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Paul C. Warnke Lecture on International Security: Defense Strategy and Budget Priorities for the 21st Century

Speaker: Ashton B. Carter, Deputy Secretary of Defense, Department of Defense
Presider: Richard N. Haass, President, Council on Foreign Relations
March 6, 2012
Council on Foreign Relations

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RICHARD HAASS: Well, good evening one and all and welcome to the Council on Foreign Relations, and thank you all for joining us tonight.

It's one of the special nights in the council's year because it's the Paul C. Warnke lecture on international security. And this series, as I expect many of you know, was founded under my extraordinary predecessor, Les Gelb, in 2003. And Les and Judy are both here tonight.

And this lecture honors the memory of Paul Warnke, who was a former member of council, a former director of our board, and was one of the most extraordinary public servants in recent decades.

He was best known as the person who did so much to promote nuclear arms control, and he served as the chief U.S. negotiator to the 1978 SALT talks -- strategic arms limitation talks, for those of you under the age of 48 or 50. And he also played a prominent role in peace talks in Vietnam.

And it's great to have members of the Warnke clan with us tonight, Steve and Maggie and Benjamin, and to welcome his sister and several of the grandchildren. I am grateful to them and to other supporters of this lecture series.

We're also pleased tonight to welcome Ash Carter back to the council. Ash has spoken here many times before, but I believe this is his first visit since he became DEPSECDEF, and that was, what, about a few months ago.

It's a great time -- anytime would be a great time to have Ash here, but this is a particularly good time. It's now just been a matter of weeks since the new defense strategy was released and set forth a rebalancing of U.S. military forces toward what's known as ASPAC (ph) -- not to be confused with AfPak -- a reduction in -- a slight reduction in the end strength of the military, laying out a new strategy and so forth.

Ash also recently returned from Afghanistan where he was looking at the Afghan national security forces and their future. And all of this is taking place in a growing debate about, among other things, what the United States will or will not do with any of the many challenges in the greater Middle East, including but not limited to Iran.

And this is also taking place in a different context, which is a context of budgetary constraints.

Ash Carter is particularly well placed to speak about these issues and more. Prior to his current job, he was the undersecretary of defense for AT&L, acquisition, technology and logistics, if I remember correctly. He also served in the Clinton administration as the assistant secretary for international security policy, or ISP if you prefer. And he was a professor at the Kennedy School of Government which is, in fact, where we met about a quarter of a century ago.

Ash is, I would argue, a scholar practitioner of the highest order. He's a model for the kind of person we seek out here at our fellows program. Indeed, Ash, depending upon what happens this fall, I just want you to know the council is open to you. (Laughter.)

As I said, we've been friends for several decades though we've never served in the government at the same time. You don't have to be a rocket scientist to figure out why our stints alternated rather than overlap, but who knows, one day even that may change, though all I've it to you all to figure out what would be the coloration if it were to change.

The way we're going to do it tonight is Ash is going to begin with some remarks. And then he and I will have a short conversation about some of the issues he raised, and then we'll try to save the lion's share of the time for you all, both in this room and them all, the national members who are listening in and will be able to participate via the wonders of modern technology.

This meeting is on the record. So anything one says can and will be used against you. I ask that people turn off their electronic devices of all sorts given the sound system. And as I said, this meeting is being teleconferenced to national members of the Council on Foreign Relations. And after the meeting, there will be a reception across the hall, and I hope that as many of you as possible will join us and the Warnke family for that.

And with, again, thank you for being here, and please welcome the deputy secretary of defense, Ash Carter. (Applause.)

ASHTON CARTER: Thanks very much, Richard.

Welcome, everyone. Thanks for coming this evening. A special thanks to Richard Haass.

I saw on the news today that it is the N-th anniversary, where N is a large number, of the successful ending -- 21 -- of the first Gulf War. And those of you who know Richard know that he played a central role in making that a success, one of many things he's done.

He continues to be an adviser to the Department of Defense. Secretary Panetta and I are grateful. And a friend and counselor of long standing.

Richard kind of got -- was one of the people that got me into this business in the first place. I was a physicist that had nothing to do with national security affairs, and I attended an event you'll never remember. But you were talking about the Middle East, and I didn't know much about it. And it was extremely impressive. And Richard has remained extremely impressive, and I'm sure that whether it's here at the council or elsewhere, will continue to be a rock in our national security foundation.

I thank the Warnke family, also, for the generosity that makes this possible but also for who Paul Warnke was. I never worked for him. He was a little bit before my time. I did work for Paul Nitze, who was a colleague of his and so forth. And I remember that era. I touched it just briefly, and it was people like that who got us through a very dangerous situation safely, namely 50 years or so of Cold War, something we take for granted now but was an achievement of the national security leaders of that generation. And so we thank you very much for your generosity and for being here.

