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U.S. Defense Spending

Speakers: Lieutenant General David Barno (Retired), Senior Adviser and Senior Fellow, Center for a New American Security, Barry M. Blechman, Co-Founder, Henry L. Stimson Center, and Dov S. Zakheim, Senior Adviser, Center for Strategic and International Studies
Presider: Gordon Adams, Professor of U.S. Foreign Policy, School of International Service, American University
February 8, 2013
Council on Foreign Relations

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GORDON ADAMS: So with no further ado, I'm Gordon Adams. I am a professor of international relations at American University, a fellow at the Stimson Center, spent a little time doing budget work on defense and foreign affairs at OMB.

And I am very happy to introduce this panel, all three of which are people that I am well-acquainted with and have heard many times before and are really going to be enlightening on this subject. I'm going to start throwing questions at them in a minute, and you have bios on them, so I'm not going to say too much.

But Dave Barno -- General Barno is a senior adviser and senior fellow at the Center for a New American Security. He was in command of the U.S. and coalition forces in Operation Enduring Freedom, so has deep and wide knowledge in the areas of counterinsurgent strategy and recent deployment of forces but has also been presiding over an ever-growing series of very useful studies coming out of the Center for a New American Security in budgeting, in resource planning, in strategy.

Barry Blechman, seated two to my left, is a distinguished fellow at the Stimson Center. I can't imagine anybody in the room doesn't know Barry or know of Barry because he has touched so many bases and done so many great things. He's a co-founder of the Stimson Center. And the bio will tell you all of the things that he has done, both in government, in commissions and out. But perhaps the most relevant recently, for the purposes of this panel, is he is the senior drafter of a report that the Peterson Foundation -- was sponsored and funded at the Stimson Center called "A New US Defense Strategy for New Era," with an advisory group that ranged pretty broadly in terms of participation and membership.

Dov Zakheim, to the far left -- only he wants me to point out from your point of view, it's the far right -- (laughter) -- is a former student of mine at Columbia -- no, no, that's not in the bio, but it's true. (Laughter.) Dov was in the first senior seminar I ever taught at Columbia University in 1969, and you ruined me. (Laughter.) It's not my fault. (Laughter.) He is the senior adviser at CSIS. He is senior fellow at the Center for Naval Analyses, was a senior VP at Booz Allen Hamilton and, especially relevant here, was the comptroller at the Department of Defense in the first term of the Bush administration and before that at System Planning -- so again, somebody who has a long history in this field and a very (distinguished ?) and important contribution. His most recent publication is "A Vulcan's Tale: How the Bush Administration Mismanaged the Reconstruction of Afghanistan." So some of that may creep in here, and you may have some questions in the Q-and-A.

I think what we'll try to do here is spend a couple of minutes probably not deconstructing sequester but because it's at the tip of everybody's mind and the tip of everybody's tongue, at least start there. And what I wanted to ask was not so much, tell us how sequester works or doesn't work or whether it will happen or doesn't happen as to say what some of the consequences might be if it were to happen. Mick Mulvaney, a member of Congress, South Carolina, says the only thing worse than sequester is not cuts at all. The Joint Chiefs -- service chiefs have been running around like chicken with the heads chopped off for the last two weeks saying the sky is falling, the sky is falling. Leon Panetta says a we will have a hollow force. I might call it bad management but maybe possible survivable if you manage it properly. But there's a range of potential impacts. Could each of you, starting maybe with you, Dave, talk to what you think this looks like, the sequester universe looks like? And we won't take too much time but at least to start there.

LIEUTENANT GENERAL DAVID BARNO: Yeah. Briefly, maybe, on the military side, what this looks like in the services. Number one, the perhaps most debilitating part about it is the total uncertainty about its length, its duration and, in a sense, how it will be applied.

But what the services are doing across the board in anticipation of this kicking in here on the 1st of March is -- and we're beginning to see this already -- is pre-empt training for their forces to try and withhold some of those operations and maintenance dollars: It was announced yesterday that a carrier battle group is not going to sail for deployment, ultimately, to place it in the Persian Gulf. On the air side, the Air Force is beginning to look at how they can dramatically cut back their flying hours and their flying training for the rest of this year to be able to put resources against other priorities such as continuing combat operations over Afghanistan. The Army has essentially announced that it will fully resource its combat forces that are deployed in the Afghan theater, but the only other Army combat force that will get any training at all will be maybe -- and this isn't for sure -- the division-ready brigade of the 82nd Airborne Division, which is the Army's crisis response forces.

So every service is looking at this as a very, very serious immediate impact cut in their -- they have very limited ability to be able to structure the cuts within their service budgets to take the pain in ways that aren't truly difficult and don't truly affect combat readiness. So I -- that's -- I think, will be -- again, is going to last several weeks, beginning to hear this out of every single one of our services.

ADAMS: Barry.

BARRY BLECHMAN: Well, I actually don't think the sequester will happen. I'm internally optimistic that rationality will rule, and they'll find some way to squeeze past it, at least to delay it until the bigger debate on the continuing resolution. If it does happen, all these reductions in training and flying hours will happen. General Kowalski says our nuclear deterrent will be worthless, will be weakened. Of course, this is the gold watch theory -- the first thing you cut is a gold watch, for the retirees. But it would have very serious effects, unless they find some way to work with the Congress to give the department flexibility in how the sequester is applied. So instead of taking a meat cleaver, let the department make some rational decisions about where the cuts go and where they don't go.

