private equity firms maintain a broad portfolio, even if, like Veritas Capital, Arlington Capital Partners and others, they pursue defense as a specialty.

Individual investors may be drawn to defense for patriotic reasons. Palmer Luckey, a founder of defense software integrator Anduril, told The New York Times in 2017 that “we need a new kind of defense company, one that will save taxpayer dollars while creating superior technology to keep our troops and citizens safer.”

Looking to the future, some firms may disappear from the Top 100 list. Cobham Advanced Electronic Solutions was acquired by the global private equity firm Advent International in 2020, but continues to feature on this year’s list (in 75th place). That rank is due in part to its absorption of Ultra Electronics, which Advent acquired in March 2023. Similarly, Advent acquired Maxar Technologies (77th on the list) in May 2023. These firms’ continued presence on the Top 100 list may have as much to do with Advent’s appetite for publicity as it does with these companies’ commercial success.

Doug Berenson is a partner at the consultancy Oliver Wyman, where he focuses on the aerospace and defense markets.

In response to the increased attention to the sector and a fiscal 2024 proposed U.S. defense budget topping $842 billion (excluding any supplemental war-related spending and Ukrainian aid), investors have increased the amount of publicly traded defense stocks they hold in their portfolios.

The 54 U.S.-listed, publicly traded companies found in the SPADE Defense Index now have a total market capitalization of $1.25 trillion. Investment funds have seen their assets under management grow significantly in the past 18 months, with the Invesco Aerospace and Defense ETF (NYSE: PPA) tripling to nearly $2 billion.

Click here to see the Top 100, a ranking of the largest defense companies in the world.

During 2022, the aforementioned benchmark index gained 8.6%, outperforming the broader U.S. market by 28%. This rise was led by Allegheny Technologies (+87%), Maxar Technologies (+75%) and Northrop Grumman (+41%). Even with the broader U.S. market down nearly 20%, more than 4 in 10 defense stocks saw their share price increase by double digits in percentage.

Despite these gains in the stock market, total revenues of the firms found in this year’s Defense News Top 100 remained relatively flat at $534 billion. This apparent contradiction actually bodes well for the coming quarters and the next few years.

During much of 2022 and early 2023, many of the large prime systems manufacturers cited supply chain disruptions that led to an inability to increase production of weapons systems and equipment at the levels needed to supply Ukraine’s war effort and restock national assets. Although this has reduced anticipated deliveries in the near term and, thus, prevented firms recording revenues, a return to normal operations as these issues are overcome should lead to revenue boosts as more orders are fulfilled.

Still, there is a major challenge to the sector that could derail deliveries as 2023 progresses. Smaller, private defense subcontractors and suppliers are facing dire cash flow issues, as they have been impacted by the intersection of material and parts inflation, supply chain issues, and increased staffing costs. Faced with the need to renegotiate fixed-price contracts, some might consider walking away, which would put added pressure on prime contractors to meet delivery schedules.

Additionally, the Economic Price Adjustment-Labor and Material clause of the Federal Acquisition Regulation — meant to compensate for extraordinary inflation and supply costs via adjusted contracts — has been slow to come into play, as the paperwork from the large contractors and the necessary Pentagon approvals move slowly through the department’s procurement procedure.

For example, a chief executive of a small, 150-person firm described to me the challenges of procuring radiation-resistant capacitors and semiconductor chips. Small batch, specialized orders for space and defense missions are not prioritized before larger purchases placed by the automobile sector, this executive said.

Additionally, pricing for items such as capacitors are up 300%, lithium-dominant materials are up 400%, and the cost to maintain technical staff has increased by much more than the headline inflation rate — the latter being a symptom of the booming space sector as well as defense.

Larger firms, like those on the Defense News Top 100, have access to capital and likely can weather these cash flow issues. However, in the latter half of this year, it is very possible we will see a spike in mergers and acquisitions as larger firms take over the subcontractors and supply chain partners that they deem systemically important.

Despite these challenges, the performance of defense sector stocks is driven as a reaction to our perception of fear and stability. The activity in Ukraine is but one of a number of global and local threats from which companies operating in the sector benefit. The conclusion of hostilities in Ukraine will see Western nations focusing on restocking and reevaluating their needs for the future and determining how to counteract the enemies and threats that remain.

The Defense News Top 100 list contains 73 publicly traded companies that represent 79% of the list’s total revenues for 2022. Through June 30, 2023, the SPADE Defense Index has gained another 8.1% and is at a historic high.

Such performance is not atypical: Over the past 23 years, the sector outperformed in 17 of them, many times by double digits. In the coming quarters and years, we believe that the sector remains poised for continued growth.

Scott Sacknoff manages the SPADE Defense Index, a modified capitalization-weighted index made up of companies operating in the defense, homeland security and government space sectors.

European defense is vital to NATO. A strong European pillar gives NATO more forces to deter and defeat aggression on home soil and reduces the burden on the U.S. of defending Europe. Fair burden-sharing has been in NATO’s DNA since its first strategic concept in 1949 stated that “each nation’s contributions should be in proportion” to its means. Upholding this principle is even more important in a new era of global competition where the primary focus of U.S. policy is on China.

Yet, European defense is in a shockingly poor state. After two-decades of underinvestment and a focus on expeditionary operations, European forces are not fit for purpose to conduct the collective defense missions that now drive NATO’s military and force planning.

European forces suffer from significant gaps in naval forces, air enablers, air defense, and “battle-decisive ammunition” (artillery munitions and missiles). For example, while European defense spending rose by 38% from 2013 to 2022 — Central and Western Europe spent a cumulative $345 billion last year — this has led to a mere a 4% increase in combat battalions among some of Europe’s largest armies (from 218 to 227 battalions).

While the scale of Europe’s military assistance to Ukraine is impressive, it has also put European militaries in a hole, as they need to backfill their own stocks while continuing to support Ukraine for “as long as it takes.”

