When most Americans remember President Dwight D. Eisenhower’s farewell address, they think of his warning of the power of the “military-industrial complex,” but he also offered the positive vision of an industrial base “ready for instant action, so that no potential aggressor may be tempted to risk his own destruction.” Over 60 years later, America’s adversaries are increasingly testing their luck, often by leveraging inexpensive, commercial off-the-shelf systems to impose asymmetric costs on the United States and its allies and partners. This is causing both a tactical deficit and technical debt the defense-industrial base is struggling to reconcile.
In the Red Sea, the U.S. Navy has been launching $2 million Block V Tomahawk Land Attack Missiles at the Houthis, who use cheap Iranian systems with unit costs starting at $20,000. In Europe, the Russians have also successfully paired inexpensive DJI drones manufactured in China with sophisticated electronic warfare systems to terrible effect in Ukraine. For all the fanfare around U.S. defense innovation in Ukraine, U.S. systems delivered by defense tech start-ups continuously underperform homegrown solutions fielded by the Ukrainian Army of Drones program, with problems ranging from failure to take off, to the inability to complete missions at the distances advertised, to crashing before returning to base.
A divide in America’s industrial base is at the heart of this challenge. The U.S. defense industrial base is split between traditional original equipment manufacturers (or the “primes”) and emerging dual-use and defense technology companies (the “non-traditionals”). Primes, the longstanding backbone of American defense, excel at delivering complex, large-scale systems but are often criticized for being slow, risk-averse, and overly focused on major programs of record. In contrast, non-traditionals can build capabilities quickly using top U.S. talent and commercial best practices, but they struggle to integrate those capabilities into existing mission systems or manufacture them at full-rate production ready for fielding.
The defense-industrial base is beginning to resemble two sets of code. Right now, prime contractors resemble legacy code — reliable and proven but often inefficient compared to newer, more agile approaches. Non-traditional companies, by contrast, are like modern programming languages, offering innovative solutions to complex problems but lacking compatibility with essential legacy systems. Much like in coding, where deferred upgrades and temporary fixes lead to technical debt and greater waste of time and resources, so will this deepening divide between the primes and non-traditionals result in incompatible or unreliable systems.
Reigniting Freedom’s Forge
Building a bridge across this divide is complicated but not impossible — and history shows that the United States can shift its military-industrial base during moments of great peril to immense success. The United States also de-industrialized after World War I, even as European tensions escalated. What had once been the fourth-largest military during World War I quickly fell to number 18, just ahead of the present-day Netherlands. Congress prevented companies from pursuing defense-related contracts abroad, and the nation found itself out of step with a rapidly deteriorating global security environment.
The Lend-Lease Act of 1941 and expanding supply lines for U.S. allies helped prompt America to rise to the occasion and use its industrial might to defeat Nazi Germany and the Japanese Empire. As Arthur Herman’s excellent book Freedom’s Forge describes, it took innovation, technology, and careful focus on solving the right challenges to drive scalable solutions and transform the U.S. industrial base. That strategic foresight is again relevant today and offers hope that the United States can similarly prepare for future conflicts if the country begins ramping up capacity now.
Due to decades of global outsourcing, U.S. defense manufacturing capability is now a shadow of its post-Cold War capacity. By 2019, manufacturing jobs accounted for only 9 percent of the U.S. workforce, compared to 32 percent in 1953. Perhaps even more troubling, the number of small businesses participating in the defense-industrial base has declined by 40 percent in just the last decade. These signs represent a clarion call for refactoring defense manufacturing for the next century. But that future should be a software-defined, commercial-first industrial base — which the Atlantic Council’s Commission on Software-Defined Warfare has already been working to describe and shape.
In 1993, then-Deputy Secretary of Defense William Perry famously hosted the “Last Supper,” during which he pushed the defense-industrial base to consolidate after the collapse of the Soviet Union. Palantir’s chief technology officer, Shyam Sankar, has led a conversation about revisiting the “Last Supper” and the defense market’s post-Cold War consolidation in an excellent series of analyses called “First Breakfast.” Those pieces focus on enabling non-traditionals — which is essential — but don’t focus on the role of the country’s existing industrial base, which can’t be ignored.
In an interview for Mike Solana’s Pirate Wires, Palmer Luckey, the founder of Anduril, argued the Defense Department needs a long-term vision it can work toward now. Luckey is right. But what are those steps? How can the United States refactor the primes and non-traditionals into an integrated U.S. defense production technological powerhouse? Put another way, what’s the modern version of the Lend-Lease Act helping to rebuild U.S. industrial capacity for the most challenging national security environment in half a century?