ADAMS: Now, Dov, at the -- at the lunch table, we were saying that maybe the sequester hits the Department of Defense less severely than most of the other federal agencies; I just throw that on the table, among other things you may want to talk.

DEV ZAKHEIM: Well, not so much less than the other federal agencies, but less than if there were no sequester and relatively equivalent cuts were made -- let's say, the way the president has laid it out as an alternative.

And the reason is this: The president's latest proposal essentially exempts all entitlement funding. The sequester hits entitlements for not a lot, only 2 percent of the total, about a couple hundred billion dollars. But since defense covers half of what is not covered by entitlements, if you're still with me, effectively, defense would lose another hundred billion (dollars). So in some weird way -- and it -- this whole business is weird -- defense actually would do better under a sequester than under what the president is now proposing.

There's another problem. I was just at the Munich conference last weekend. And it's clear to me that the world is entirely confused. And there were people at the conference not just from Europe but from the Middle East, from Asia and from Latin America. Everybody's absolutely confused as to where we are headed. And perhaps the greatest damage that the sequester will cause is it's just going to add to that confusion. For instance, other than the operations accounts, everything else, as Barry and Dave both said, is essentially an automatic cut.

Well, why then pull the carrier out? It sends a message. Perhaps it sends a message to Congress, you've got to do something because we're losing a carrier in the Middle East. But it doesn't just send the message to Congress. It sends a message to everybody else. And then, since you don't know when the sequester will end, you don't know when the carrier's coming back. And one thing that the various senators and congressmen pointed out over in Munich was that nobody yet has a good idea how to terminate the sequester because if they did, we wouldn't have one.

ADAMS: A quick one, two, three vote, how likely to happen?

BARNO: I think very likely.

ADAMS: Very likely.

BARNO: Over 90 (percent).

ADAMS: Over 90 (percent).

BLECHMAN: I'd say 33 percent.

ADAMS: Thirty-three percent.

ZAKHEIM: I'm with Dave, over 90 (percent).

ADAMS: And I'm with Dave and Dov. I think over 90 (percent), but probably adjusted afterwards, in some way yet to be determined. (Scattered laughter.)

I'm going to leave sequester subject there, and I want to -- I want to move all three of them on to, OK, so where do we go from here in defense and national security strategy and management at the Pentagon. And then if you've got questions, when we come to the question time at 1:30, on the sequester, all right, we can come back to it and talk about it.

But I really would like to urge each of you at this point to say -- let's say that -- there's one bundle of issues that I'd like to sort of walk each of you through first, or have each of you walk through, which is -- start from where you left off, Dov, that is to say, what is the strategy here if we are -- and you may disagree with the premise, but if we are in a drawdown? Sequester or not, the drawdown is likely to continue. If we agree on the premise, where, from the point of view of the work that you have done, reports and commissions that you've been involved in, ought that drive us, first from a kind of a strategic and engagement perspective?

BARNO: Yeah, maybe I can start with that. The two reports we've published most recently were called "Hard Choices" and "Sustainable Pre-eminence," and both were based upon the premise that the U.S. is going to maintain what we called a global engagement strategy, to broadly characterize how the United States has operated in the world since the end of World War II. I think that's absolutely still where the U.S. is headed, but we're going to be challenged immensely to be able to continue to do that with fewer resources and without hollowing out the military.

I think it's very important to go back and look at last year's defense strategic guidance, this somewhat out-of-cycle, one-of-a-kind document that came out in January of last year. And it was -- it's probably best known for the so-called pivot to the Pacific. It was a document that laid out the rebalancing of U.S. priorities to the Pacific and the broader Middle East as the top tier, realigning our efforts in Europe and then basically looking at light footprint in other places in the world.

That document, not because of its name, not because of what it said, but because how it was developed and how much the president personally played in that, how much the senior four-star military leadership played in that, the service secretaries, the defense secretary -- this was a top-down document that involved multiple meetings of this senior group, including the president of the United States, before it was signed out. And the president went to the Pentagon to roll it out. That document is not going to go away. And it's going to be adjusted, modified, perhaps filed down a bit on the edges during the second term of President Obama, but it's still, in my judgment, going to be the guiding document around which U.S. strategy is going to be driven.

So as the military looks at this -- and I sat in the Pentagon with Michele Flournoy when she rolled it out last year, and one of the things they told us immediately is that if we take any further cuts, this goes out the window; we have to revisit the strategy. That's no longer the line from the Pentagon. And I think it's very clear to me that despite what the QDR might put out here a year from now, the real driving document is going to continue to be the defense strategic guidance because the president owns it. And I think we're going to be reshaping our military to fit that guidance even with fewer resources.

ADAMS: Barry.

BLECHMAN: The study group I chaired was a group of 15 people, some very senior retired military, people from the State Department and defense experts. And they pointed out that over the last 10 years, the U.S. has developed quite extraordinary capabilities in its space, air, naval forces particularly. And their recommendation is that we should build on these comparative strengths and that we can protect our interests from the challenges we see in the world environment by maintaining our technological lead in these areas and adding to that cyber capabilities and also special forces.

So we urge a strategy we call "strategic agility," which takes advantage of the ability of our forces to go anywhere, penetrate anywhere, develop, deliver lethal force or humanitarian assistance and sustain modestly sized forces for a considerable period of time to confront the kinds of enemies we might find in the future.

