EXPERT INTERVIEW — The U.S. starts the new year with a daunting set of challenges in the national security space – from global conflicts to terrorism threats, cyber warfare to the collaborative, anti-West efforts of the so-called “Axis of Authoritarians.” And while policymakers tackle those issues – or try to – some experts fear that there’s a systemic problem in play, and that the current structure and approach of the U.S. defense establishment makes it harder for the country to meet the myriad challenges.
That’s a view held by Gilman Louie, who has had a three-decade career in national security and investment, which included service as the first CEO of In-Q-Tel, the CIA-funded technology investment firm, and time spent with the Defense Innovation Board. Louie is currently co-founder, CEO, and Managing Partner at America’s Frontier Fund, a self-described “deep-tech fund” dedicated to advancing U.S. national security interests.
In a wide-ranging conversation with The Cipher Brief, Louie offers both a warning and call to action to the U.S. defense sector, which he believes needs a paradigm shift in its race to develop and deploy the capabilities required for modern warfare. “The current trajectory that we're on is not a winning trajectory,” Louie warns. While the U.S. still leads the world in these areas, Louie says adversaries may soon catch up in terms of scale and speed.
The solution, he says, involves leveraging both the mindset and capabilities of industry – and that, Louie believes, will require a wholesale change to inside-the-beltway workings, along with leadership bold enough to make the pivot. “We're going to have to break some things in order to build the next new thing,” he told us.
Louie spoke with Cipher Brief CEO Suzanne Kelly for an episode of The State Secrets Podcast, available on Apple Podcasts or Spotify.
This interview has been edited for length and clarity.
Kelly: You have more than 30 years of national security experience, and investment experience. Why do you have this fascination with national security and particularly with investing and the private sector world.
Louie: Pre 9-11, I think the concern expressed was the fear that there was going to be another Pearl Harbor around the corner. [There were] the conditions that led us up to Pearl Harbor — the inability to put the pieces together, to understand what was happening. Even though we were gathering all the intelligence from around the world, we were not organizing a way to get that information across to decision makers to take action. I think there was a sense in late 1999 that we were going to find ourselves in a very similar position. It was prescient that they were worried about this set of problems as you were running up to 9-11. The need was clearly articulated by the director of central intelligence at that time, George Tenet, who convinced me that in spite of the fact that I had the world's greatest job, which was the Chief Creative Officer of Hasbro Interactive, the national calling was more important.
The job was to lead up a new way of interfacing with the technology community. The CIA has built its technical foundation off of great American companies – the defense contracting community, the tried-and-true technology companies of the day like IBM and Honeywell, Motorola – and didn't know quite how to interface with this growing technology transition that was taking place in Silicon Valley. One of the ideas that I laid out was to do what the Valley companies do: start a strategic venture capital fund, no different than Intel, Oracle, or any of the big technical companies of the day, and start engaging with the technology centers of excellence and create your own vehicle to do it.
Kelly: How are you looking at the ability of the Department of Defense today to remain as competitive as it needs to be?
Louie: There have been specific eras that transitioned how we thought about modern warfare. The tank in World War I. The battleships that transitioned to aircraft carriers and aviation in World War II. We then moved into modern technology warfare with things like stealth- and precision-guided weapons. And as we are learning right now, particularly in places like the Ukraine, the concepts of warfare, particularly long warfare, not short bursts, require us to rethink how we fight, how we deter, and how we man and team up our military to be able to confront any of the challenges that are facing it.
We might find ourselves in a very difficult position today as a technology leader in the world. Everybody looks at the U.S. military and says, amazing technology. You think about the B-21, the F-35, the Aegis ships and the next generation of underwater warfare submarines like the Seawolf. All those are unbelievable platforms. But as we're learning in Ukraine, small, simple systems in the thousands can overcome very sophisticated systems. Some of us on the defense side worry, Are we becoming like Germany of World War II? We have the most sophisticated weapons, but lack the factors of production to be able to meet the need and demand of the warfare of the day. So while the Germans had Messerschmitts and jets and Tiger tanks, Americans won the war by our ability to produce B-17s and Sherman tanks, all which may be inferior, but we could out-produce them, they were more reliable, and they delivered impact when they needed to deliver impact in mass and in quantity.
Kelly: It's almost unbelievable the technological development that we've seen on the front in Ukraine. What are the lessons back here?
Louie: Clearly the Ukrainians have done a great job of using dual-use technologies. A lot of consumer tech is being redeployed with a lot of imagination, and taking advantage of the indigenous capabilities of what they have. If you take a look at their drones, they're being built by furniture manufacturers. Turns out wood is pretty stealthy. That ability to innovate and take advantage of what your country has to offer really shows how agility wins fights.