To strengthen European security while in Vilnius, NATO leaders should take bold steps in four areas: spending, cooperation, industrial capacity and resilience. They should capture these in a “Vilnius Declaration” to strengthen the European pillar of NATO.

First and foremost, transforming European defense requires raising defense spending. After the Cold War, Europe rebalanced spending on “guns vs. butter” from an average of around 6% of national gross domestic product on defense to 1.6% in 1995 and 1.3% in 2021. While Russia’s aggression catalyzed a marked increase in European defense spending since 2014, only seven NATO allies currently meet its 2% target.

The task of NATO’s leaders in Vilnius is to forge a new alliancewide “guns vs. butter” consensus that reflects reality. This task is not limited to Vilnius: The European Union’s Stability and Growth Pact requires the majority of NATO’s members (23 of 31 allies) to reconcile increased defense spending with a potential new period of government austerity. EU finance ministers must get with the program, too.

Second, transforming European defense will require boosting cooperation within Europe. Although European nations are spending more on defense, they are cooperating less. Cooperation among EU nations dropped from 21% of total defense procurement in 2016 to 11% in 2020, despite several initiatives designed to encourage cooperation. NATO can improve these prospects in Vilnius by making cooperation a political priority — just as it did in 2012 when the Chicago Summit issued the dedicated Declaration on Defence Capabilities and created the “Smart Defence” initiative.

In contrast, neither the Madrid declaration nor the new Strategic Concept agreed last year mentioned the importance of multinational cooperation for NATO’s future capabilities. This is also in contrast to the EU’s “Versailles Declaration,” agreed in the wake of Russia’s invasion, which championed collaboration and joint procurement.

NATO can also help transform Europe’s defense-industrial base. As Estonian Prime Minister Kaja Kallas pointed out, “a capable technological and industrial base remains a prerequisite” for a “combat-effective Europe.” Yet, Europe’s defense industry cannot keep up with Ukraine’s demand. NATO defense ministers recognized this problem in February and committed to a Defence Production Action Plan in Vilnius. The plan should include multiyear procurements to allow industry to invest in the long term in ramping up production, and to meet Ukraine’s needs while boosting NATO’s own stocks to strengthen deterrence.

The EU’s Act in Support of Ammunition Production — or ASAP — initiative to ramp up production of artillery shells is a good example. But the EU needs to scale up its own efforts. As Kallas also highlighted, if the EU managed to find more than €800 billion (U.S. $869 billion) for pandemic recovery and €750 billion (U.S. $815 billion) to mitigate the energy crisis, it should be able to fund more of its own defense. A call from NATO leaders in Vilnius for the EU to step up would be powerful.

Finally, NATO can also help transform Europe’s defense against nonmilitary hybrid threats, which are emphasized in the new concept and since 2016 included within NATO’s Article 5 collective defense guarantee. Since conventional deterrence does not work against hybrid attacks, deterrence by denial through enhancing resilience across Europe is critical. As NATO’s new concept states, “national and collective resilience are an essential basis for credible deterrence and defence and the effective fulfilment of the Alliance’s core tasks.” NATO already agreed a “Strengthened Resilience Commitment” in 2021, which now requires implementing. A collective resilience planning process would be a good start. EU coordination is important here, too, given it has many relevant regulatory, fiscal and policy tools, which NATO does not. The EU-NATO task force on critical infrastructure resilience is a good template that should be applied to cyber defense, too.

When NATO leaders meet in Vilnius next week, supporting Ukraine will be the most urgent agenda item, but transforming European defense is arguably more important in the long run. Strengthening Europe’s defense and industrial capacity supports Ukraine directly, through military assistance, and indirectly, enabling allies to assist without fear of reprisal.

To help Ukraine and themselves, NATO’s leaders should take bold steps on spending, cooperation, industry and resilience, capturing their commitments in a “Vilnius Declaration” to transform European defense. Each step should be coordinated across the European defense landscape, especially with the EU, which has a growing toolbox to complement NATO’s strengths. The “Vilnius Declaration” should be reviewed next year when the trans-Atlantic alliance returns to the birthplace of the Washington Treaty, 75 years on.

Max Bergmann is the director of the Stuart Center and the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies. He previously served as a senior adviser at the U.S. State Department. Sean Monaghan is a visiting fellow in the CSIS program.

But work to steady security issues between the two countries, a longtime point of contention, may have a longer horizon.

In fact, the U.S. military’s decision to shoot down a suspected Chinese spy balloon that had been flying over the country in February 2023 derailed the scheduled diplomatic trip Blinken planned for China earlier in the year.

Now there are news reports that China made deals with Cuba to set up an electronic eavesdropping station on the island nation, just 90 miles from Florida — something Cuban government officials have denied – and to build a military training facility there. Such moves reflect efforts by China to grow its influence in Latin America and the Caribbean.

A Biden administration official in June said China’s spying from Cuba is an ongoing issue that predates the president’s time in office and that U.S. intelligence knew China had upgraded existing espionage facilities in Cuba in 2019.

As a researcher of China-Latin America relations and a former U.S. government official, I have seen firsthand China’s growing influence in Latin America and the Caribbean, and am concerned about its far-reaching implications for U.S. national security.

China’s planned spy base and military training facility in Cuba would be located near the U.S. naval station in Guantanamo Bay, home to several U.S. military facilities like U.S. Southern Command in Miami and U.S. Central Command and U.S. Special Operations Command both in Tampa, along with their various component commands.

The facility would allow Chinese intelligence officers to better intercept sensitive military information transmitted between U.S. military commands, track senior U.S. diplomatic and military leaders as they travel across the region, monitor U.S. naval and commercial ship movement, and gain details about U.S. military exercises, conferences and training with various Latin American and Caribbean countries.

The facility could also bolster China’s use of telecommunications networks to spy on U.S. citizens.