On the backside, it said -- the group said we should not be fighting protracted conflicts. We are not good, particularly, at nation-building. The job is just too hard. It's not any sign of weakness of our -- of our military. It's just too tough a job to go into these foreign societies riven by their internal conflicts and turn them into democracies with honest government and transparency and so forth.

So if that's your set of we're good at this and we can depend on this to protect ourselves from the threats we face, we're not good at that, if cuts have to come, then they should come from the ground forces particularly and from some of the lower-end Air Force assets, which are intended for protracted conflict.

ADAMS: Dov.

ZAKHEIM: Well, I've been in a few study groups as well, and I take a slightly different view. There's no doubt that we could find reductions, and you have to remember where we start from. In Fiscal 10, when Bob Gates was secretary of defense and Barack Obama was in the White House, our budget was $106 billion higher than it is today. That's how much they've already cut out relative to what they expected to be spending in Fiscal Year 13.

Now, whether or not there's a sequester, if there are more cuts and they're significant, then you've got to ask yourself, given that even the current strategy, the one put -- was put out last year, raised a lot of questions of whether we could do what we said we could do, could we continue to have a presence in the Middle East and have the kind of presence they're talking about in Asia? What about the Eastern Mediterranean, where you now have Israel, Turkey, Greece, Cyprus and Egypt all tripping -- and Lebanon -- tripping over each other because of gas and we might get caught in the middle because of the gas (lines ?)?

There are always contingencies we never think about. Did we think about Afghanistan, for example? Did we think that Saddam was going to attack Kuwait? We're always fighting a contingency we don't plan. And so you have to ask yourself, yes, we may not like fighting in the longer term or nation-building -- I've personally written over and over again that that's not what we do well, if we do it at all -- but we wind up doing it. When was the last time we didn't do nation-building?

So in light of that, when you start talking about cuts above the cuts that have already been made, the 487 billion (dollars) that's already been taken out, you run into a problem, which is how do you manage what you need to do worldwide? Now, you could say, let's save it another way; let's save it by cutting the personnel accounts. To show you how powerful the politics of not cutting those accounts are, that's the one area that the president has exempted in the sequester. He knows very well that that's a buzz saw he doesn't want to run into.

Well, you can't cut those, so what do you do? You cut operations and you cut buying new stuff. But when you do that, as I said earlier, you wind up sending a message to the world that perhaps can be misread. And whether -- you know, just think back to how the Falklands War started. It all started because the Brits had one measly little ship down in the Falklands, which they pulled out, and the Argentines thought, that's it; we can go in. Next think you know, the Brits are at war. So we have to be very, very careful about the signals we send. We tend to think that if there's interagency agreement, the rest of the world will agree with us. Guess what? It doesn't.

ADAMS: Let me -- let me recycle the question a slightly different way and start at the opposite end again with you, Dov, and that is -- I was -- by the miracle of sort of modern electronics, I was watching Clark Murdock this morning come up on the train -- he wasn't; I was -- talk about a drawdown and how you deal with a drawdown. And what Clark was arguing, which is different from the standard MO with a QDR, is start with what is your money going to be. And if you assume your money is going to be less than what it is today -- as you rightly say, we're down 20 -- 10 percent already -- what is -- what can you buy with the money that you know you're going to have, right, and should we now be driving the QDR, unlike past QDRs, from the resource side and end up doing, as Clark was saying, less with less, not more with less, because we will have less? Do you want to start on that, Dov?

ZAKHEIM: Well, one possibility, although it's remote, is to seize the opportunity of less and say, OK, we cannot continue to allow personnel benefits to keep on climbing; we cannot allow our health -- defense health plan to exceed the budgets of just about every country in the world. We have to watch what we're spending in operations, not taking the money out of training or out of a carrier presence or whatever.

Operations, apart from including defense health, includes base operations, you know, the lawnmower, how many times you have to mow the lawn in front of the commander's house. There's all kinds of stuff in what's called the black hole that nobody ever wants to touch because it's too hard. It's just so much easier to cut a carrier.

So one other area -- again, a third rail, military retirement. If we were to turn around today and say anybody who enlisted as of this morning will be grandfathered, but anybody who enlists as of 2:00 this afternoon will not be given the same retirement plan, we could save billions immediately because retirement is based on accruals. You pay in each year. It's an accrual accounting system. But try touching military retirement. The only thing that the Democrats and Republicans totally agree on is not to mess with retirement and not to mess with the personnel account. It's wonderful.

But if you're really serious about trying to maintain a capability -- and here Barry and I do not entirely agree -- if you want to maintain some kind of capability that's credible in a Middle East -- and I was just back out in the Gulf a couple of weeks ago -- it's not just a matter of Iran bombing Israel or Israel bombing Iran. It's much more than that. If you want to be credible out there, if you want to be credible in East Asia, if you want to be credible in the eastern Mediterranean, if you're concerned about anything to do with Latin America, you ought to be looking elsewhere. And right now nobody has the political guts to do so.

ADAMS: Barry, how would you do less with less, and should the QDR be driven in part by the reality that less will be the fiscal reality?

BLECHMAN: Well, I think less has to be the fiscal reality for defense because the biggest problem facing the country is the deficit and the larger deficits we're going to have. And if there's ever going to be a political deal that's viable and sustainable, defense has to play a role in that.