A New Defense-Industrial Codebase
The time to refactor the defense-industrial codebase is now. While the nation needs to balance risk and reward and maintain the U.S. Department of Defense’s readiness to fight and win, both Congress and the Trump administration similarly recognize an urgent need for change. In fact, recent executive orders and directives from the executive branch underscore the priority to emphasize speed, agility, and results at scale — efforts that can be best achieved through a comprehensive refactoring of the defense-industrial codebase. From our vantage points, we regularly engage with government, defense, and technology leaders, and we see a clear opportunity to begin this transformation through a series of specific policy and programmatic reforms.
First, efficiency matters in government, and nowhere is that truer than the Department of Defense. With the Department of Government Efficiency’s focus on lagging programs, the Department of Defense should identify the largest underperformers. Working collaboratively with the department, Congress can distinguish the largest underachieving programs of record where non-traditional technologies may be critical. Realigning these dollars to better integrate cutting-edge capability could unleash roughly $40 billion in total contract value.
Second, a solution could be aligning incentives between the primes and non-traditionals by encouraging funding for new programs to be dependent upon collaboration to scale non-traditional technologies. Working with the department, Congress could request that appropriations for these underperforming programs be contingent on the primes developing a remediation plan, including non-traditionals. The primes should identify the programmatic gaps and then perform market research to find the non-traditionals that might help them. To ensure accountability by both the department and the primes, these plans could include a “get well” strategy demonstrating to Congress and department program executive offices exactly how those primes will use non-traditional know-how to hit remediation milestones.
Next, the Defense Department should use mandatory non-traditional subcontracting plans to create opportunities for collaboration modeled on the current small business subcontracting plan for existing programs of record and future ones. Efforts between non-traditionals through consortia will help initially surface new cutting edge-solutions, but there is a greater opportunity for scale by connecting the primes to these collaboration efforts.
The United States also needs to address the brittle network of mid-tier contractors — who craft everything from components to subsystems for vital platforms. Some challenges are human: Smaller manufacturers struggle to attract new talent as industry leaders age out. Others are structural: The sector is both highly manual in its work and highly diffuse in its network, spread across the United States yet controlled by a few key players. Talent shortages and structural inefficiencies hinder innovation. Disrupting this model requires integrating new technology into production and mandating partnerships between subsystem suppliers, non-traditionals, and primes. The Defense Department should require a certain percentage of internal research and development dollars on contracts to be dedicated specifically to this issue. Incentivized collaboration will accelerate delivery, cut costs, and strengthen the industrial base.
Supply chain realignment also can’t wait. Critical minerals remain heavily concentrated overseas, leaving access vulnerable — especially as China restricts exports of minerals like gallium. Nevada and Arkansas’ lithium discoveries show promise but need years to develop. Meanwhile, efforts to establish a Critical Mineral Strategic Reserve are gaining traction. These efforts should be continued, but innovation is needed now. The Defense Department should lean into entrepreneurs who are boosting yields through advanced recycling and more accurate mining. Expanding initiatives like Competitive Advantage Pathfinders to refine the requirements process to drive funding and deepening partnerships with allies like Australia and South Korea can match innovation with allied knowledge to scale domestic capacity.
Additionally, the United States needs to support the development of promising dual-use ecosystems with its allies and partners. Offsets have long been used in foreign military sales to support local impacts on the economy from India to Canada to the United Arab Emirates. The Defense Security Cooperation Agency has an opportunity to encourage those offsets to be focused on leveraging a percentage of those funds to focus on innovation or commercialization-focused activities. This could include matching dollars into programs that echo the Office of Strategic Capital or allocating capital to aligned venture studios or venture capital funds to catalyze dual-use innovation for robust allied defense-industrial bases.
Lastly, Congress and the Department of Defense should incentivize primes to work with non-traditionals on all future programs of record. Non-traditional integration should be a scorable metric on future solicitations to encourage rapid prime/non-traditional teaming. Funding is a powerful tool to bring teams together across ecosystems and effective, open, and agile innovation should be rewarded. Collaborating with primes offers non-traditionals the chance to rapidly tackle real-world defense challenges while benefiting from predictable, recurring revenue through production contracts. These tangible pathways to revenue and scale will strengthen investor confidence across asset classes, from venture capital to private equity, driving support for disruptive dual-use and defense tech startups. Over time, non-traditionals can evolve into prime contenders, while primes become more innovative and agile — together creating a stronger, more dynamic defense-industrial base.
Shands Pickett is senior vice president of defense technology strategy and growth at Booz Allen. Previously, he led federal deployments for Scale AI, Inc., a late-stage AI company and a top global data startup. He also created and led the national security business development team for another startup, Premise Data Corp. He served on two theater deployments to Afghanistan as part of the U.S. Army Human Terrain System.
Zach Beecher is a partner at Scout Ventures, where he focuses on seed-stage dual-use investments. A former 82nd Airborne Division Paratrooper who deployed to Iraq and current U.S. Special Operations Command reservist, he has since led across venture capital, health tech, and defense strategy.
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