U.S. officials have long suspected Chinese telecommunications companies Huawei and ZTE of setting up servers and network equipment around the world, including in Cuba, to help the Chinese government collect sensitive information about local government leaders and private citizens.

Chinese companies such as China Harbour Engineering Co. have constructed dozens of deep-water port projects in Latin American and Caribbean countries, where Chinese intelligence agencies could track U.S. commercial or naval ship movements around important sea lanes like the Panama Canal, which could help China understand where to restrict U.S. maritime routes during a potential military conflict.

Chinese companies have also either built or operate 12 space research facilities in South America that can be used for legitimate space research. But U.S. and other officials have voiced concern that these same sites could be used to spy on U.S. satellites and intercept sensitive information.

Chinese police forces are a growing presence as well. In April 2023, the FBI arrested two Chinese citizens for allegedly operating an illegal police station in New York City’s Chinatown. According to The New York Times, the men allegedly harassed Chinese dissidents living in the U.S.

China allegedly operates 100 of these police outposts around the world. Fourteen of them are in eight Latin American and Caribbean countries.

China has also been stepping up its law enforcement engagement in Latin American and the Caribbean, donating anti-bullet vests, helmets and vehicles to local security forces, and Latin American and Caribbean law enforcement officers have gone to China to receive training.

Chinese technology companies Huawei, ZTE, Dahua and Hikvision have donated surveillance cameras and facial recognition technology to city governments in Argentina, Brazil, Bolivia, Ecuador, Guyana and Suriname.

While these Chinese companies deploy these technologies to help Latin American and Caribbean governments reduce crime, they could also use them to spy on U.S. government personnel living in these countries. In fact, the U.S. has banned some of these companies out of concern they spy for the Chinese government.

China’s participation in law enforcement activities in these countries erodes the U.S. position as the region’s preferred security partner.

Meanwhile, a major source of conflict between the U.S. and China is the supply of the drug fentanyl. In April 2023, the Biden administration declared fentanyl an emerging threat to U.S. national security. The fentanyl global supply chain often ends on U.S. streets, but it begins in various pharmaceutical company labs in China.

The U.S. Treasury and Justice departments have sanctioned or charged several Chinese companies and individuals for knowingly selling fentanyl precursors to Mexican cartel operatives, who then produce the deadly fentanyl and sell it to Americans.

The China-Cuba connection is just one example of how the Chinese government and Chinese companies have been expanding their influence on America’s doorstep for decades — not just through trade and investment, but also through espionage, military and law enforcement activities. Such activities will greatly affect U.S. national security for years to come.

This article is republished from The Conversation. Click here to read the original article.

Leland Lazarus is the associate director of national security at the Florida International University. Lazarus is also a term member of the Council on Foreign Relations, a nonresident fellow at the Atlantic Council’s Global China Hub, and a board member of the Fulbright Association.

Since the end of the Cold War, the naval service and its uniformed and civilian leaders have pursued a budget-based strategy, seeking to preserve the best and most capable ships in the fleet from post-Cold War downsizing, while at the same time keeping the service as relevant and engaged in post-Cold War land conflicts in the Middle East. The emergence of China as the “pacing” U.S. defense threat, along with Russia as an “acute threat,” is beginning to change some decades-old assumptions in U.S. military spending.

Similar conditions existed when another Pacific Fleet commander came to Washington to become the chief of naval operations in 1978. Adm. Thomas Hayward brought with him an equal wealth of operational and tactical experience preparing for high-end, great-power war in the Pacific that he translated into operational and strategic impact in the Office of the Chief of Naval Operations, or OPNAV. Hayward jump-started U.S. naval strategy by creating the CNO Strategic Studies Group program.

Following the election of President Ronald Reagan and the confirmation of strategy-minded Navy Secretary John Lehman in 1981, Hayward set in motion the process for creating the Maritime Strategy and 600-ship Navy of the 1980s that played a prominent role in Cold War victory and in shaping the post-Cold War era that followed.

Pacific Fleet: A good place to prep for CNO

Several future CNOs, including Admirals Chester Nimitz, Louis Denfeld, Thomas Moorer, Jim Watkins and Gary Roughead, commanded the Pacific Fleet before coming to Washington as CNO, but Hayward’s trail there was unique in that he came from direct preparation for conflict, potentially on unequal terms as well.

The Soviet Pacific Fleet in the 1970s and 1980s was a growth organization and comprised 120 submarines, two carriers and 85 surface combatants. Adm. Hayward and his staff were concerned about the growth of the Soviet fleet in both the Pacific and the wider world.

His “Sea Strike” concept directed the Pacific Fleet to take the fight to the Soviet Pacific Fleet and its bases early in the conflict.

At its zenith, Hayward’s plan — developed by staff officers including Capt. Jim Patton, Capt. Bill Cockell and science adviser Dr. Al Brandenstein — envisioned four carrier groups working to attack Soviet bases in the Pacific, specifically Petropavlovsk, and to prevent Soviet forces there from reinforcing their European front as they did in World War II.

An offensive mindset

Adm. Hayward became the 21st chief of naval operations in June 1978 and immediately began pushing his offensive mindset on the Navy, Congress and the Carter administration. Immediately Hayward sought to “change the terms of the debate from a budget battle to an analysis of the strategic issues for a global maritime power.” Hayward warned Congress that the U.S. Navy had a “margin of superiority” over the Soviets, but that long-term trends did not favor the Navy and “we will lose our margin of superiority,” which could “evaporate by the mid-1980s.”

Hamstrung by Carter administration officials not interested in an offensive Navy, Hayward focused on readiness and training. The Navy’s leadership did not campaign for particular force levels, but in the absence of a larger budget it worked with Congress to ensure a highly ready Navy with adequate manning.