The first way to do less is the kinds of things Dov was talking about. There's a great amount of waste in the way the department does its business. If you just put together the official commissions and boards and reviews that have looked at manpower utilization and compensation and the way we buy weapons, there's something like $900 billion in potential savings over the 10 years. Now, there's obviously -- hard to do politically. You're not going to get anything like $900 billion in savings. But in our study, for example, we assumed we could get 20 percent of that, so 1 out of every 5 potential dollars in savings, we could save. And that goes a long way to easing the choices you'd have to make otherwise among forces and weapons programs.

And then secondly, we have to understand where we're coming from. Yes, we've cut over the last couple of years, but we had been building up for 10 years before that. And so the baseline defense budget is, if it's compared to 1991, even with the reduction, something like 40 percent higher in real terms. And that has given us enormous capabilities.

So if we want to put a second carrier in the Gulf, we can put a second carrier in the Gulf. This is part of the budget politics that's going on right now. We have much larger forces than any of our potential adversaries, conventional forces, and I think we can afford to take some reductions. It would be best if we were able to take them in the wasteful ways we use manpower and in compensation reform and weapons acquisition, but we can also take some reductions, particularly in ground forces.

ADAMS: Dave.

BARNO: Yeah, I'd make a couple points. One, I think it's important for us to recognize that we can afford to have a pre-eminent Defense Department because we choose how much we want to spend on defense. And, you know, that gets into how much revenue are we willing to raise, where we're willing to take cuts. We're now spending under 4 percent on -- of our GDP on defense. The Cold War average was somewhere around 4.8 percent since 1945. So we're -- relative to the economy, we're spending a modest amount on defense, and we can all see that's going down, and it should.

But I think we have to be thoughtful that we choose what kind of defense we want. We choose to be pre-eminent. We won't be able to choose being the number one economic power in the world. That's someone else's choice, and we can see, you know, if someone's walking up on our shoulder there. But militarily, that's our choice, and we choose how to resource that.

Having said that, I think we all agree that the problem is that we're delivering capability in the military sense for more and more overhead cost year after year after year. As Clark (sp) put it this morning in his brief, the defense -- the buying power of the defense dollar is diminishing and diminishing and diminishing. It's -- you know, the analogy I use -- we're driving a 1985 Oldsmobile. It's leaking oil, and every time we go out on the highway at 65 miles an hour, we come back after another day, there's more and more oil on the floor of our garage in the morning. And our solution has been to buy more oil, to put it in the engine and go drive it at 65 miles an hour.

There's a point at which you have to overhaul the engine, and we're at that tipping point now in the Defense Department. We're running an egregiously inefficient Defense Department that's leaking money, leaking oil that could be used to buy military capabilities much more cheaply than what we're spending for them today. But we have not found a way to get our arms around overhauling that engine, getting at the underlying structural problems. If we can do that, we can deliver the same kind of military capabilities at lower cost, which I think we all think is right.

ADAMS: All right, one more question. We'll go across, and then we're going to open it up for questions. Teeing right off of what you said, Dave, I hear all of you identifying sort of three areas that are outside strategy, outside capabilities that are really acquisition and how much it costs that are back office and how much it costs that are pay and benefits and how much they cost.

These things are very hard to do from the ground up. The CSIS study that's going to come out is basically going to say the way you deal with that is by capping the money and by having a really tough-minded secretary of defense in there to take names in order to get these things -- get their arms around these really intractable problems. Is that the right solution? Do we have the right secretary-designate?

BARNO: I have to see what they're saying in the CSIS study, and we'll go down the row here, so I'm not -- couldn't give you an informed answer on that. It is certainly a novel approach to the problem.

I'm more concerned that -- and I think an approach that's at least got to complement that if we end up going that way is that the uniformed military leadership have to stand with the new secretary and say, Congress, we have got to have these authorities, we've got to be able to make these changes, and we can deliver the Defense Department to fulfill the strategy that Americans expect, but we're not going to be able to deliver it with the same restrictions, without the authorities to adjust some of these things that have been baked in as permanent inefficiencies for decades and decades.

And I think, again, we're at a point where, in a way, defense is a burning platform. There's an opportunity here to change the trajectory of how the Defense Department operates, but it's going to take people in uniform to provide that political cover for making any of these substantive changes, especially when we're talking about personnel benefits along with the other changes in the acquisitions system and in infrastructure and overhead that -- Michele Flournoy, for example, had a good piece on that this week in The Wall Street Journal which I think was spot-on.

BLECHMAN: All right. I think one possible solution is to provide incentives to the services to identify the excess or the reductions that could be made in manpower. And faced with, you know, budget ceilings, give the services the choice, hey, well, you could take this deep a cut in your combat forces, or you can identify for me, you know, so many military people and infrastructure positions, excess -- excessive civilians, excessive contractors. This is a technique Secretary Schlesinger used during the Vietnam build-down, where he explicitly traded off fighter squadrons for cuts in the Air Force infrastructure, and lo and behold, the Air Force managed to find, well, maybe we don't need so many people in these kind of back-office functions. And that's perhaps one way to identify where cuts could be made in manpower.

ADAMS: Dov, you'll get the last word of the opening segment. Then we're going to go to questions.

ZAKHIEM: You know, Barry talked about 20 percent. The truth is, if we don't get Congress on board, it's not going to be 20 percent either. And if we do get Congress on board, it could be a lot more than 20 percent. And so what you need are a couple things. I don't have a problem with what Barry just said as long as the Joint Chiefs are really committed to doing this and committed to going to the Hill.

