The defense industry is in decline – there’s a lack of investment and rampant consolidation.

The capacity of the U.S. defense industrial base to grow its output, fulfill a surge in military demands, and reconstitute in a major conflict stands as a key test of its health and readiness. There is a mismatch between what our national strategies aim to achieve and how our defense industrial base is postured. Key industrial readiness indicators for great power competition are going in the wrong direction: Fewer People. In 1985, the U.S. had 3 million workers in the defense industry.2 By 2021, the U.S. had 1.1 million workers in the sector. Fewer Companies. In the last five years, the defense ecosystem has lost a net 17,045 companies3 and the Department of Defense estimates the number of small businesses participating in the defense industrial base has declined by over 40% in the last decade.4 A Shrinking Financial Commitment. From 1985 to 2021, national defense spending dropped from 5.8% to 3.2% of U.S. GDP5, and the Congressional Budget Office projects a further decline to 2.7% by 2032.6 Less Predictability. In 13 of the last 14 years, the federal government has operated under a continuing resolution (CR) for part of the year, preventing new starts essential for modernization and delaying increased production rates, multi-year procurement authorities, and advanced procurement funding essential for building capacity. Limited Surge Capacity. A lack of investment in infrastructure, equipment, idle capacity, and tooling, as well as an over-reliance on sole source suppliers, challenges both the readiness and the reconstitution of industry. The federal government must prioritize removing policies, regulations and authorities that are strangling the defense industrial base and make significant, sustained and predictable financial investments to rebuild the DIB’s strategic endurance and resilience. In the Vital Signs 2023 survey, NDIA member companies are emphasizing that the federal acquisition process is growing more – not less – cumbersome; the lack of budget stability is breaking companies and causing significant workforce uncertainty; and the challenges of finding and retaining talent are impacting even our most strategic defense programs. The current inflation level was also highlighted as a cross-cutting issue impacting both the acquisition process and workforce management. Strong defense industrial readiness – ensuring our warfighters have everything they need so they never engage in a fair fight – is a key element of national deterrence. And if conflict ever erupted, national leaders will only have credible response options if they inherit the right investments to the DIB from this current generation of leaders. The government and the private sector must adapt, together, to address these challenges.