He and his staff also wrote an interim strategy document titled “CNO Strategic Concepts” with 17 points, many of which would be familiar today, including the facts that the U.S. Navy was too small; would likely be outnumbered by its Soviet counterpart for the immediate future; and would have to fight with the forces on hand in probable, unfavorable positions — but should rely on technological superiority and the forces of allies to be able to inflict outsized losses on its opponent.

Hayward also emphasized the global nature of any future war, as opposed to just one front, and that regardless of local or global weakness in conventional forces, the U.S. Navy must adopt an offensive mindset against the Soviets.

Adm. Hayward’s strategic, offensive mindset shifted into high gear following the election of pro-Navy President Ronald Reagan in November 1980, and with him the promise of a 600-ship naval force that includes 15 aircraft carriers and 100 submarines. In an April 1981 speech to the U.S. Naval War College’s Current Strategy Forum, Hayward said: “There is no dearth of strategic thinking going on these days in your Navy. What is lacking is a more useful way to capitalize upon that abundant talent with more alacrity.”

Acting on this observation, Hayward created the CNO’s Strategic Studies Group, an annual, yearlong assembly of upwardly mobile Navy captains and Marine colonels with the mission of making these the “best and brightest of military officers” — a group that would provide “stimuli relative to strategy and tactics.” Hayward also directed his staff to change how it determined its annual program objective memorandum input to Congress. The strategic input Hayward desired became the genesis of the classified 1980s Maritime Strategy, and later an unclassified version in the pages of the U.S. Naval Institute Proceedings journal in January 1986.

All his efforts were aided by the presence and direct support from strategy-minded Navy Secretary John Lehman, a situation that Capt. Patton called “Two Guys in the E-Ring cockpit … working together to mature SEA STRIKE and SEA PLAN 2000 (both Prompt Offensive Action strategies) into what became the Maritime Strategy.”

2023 and onward

Like the appointment of Adm. Hayward in June 1978, the potential appointment of Adm. Paparo in July 2023 is fortuitous in setting the stage for the return of an aggressive maritime strategy in response to Chinese and Russian aggression. Like Adm. Hayward, Adm. Paparo has spent the last several years on the frontiers of U.S. naval efforts in the Indo-Pacific region far from Washington, D.C., and the disappointing levels of Navy readiness and ship numbers. Like Hayward, he too has also spent several years in exercises that pushed the capabilities of his Pacific forces, and included strong allied and partner participation. Paparo has also been an OPNAV programs and budget analyst, and is the graduate of four war college programs. These qualities alone suit him well to the position of CNO.

A strategically and operationally minded chief of naval operations today has the potential to refocus the Navy on offensive action rather than defensive responses to Chinese or Russian actions, and might invigorate the development of a worthy successor to the 1980s Maritime Strategy. While some have suggested that the 1986 Goldwater-Nichols Act precluded the development of service strategies, the examples of U.S. Marine Corps Commandant Gen. David Berger’ Force Design 2030 and Expeditionary Advanced Base Operations concepts suggest that service strategies are fully viable in the current environment.

The Navy has long been without an operational level of war strategy to fully guide its force design, size and operations in both peace and war. The appointment of another strategic-minded PACFLT leader to the CNO post may be the “drawing of the sword from the stone” moment to put the Navy back on course to the forward, aggressive mindset that has guided so much of the service’s proud history.

Steve Wills is a naval strategy, policy and surface warfare expert at the Navy League’s Center for Maritime Strategy.

To help answer these questions and many others, we spoke to Clint Hinote, a lieutenant general in the U.S. Air Force. For the last several years, Hinote has led a team of Air Force officers with the goal of solving the problem of projecting air power in the Pacific. Early in our conversation, Hinote summarized more than a decade’s worth of experiences in trying to fight against China’s military in the Western Pacific: “Not only were we losing the wargames, we were losing the wargames faster.”

He has, he told us, made it his mission to bring the losing to an end.

Hinote described for us the breakthrough thinking on ways in which old and new technology can be brought together to frustrate any attempts China might make to invade nearby territory, especially Taiwan. He described the need for a truly joint command-and-control system — not as a system with separate nodes for Army, Navy, Air Force and Marine Corps forces, but one that uses a mixture of air and naval forces, including submarines. Drones — relatively inexpensive drones — are an important new element that could complicate China’s invasion plans. In the simulations that Hinote has conducted, drones play an especially important role.

If fielded at low cost and in high numbers, drones present China with a dilemma that Hinote and other specialists believe Beijing could not effectively counter. Swarmed with such drones, China might be forced to ignore the cheapest, smallest ones, which would let them operate in a contested battlespace, providing surveillance and targeting solutions for other weapons-delivery platforms — both air and sea — in the vicinity. Or China could engage the relatively inexpensive and numerous drones with relatively more expensive — and limited — defense systems to try to destroy them.

Either way, as Hinote put it, “they either have to expend very expensive missiles to shoot them down, or they have to suffer the consequences of whatever they’re doing.” This is a problem U.S. military planners know all too well: If it takes expensive weapons to destroy inexpensive targets, you are on the losing end of the cost curve with every target that is exchanged.

For decades, American military strategists have worried that U.S. adversaries were far better at imposing costs on us than we were on them. For over two decades, insurgents in Iraq and Afghanistan used improvised roadside bombs to kill and maim U.S. forces. Countering these efforts came at considerable cost, and still does: In 2021, in the final days of U.S. troop involvement in Afghanistan, 13 American service members were killed by a bomb — an extraordinary loss.

Thinking about cost-imposing strategies is a favorite pursuit of Hinote’s. A centerpiece of one of his ideas is what the Air Force calls low-cost attritable aircraft technology, or LCAAT. These are relatively small, cheap and expendable drones. Hinote has been running simulations with researchers at Rand Corp. that deploy LCAATs in a mesh network, which can be used to identify and destroy targets while they saturate the airspace. Even when a link the chain is broken — an LCAAT is destroyed — the network remains.