In the U.S., if we look at our challenges on our supply chains and how long it takes us to build a system, it takes decades now to get to initial operating conditions for our most sophisticated weapons. We cannot manufacture them to meet the demand that's in front of us. And it's a real shame. You look at U.S. manufacturing now, as a percentage of GDP, three decades ago 70% of the manufactured goods were manufactured here in the U.S. Today it's barely 10%. Our inability to build ships, simple things like munitions, artillery shells, Stinger missiles, much less our ability to go off and build next-generation stealth aircraft at scale and at speed is not going to allow us to keep up.
The U.S. military is very good in short-term warfare. But conflicts drag on, as we're seeing in Ukraine and in Gaza. Is the U.S. really prepared for that? And are we really leveraging the best science and technology that's in front of us? Are we taking advantage of the capacity and imagination of the technology and scientific sectors to help us fight or prepare to fight or even prevent a fight downstream?
Kelly: The Pentagon has different boards that offer advice on innovation. You've seen all these efforts develop over the years. Are they not where they need to be? And if so, where do we need to be to be competitive?
Louie: The Department of Defense is about ready to spend a trillion dollars to equip and provide personnel with capabilities to support the military going forward. But as innovative as those programs are, the reality is as a percentage of that budget, we're not seeing the dollars being put aside with the intent. If we were a corporation, we would be spending 10 to 20 percent of our budget on innovation. Even if we moved the budget of DIU to a billion dollars, that's two percent. That does not move the needle.
It's not at the level of scale that meets what we're going to need, which means as a department, we probably have to pivot. That doesn't mean that we give up the high-end systems, because that is a U.S. advantage. But all that stuff in the middle needs to be redeployed and rethought. How do we extend our ability to innovate in quantity and at scale with the speed and agility that will prepare us, or prevent somebody from attacking interests of the United States?
The bureaucracy, how we purchase, the FAR, Federal Acquisition Regulations, the DFARs, how we build our industrial base is not tuned to be able to produce the systems we need for the future. And we haven’t really engaged industry outside of a few notable exceptions like Palantir and Anduril or a few others – far too few to meet the needs of what the department is going to have to have for the next part of this decade.
Kelly: Talk to me about America's Frontier Fund, where you're the co-founder. What are you trying to do with the fund, in creating something external to the government that is focused on investing in national security?
Louie: The good news is we're already partnering with the government through the Office of Strategic Capital for the Department of Defense and the Small Business Administration, which is one of our lead funders in America's Frontier Fund, with the goal of working with the department to imagine what we need to unlock the resources that are available throughout the United States.
Pair it with capital coming in from the capital markets – some $45 trillion that goes into our capital markets. It's the biggest resource the United States has access to, to build out this new future and do it at the speed of the Valley. There is a mismatch right now between how the department moves at what they consider “at speed” and how Silicon Valley moves at speed. It needs that interface to make sure we don't grind our gears and we actually produce the kinds of things that we need. I can't take credit for that because that work came from the department. The good news about the Department of Defense is that there are thought leaders in places like DIU, in places like OSC. And by putting those pieces together, what we hope to do is to serve as a catalyst of change.
Kelly: We've heard this term public-private partnership for so many years. As you're looking now to a future where technology plays such a critical role in any future war, how is that changing?
Louie: In the old days, partnership was really government-led, private sector-supported. [There are many who say] that we actually need to be industry-led and government-supported. And that is a massive change. Nobody writes the strategic plan for Silicon Valley. American innovation does not work that way. We don't operate on five and 10-year plans. We out-innovate the rest of the world because we tap into the power of the individuals, the entrepreneurs, the scientists, the academics, the businesses to imagine what is possible, to do what everybody says can't be done. That's the power of American innovation, and that is not something you script out in terms of requirements and long RFIs and RFPs.
The Skunk Works, the F-104, the U-2, Corona SR-71 — those were led by industry who said we can do something that the DoD can only dream of, and they delivered. The U-2 program was done for under 20 million dollars, ahead of schedule. Lockheed even gave money back to the Department of Defense. We need to get back to that. We know it can be done. We know how to do it. We have the talent to get it done. There's some gaps that we need to fill like manufacturing and production. It isn't that we can't do it. We just have to choose to do it.
Kelly: How is the private sector going to be able to lead in this area?
Louie: If you think about how regulations get developed, each regulation was created to prevent something bad that had happened in the past. You make a rule so you don't do that again. And then over the years, you end up with 1,600 pages of these rules. And what happens in that mindset is fear of failure rather than desire to succeed.
We need to return to the pioneering spirit that built the department. Do it with foresight, not hindsight. And that means for us is to go through that pivot, to re-examine how we buy things, how we build things, how we partner with industry, to let loose the power of American industry to really keep us ahead.