The thing about Schlesinger, of course, is that he got fired because the chairman of Appropriations didn't like him, McClellan. So you've got a difficulty here. It has to start actually at the top. It has to start with the president. If the president is not going to make clear that he is prepared to go after some of these benefits, then it's just going to collapse. It will not happen. So you need the president. You need the chiefs, in particular, and then the Congress might -- and I underline "might" -- go along. If they don't go along, we're not going to see any of this, and what we will see, when there are cuts, are the kinds of cuts that have constantly taken place -- the gold watches, if you will, the programs that have a lot of promise, that don't have a lot of support inside the department, that are run by a colonel and not by a general, that sort of thing.

I think that this is actually an opportunity to do something very, very different. But unless there's leadership from the absolute top, I don't see it happening.

ADAMS: That's a good opening -- opening set of shots. We've got a lot of stuff on the table, from sequester to how you manage or don't manage the Department of Defense. I'm going to open up to questions.

I remind you that this is on the record. We're going to have some mics. I don't know who's holding the mics. There's one over there and one other there. And state your name and your affiliation before you ask a question. Make it a question, not an essay. Thank you. That will give people on the dais more chance to respond to it. Limit yourself to one question, if you can. And people who are national members should know, if they're online or watching, that they can ask questions online. And I've got an iPad here on my lap and I'll be scrutinizing those questions as they come in as well.

So I'll just start recognizing people for questions. In the back.

QUESTIONER: Thank you very much. I'm --

ADAMS: Name and affiliation?

QUESTIONER: OK. My name is Tinkos Chavetz (ph), and I'm running Sustainable Development Media. And I was involved in Washington via CSIS, in the days that Charlie Ebinger was running energy group number two.

Now, my question relates to the observation that there's a lot of oil that's being thrown out on the floor and actually we should change the engine. Great observation. Now, I have experience with these kinds of things. Let me make a comment, and I have a question.

The comment comes that DOE --

ADAMS: Go to the question as quickly as you can.

QUESTIONER: Yeah -- DOE never was interested in fuels that are non-petroleum. In order to achieve that, with Charlie Ebinger we did three programs for DOD which were to prove that compressed natural gas, ethanol, methanol do not destroy the engine. It could not have been proven under DOD. It had to be proven under DOE.

Now --

ADAMS: And the question.

QUESTIONER: The military had a meeting about climate change and security. Now, my question is, would it be imaginable to transfer the energy part of creating an alternative from DOE to DOD with (a light ?) to give new justification to have a strong defense by thinking that these subjects are indeed subjects of security?

ADAMS: Not -- not an irrelevant question given the fracas on the Hill this year about whether the Defense Department ought to be in the alternative energy business. Any of you want to take it on?

BLECHMAN: Well, the department is doing quite a bit already experimenting with solar energy, for example, on its bases. And the department often has been on the cutting edge of integrating new technologies, as you point out. But as far as transferring the energy functions of the department, I can see that happening. What probably should happen is the atomic energy part of Department of Energy, the weapons part, which is being badly mismanaged by Energy, might come under the department for review. That might be a useful change, but --

ZAKHEIM: I would just add the Navy in particular has taken the lead in alternative forms of energy, even for its aircraft. But one other thing, bearing in mind, since this is Washington and it is government, you start talking about moving responsibilities from one agency to another, everybody forgets about what the real goal is, and all they do is fight about turf. So my advice would be let sleeping dogs lie and work the problem.

ADAMS: Martin Feldstein, down here.

QUESTIONER: Thanks. Marty Feldstein, Harvard University. A word that wasn't mentioned was cyber. We now have a new Cyber Command. We read in the newspaper the other day that the administration has decided that it can use cyber for offense as well as protecting us against cyberattacks. Cyber is very low-cost, potentially very dangerous, damaging. Question is what role will cyber play going forward as an alternative offensive?

ADAMS: Dave, you want to -- (inaudible) --

BARNO: Yeah, I think it's huge. This is breaking new ground, and it -- and it -- we're hampered in judging how big it is by the degree of classification that it's held behind. So as Barry alluded to, in their studies, these are capabilities the United States has developed over the last 10 or 15 years that, 25 years ago, didn't exist, weren't part of the portfolio, aren't obvious in the defense budget, don't fit neatly under a service uniformed head of some sort, and they're going to become much more important to us in terms of defending the nation.

You know, back to Dov's point, this is a turf fight that -- emerging in Washington now in terms of who's going to own the defense of national infrastructure, where does Homeland Security play in terms of its government role, where does Defense play, where does the private sector play. If the vulnerabilities are primarily in the private sector, who actually is going to own that, if anyone, in government?

So this is breaking territory. And I am -- I was encouraged to see that -- from the news reporting, at least, that we're going to be doing a lot more on the defense side of cyber. And I frankly think that the offensive component of that will be intrinsic in any conflict we have from this point forward. And I -- again, reading between the lines, I think we're very, very capable in that arena right now today.

ADAMS: Let me follow up that question a little bit. The two of you may want to talk to it. And that is cyber doesn't strike me as personnel-intensive as combat operations. Is that going to affect judgments about personnel and the evolution of ground force and so on? Will it change the nature, and will it change the quantity? Does it make quantity changes?