We're here tonight at a time that is one of really great consequence for national defense. Two great currents are coming together for us in the Department of Defense. The first is a current of strategic history. We as a department have, of necessity, been riveted for the better part of a decade now on two wars in Iraq and Afghanistan and with the technique and technology and challenges pertaining to that kind of conflict.

One of those wars has ended, and the other will in time. As Richard said, I was just in Afghanistan. That's a subject for another day. I go there frequently, and just one word on that, which is you should be very proud of what your military is doing there. I won't say any more than that because it's a topic, as I said, for another evening.

But even as we press the fight there in Afghanistan, because we're coming to the end of this era, it's time to look up and look out to what the nation and the world are going to need next in the area of defense. And that's the opportunity and really the responsibility that we feel right now because, while we've been fighting those two wars, the world hasn't stood still.

Technology hasn't stood still. Our friends and enemies have not stood still. And now we have to rise and meet those changes and, in some places, catch up with them. I'm trying.

And to do that, we're going to have to let go of some of the old -- the habits, the mindset, the forces and so forth, institutions of the past and really grab hold of what we're going to need going ahead to the next decade.

And so it's important to say this because it's important to understand that we would need to make consequential changes in our approach to defense at this moment of history even if we had all the money that we want. But we don't have all the money for the budget that we want since a second great current is flowing at the same time, which springs from our nation's need to put its fiscal house in order.

So it seems certain that we're entering an era of subsiding rather than ever-increasing defense budgets, the sixth since World War II, and managing that transition is the second change that's in front of us in the department.

The reductions we're making in DOD budget are an enormous adjustment. They're the largest adjustment that this department has had to make in more than a decade. They are occasioned by the Budget Control Act which imposes upon us the limitations that we are toiling under.

Let me just remind you of the facts. The base budget -- the base budget in defense is not decreasing but neither is it increasing steadily as it has been for a number of years and as we planned for it to rise before the passage of the Budget Control Act.

Specifically, what that means is that we are required to take out of our planned program over the next decade a half a trillion dollars worth of activity, specifically 487 billion (dollars). That's the famous 487 billion (dollars). That's 259 billion (dollars) over five years, an adjustment in total of about 9 percent, which is a very substantial amount by any measure.

To that, you have to add the reductions in the overseas contingency operations, formerly called supplementals, OCO part of the budget which funds the war. And that is going down as well.

You put those two things together, and the net increase in defense spending over the coming years rivals the two most recently downturns after the end of the Cold War and the Vietnam War.

That's what we know so far. I'll just say one thing, which is the S word, about sequestration. That is a gun to the head that was put there by the Congress, also part of the Budget Control Act -- I can say more about that later. I'll just simply tell you from our point of view that's a disaster if it happens. It's quantitatively a disaster in the manner in which it would be imposed upon us because it's arbitrary and across the board. It is managerially ridiculous.

And so the only thing we can hope is that we can work with the Congress to try to create some larger package which involves revenues and mandatory spending as well as discretionary spending and avoid that. That would truly be a disaster, a subject, again, for another day.

Let me tell you how we're proceeding with this task that we have before us. The first thing that was important to us, and I think it's important to note -- it was important to President Obama -- is to proceed strategically; that is to address our strategy first before we began to address the budget. That's what you saw us do over the last couple of months.

The president asked us to look at what we were doing in a fundamental way, to recognize that this first current -- of which I spoke of strategic history -- was flowing, and to rewrite our conception of what the military needed to be over the next decade different from how it looked over the past decade and do that in a very deliberate way.

That was important to us. It was important to have the sequence of strategy first and then to address the budget.

Then, we turned to the budget, and we had basically two pieces of guidance there. It came from the secretary of defense. The first is everything on the table. I say that may sound obvious to you up here, but to a department that has not had to look everywhere for quite a while in the managerial sense to find efficiencies, to find savings to ask ourselves what we really needed to do, we have done that. I realize that's controversial. It means that we're looking in closets that have not been looked in for a while. Nothing off the table.

The only proviso I'd put on that is we did want to be respectful of the integrity of the all-volunteer force because it's our people more than any of the equipment we have and everything that make us the greatest military in the world and have given us so much over the last 10 years.

So painful as it is, everything on the table.

And the second thing we wanted to make sure we did was not proceed by subtraction alone. The image I always have in my head is of an ice sculptor, you know, chipping away. Don't watch the chips; ask what you're shaping when the chips are gone. And we've tried to proceed that way, not proceed by subtraction but try to build toward the force that the country needs in 2020.

And so we have tried to present to the Congress and have presented to the Congress what is a rounded and balanced package that is strategically informed. And I say that to anybody who wants to look at it or approach it piece by piece, that's not how we did it. That's the opposite of how we did it.

We then, several weeks after presenting the strategy, presented the budget. It's now up on Capitol Hill for their consideration. And, basically, the actions that we took to make this titanic adjustment fall into three categories, and I want to name the first two, and then I'll concentrate on the third, and you'll see why in a moment.