One idea out of these simulations is to use LCAATs to watch shipping traffic in the Taiwan Strait. We might think of these drones — laden as they are with off-the-shelf, mass-produced sensors — as flying iPhones. An invasion of Taiwan would have to come via ships — warships — and the best way to know if an invasion is coming is to see the ships on the move. The best way to do that is to have lots of small, inexpensive drones flying over the strait, talking to each other and sending signals back to aircraft, submarines and ships that have the weapons needed to destroy the warships.

The drones would be so small and light that they could be sent aloft with bottle rockets and cost around $500,000 apiece. The missiles China would need to use to destroy them cost a few million dollars each — a viable cost-imposing strategy.

When we talked to Hinote about what it would take to put a system of LCAATs into place, he was more circumspect. He gave us the sense that there was momentum moving in the right direction, but he was not sure change would come fast enough. This type of change, he told us, “is going to be pretty radical, certainly from the military point of view, and there is not yet a sense of urgency at all levels to align around that level of change.”

What Hinote wants is a plan. While we won’t know for some time whether Hinote and his many colleagues in the Air Force have seized on exactly the right idea, what we do know is this: He wants to bring the losing to an end, and LCAATs might well be part of the way to do that.

Andrew Hoehn, the senior vice president for research and analysis at the think tank Rand, formerly served as a strategist for the U.S. Defense Department. Thom Shanker, the director of the Project for Media and National Security at George Washington University, previously reported and edited for The New York Times. This commentary was adapted from their book “Age of Danger: Keeping America Safe in an Era of New Superpowers, New Weapons, and New Threats.”

The image is cloudy and full of risk, as the countries bordering Russia or Belarus are largely too small in population, funds and depth to mount an effective defense on their own, while NATO’s relatively minimal deployment of forces in the region merely serves as a tripwire. Taking a page from the 1940s, the United States can fix this rather hopeless situation by revitalizing and updating its lend-lease and military aid programs, helping turn each front-line state into a “porcupine.”

NATO’s front-line states that border Russia and its satrapy Belarus comprise Finland, Estonia, Latvia, Lithuania, Poland and Norway. Each, while highly committed to the alliance, possesses weaknesses when it comes to its own defense. Money is a common problem, despite increases in defense spending that have followed Russia’s invasion and, for the majority, the meeting of NATO’s 2% of gross domestic product spent on defense metric.

None of these countries (even a country as wealthy as Norway) are spending or can spend enough to deter or fight a large-scale war against Russia. As an example, if these countries were to somehow muster the economic strength to spend 5% of their GDP on defense, none would breach $38 billion. On the low end, Estonia and Latvia would spend just over $2 billion, while on the high end Poland would spend $37 billion.

Compare these numbers to the cost of war in Ukraine. According to the Kiel Institute for the World Economy, worldwide defense commitments to Ukraine stood at about $74 billion between January 2022 and February 2023, with the U.S. accounting for nearly $47 billion of this amount. These totals aren’t meant to imply that NATO’s front-line states must spend this much on their defense, as each countries’ defense needs vary based on geography, manpower, existing equipment and other factors. But they are to say that defense spending is an insurance policy; and what small NATO countries are capable of spending now is inadequate for the defense needed.

External help is essential. That’s where the United States comes in as provision of loans, leases and grants of military hardware can equip each state with the sort of defense that’s realistic for deterring Russia: that of a porcupine. More commonly associated with Taiwan, the aim of a porcupine defense would be to arm these countries to the teeth so that it would be painfully hard for the Russians to swallow them in an invasion. The weapons that are key to such a defense are comparatively cheap and asymmetric like loitering munitions, mines and High Mobility Artillery Rocket Systems — all of which have been effective in Ukraine.

Congress can help supply these and other weapons by first delinking its current legislation allowing lend-lease authorities to Ukraine and passing a separate bill expanding its scope beyond the law’s vaguely defined “Eastern European countries.” This new bill should apply to NATO’s front-line states for at least the next decade, allowing for the lend, lease and donation of American defense articles beyond the two-year time limit in existing statute. Necessary appropriations should follow to support this commitment.

Next, Congress should take advantage of laws that are already on the books to provide hardware directly from U.S. contractors. It should specifically employ a little-used authority enacted decades ago: the Defense Export Loan Guarantee Program provided under 10 U.S.C. 4971. This program fully insures private sector lenders against potential losses of interest and principal in the sale or lease of defense articles — basically an Export-Import Bank mechanism for defense goods.

While the DELG Program has been used only once, Congress can breathe new life into the program, revising it to help supply NATO’s front-line states. It can do so by adjusting DELG’s current authorization that the U.S. can make $15 billion in loan guarantees. While $15 billion is no small sum, especially for countries that spend well less than that on defense, this limit should be dramatically increased to $100 billion. That will buy the asymmetric weapons needed to mount a credible porcupine defense.

Congress should also examine long-standing issues with DELG along with Foreign Military Financing and Foreign Military Sales to ensure these programs can rapidly move weapons systems to the front-line states.

The U.S. can play a significant part in helping NATO’s front-line states defend themselves with the same fervor, and similar weaponry, that the Ukrainians are using to repel Russia. As we have learned time and time again, it is much cheaper to deter aggression than it is to fight a war. Nothing would help NATO’s deterrence credibility more than loans, leases and the transfer of American weapons to those countries directly in harm’s way.

Bill Greenwalt is a nonresident senior fellow at the American Enterprise Institute think tank, a former senior staffer on the Senate Armed Services Committee and a former deputy undersecretary of defense for industrial policy. Charles Rahr is a research assistant at AEI.

Here’s how we can do that.

The 2022 National Defense Strategy references allies and partners 32 ,times including the imperative of that cooperation to build “enduring advantages” in the joint force. Recent versions have articulated similar objectives, but today’s environment has become incredibly strong with robust administration leadership, bipartisan congressional support and increased allied defense investment to address defense-industrial capacity shortfalls.