BLECHMAN: Well, our report certainly stressed cyber. Even in our lowest budgets, we added funds for cyberwarfare. And it does have the potential -- although frankly, I know very little about it because of the classification. It does have the potential of having cost-effective trade-offs with other forms of warfare. But it's very hard to tell from the -- from the outside.

ADAMS: Dov?

ZAKHEIM: I'm not sure you're going to save. At one point people said that drones would save you money -- after all, they're pilotless aircraft -- until people realized how many people are in the back office working the drone -- (inaudible). (Laughter.)

If you're going to fight cyberwarfare, you need a lot of computer scientists, and a lot of very good ones. And right now our only measure is how much money we pour into it. We have no real good output measures. I don't know that we'll ever have them. And even if we have them, I don't know if they'll ever be public.

So it's a leap to say that we'll necessarily save money. That's not why you want cyber, of course. Cyber is another major tool that could be a game changer. But I'm not sure that the efficiency argument works because it's hard to know how many people are backing up the guy sitting or the woman sitting at the computer actually doing stuff.

BARNO: I might add to that too that I think our cyberoffense capabilities are going to be much more effective against a sophisticated adversary and much less effective against an unsophisticated, irregular, you know, second-tier kind of an adversary out there. So we have to be -- I'm not sure we can replace special forces teams with cyberteams when we're dealing with, you know, Taliban, al-Qaida, others around the world who are not as vulnerable to cyberdisruption as we are, for example.

ADAMS: Over here.

QUESTIONER: (Off mic) -- Weston Janis from Oxford. Silver linings on clouds -- I was reading the Stimson report a couple of you had done, and your sixth point was to encourage others to provide more of their proportionate share of the responsibilities. And taking what Dov said about signaling people, I was wondering whether or not what seem to be inevitable cuts will in fact increase the proportionate shares that others contribute.

ZAKHEIM: Well, certainly I've gotten no sense that anybody wants to contribute more. In fact, you may have the -- you're already having the opposite effect. People are saying: Well, you guys are cutting. Why shouldn't we cut?

There's no great appetite in the European publics for spending more on defense. You know, if you look at the French numbers, you would think: How are they doing it? Because anybody who's looked at the French budget for the last -- defense budget for the last 15 years assumed that at some point they would run out of money. So the French somehow do it by mirrors.

The Brits are sinking. The Germans aren't interested. Where do you get the support? The Japanese are spending more, but that may not always be the best thing in the world, either. Look at the war of words that's taking place between Japan and China.

So it's not clear to me that anybody's going to pick up the slack, which means that there will be even greater vacuums and much more to worry about.

ADAMS: Are there -- are there -- do you want to comment, Barry?

BLECHMAN: There are, you know, selected countries -- the Koreans do their fair share and probably could defend themselves with just some air support from us. The French and British have done fairly well, although they'll be cutting back now.

The Europeans, I think, could get more bang for the buck, so to speak, if they cooperated more in their defense planning. There's been some movement in that direction, but in terms of specialization of different military missions among the NATO countries and some more complementary decisions on acquisitions and so forth, they might, as a whole, be able to contribute more.

Also, we see in the Persian Gulf countries are doing more. It would be great if they could cooperate with one another more than they do, but they working with us to build theater missile defense system, for example, as the Japanese and Koreans are in East Asia.

So there's few bright spots, but on the whole, the financial situation affects the allies, just as they do us.

ADAMS: Do you want to --

BARNO: Yeah, just to comment, I would -- and zoom in on the NATO alliance in particular that -- which is our, you know, most successful alliance in history, that it -- if we look at the Libya campaign as a case study of what's working, what's not, in a campaign where the United States was not in the lead initially but, you know, having looked behind the door a little bit on how that unfolded, the U.S. immediately had to perform all of the wiring behind the billboard to make sure that that campaign continued, ended up providing munitions to the allies went they ran out of munitions, provided a great deal of command-and-control infrastructure.

So even within the alliance that we've had together for, you know, decades, that's built interoperability, prosecuting that very modest campaign put immense strain on our allies. And since then, each of them that were involved have actually diminished more of their military capabilities.

So I have some worries about where this is going over the long term, and I think we may end up having to do more.

ADAMS: Let me push back a little bit across the board on what is fairly strong statement of pessimism. Does the European willingness to engage in the Libyan operation and the French willingness to take the lead in Mali suggest a willingness, at least, to begin to confront these problems, A? And should we be surprised, given NATO's history, that we provide some of the capabilities and they provide others of the capabilities? In other words, is there an optimistic side out of at least these two recent episodes?

ZAKHEIM: Well, I'll start. Well, the French have never been shy about this sort of thing, and particularly when it comes to what used to be francophone Africa, what really still is, they have done quite a bit, often with our support, with our quiet support, going back to the '60s and the '70s and so on.

So I'm not surprised about French behavior, regardless who the president is. I mean, Hollande was supposed to be the passive socialist, as opposed to Sarkozy, but it didn't matter. At the end, France does what France thinks it needs to do.

I'm much more worried about the British. Much, much more worried. They are running out of ships. They now have the smallest army since pre-World War I. And they don't know how they're going to fund their submarine deterrent. And so they are really tied in knots.

As for the Germans, they didn't want to play in Libya. They are -- don't seem to have the appetite for doing very much other than being supportive in the most modest and least militaristic way. And the rest of the allies -- I mean, other than the Turks, who are unique in many, many ways -- are just not spending money on defense.

