00:00You not only highlight how little in the grand scheme of things money is going to defense tech
00:05for all the amount that we talk about it, but you also try and outline ways in which it could
00:08be
00:08adopted faster. First and foremost, why do we get so much excitement about defense tech? Why is the
00:13VC community pouring in money when the end client isn't putting money in as much? Well, it's a great
00:19question, and I think you got to look at, you know, not just the end client, but the threat
00:22environment, the world that you were just speaking about in which that client is operating. And
00:28simply put, it's a dangerous world. It's getting more complex and complicated as we see tension
00:33on the rise, as we see conflicts erupting in different corners of the world. And that means
00:38that protecting American national security is good business and it's important business.
00:42And so we're seeing those private dollars flow, that private capital from the venture capital
00:48community. But those investors are going to need to see the public dollars line up in terms of
00:52Pentagon spending if it's going to continue and if they're going to continue to take that risk.
00:56The reporting that Ed and team and women continue doing, Andrew now looking at an overall market
01:03cap of $61 billion, raising another $4 billion. And yet we're just talking that less than that
01:08is how much has been directed towards defense tech from the Pentagon. What are your policy
01:12prescriptives to get the government even more comfortable with aligning that money?
01:17There's a lot of work that we've done at the Reagan Institute with regard to this national
01:21security innovation base, kind of thinking about how public investments, but public policy
01:27can help tackle this problem that we're seeing the private sector stand up to solve. Right now,
01:33they're operating at two different speeds where the private sector's in the lead. We're really
01:37seeing innovation. We're seeing progress and the government is struggling to keep up.
01:41It's improving. You mentioned at the top, defense tech spending has doubled. That's great.
01:45And yet it's still less than 1%. And so I think continuing to improve the demand signal that
01:51government and that's not just the Pentagon, that's also Congress, political leaders at the
01:56White House level and beyond are sending to private sector partners, the clarity with which
02:02they're communicating their policy priorities, their technology priorities, and then the spending
02:07to back up those acquisition pathways.
02:09I want to define what that spending is. What we've looked at on the show historically,
02:13Rachel, is unclassified or declassified missile spending. And to hammer home the point, largely
02:20it goes to Lockheed Martin and others of that legacy prime ilk. The question I suppose at this juncture
02:25is, does what's happened with the war in Iran change that? We've done a lot of covering the use
02:31of drones, lower costs, autonomous technology. The question for your report is, is the trajectory
02:39different now?
02:41It's becoming different. It is changing. I think what we're seeing with the conflict in
02:45Iran and Operation Epic Fury is really driving home the point that defense tech matters, that these
02:51low cost systems are going to be an important part of ensuring America's national security.
02:56But the fact remains that most of the platforms, the weapon systems and platforms that we've used
03:01in Operation Epic Fury, are from the Reagan administration or before, 40-, 60-, 80-year-old
03:07systems. And those are important platforms, right? Aircraft carriers moving into the region
03:12are an important part of projecting American strength. But the fact that only one weapon system,
03:17the Lucas drone, is being used in Operation Epic Fury that's been developed in the last 15 years,
03:24years. Only one system in this operation that's less than 15 years old really shows how we need
03:30to keep up to meet those challenges that you're speaking to.
03:32The word procurement comes up quite a lot when you're at somewhere like Hill and Valley Forum,
03:37and there's a bit of an exasperation from industry about how that works. PowerPoint presentations
03:43is something that they stress over. Is this administration better than prior administrations and this
03:50Pentagon better than prior iterations of it at dealing with more nimble, smaller technology
03:56companies? Well, politics aside, at the Reagan Institute, we've developed a report card to look
04:01at exactly this. And we've seen improvements in some grades that matter in this defense innovation
04:06ecosystem over time. And we've seen some grades moving in the other direction. But the biggest year-on-year
04:11jump that we've ever seen, the biggest improvement in grade, is something we call customer clarity,
04:16that demand signal that the government's signaling to private sector partners. And we see that not
04:21just through spending and acquisition pathways, but some of the reforms that this administration
04:26has pursued, the acquisition transformation strategy, streamlining technology priorities.
04:32They've said a fewer number of technologies are important, and then sent that signal to private
04:38sector partners in terms of what the administration wants to focus on. And from what we hear from those
04:44private sector partners, that's helping them align to national security priorities.
04:48I want to talk about talent for a minute, because Chris Power Hadrian joined us yesterday from the
04:51Henner Valley Forum, and his point was talent is a real issue. And that's why, in many ways, they've got
04:57this
04:57novel way of training people up, because there's a huge retirement block that's about to come.
05:01You said the average age of a worker in that industry was 65.
05:04Yeah.
05:05Something like that.
05:06And not everyone works until the president's age.
05:07It's a generational thing in the school. Sorry, Karen.
05:09No, but what's so great about your national security, basically an innovation-based report card,
05:14is it reads like a school report. And you're saying, talent base, D-plus in America.
05:21Do we need more? Look, I said there's a British person who, luckily enough, works in America.
05:25We're also a British person working in America, but yeah.
05:27Do we need more immigration? What is it that's needed to boost the D-plus?
05:31It's all of the above. We need to attract foreign-born talent here to the United States to work on
05:36some of our
05:36our hardest problems with the appropriate controls, of course, in place for national security.
05:40But we also have to be channeling our domestic talent toward STEM careers, toward not just high-skill,
05:49but also skilled trades. Companies like Hadrian are doing some very interesting and innovative things
05:54in that regard. And also thinking about how technology itself, AI and beyond, can make our workforce more
06:01productive, even in smaller numbers. But it's not just about maintaining the workforce of the past,
06:07but preparing for the workforce of the future. And our low-grade, I think, in the talent and workforce
06:11domain shows that there's a lot to be done, both with private sector and public sector collaboration here
06:18to really get at that challenge.
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