On Friday, July 18, 2014, Linda Mills, Northrop Grumman Corporation Vice President of Operations, led a panel discussion on “Redefining the Defense Industrial Base of the 21st Century” at the G’Day USA event in San Diego, Calif., held to advance the economic interests common to the United States and Australia. Below are her remarks.

A Discussion on Redefining the Defense Industrial Base of the 21st Century

I’m very glad to be part of this panel discussion today on such an important topic. My comments are focused on innovation and creativity as these are critical forces for the future of the defense industrial base for both our countries.

Our two nations – the U.S. and Australia – have many similarities and close bonds from working so cooperatively together on issues facing our nations. We are both relatively young countries and share a similar heritage of creating two great nations through the pioneering spirit of our people.

We also face comparable threats from a variety of sources:

  • The vast strategic space of the Asia-Pacific demands enhanced and more persistent C4ISR capabilities
  • Cyber and its implications to both the commercial and defense industries
  • Regional instability and conflicts in the Middle East, Africa, Southeast Asia, or elsewhere
  • Rise of other nation states, particularly Iran, China and North Korea
  • Conflict over resources – energy, water, territory
  • Creation of new nuclear powers, such as Iran.

All of this succinctly speaks to the need for greater innovation and creativity both between and within our two great countries.

Today I would like to address research and development (R&D) in both countries, as well as how we are positioned from an innovation and creativity perspective. These topics are intimately tied to how we define the defence industrial base of the future. First, let me review a few statistics regarding R&D in our two countries.

United States: Both the United States and Australia currently allocate about the same percentage of gross domestic product (GDP) to R&D - 2.6 percent for the U.S. and about 2.3 percent for Australia. Obviously, the large U.S. economy yields more funding – about $440 billion in the case of the U.S. versus some $35 billion in Australia.(1)

But there are differences and similarities when looking specifically at defence R&D.

In the 1950s, U.S. R&D stood at about 1 percent of GDP – it currently amounts to about a half of a percent of GDP.(2)

So in the case of the United States, our reliance on the commercial sector is growing. We accordingly must place a premium on excellent partnerships with industry to ensure our forces enjoy the latest technology.

Australia: In the case of Australia, defence R&D comprises a very small percentage of GDP – about two-tenths of a percent.(3)

This means that the Australian Ministry of Defence must rely even more heavily on the commercial sector than the United States.

From a macro perspective according to the Battelle Memorial Institute which conducts an annual look at R&D spending across the globe, the United States comprised 28.3 percent of total world R&D spending in 2013 or about $440 billion; China 14.7 percent or about $220 billion in 2013. But China is ramping up its R&D spending and Battelle’s projections have it passing the United States in terms of total R&D spending by 2025. Combined India-China R&D spending is also expected to exceed combined U.S.-Europe R&D spending by 2025.(4)

Australia’s budget is small, but it has a talented population with the potential to 'punch above its weight' in partnership with the U.S. industry.

The Information Technology and Innovation Foundation(5) or ITIF did a 2011 benchmarking study on innovation and competitiveness that provides some interesting data to consider.

  • One key metric is higher education – so critical to support competitiveness. About 42 percent of adults aged 25-34 in both countries had a college or advanced degree. This put both nations in the upper quartile compared to the rest of the world.  In China, the percentage was 12.2 percent.(6)
  • Science and technology are critical to innovation. One measure is to calculate the number of science and technology researchers employed per 1,000 of the population. The U.S. score was 9.7; the Australian score was 8.8. Again, both nations are in the upper quartile of the world.(7)
  • ITIF used the metric of academic publications per million people as a measure of the productivity of universities and national institutions. Australia scored 7.2; the U.S. scored 6.2.(8)
  • Another interesting metric is the number of new firms established per 1,000 employed workers – this indicates the level of entrepreneurship. Here Australia scored 6.4 while the U.S. was 4.3.(9)

ITIF applied these and other metrics to calculate an overall score for 43 nations. Singapore was ranked number one, followed by Finland and Sweden. The United States was ranked fourth – Australia was ranked twelfth, just after Japan but ahead of Germany.(10)

ITIF also compared its scores from 2009 to the new 2011 data and observed that China had demonstrated the most rapid change or velocity. China was ranked first in terms of rate of change, Australia 21st – the United States second to last.(11)

The rate of change in terms of competitiveness is very important. Neither the United States nor Australia can rest on their laurels. We need to encourage growth in higher education, focus on science and technology, productivity, and dynamic entrepreneurship in our economies to ensure we can compete in the years to come and that our defense industrial base remains healthy and attracts top talent.

So, how can we do this? We must jointly work to enhance:

  • Deeper cooperation between ourselves, universities and the government allowing us to more readily work shared issues and attract talent.
  • New frameworks between industry and government that facilitate research in key areas.(12)
  • Communication between industry, universities and government on critical disruptive technologies that could change the nature of defence.
  • Greater cooperation and communication between our two countries relative to our mutual threats and how we might approach them. This implies that we’ve lowered the barriers to export/import controls in vital areas.
  • Commercial R&D investment dwarfs that of the defense department in both countries. We both need to harness the commercial sector.
  • U.S. and Australia need to pursue policies that foster innovation and creativity.

I have no doubt that our two great nations will rise to these challenges and, in that way create the defence industrial base of the future.

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(1) Calculations based on data collected from 2013 R&D Magazine/Battelle Global R&D Funding Forecast, (November 2012), Historical Tables, Office of Management and Budget (2014), and The Military Balance 2014, International Institute for Strategic Studies, 2014.

(2) Calculations based on Historical Tables and Table 28-1, Office of Management and Budget (March 2014), and Office of the Under Secretary of Defense (Comptroller), National Defense Budget Estimates for FY 2015, (April 2014).

(3) Gregor Ferguson, “Risks and Rewards: Defense R&D in Australia,” Australian Strategic Policy Institute, (December 2010).

(4) See 2013 R&D Magazine/Battelle Global R&D Funding Forecast, November 2012.

(5) The Atlantic Century II: Benchmarking EU and U.S. Innovation and Competitiveness, Information Technology and Innovation Foundation, September 2011.

(6) Ibid, p. 17

(7) Ibid, pp. 18-19

(8) Ibid, p. 23

(9) Ibid, p. 25

(10) Ibid. pp.9-10

(11) Ibid. pp. 11-12

(12) Office of the Chief Scientist, 2013, Science, Technology, Engineering and Mathematics in the National Interest: A Strategic Approach, Australian Government, Canberra.