The current trajectory that we're on is not a winning trajectory. We have to change that rate of speed and rate of change for us to make sure our adversaries don't catch us. The U.S. is still ahead, but the window is shrinking very rapidly. Our ability to build the exquisite, nobody can match that. Our ability to build at quantity and at scale, we're behind. As we’re learning what's happening in Ukraine right now, that is the template of warfare going forward. The U.S. is in the precarious position that [we must] go back to our roots – our superiority in manufacturing, about our ability to out logistics our competitors. We’ve fallen in love with the shiny objects and we outsourced everything else.
We have to go back to basics. Remove the barriers that prevent us from building things. Train up the workforce to have the trade skills necessary to construct. Use automation and AI not just for the military systems themselves, but how we actually build things.
We're also going to have to change the way we buy things. We need to say, Look, here's my problem. You tell us the best way to solve this problem, industry. And if you solve our problems, we'll guarantee the buy. Without that long-term guarantee, you're not going to get the financial community investing in these areas. Nobody's going to invest billions of dollars in R&D to build out a system simply to have it re-competed to the lowest bid after you invent it. That is not an economic model that makes any sense at all.
Kelly: How do you see that relationship between the public and private sector changing?
Louie: You go back to World War II, you think about how from December 7th, 1941, to about May of 1942, industry swung into action. We didn't create new factories of the future back then. We took the factories we already had, the Ford lines, the Chrysler lines, the GM lines — instead of pumping out cars, we were making tanks. We took aircraft manufacturers doing commercial aviation and transformed them to be unrivaled in our ability to produce aircraft. We were building a ship a day in our shipyards.
Today's a little different because we lost that industrial base. But American technology companies have been thinking about how to manufacture at scale using automation, robotics, using AI. We can build those factories here. Again, it requires us to have the will. I would love to have “Under Secretary of Manufacturing” be an official position of the United States Department of Defense. Put one person in charge whose job it is to make sure our industrial base can deliver the goods at the quantity and scale we need.
It's really scary to let go of the past. I equate it to the Navy letting go of its battleships and replacing them with these little fragile things called airplanes as a principle form of warfare. We're going to need to do the same thing here.
Kelly: What do you propose as a better way?
Louie: I think we really need to rethink how we organize our intelligence services. We’ve got 18 of these agencies and every one is organized around certain problems. So we’ve got 18 different shots to deal with China. Maybe we should have China as an organizing principle. Maybe we should organize around threats rather than things, because things don't kill us — threats do. If you organize around the objective rather than the things, you're far more likely to achieve your goal.
Post 9-11, we created the counterterrorist centers and the different sharing units throughout the United States with law enforcement, because we were fighting terrorism. We weren't organized around things.
Does that require a huge rethink? Yes. Is it going to take us time to do it? Yes. But if we don't start today, we can't wait until after the next crisis to go do another commission and study and then run around with our heads chopped off trying to fix it on the fly.
Kelly: What about that sense of urgency that you talked about? It's difficult for people to see the threat from China, for example, in the same way that they saw the smoke from the ships in Pearl Harbor. Do you feel it's equally urgent today?
Louie: I think it is. If you look up where we are today and you go back to 1940 and early months of 1941, they were worried about the German threat. They were worried about the Japanese threat. They were worried about the Axis of Evil. Now you look out and you see Iran, North Korea, China and the Russians and you see the underlying nations all reorganizing around different structures that are going to be competitive with the U.S.
Now that doesn't mean that everything always has to end in a kinetic fight. Today's warfare includes things like economic warfare, information warfare, cyber warfare. There are many more dimensions than we had back in the 1940s. Nevertheless, everybody sees it, but we all like to admire the problem.
This is where leadership matters. Will we have the leaders who are bold enough to make the changes necessary to prepare us for the next several decades ahead? And can we move with the speed and urgency to prevent the temptations of another nation state from imposing their will on the U.S.? I think there's enough good people in the defense industry and in technology and in intelligence to do it, but it does require leadership. It does require permission to change. We're going to have to break some things in order to build the next new thing. But if we don't do it, it's going to get thrust upon us. And there may not be time for us to have those months to actually take the corrective steps.
Kelly: How confident are you that politics isn't going to get in the way and that the true experts are going to be able to come together to break what needs breaking and then build it in a non-political, expert-based American way? Is that even in the cards?
Louie: I believe it's in the cards. When you close the door and you're trying to solve a real problem within the Department of Defense, or within the intelligence community, we don't check what party cards people carry. When you have somebody's life that depends upon what you build, if your ability to execute is going to protect the citizens of the United States, or men and women who are going off in battle, or allies and partners, that's a different kind of serious stuff. And while people may disagree on the political views of where things are going, national security and economic security is not a partisan topic.
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