And I recall, as I think everybody else on the panel does, when we begged the allies to give -- you know, spend 3 percent of GDP. And now we beg the allies to spend 2 percent of GDP. And pretty soon, I'm willing to bet, we're going to beg the allies to spend 1 percent of GDP.

So I just don't see any relief there.

ADAMS: Let me ask a question, remote, from Charles Wolf at RAND. He suggests -- he asks, was arming the Syrian rebels a good idea? Since we didn't arm them, let me rephrase it a little bit. Given the controversy that arose yesterday in Leon and General Dempsey's testimony, would arming the Syrian rebels have been a good idea?

ZAKHEIM: Well, I've written about that, so I'll jump in. I've supported -- I sort of look at it this way. We've announced that we've provided intelligence to the Syrian rebels. That's public. Well, we ought to know who are the good rebels and who are the bad rebels. I mean, we're not giving intelligence to the bad rebels. In which case, why aren't we arming the people we give intelligence to?

The counter-argument that I've heard is, well, they're not trained. Well, you know what? You don't just give people arms, you train them. You don't give somebody a handgun; you train them. And so I'm baffled as -- well, not really baffled. I know exactly why. We all know exactly why it wasn't done when it was recommended.

But I think it was a serious error not to arm them. We are now in a situation where the extremists, as in Mali, seem to be predominating. And so now you've got this Hobson's choice. Do you want this dictator who killed 60,000 of his people, and rising, or do you want a bunch of crazy Sunni Islamists that could totally upset the entire balance in that region? I think it was a serious error not to have done it.

ADAMS: Barry? David?

BLECHMAN: I think it's very difficult to know from the outside how confident we can be in knowing who the good rebels are from the bad rebels and how to control the weapons going to the people that we want them to go to. And if -- certainly the election had something to do with the White House's decision not to arm them, but there also may have been questions about how confident we were in our understanding of that movement.

And I also think back to Afghanistan, where we armed the rebels and we armed them quite well. And we armed good rebels and we armed bad rebels, mainly bad ones, because they mainly were bad, and we paid a price and are still paying a price for that many years -- many years later.

BARNO: Just a quick comment. You know, without having access to the intelligence, its difficult to make a good judgment on that, but I am a skeptic and I would be worried. And we've seen evidence of this coming out of the Libya campaign, that once those weapons go in, the ability to control them going out other places is pretty difficult. And so in that particular area, I think some caution was probably warranted.

ADAMS: Let me correct the record. That question was from Charles Cogan at the Belfer Center, it was from Charles Wolf; just so that he knows that I got it right.

A question here.

QUESTIONER: Assuming that the Defense Department --

MR ADAMS: Identify yourself.

QUESTIONER: Bettye Musham Gear Holdings. Assuming that the Defense Department is responsible for all the cybertechnology attacks, et cetera, who coordinates between the various services what they're doing with the cyber, with the drones, et cetera? And who decides on the R&D, which necessitates very sophisticated people? Is that being subcontracted? I mean, who decides -- who does that?

BARNO: Very briefly, I'd separate drones and cyber into two different boxes. But in the cyberbox, it's not just the Defense Department that has ownership of cyber. The Department of Homeland Security has governmentwide defensive -- not offensive but defensive cyber responsibilities. The Defense Department has, according to what's in the paper, offensive capabilities and responsibility as well as the responsibility to defend their own networks, the Defense networks.

Every service has a -- has built its own cybercommand now that nests up underneath the joint Cyber Command at Fort Meade, and so, as all the other integrated joint commands, they referee among themselves who's going to have what responsibilities, how R&D is done, and there is some duplication, in my estimation, there, to include probably in the R&D arena. But there is a process that reflects similar kind of arrangements in each of the other unified commands out there.

ADAMS: Either one of you? No comment. The other piece that I think you need to talk about in that area is the National Security Agency, which is very much a driver on the technology side in the cyber arena, very central to not only the command operation but the general protection and offensive operations in the dot-mil space. So that's a very important center of coordination as well.

Other questions? In the back over there.

QUESTIONER: Hello. Hazike Matsura (ph) of Japan -- (inaudible) -- I'm a columnist writing for the paper. As one of your panelists mentioned, Japan recently decided to increase the defense budget for the first time in the last 11 years. I'm interested in how this will impact on the U.S. budget deficit as well -- sorry, U.S. budget -- U.S. defense spending as well.

ZAKHEIM: Well, I think it's certainly been well-received here. It fits in very nicely with the repositioning or pivot or whatever term you want to use toward Asia, and it's something we've been asking our Japanese friends to do for a very long time. So in that respect, I don't know whether it'll affect budgets per se, but it does seem to support the overall strategy of the United States.

As I said, the worry is that, you know, instead of the war of words, you know, between China and Japan calming down, it seems to be intensifying. I don't relate that directly to the military buildup or budget increase, but I suspect in Beijing, they might. And so that's a concern. But I would hope that the way to calm it down is not by cutting the defense budget. I think it really is welcome in Washington, what Japan has done.