There are a significant number of vehicles such as the Australia, United Kingdom and United States partnership known as AUKUS; the national technology and industrial base; reciprocal defense procurement memorandums of understanding, or RDP MOU; and others to enable robust industrial collaboration.

Unfortunately, while U.S. forces have operated and shared intelligence with close allies for decades, vigorous international industrial collaboration has regularly foundered on the shoals of obstacles such as export controls, technology security and foreign disclosure processes, aspects of the defense acquisition system, and “Buy America” sentiments.

George Mason’s Baroni Center for Government Contracting has recently published a report that lays out a path for a “Build Allied” approach that truly moves the needle for the U.S. and our allies. Four broad sets of actions are needed to achieve this “Build Allied” vision.

First, the Department of Defense should make international industrial collaboration a central component of the defense acquisition system. Senior-level guidance and actions are critical to help drive this increased prioritization from requirements development through contract awards and into sustainment.

The department needs, for example, to reduce the 18-month backlog in getting approved Foreign Military Sales cases on contract and to facilitate the early involvement of allied and partner companies in DoD programs, which will spur greater capacity to support U.S. national security interests across the globe.

Second, Congress and the administration should focus on overcoming technology transfer and other obstacles. After repeated failed efforts over the past two decades, Congress should grant Australia and the United Kingdom waivers to International Traffic in Arms Regulations for classified and unclassified programs, which will be critical for the success of AUKUS and similar efforts.

It is heartening to see recent administration testimony and House Foreign Affairs Committee deliberations supportive of these types of legislative changes to the Arms Export Control Act. Congress should also increase eligibility from Canada to all national technology and industrial base countries for Defense Production Act Title III industrial base projects. The administration’s recent legislative proposal to add Australia and the U.K. as domestic sources under the DPA is a great step in this regard.

Some criticism of this DPA change underscores the importance of the third set of actions: making the tangible domestic industrial base benefits of international industrial collaboration more widely known across the government contracting community. The DoD or Congress should request a study assessing the impact of the 28 RDP MOU countries’ contributions to the U.S. defense-industrial base. This would increase awareness of the benefits of RDP MOUs and quantify the counterproductive nature of additional Buy America legislation. Our collective effort should instead be laser-focused on reducing industrial base vulnerabilities coming from China; there is more than enough work to be done on that front.

Fourth, the DoD should focus on scaling efforts like the Defense Exportability Features program to increase the effectiveness of international industrial collaboration. While the DEF program has had modest success in building in defense exportability for programs like the Three-Dimensional Expeditionary Long-Range Radar, it has continually struggled for funding and attention. Building off the 2022 Ukraine supplemental reprogramming for the DEF program, the DoD and Congress should work to increase the program’s base annual funding to $50 million to focus on capabilities for the pacing China challenge.

To face today’s security challenges, we must accelerate international industrial collaboration to build industrial base capacity and resilience. The recently announced FMS Tiger Team recommendations are critical components of that effort, but we also need system-level efforts that promote and foster a broad mosaic of programs across the entire spectrum of U.S. and allied defense acquisition needs. While many of the building blocks are in place, acting on our report’s recommendations is essential to gain the speed and scale necessary for a successful “Build Allied” approach, which will ultimately be a win-win proposition for the United States as well as our allies and partners.

Jerry McGinn, the executive director of the Greg and Camille Center for Government Contracting at George Mason University, previously served as a senior U.S. Defense Department acquisition official. Michael Roche is a visiting fellow at the center and a professor at the Defense Acquisition University.

Berlin’s three-party coalition government, the so-called traffic light-coalition, had vowed to publish a comprehensive national security strategy in the first year of its mandate. Its writing thus coincided with Russia’s aggression against Ukraine, but the war was not its impetus. And ostensibly, the war in Ukraine does not take center stage.

“Today’s Russia” is designated as “the most significant threat to peace and security in the Euro-Atlantic area,” and the invasion of Ukraine is called “a blatant violation of the United Nations Charter and of the cooperative European security order.” But the focus of the strategy is much wider.

As the title “Robust. Resilient. Sustainable. Integrated Security for Germany” suggests, security is defined in the most inclusive way. “In the 21st century, security also means making sure our heating works in winter. Security means being able to find medication for our children in our pharmacies. Having smartphones that work because supplies of the necessary microchips are reliable. Getting to work safely because our trains are not paralysed by cyberattacks,” Foreign Affairs Minister Annalena Baerbock writes in her introduction.

She doubled down on this during the press conference when she called the ability to take a hot shower in the morning a security issue. This received some ridicule, and the conservative Frankfurter Allgemeine Zeitung complained that calling everything security just increases insecurity.

But despite academic discussions over the dangers of securitization, Germany’s integrated security approach should be welcomed in a country which until recently considered a project like Nord Stream 2 solely an economic project.

Germany doesn’t stand alone with this: The U.K. adopted a similar approach in its “Integrated Review” in March 2021. And it is not only in this respect that the German strategy is similar to comparable documents published by other countries. In fact, the strategy overall does not read as massively different than strategies from the U.S., the U.K. or France. Of course, these strategies do not all share the same content; every country has its areas of interest, idiosyncratic tilts and national pivots.

There are interesting differences as to which countries get name-called, and which institutions receive more attention than others (see table below). But this first German National Security Strategy is no document of a German Sonderweg. It does not present the somewhat hubristic we-are-more-enlightened-than-you approach to security and defense that Germans liked to adopt in the past. Defence Minister Boris Pistorius during the press conference even suggested that arms exports are “part of the strategic toolbox” — a reasonably banal statement internationally, but not something that many German politicians will have said.