First is continuing to press discipline in the use of the defense dollar and eliminate waste in defense spending. We've got to do that. We've been on that path for quite a while. Secretary Gates started that, and we have to get better taxpayer value for the defense dollar. That's number one.

I'd like to tell you that we could get the whole half a trillion dollars in that way. We couldn't. But we did get about a quarter of what we were required in the way of reductions from what I'll call better use of the taxpayer dollar; that is, changes that are -- changes in efficiency and don't really affect the war fighting capability of the force.

You'd expect us to do that. We have to do it. People don't like, for example, the inclusion of the proposal for a new round of base realignment and closure. Nobody likes base closure. How could we do any different than that? We have to seek reduction in tail before we go to the tooth of military.

Likewise for poorly performing activities, poorly performing institutions, poorly performing programs -- you ain't performing, you're on the chopping block in this environment.

So as I said, we were able to get about a quarter of what we needed to get in this way.

Second category I'll just name is we did make some careful and measured adjustments in personnel costs. These have grown greatly over the last decade. We did make some adjustments there. I can go into that in more detail but, again, we were careful to do that in a measured way.

The third and most consequential for those in this audience were changes we made in our investments, in posture, equipment, force structure, modernization, and so forth. So were the changes that were informed by the strategy.

And, again, I don't want to take the whole evening up and go through this, but we made hundreds of very significant decisions. And if you read the material -- I've been at this now -- this is my fourth round in recent years. And in past years, we've made tens of significant adjustments, you know, the controversial ones that you remember, that you read about that are debated on the Hill that people complain about and so forth.

This time, it's more like a hundred noticeable changes of that scale.

Richard, so how do we try to align those with the guidance we were given by the president in terms of strategy? Let me take three elements of that strategy and just illustrate what they led to in terms of the management decisions we made.

The first one Richard has already spoken to, which is rebalancing our efforts in several ways but one of them towards the Asia-Pacific theater. That is something that we're doing because of the importance of that part of the world, so much happening there, so much to happen in that part of the world. And naturally, it made sense to look at our investments with that in mind.

And let me give you some particulars in that regard. It was not possible, is not possible for us in this Budget Control Act constrained environment to increase the size of the Navy in terms of ship count. It remains about the same, a little bit of uptick in the -- in the out years. But we did decide to retain those elements of the naval force structure most relevant to the Asia-Pacific region, among other regions. So no reduction in the carrier air fleet, no reduction in large amphibs, a shifting of the fleet from the Atlantic to the Pacific so that, by the time we're done, it'll be about a 40/60 mix Atlantic/Pacific, very different from our history.

In that regard, forward basing which makes much more efficient use of ships. So for example, the Littoral Combat Ship which we're buying, we'll base some of them in Singapore so they'll have much more presence in that region than they would have were they based in California or Hawaii.

For the Air Force, we did have to make some reductions in the number of tac air squadrons -- tactical air squadrons -- seven out of a total of 60. None of those in the Pacific.

And we kept -- we protected the KC-46 tanker and the tanker fleet in general, lift -- except for some lift we don't need any longer, but the great bulk of our lift. Intelligence, surveillance and reconnaissance and other things relevant to that theater, protected in the budget.

The Army and the Marine Corps I'll get to in a moment because they do have end-strength reductions, occasioned by the ends the war -- end of the war in Iraq and the drawdown in Afghanistan. But speaking for the Army in the Asia-Pacific region, no change in the Korea posture. And, in fact, out there, they'll see the Army more, not less, by the way. That's true almost everywhere, including Europe just because of the availability of Army units which are now tied up exclusively in Afghanistan.

Likewise, with the Marine Corps, no change in the Marine Corps presence west of the international dateline at all. And those Marines, once again, as they come out of the Helmand Valley and so forth, will be more present in the Asia-Pacific region than they've been in recent years.

We're going to have a new rotational presence in Australia, as you probably know, continuing to do the move to Guam.

So across the board in our posture in the Asia-Pacific, despite the cuts that we're taking trying not only -- not to decrease our posture in the Asia-Pacific region but to increase it and, next, to make it qualitatively better and more modern.

I'll just give you a few examples. We're retaining in full our plan to build a new bomber, a new stealthy bomber, add tubes to Virginia attack submarines that are capable of launching cruise missiles. Our undersea advantage is a great American advantage. We want to retain that, including the possibility of ballistic missiles of short range launched from those submarine tubes; upgraded radius for tactical aircraft and ships to counter jammers, other electronic warfare improvements in that area, improved air-to-air missiles, greater weapons inventories in the Asia-Pacific region, communications, steps to protect our carriers and other bases afloat and ashore, any submarine warfare torpedoes, the P-8 ASW platform program continuing unabated.

So a number of new capabilities as well as the preservation of posture in that region.

So that's just one element of the strategy and how we tried to reflect that element of the president's guidance in the changes we made.

