Remarks by Secretary Gates to the American Enterprise Institute

            (Applause.)

            SEC. GATES:  Thank you, Arthur.  And thanks for the introduction.

            My thanks to the American Enterprise Institute for hosting this event on relatively short notice.  In many ways, it is appropriate that AEI should be the setting for my last major policy speech in Washington.  The recent history of this institution and some of its more prominent figures is inextricably tied to the war in Iraq, the conflict that pulled me out of private life and back into the public arena nearly four and a half years ago.

            As you know and as Arthur just said, I'm in the final weeks of the greatest privilege of my professional life, serving as America's 22nd Secretary of Defense.  Most of my time and attention in this post has been dominated by America's two major post-9/11 conflicts -- each marked by swift, exhilarating victories against odious regimes followed by grinding, protracted counterinsurgency and counterterrorism campaigns.

            In the course of doing everything I could to turn things around first in Iraq and then in Afghanistan, from the early months I ran up against institutional obstacles in the Pentagon -- cultural, procedural, ideological -- to getting done what needed to get done on behalf of those fighting the wars we are in, whether it was outpatient care for the wounded; armored troop transports; medevac; ramping up intelligence, surveillance and reconnaissance support; or any number of urgent battlefield needs.

            It became evident over time that changing the momentum of these conflicts and increasing the odds of military success in the future would also require fundamentally reshaping the priorities of the Pentagon and the uniformed services and reforming the way they did business:  how weapons were chosen, developed and produced; how troops and their families were cared for; how leaders were promoted and held accountable; and, related to all of the above, where money was spent -- or misspent, as the case may be.

            It is the health and future of the military as an institution -- an institution confronted with complex and evolving array of threats abroad while adjusting to an era of debt and austerity at home -- that I would like to discuss with you today before taking some questions.

            I'll start with America's fiscal situation and how it relates to defense.  It is no secret that the United States faces a serious fiscal predicament that could turn into a crisis of credit, of confidence, of our position in the world if not addressed soon.  On April 13th, President Obama announced his framework for tackling these challenges.  As part of the -- that deficit reduction effort, he set a goal of holding growth in the base national security spending slightly below inflation for the next 12 years, which would save about $400 billion, the preponderance of which would come from the Department of Defense.

            The president's directive, as well as a number of other proposals -- such as Simpson-Bowles, that would have cut defense by up to $1.2 trillion -- has stirred a debate about the size, use and cost of our military and, by extension, the appropriate role of the United States in the world. 

            For starters, I have long believed, and I still do, that the defense budget, however large it may be, is not the cause of this country's -- (inaudible) -- fiscal woes.  However, as a matter of simple arithmetic and political reality, the Department of Defense must be at least part of the solution. 

            There's an important body of opinion, including, I suspect, many people in this room that would disagree.  This view holds that not only should current defense spending levels be maintained, but if anything they should be increased -- that the reason we face tough choices and tradeoffs with respect to military programs is because the top line isn't big enough. 

            As an old cold warrior, known for most of my career as a national security hardliner, I understand this perspective.  Defense expenditures are currently a lower share of GDP than most of the last half century and much lower percentage than during previous major wars.  When President Eisenhower warned of the military-industrial complex in 1961, defense consumed more than half of the federal budget, and the portion of the nation's economic output devoted to the military was about 9 percent.  By comparison, this year's base defense budget of $530 billion -- the highest since World War II, adjusted for inflation -- represents less than 15 percent of all federal spending and equates to roughly 3 1/2 percent of GDP, a number that climbs to about 4 1/2 percent when the war costs in Iraq and Afghanistan are included. 

            But as I am fond of saying, we live in the real world.  Absent a catastrophic international conflict or a new existential threat, we are not likely to return to Cold War levels of defense expenditures, at least as a share of national wealth, any time soon.  Nor do I believe we need to. 

            First, the world is different.  Our primary adversary then was a comparably armed superpower, bristling with millions of troops, tens of thousands of tanks, and thousands of advanced combat aircraft, not to mention a vast arsenal of nuclear weapons.  It was poised to overrun Western Europe and could directly threaten our allies and interests around the globe.  I know this.  As head analyst at CIA, I signed off on the studies of Soviet military power. 

            The threat from potential adversaries America faces today and down the road are dangerous and daunting for their complexity and variety and unpredictability.  But as a matter of national survival, they do not approach the scale of the Soviet military threat that provided the political and strategic rationale for defense expenditures that consumed a significant portion of our economy. 

            Second, we're not going to see a return to Cold War level defense budgets, at least as a share of GDP, because America is different.  Our economy, our demographics and our fiscal predicament, whether measured in the size of debt and deficits, ratios of retirees to workers, or the share of the federal budget consumed by entitlements, the money and political support simply aren't there. 

            Seeing the bleak fiscal outlook ahead, I have for the past two years sought to prepare our defense institutions accustomed to the post-9/11 decade's worth of no-questions-asked funding requests for the inevitable flattening and eventual decrease of the defense budget.  This entailed creating as much headroom as possible under the existing defense top line to protect the size and fighting strength -- the core capabilities -- of the U.S. military.

            The first stage, beginning in spring of 2009, dealt with procurement:  the weapons the military buys or plans to buy in the future.  We cancelled or curtailed modernization programs that were egregiously over budget, behind schedule, dependent on unproven technology, supplied a niche requirement that could be met in other ways, or that simply did not pass the common-sense test:  A $200 billion future combat system for the Army that, a decade after IEDS and EFPs began to kill or maim thousands of our troops, was based on lightweight, flat-bottomed vehicles that relied on near-perfect information awareness to detect the enemy before he could strike. 