It is in this apparent “normality” that the war in Ukraine, and indeed the “Zeitenwende,” makes its appearance. Because in an alternative universe, where Russia did not invade Ukraine and Chancellor Olaf Scholz did not have to ascertain a turning of the times, this first German national security strategy might have looked quite different. Foreign Affairs Minister Baerbock of the Greens political party would in all likelihood not emphasize the need for more wehrhaftigkeit — the German word for the ability to defend, and a central tenet of the strategy.

It might not have included a promise to close the Bundeswehr’s capability gaps and structural deficits, nor a commitment to nuclear deterrence. It may not have included the commitment to further expand, and put onto a more permanent basis, Germany’s military presence in Allied territory for the protection of our NATO allies. And the promise to reach NATO’s goal of spending 2% of gross domestic product would certainly have been weaker — though unfortunately the phrasing that German will spend 2% on defense “as an average over a multi-year period” feels like a way out for continued spending below the level.

The strategy is thus clearly a post-Ukraine invasion document and testifies of a process of change, which admittedly started from a low level but is clearly happening. Strategic documents are rarely the moment to introduce any major bold changes that are surprising. They introduce tilts, like the U.K.’s increased Asia focus, or add new priorities, like the U.S. noting the importance of internal stability for geopolitical power. The German strategy tilts toward normalization.

There are several notable statements from the strategy:

On integrated security: “In the 21st century, security also means making sure our heating works in winter. Security means being able to find medication for our children in our pharmacies. Having smartphones that work because supplies of the necessary microchips are reliable. Getting to work safely because our trains are not paralysed by cyberattacks.”

The German government recognizes that it is impossible to compartmentalize issues and pretend they have no security relevance (Nord Stream 2). There is, however, a danger that by securitizing everything, things become nebulous and confusing. Plus, it is crucially important that with this integrated security approach, Germany does not turn its attention away from hard security — its military capabilities — yet again.

On multipolarity: “We are living in an age of increasing multipolarity. Some countries are attempting to reshape the current international order, driven by their perception of systemic rivalry.”

The mentioning of multipolarity is maybe the most surprising and one of the most controversial elements of the strategy, as multipolarity has been used as a fighting term by Russia and China against U.S. hegemony. The German strategy, however, mostly employs it to give a nod to the countries of the global south — a term thankfully not employed in the strategy — and to acknowledge the rise of other actors.

On China: “China is a partner, competitor and systemic rival. We see that the elements of rivalry and competition have increased in recent years, but at the same time China remains a partner without whom many of the most pressing global challenges cannot be resolved.”

Germany is walking on a tightrope between the United States’ decoupling approach and a more business-friendly, cooperative approach. The government particularly cares about not alienating China so much that cooperation on the climate front becomes impossible.

On France: “The profound friendship with France is of particular importance to Germany. We are aware of our joint responsibility to further the EU’s integration and ability to act at international level. We are united with France by a profound friendship, which arose through the overcoming of historical perceptions of enmity and is also expressed in terms of security policy in the mutual assistance commitment under Article 4 of the Treaty of Aachen and in our cooperation on major arms projects.”

France is the most-often mentioned partner, and the language describing the relationship with the partner on the other side of the Rhine is very positive — possibly overly sweet, as none of the current problems are mentioned, nor ways out of the current impasse proposed.

On the 2% goal: “We will allocate two percent of our GDP, as an average over a multi-year period, to reaching NATO capability goals, initially in part via the newly created special fund for the Bundeswehr.”

Germany’s commitment to reaching the 2% goal becomes stronger. But the strategy’s language still leaves loopholes, and the current government budget does not point in the right direction.

On feminist foreign policy: “In line with our feminist foreign and development policy, we will take the interests of women and disadvantaged groups particularly into account when drawing up integrated peace-engagement measures.”

Germany has officially adopted a feminist foreign policy. This is mentioned in the strategy, but not overly so. The importance of putting a focus on the individual and marginalized groups is emphasized, but the strategy does not read as overly ideological.

On mutual defense clauses: “We stand resolutely by our mutual defence pledge under Article 5 of the North Atlantic Treaty. Our commitment to NATO and to our obligations within the Alliance is unshakeable, as is our commitment to the EU’s mutual assistance clause in Article 42 (7) of the Treaty on European Union and our mutual assistance commitment with France under Article 4 of the Treaty of Aachen.”

The two times the strategy mentions the mutual assistance commitment with France are problematic. The strategy did not invent this agreement — it was codified in the Treaty of Aachen. But putting it alongside NATO’s Article 5 and the EU’s Article 42.7 risks weakening both, as one wonders why a specific commitment to France is needed, as its defence is already covered under NATO and EU insurances.

On European defense: “The Federal Government wants to further strengthen the European pillar of the transatlantic defence community. The more our European allies contribute militarily and politically to NATO, the more solid the transatlantic Alliance will be. Europe’s ability to act on its own is increasingly a prerequisite for German and European security. This ability to act entails modern, capable armed forces in the EU member states, as well as a high-performance and internationally competitive European security and defence industry that creates the foundations for the armed forces’ military capabilities. Joint arms projects and their exportability in accordance with the benchmarks set out in the future arms-export control law play a part in furthering Europe’s ability to act and thus strengthen the European pillar in NATO.”

The strategy does a good job of reconciling the idea of European sovereignty (or European strategic autonomy) with Germany’s continued preference for a strong NATO presence in Europe. It emphasizes what is important: actual European national capabilities, which help both the European pillar in NATO and any EU/Europe-only missions.

On funding: “We will include the projects described in this Security Strategy in the relevant ministerial budgets within the federal budget by means of prioritisation, should funds not already have been allocated to them. Given the considerable demands on our public finances at present, we will strive to implement this Strategy at no additional cost to the overall federal budget.”

Germany is trying to do a lot — with no extra funding. This is problematic.

Unfortunately, the German strategy is also plagued by similar problems experienced by its international counterparts: It lacks in concreteness. The funding of many of the (overall good) ideas is in question. It is strong in analysis and light on solutions.