Now, obviously, when you're protecting things for that purpose, other things have to take larger cuts as a consequence. And that's the -- that's what it means to act strategically.

The second thing the president told us is he didn't want to see reductions in the things that are part of our future. Make sure you look at the legacy first and not at the things that are part of the -- part of the future.

And so we have protected our special operations forces and their end strength, which has grown substantially because of Iraq and Afghanistan. We're going to keep that force structure in the special operations forces as well as its qualitative improvement.

Cyber, not only not decreasing but increasing despite our budget situation because of the importance of that area to the future.

Our science and technology base, which is our seed corn and will allow us to continue to innovate and have the qualitative edge.

A number of space initiatives. Our industrial base -- we are very attentive in this period to the health of our industrial base to preserving key skills that we'll need in the future in building bridges from where we are now to our future programs for parts of our industrial base that embody the kinds of skills that can't be found in the commercial economy and that would be very difficult to rebuild were we to allow them to go away.

So the second piece of guidance from the president, protection of key investments that are part of the future. And we deliberately built a fence around them and then went after everything else that wasn't inside the fence.

The last thing I'll just mention -- and I could go on and on because, as I said, there are literally hundreds of items in a shift of this magnitude that we needed to make.

A lot of people noted that we are reducing the end strength in the Army and the Marine Corps. The Army and the Marine Corps end strength increased as a consequence of the two simultaneous wars, once again, out of necessity. We are not retaining the large rotational force structure that we built up for Iraq and Afghanistan.

And I just want to say that's not because we're sure we'll never do that again. Who can say? But it's not necessary for us to retain forces in being for that eventuality. If we find ourselves in that circumstance again, however unlikely that may be, we are being very careful to preserve the COIN -- counterinsurgency skills -- that we have so painstakingly accumulated over the last 10 years. But we don't need to retain the bulk.

And so the Army end strength will come down to 490(,000) from about 565(,000) where it is now; the Marine Corps to 182(,000) from about 202(,000) where it is now. We're going to do that in a gradual way to minimize involuntary separations and honor the people who are serving us now. But that will come down, and that's not for ordaining that anything about counterinsurgency in the future. It's just simply unnecessary and unaffordable to keep that force structure. If we need it again, we will regenerate forces through mobilization of the reserves which we are basically not changing or reducing in the Army and the Marine Corps -- mobilize those reserves. And then, if necessary, we would regenerate forces the way we did it over the last decade for Iraq and Afghanistan.

So we're trying to build in wherever we can open doors so if things change and we need something that we're not going to retain in the force structure, basically, for budgetary reasons, we have an avenue to rebuild it.

So those are three of the pieces of strategic guidance the president gave us -- there are several others I don't have time to go into -- and how we tried to reflect them in the change that we're making.

So we have put this package forward. We're trying to be as honest and thoughtful as we possibly can. It's not a task that any of us welcomes, though it is something we understand the country needs us to do, and we're trying to do it in such a way that we continue to have the best military in the world and also the one that we need in the future.

So I hope you'll familiarize yourself with that and the amount of strategic thought and effort that went into building it. And we certainly hope that the Congress allows us to do what we need to do. There's always a tendency, as I said, to pick apart, but you can't do that. This is a balanced package. It's a rounded package. It's a strategic package and deserves that support.

With that, let me stop. I know Richard has -- we have plenty of time for conversation. (Applause.)

HAASS: Thank you, Mr. Secretary.

And I mentioned before that the Warnke lecture was created during the year when Les was president. It was also during the year when Pete Peterson, who's with us tonight, was chairman. And Pete did so much for this institution and also so much about something Ash mentioned, which was to focus this country on getting its domestic house in order. So I wanted to say that.

I want to turn to your basic point about the rebalancing.

Some would say we understand the importance of the Asia-Pacific, but, gee, given all that's going on in the Middle East, from developments in the Arab world, Iran's nuclear program, continued importance of oil and gas from the region, possibility for proliferation in the region and all the rest, this is a funny time to rebalance away from the Middle East.

CARTER: Well, that's not what we did. It was an abbreviation, for which I apologize.

I took the Asia-Pacific -- if you actually read it, it's rebalanced toward the Asia-Pacific and to a different kind of presence in the Middle East which I didn't go into.

But just to remind you of what we're doing there, we are increasing the posture -- the post-Afghanistan posture in the Middle East. That has a naval component. It has a land component. It, very importantly, involves working with some of our partners there who are making investments themselves, some of which draw upon our industrial base.

So I just didn't go into that, but some of the same things apply to the Middle East. And if you read the -- it always says Asia-Pacific region and the Middle East.

HAASS: Apologies.

I know we cut down slightly in Europe. Why did we not cut back more in Europe?

CARTER: Well, what we did in Europe was the following. We took two of four brigade combat teams that are now based in Germany -- two heavy brigade combat teams. They are actually -- have been rotating into Afghanistan. When they rotate out, they will disappear. Now, that's happening to Army units in the United States as well.