BLECHMAN: Yes, I'd second that. And we need to recall that the increase, of course, is coming from a very low base, one which we've urged our Japanese allies to increase for some time. But the more important question is the territorial and resource dispute with China, and I don't think that's affected by budgets, but it's affected by the words of political leaders and by actions and inadvertent actions, you know, on -- and the stridency. And it's very important to avoid mishaps or misunderstandings that could get out of control or --

BARNO: Yeah, I think I would just add briefly that this is one of the bright spots. We talk about our allies and their spending; this is one of the few bright spots we have out there in terms of allies actually increasing their defense spending. And as the U.S. rebalances towards a stronger Pacific focus, that'll be a very important complement to what we're doing out there with repositioning some of our military resources.

ADAMS: I just have to add that the pols are very proud that they are also increasing their defense spending. So be reassured.

Here in front, you had a question.

QUESTIONER: Stefan Bissard (ph) of Swiss daily newspaper Le Temps. One of the speakers was saying that it would be possible to reduce defense spending by reducing combat troops or something like that. Could you say a word about that, in the sense that -- is it less and less likely that now we will see American boots on the ground and that actually, the drone policy will be carried on? How do you look on the spending issue as far as ground boots and drone policy is concerned?

BARNO: Just a quick thought on that. I know Barry, you know, just wrote about this. But I do think that based on what's in the defense strategic guidance from last year that the commitment not to size our forces based upon prolonged instability or prolonged stability operations out there on the ground is going to come to the fore.

We've already announced cutbacks to the Army and the Marines. Most observers, myself included, think those cutbacks will go deeper than they've been announced already. And I think, clearly, that this administration has got a predilection towards light-footprint operations around the world, what we see in Yemen, what we're seeing in the Horn of Africa, what we're seeing perhaps supporting operations in Mali in the -- in Western Africa there. So that element of how drones technology, special operations forces are employed is going to continue to be, I think, a hallmark of how the U.S. uses forces differently in the next several years than we've done with large forces over the last decade.

BLECHMAN: Yes, even with the cutbacks that are planned or likely to happen, we'll have quite substantial ground forces. So in our lowest budget scenario, the Marines go down to 150,000. That still permits us to maintain 10 to 12 Marine expeditionary units either deployed on ships or rotating overseas. So it's still quite a very substantial force compared to other countries.

ADAMS: Do you have any comments?

MR. : No, I think -- (go ahead ?).

ADAMS: In the back.

QUESTIONER: Carter Copeland with Barclays. I wondered if you might go back and revisit sequester. We've heard a lot about impacts on readiness employment, furloughs and the like, but one thing we haven't heard a lot about is contracts and problems we may run into with them. Is it your sense that the DOD or the Hill is as worried or concerned as they should be about what the sequester will do to the existing basic contracts that we have in terms of triggering Nunn-McCurdy breaches, termination liabilities and the -- and the leakage and spillage that comes from the so-called savings? What do -- what do you hear about that? What can you share?

ZAKHEIM: Well, the first thing, I'm sure you know this, is that contracting officers have been -- really been flowing down their obligation rates. They just -- they're -- they are worried about termination liabilities in particular. And so this rate of obligations has gone all the way down.

Now, you really have to just distinguish between different kinds of contractors. You've got the contractors that essentially are what's called staff augmentees. In the colloquial, it's called butts in seats.

And these are people who essentially work the desk jobs that people in the Defense Department, Defense civilians, should be working; very often they'll leave the Defense Department, flip their badge. They have a new -- a new job, but it's not really new at all; they go back to their old job. And Bob Gates spoke out against that, and they've already been reductions in that -- in that whole arena.

That's very different from, you know, building a bomber or a plane or a ship or whatever where you run into termination liabilities in a very serious way. And so there the contracting officers have been doing whatever they could to minimize the impact of that.

Now, will they get away with avoiding termination liabilities? Absolutely not. No question about it. They're going to be hit. The question is in what ways will the current effort to minimize new obligations in turn minimize the termination liabilities? And to my knowledge, those estimates have not been done. And I'll tell you one reason why they've not: Because until a few weeks ago, the White House was telling the Defense Department not to get into any detail about the sequester at all. And so that complicates matters big time.

BLECHMAN: Another thing to consider is in terms of effect on procurement is -- and R&D is the fact that we operate under the short-term continuing resolution. And that makes it very difficult for programs that are supposed to be ramping up or moving into new phases or development. They can't go there, and they have to stay at the previous years' budget levels, and it just makes rational program management impossible and ends up wasting a lot of money. So it's very important to get past this continuing resolution, have a budget for this year, at least, and move quickly into a longer-term budget.

ADAMS: We got about one minute left, so I got time for one more question, if there is one out there.

Yes, sir. Last question.

QUESTIONER: Peter Bakstansky, College and Community Fellowship. Without arguing whether or not -- with accepting that change in spending will change operational capacity, do any of you contemplate a world or conjure up a world in which -- that you can step back and say that a lower degree of spending for bombers or for foreign bases or for troops would create a safer world, both for the United States and broader?

ADAMS: Short answer, since we have basically no time left.

ZAKHEIM: I don't think so. I don't think that makes a safer world.

BLECHMAN: I don't either. Right now there is a lot of uncertainty in this wide swath from northern Africa through the Middle East through Central Asia. And I think it's a time where the U.S. needs to continue to exercise leadership in military affairs as well as broader foreign policy.

BARNO: Yeah, I would -- I agree. I think the U.S. military underwrites the global order in many respects. And as you pull sticks out of that Jenga pile at some point in time, the pile comes down.

ADAMS: Thank you. Dov Zakheim, who's got to run for a plane; Barry Blechman; General Barno. And thank you all for the questions. (Applause.)

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