In typical German fashion, the strategy is a compromise document. It is a compromise between the three coalition partners (this led to the national security council idea being scrapped), it is a compromise between the different ministries (that led to a middle-ground balancing approach to China), it is a compromise between the German Länder (which scrabbled over competencies regarding cyber), and its genesis included views from the wider population.

Most importantly, the strategy struggles to prioritize: Everything is security-relevant, everything is connected, and the world is complex. Though as an analysis, this is probably correct, it’s the government’s task to propose ways to deal with this. But one can hope that the process behind the curtain — the processes at whose end stand somewhat bland statements that don’t seem to say that much — have gotten the people in charge thinking. As the document itself notes, it is only a beginning, not an end.

Ulrike Franke is a senior policy fellow at the European Council on Foreign Relations think tank.

As we explain in our new Rand Corp. report, Ukraine will be far different from recent post-war reconstruction efforts in Iraq and Afghanistan. Ukraine is a European state, and the war has been unifying, not divisive. Its rebuilding will resemble that of Western Europe after World War II, Eastern Europe after the Cold War and the Western Balkans after the violent breakup of Yugoslavia. The lessons of these episodes should inform Ukraine’s reconstruction.

Their basic and successful formula was established early. The United States provided seed money and security; the Europeans provided the bulk of the funding and advanced the historic process of European integration.

In each of these efforts, security was essential, as it will be for Ukraine’s reconstruction. Security and reconstruction are mutually reinforcing. Durable security arrangements give businesses and investors the confidence to take risks and make long-term commitments.

But Ukraine’s prospects for growth are uncertain, and any reconstruction effort will need a strong reform component. In 2021, Ukraine was the poorest country in Europe and had the lowest productivity. Pervasive corruption has hindered growth, and previous reform efforts have been slow to gain traction.

Ukraine will need to administer large-scale funding, and its credibility will be on the line. Accordingly, Ukraine and its donors will need a strong inspector general and effective monitoring and evaluation. Ukraine will face the challenge — but also have the opportunity — of reversing 30 years of unsatisfactory economic and political development.

Reconstruction should be organized around a few simple principles: Ukraine should set priorities, while the United States should spearhead security and the European Union should lead economic reform and recovery. But both the United States and the Europeans need to participate in the latter.

To guide reconstruction in Eastern Europe after the Cold War, Congress gave a single senior coordinator broad oversight power. Replicating this approach for Ukraine will strengthen Washington’s contributions to reconstruction. The United States, Europe and multilateral agencies should have senior officials on the ground in Kyiv in daily contact with Ukrainian authorities; periodic donor conferences are insufficient.

Sequencing and prioritizing essential tasks — de-mining vast swaths of land, clearing rubble, building shelters and schools, and providing basic medical care — will jump-start reconstruction. About 35% of Ukraine’s prewar population are displaced. Unless policymakers actively facilitate returns, it will not happen organically on the scale needed to enable recovery.

Paying for reconstruction will require international aid, private financing and Ukraine’s own resources. Historically, aid provided a relatively small amount of the total, but it attracts other funding and serves as risk capital when the private sector is reluctant to invest. Private investment will likely provide the bulk of reconstruction funding. In each historical case, private investment, trade and economic integration proved essential to success. Frozen Russian assets, both official and private, could comprise a significant contribution; however, using them will require strong legal justifications.

Longer-term security planning also needs to start now. The promise of reconstruction and EU membership will give Ukraine powerful incentives to adhere to whatever conflict settlement is reached. But Russia’s adherence will rest principally on deterrence. This could take a variety of forms. The United States and its allies could promise to continue providing Ukraine arms, ammunition, training and advice. They could threaten to insert Western forces into Ukraine if Russia reattacks. Or they could bring Ukraine into NATO.

Stronger measures of deterrence might make renewed fighting less likely; however, they could also raise Russia’s threat perceptions, perhaps leading Moscow to take desperate measures. If deterrence fails, the resultant conflict is less likely to be limited to Ukraine.

Arrangements for Ukraine’s security might require new models. Europe’s current security architecture offers a binary choice: A country joins NATO, or it is on its own.

Alternatives for Ukraine, which has never quite fit this model, should be evaluated.

Ukraine has urgent needs for both economic and security assistance today; these will not end when hostilities cease. Ukraine’s recovery could take decades, and enduring public support will be vital. In 1948, President Harry S. Truman’s administration and congressional leaders launched a coordinated, bipartisan effort to gain public approval for the Marshall Plan. The United States will need a similar strategy for Ukraine.

Ukraine’s reconstruction will be a lengthy, complex undertaking. But the United States should tackle the following now:

• U.S. policymakers need to carefully examine alternatives, both old and new, for Ukrainian security in preparation for engaging with allies. Assured security is essential for every other aspect of reconstruction.
• The administration and Congress should approve a modern version of the laws enabling U.S. activities in Central and Eastern Europe and the former Soviet Union after the Cold War. An important component will be the creation of an empowered coordinator to deal with European governments, international financial institutions, and the people and government in Ukraine.
• Public endorsement for longer-term U.S. policy in Ukraine cannot be taken for granted. It will require a bipartisan effort to explain and build support among the American people.

The challenge of reforming and reconstructing Ukraine should be viewed through the lens of Europe’s successful post-war rebuilding and reintegration record, and the 75-year security and economic policies of the United States. Security and reconstruction will go hand in hand. A secure, economically prosperous Ukraine that is fully integrated into European institutions will be a capstone achievement, bringing to fruition a multigenerational European project, sustained by an enduring trans-Atlantic partnership.

Howard J. Shatz is a senior economist at the think tank Rand, where Gabrielle Tarini is an associate policy researcher, Charles P. Ries is a senior fellow and James Dobbins is the distinguished chair in security and diplomacy.