It's happening in Europe because we -- Europe -- our commitment to Europe isn't measured, really, by what we have in Europe. Europe is not so much a source of security challenges as it is a source of security assets. That's what our NATO allies are with us.

So you don't measure either or commitment to them or what we are jointly capable of doing by what we have deployed there.

We are taking down the two brigade combat teams, a corps headquarters, a tac air squadron out of Europe. So Europe, like, by the way, the continental United States, are seeing these reductions which are inevitably occasioned by the fact that we don't have the dough to keep everything, and we're differentially protecting things in other parts of the world.

HAASS: Couldn't touch on everything, but one thing you didn't touch on is nuclear weapons. And given this rebalancing, given the budgetary constraints you and your colleague are under, what is your sense of the role of nuclear weapons going forward?

CARTER: Well, we did not make substantial changes in the -- to the nuclear force structure. I don't rule them out in the future. Actually, the president is considering what we need for deterrents going forward. I'll just touch on each of the major elements of that.

Let's start with the missile submarine force. I mean, that's the bedrock. That is the survivable force. And we are coming up on a period where we have to recapitalize that force. There's the Ohio. We have 14 Ohio class SSBNs. We do retain the budget. We slip the program a little bit. That's more for fact-of-life managerial reasons as budget reasons.

So we're going to recapitalize that force that we have that survivable deterrent.

The bombers that -- we did protect the bomber fleet less for the nuclear mission per se than because they're useful for other things, including the Middle East and including Asia-Pacific theater.

That leaves the ICBMs, which are actually not all that expensive.

With respect to the warheads themselves, they're managed by the Department of Energy. As you know, they are in the Department of Energy budget. We were very concerned and careful that the safe, secure and reliable stockpile is kept. It's going to be smaller, but it needs to be safe, secure and reliable.

So we looked at it, Richard, no changes of budget that were budget imposed at this time.

HAASS: Ash, you made a point saying towards the end about this should be seen as a strategic whole, and you're nervous about people on the Hill and elsewhere beginning to cherry-pick this or that or take it away.

Given the nature of the Congress that often likes to do that, why should there be any confidence that they won't do exactly that; that you've removed the base closings, if you will, from the political process, but the bulk of the defense budget lies firmly within the political process. Why do you think you'll have the luxury of a strategic approach to the defense budget?

CARTER: Every state and territory is touched by what we're doing. Make no mistake. And, of course, they notice, and the delegations notice that. And the only thing you can say is the Budget Control Act was passed by the Congress, both houses, both parties. That is the constraint under which we are operating.

We have laid out our rationale for each and every one of those changes. So anybody who would like to do something different needs to explain, if it doesn't come from here, where is it going to come and how does that fit into what the nation needs going forward, and how does that fit into what is a rounded package.

That's the -- that's the mountain that anybody needs to climb who would take a particular piece out of it. But we're discussing it all of the delegations and, again, there's just not an installation, there's not a state, there's not a territory, there's in the a congressional district that's not affected.

I mean, you're not going to take out of half a trillion dollars of planned activities -- that's half a trillion dollars of expectations that are -- we are required to remove.

HAASS: Let me just ask one --

CARTER: We tried to do it in the most thoughtful way and a direct and honest way and explain it that we can.

HAASS: Let me just ask one last question which gets at another half trillion dollars called sequestration that, basically, for those for whom 9 percent cuts are not enough, there's then 18 percent cuts, plus or minus.

You described it -- I think you used the word "disaster." Explain a little bit why it is because there's cuts and there's cuts. And it's obviously a disaster if it's helter-skelter and all of that. But imagine -- is it inconceivable to imagine a further 9 percent cut that, as painful as it is, is still strategic and still -- that is a controlled -- why is it necessarily an out-of-control process at that point?

CARTER: Well, just to be clear what the gun is that's to our head that is sequestration, and that has a quantity attached to it, but it also has a method attached to it. And the method is, crudely, to take every item in the budget and multiply that line by .8.

Now, think of what that -- I don't know -- I can't buy eight-tenths of an aircraft carrier. I can't get through eight-tenths of the year with training.

So that is a haircut. That's the worst kind of management you can possibly have. That's what is in the law now. That's what we face.

So if we are not able to come together behind a package that obviates the need for sequestration as it's described in the Budget Control Act, that's what'll happen to us. As I said, that's the opposite of what we've been doing.

HAASS: OK. There's a lot of interest. I will quiet down.

Why don't people raise their hand. We'll wait for a microphone. Let us know who you are, and if your questions are succinct and the secretary's answers are succinct, many of us will get a chance to participate. So the floor is open.

Right here in the second row. Right here.

QUESTIONER: Can you talk a little bit about cybersecurity and how you rank it as a threat to the country? In particular, do you feel comfortable that our defense is keeping up with the offense or the threats that we face in cybersecurity? And do you really see a difference between how companies are dealing with it versus how the government is dealing with it in terms of protecting themselves from the threat that's out there?

