The Pentagon's Doomsday Men

Why the Department of Defense needs a lesson in risk management.

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Top gun: The Air Force has a fondness for fancy toys of questionable necessity.

In what may long be remembered as a turning point in the Pentagons approach to investing in technology, U.S. Defense Secretary Robert Gates earlier this year publicly questioned the Air Forces commitment to its F-22 Raptor, a stealthy fighter that was built to win dogfights against a Soviet adversary.

The reality is we are fighting two wars, in Iraq and Afghanistan, and the F-22 has not performed a single mission in either theater. So it is principally for use against a near peer in a conflict, and I think we all know who that is, Gates told a congressional committee. And looking at what I regard as the level of risk of conflict with one of those near peers over the next four or five years until the Joint Strike Fighter comes along, I think that something along the lines of 183 [planes] is a reasonable buy.

Although Gatess comments constituted a rare public rebuke from the Pentagons civilian leadership, he was simply stating the obvious: The Air Force was betting billions on a future risk while simultaneously underinvesting in technologies necessary to combat a current threat. Equally remarkable, it was perhaps the first time in memory that a senior Pentagon official had uttered the phrase level of risk with respect to the departments research and development portfolio. The Pentagon in years past has suffered from a form of compulsive gambling, making bets on long-shot odds, without regard to risk.

Indeed, military planners dream up all kinds of doomsday scenarios: a high-altitude nuclear detonations wiping out our low-Earth satellites; a nuclear-tipped intercontinental ballistic missile destroying an entire city; or more frighteningly, an asteroid that ends life as we know it. To counter these threats, they come up with all sorts of high-risk technologies (one of my current favorites is a proposal to beam radio waves into the atmosphere to clean out radiation from a high-altitude nuclear blast). Herein lies the dilemma. All of these scenarios are theoretically possible, so shouldnt the Pentagon invest in mitigating all of these potential threats?

The Pentagon, for its part, frequently speaks about investing in high-risk, high-payoff effortsresearch that might well fail, but could lead to significant breakthroughs if it pays off. The Pentagon counts stealth aircraft, unmanned aircraft, and the Internet as successful examples of this strategy. Defense officials often employ a similar justification when addressing threats that may have a low probability of occurring, but pose a devastating consequence if they occur.

The problem with this approach to risk is not the underlying philosophy, but the frequent lack of willingness to either qualitatively or quantitatively address the actual risks. At the extreme, we know an attack by aliens from outer space is theoretically possible, but improbable. On the more conventional side, we know that a terrorist attack on the U.S. homeland is more likely than another countrys sudden development of a fighter that can match the F-22.

Taken at face value, an approach that says all high-risk threats should be addressed equally is a sure road to financial ruin. Imagine if your investment counselor told you to invest in asteroid collision insurance: You wouldnt buy it, out of sheer common sense. You would go broke insuring against every contingency, no matter how minute the risk. Perhaps worse, you might end up forgoing insurance against a more likely risk, like a flood, because you protected yourself from a near infinitesimally small risk.

Why should we expect the Pentagon to treat risk any differently than anyone else? In fact, we shouldnt. Not even the United States can afford to prepare for every risk. The challenge for the Pentagon is to extend the logic of risk management across its vast range of investments in research and development, which now exceed $75 billion annually.

The largest defense procurement programs have become white elephants: the Armys Future Combat Systems (roughly $200 billion); the Navys new destroyer, the DDG-1000 (an estimated $2.7 billion each); and the Air Forces F-22 (around $200 million each), to name a few. In many cases, these technologies are designed to fight an all-out war against a near- equal adversary, a risk that is real, but quite small.

Nowhere does this question of risk management loom larger than in the current approach to weapons of mass destruction. During the past few years, the Pentagon has aggressively pushed a ballistic-missile defense system, spending tens of billions of dollars on ground-based interceptors that can defend against oneand only onethreat: a long-range ballistic missile. The argument behind this investment is that the threat of a nuclear attack from North Korea or Iran, however small, poses an unacceptable level of risk.

The problem with this logic is that there are other catastrophic risks involving weapons of mass destruction. Last year, Richard Garwin, a prominent nuclear weapons advisor, warned that there is a 20 percent chance annually that terrorists will set off a nuclear weapon in a major city, a threat that missile defense does nothing to deter. Certainly that risk is higher than an attack from Iran, which currently possesses neither nuclear weapons nor a missile capable of reaching the United States, or the risk of an attack from North Korea, which conducted a less-than-impressive nuclear test in 2006 and has, at least nominally, agreed to begin to dismantle its nuclear reactor.

Gates may have begun to finally stand up to the services penchant for big-ticket weapons, but its clear that any major changes will wait until the next administration. In fact, one of the few major new research and development programs to emerge in the Pentagons 2009 research budget is a new hypersonic aircraft.

Whats wrong with a hypersonic aircraft? Nothing, except theres no real explanation for how this technology will defend against future threats, or perhaps more to the point, why this technology was selected over other investments, such as alternative-energy initiatives (which are also funded, but not at that level). As one longtime defense analyst lamented to me, the danger of the Pentagons current approach to technology is that without a clear prioritization, everything seems worthy of investment. In that case, what well get is what we have: a military equipped to deal with a future threat that may never exist, while often lacking the tools to cope with the present.