CARTER: It's bigger than, I think, is widely appreciated. We are not as prepared as we need to be. It's a real worry to me, and it's a real worry to the secretary and the chairman as well.

It just so happens that -- so what do we need to do better in that? We're going to continue to make our investments so that our National Security Agency remains the nation's technical repository in this field and the leading -- we remain the leading power in cyber.

But that protect us. We in the Department of Defense have the job of protecting our own networks -- SIPR, NIRP and JWICS. We're doing that, by the way, with difficulty, but we're doing it. That's our responsibility. We should be held to account for that.

For the nation's infrastructure, more broadly, we play a role in that, but as you indicated, Brian, those are infrastructures that are in the private sector. And in order to protect them, we require the ability to work with the private sector, and we need to be respectful of the private sector's own economic and other requirements.

It just so happens -- I'm glad you asked this question -- that there is legislation pending -- or actually several pieces of legislation. I'm not trying to, obviously -- the administration's legislation is our favorite, but they're all intended to do that same thing which is allow the collaboration between private-sector entities that are willing and for whom it's necessary to increase their cyber protection to avail themselves of the expertise that we have, including and importantly, in the National Security Agency. But we'd better get on it because, if we don't get on it, what we're going to do it learn by experience. And that that'll be a rude shock to everything.

So I'm quite concerned about that. We're not at all comfortable with where we are, and that's one of the reasons why it was an area in our budget that we not only protected but we allowed to continue to grow, as it must.

QUESTIONER: You didn't mention Iran. Maybe you might. But the one thing that probably could be a wildcard threat to U.S. security is in the Gulf if there were an accident or an inadvertent conflict, break into war.

What type of communications do you have with the Iranians that might enable us to head off such a conflict in case it were to beginning to appear to be a problem, much like we had with the Soviets during the Cold War?

CARTER: I'd just say two things about -- two things about that. First of all, I'd be careful about drawing that kind of analogy to the circumstance of Iran, number one.

And number two, I don't see how I could add -- this is the week in which the president has spoken at length and multiple times about Iran. The secretary of defense just gave a speech today, and I dare say I can't improve upon what they said about the overall situation with Iran.

QUESTIONER: (Off mic.)

CARTER: Well, we have other ways of communicating publicly and privately with Iran, as all countries. I'd just caution you about drawing the analogy to a Cold War situation.

QUESTIONER: Nick Brandt (ph) -- (inaudible).

What assumptions about Chinese defense spending did you make in planning your cuts and the repositioning?

CARTER: Well, I wouldn't say assumptions about -- first of all, the Asia-Pacific region -- it's not all about China. It's a very dynamic region. There's a lot going on there. We have a very important situation in Korea that we need to continue to restore -- (inaudible). So it's not all about China.

You don't have to make assumptions about Chinese military spending. Chinese military spending is a matter of record. They are open about what their defense budget is. We, obviously, observe what they're doing. And they are increasing their capability in lots of ways, as we've observed for years and years now, and expect.

For us, we have been, for 50 years -- 60 years really -- the pivotal power in that region, not the only military power but the pivotal power in the Asia-Pacific region. That has allowed, first, Japan to develop economically, Korea to develop economically, now China to develop -- all welcome developments.

But it, like anywhere else in the world, you can't take security for granted. There are conditions that have allowed that prosperity to take place, and we'd like those conditions to continue.

HAASS: Bill Drozdiak?

QUESTIONER: Bill Drozdiak, American Council on Germany.

With the NATO summit coming up in May in Chicago and given the financial crisis afflicting both Europe and the United States, why isn't more being done to restructure spending in NATO, to get rid of the duplication among all 28 members? Can you take advantage of this crisis and force leaders to make changes that have been wanting so long?

CARTER: Well, this is an idea that's been around for a long time in Europe, and there are many militaries getting to a scale, as their own budgets come down, where they can't aspire to full-spectrum capabilities. And it would be better if they looked at their own spending, each individual European country, in the context of what the other European countries are doing and what we're doing.

The NATO leadership espouses that very sensible doctrine constantly and rightly. We support that. But it's a hard thing to get done. You have individual capitals each wrestling with their own budgetary situation.

But it is done in some areas. There's some areas where we have decided to divide the labor. There are some areas where we've decided to pool resources. The allied ground surveillance system, for example, has been around for 15 years or so was finally brought to fruition just a couple of months ago.

So what you are saying is the right concept for NATO and for Europe. And I think thinking people recognize that that is the future. But it's slow going to get there.

HAASS: Pete Peterson?

QUESTIONER: As you know very well, for many years, we had a strategy of fighting two land wars, more or less, simultaneously. I note that you're refusing the land forces, it sounded to me, like about 10 percent or something of that sort.

But it still leaves the question in one's mind what kind of land wars are you envisioning our fighting in the future. It's hard to envision one with China. Are you envisionising (ph) more Iraqs and Afghanistans because this is a significant part of your budget, I'm sure.

CARTER: Yeah. Let me -- Pete, a couple of things about that.

First, just to be clear -- and this is a piece of the strategy that I didn't go into but you now raise -- we have to be capable of doing more than one thing at a time. So there's no question in our minds that we plan and need to plan and need to resource to more than one contingency at a time. It's easy to imagine what they might be. A North Korean contingency and a Middle Eastern contingency -- by the way, anything that happens anywhere in the world now comes home as well. We need to remember that. There's always a third situation to take. So no walking away from the idea of being able to do more than one thing at once.

Your question was specifically about ground forces. We have a big ground forces commitment longstanding deal with the Korean Peninsula. You're right. Ground forces play a role in other Middle Eastern contingencies but not in the scale or manner that they have in Iraq and Afghanistan.

I mean, look around that region, look at Africa, and you -- in no case is there something that -- like the Korean Peninsula campaign which has been longstanding and preset, but there are lots of possibilities there.

Our approach to the Army -- and this is really a question for the Army leadership which they're working through -- is they need to -- they're going to be smaller. They need to be agile. They need to be flexible. They need to be multipurpose. And they need to be looking around for what's going to happen in the future.

We're trying to give them that latitude at a smaller scale, but it's a good question. There's not a good answer to it except for the Korean case. Other ones are more sort of hypothetical and -- remember, we've got to leave a little flexibility here because the future is uncertain. Most of the things that we get into are not actually the things that we planned.

HAASS: We have a question from Major Myles Caggins of the U.S. Army at Fort Bliss, and he asks: As the department implements a new strategy balanced with fiscal limits, do you foresee personnel cuts at the Pentagon or the merging of any combatant commands?

CARTER: Certainly, you'll see personnel cuts in the headquarters, no question about it. I mean, the upper eschelons can't be spared. In fact, in our planning, we're differentially cut.

I don't see us changing in the near term our combatant command structure, the so-called COCOM structure. We made a change. We eliminated one of those, the Joint Forces Command, about a year ago. And that's kind of where we are with those.

That said, in terms of the number of people assigned and so forth, we're trying to make sure that we're not top heavy either in the office of the secretary of defense or the Joint Chiefs of Staff or any of the combatant commanders.

And let me just -- this person is from Fort Bliss. I was just in Afghanistan with a unit that rotated in from Bliss, a brigade combat team, about two months ago. Really superb people. And the reason I was especially glad to see them was that I had been at Bliss about four months ago as they were doing their deployment training. And I said I'll make sure I see you when I get there.

And as you all probably know, Bliss is a really splendid facility, and the 1st Armored Division is headquartered now there, and their brigade combat teams have been rotating to Afghanistan.

So greetings to Fort Bliss.

HAASS: General Clark?

QUESTIONER: Ash, the pivot toward Asia, as it was portrayed in the press, seemed to have gotten a lot of blowback from China. And I wonder if we have confidence-building measures being worked with China and, in particular with organizations like China Aerospace dealing with the space environment.

CARTER: Well, let me go back to the beginning again. There's more in the Asia-Pacific region than China, number one.

Number two, we have a very good relationship with China across the board. It's not -- to look at it in a security sense is way too narrow. They're an important trading partner. They're an important political partner in the region and globally in many ways.

And we do aspire to and are trying to create more of a security relationship with China. That's the reason for the military-to-military activities with the Chinese military which we strongly favor and they're going to follow up on as well.

So there's a lot that can be done that's constructive with China. They have a role to play in Asia-Pacific security, absolutely. All of the countries in that region do.

We have a good thing going in the Asia-Pacific region, as I said, and have for decades. We all want that to continue, but it requires a security foundation. And we just need to preserve that security foundation. Everybody plays in that.

QUESTIONER: (Speaking in foreign language.)

What worries you most in terms of capabilities if, A, Iran goes ahead and closes the Hormuz Straits and, B, if the Israelis go ahead and bomb Iranian facilities? How worried would be you in both scenarios --

CARTER: I'm sorry.

QUESTIONER: -- American capabilities in the region -- military capabilities.

CARTER: Again, I'm not going to -- because my boss just spoke at length today about Iran and the president has spoken at length this week about Iran, I'm not going to try to add anything to it.

HAASS: That's how you get to be deputy secretary of defense. (Laughter.)

QUESTIONER: Hi. Allan Dodds Frank from Newsweek/The Daily Beast.

To flip the coin on Mr. Peterson's question, what do you envision in terms of cyberwarfare going forward? What concerns you most? State sponsored cyberattacks? WikiLeaks type or terrorists?

CARTER: Both. They're state sponsored, and the hackers are really very good. Now, watch these guys. They're extremely good. We watch them. We admire some of the skills that arise. (Laughter.)

And then there are partnerships between the two. And they are attacking and probing critical infrastructure on which we all depend. They are attacking companies and attempting, and in some case succeeding, at exfiltrating intellectual property. This is all going on every day.

So if you're watching, you're aware that this is going on. And I think it's only a matter of time, if we don't take the steps that we are trying to take, before something truly catastrophic happens. I worry about that a great deal, and everyone should.

HAASS: Jim, did you have a question or are you OK?

Jim Shin (ph) right here in the one, two, three, four row.

QUESTIONER: Jim Shin (ph) from Princeton.

Ash, I see you're probably not enjoying this process a whole lot, but --

CARTER: Do you mean the process of what? The Pentagon or the process here tonight?

QUESTIONER: The budget cut process. (Laughter.)

CARTER: Oh, no. I do enjoy being here with you -- and especially with you, Jim. But, no, I don't enjoy cutting the budget.

QUESTIONER: It's not as much fun on the way down.

If you could step back from the details for a second. What do you think the big risks we're going to run with this pattern of force structure cuts? What are the big short-term risks, and then what are the big long-run risks?

CARTER: Well, a couple of things about risk. The first is that, obviously, with a half a trillion dollars removed from our plans, we're not able to do that entirely out risk. But the reason to do it strategically was to try to place the risk where it made most sense for our future.

There are a few areas like in the reduction of ground forces where the risk we're taking is that we will have to rebuild those ground forces if we need them in the end strength, which we've used them over the last decade. But we think that's a manageable risk because we know how we'll get there if we need to get back, by mobilizing reserves and then subsequently rebuilding.

So in each of these cases, we've tried to take steps to manage the risk that comes which, if we had more money, we just wouldn't have to take those mitigation steps at all.

HAASS: Judy?

QUESTIONER: Judy Miller.

Ash, some of us who've been out in the field have kind of been stunned by looking at the contractor situation. I know you're making efficiencies, but when you're narrowing down and cutting personnel at home, how are you going to get a handle on contractors and not letting them do what they did in Iraq and Afghanistan?

CARTER: Well, a couple of things there, Judy. One is contractors are a part of our workforce. We have a uniformed workforce. We have a civilian workforce. And we have a contractor workforce.

And the contractors do for us many things that it is more efficient and economical for them to do. They mow lawns at our bases and installations. They do things like that.

So the contractor workforce is not something that's going to go away. It's part of the way we operate, and efficiently, the Department of Defense. We are reducing our contractor spent a great deal. You probably noticed that over of last few years. There are places where we just don't do much of it.

And the process by which we acquired them, by the way, we wrote the requirements, how often we re-competed contracts and so forth was not what it should be.

You've mixed in there something else which is contingency contracting, contracting in Iran and Afghanistan. That, I think, it's absolutely fair to say we did a poor job of for many years. And there are a number of reasons for that.

One is contractors are now an ineluctable part of the way that we conduct operations. They're the ones who do the provisioning, food and fuel. They're the ones who build and, in some cases, operate the forward-operating bases. And that's a fine thing to do because you don't want to have uniformed people do that because, when the war is over, you don't want to have to get -- it's harder to get rid of the uniformed people, and contractors just go away. So it's economically efficient to use them in that way.

Why were we so bad for so long? Judy, I think there were a couple of reasons for that. One was the novelty of contracting on the scale that we did in Iraq and Afghanistan, and we just weren't very good at it. The other thing is, I think, for years, we told ourselves that it wouldn't last long and would be over soon and we didn't have to get good at it.

So I'm now the deputy secretary of defense. When I was undersecretary for acquisition, technology and logistics, I mean, I spent a great deal of time trying to improve our game in contingency contracting both to get better value for the taxpayer and to avoid some of the unintended consequences of our spend.

We spend in Afghanistan an amount, largely contract spend, that rivals the size of the economy of Afghanistan. And you can't do that without having an effect on the society. And we need -- we need better to understand and take account of that.

There are always possibilities for corruption. We've had instances of that, as you know. And so this has been a huge challenge, and I'm the first one to say that I think that we came very late to the kind of awareness and trade craft that we need to do that properly in a way that's respectful to the taxpayer and respectful of the people whom that spend affects.

I wouldn't say we're perfect now either, but we've gotten a lot better with the passage of time, but it was -- it was a slow start.

HAASS: It's refreshing to hear people in public life admit a lack of perfection. (Laughter.)

Thank you, Ash, for two things. One is for being with us tonight and laying out the strategy. And more important, thanks for what you do the other 364 nights a year and days. Appreciate your coming here. This is an important nice for us, as I said, the Paul Warnke lecture and having someone such as yourself is the best way I know to honor Mr. Warnke's legacy and contributions to this country.

With that, I want to welcome everybody across the hall for the reception.

And, again, thank you, Ash. (Applause.)

CARTER: Thank you. (Applause.)

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