            Or a missile defense program that called for a fleet of laser-bearing 747s circling slowly inside enemy airspace to get a shot off at a missile right after launch.  All told, over the past two years, more than 30 programs were cancelled, capped or ended, that if pursued to completion would have cost some $300 billion. 

            At the same time, we've made new investments in higher priorities related to the current wars and in some cases restarted efforts that filled a genuine military need for the future, such as a follow-on bomber for the Air Force, the Army's ground combat vehicle, and a new Marine amphibious tractor.  We also invested in new technologies and capabilities to address emerging, sophisticated threats.  But our new starts and new investments are on a far more realistic footing that relies on proven technology and can be produced on time and on budget. 

            This process also forced the Pentagon's leadership to confront this vexing and disturbing reality.  Since 9/11 a near doubling of the Pentagon's modernization accounts -- more than $700 billion over 10 years in new spending on procurement, research and development -- has resulted in relatively modest gains in actual military capability.

            In fact, most of the significant new capabilities that have come online over the past decade were largely paid for outside the base budget via supplemental war request.  In particular, larger ground forces and specialized battlefield equipment, such as MRAPs, body armor and other gear.

            Revering an unsustainable course, where more and more money is consumed by fewer and fewer platforms that take longer and longer to build, meant reforming the acquisition process and the department's buying culture.  The goal is that any new weapons system should meet benchmarks for cost, schedule and performance, while minimizing requirements creep:  the kind of indiscipline that leads to $25 million howitzers, $500 million helicopters, $2 billion bombers and $7 billion submarines.

            There is another factor to consider.  The Reagan buildup of the 1980s fielded a new generation of weapons platforms that continue to be the mainstay of the force today:  the M1 tank, Bradley Fighting Vehicle, Apache and Blackhawk Helicopters, Burke Guided Missile destroyers, F-15 fighters, and much more. 

            In contrast, the 1990s represented basically a procurement holiday, except for important developments in precision munitions and UAVs.  And as I mentioned earlier, the post-9/11 defense spending surge resulted in relatively little new recapitalization of the force.

            The current inventory is getting old and worn down from Iraq and Afghanistan.  Some equipment can be refurbished with life-extension programs, but there is no getting around the fact that others must be replaced.  Most of these Reagan-era platforms are still best in class relative to the rest of the world, so with the important exception of air superiority fighters and other high-end systems, pursuing costly, leap-ahead improvements in technology and capability is not necessarily required. 

            Our guiding principle going forward must be to develop technology and field weapons that are affordable, versatile and relevant to the most likely and lethal threats in the decades to come; not just more expensive and exotic versions of what we had in the past.

            I revisit this history because it leads to an important point for the future:  when it comes to our military modernization accounts, the proverbial low-hanging fruit -- those weapons and other programs considered most questionable -- have not only been plucked, they have been stomped on and crushed. 

            What remains are much-needed capabilities relating to air superiority and mobility, long-range strike, nuclear deterrence, maritime access, space and cyber warfare, ground forces, intelligence, surveillance and reconnaissance -- that our nation's civilian and military leadership deem absolutely critical.  For example:

            We must build a new tanker.  The ones we have are twice as old as many of the pilots flying them. 

            We must field a next generation strike fighter -- the F-35 -- and at a cost that permits large enough numbers to replace the current fighter inventory and maintain a healthy margin of superiority over the Russians and Chinese.

            We must build more ships -- in recent years, the size of the Navy fleet has sunk to the lowest number since before World War II, and will get smaller as more Reagan-era vessels reach the end of their service life.

            We must recapitalize the ground forces -- the Army and Marines -- whose combat vehicles and helicopters are worn down after a decade of war.

            And at some point we must replace our ballistic missile submarines -- a program that illustrates the modernization dilemmas we face. 

            Over the past two years, a dedicated effort by DOD acquisition experts to reduce requirements and costs brought down the projected price tag of these new boomers by $2 billion each.  But that still leaves us with a projected cost of $5 billion per submarine -- and we're planning to build 12 of them, presenting some serious issues for the Navy's shipbuilding budget down the road.

            So as we move forward, unless our country's political leadership envisions a dramatically diminished global security role for the United States, it is vitally important to protect the military modernization accounts -- in absolute terms, and as a share of the defense budget.

            But sustaining this "tooth" part of the budget -- the weapons and the soldiers, sailors, airmen and Marines who use them -- is increasingly difficult given the massive growth of other components of the defense budget, the "tail" if you will:  operations, maintenance, pay and benefits, and other forms of overhead.  America's defense enterprise has consumed an ever higher level of resources as a matter of routine just to maintain, staff, and administer itself -- the other key reason that major increases in the total base defense budget since 2001 have led to relatively modest increases in usable military capabilities.

            As a result, starting last spring, we began to take a hard look at the department's overhead costs, in particular the massive administrative and support bureaucracies -- within the military services, and across the defense department as a whole.  The purpose was to carve out more budget headroom that could be allocated to force structure and modernization.

            The result of these efforts were, frankly, mixed.  The military services, in my view, successfully leaned forward and found nearly $100 billion in efficiency savings by closing facilities, combining headquarters, reducing energy costs,  and much more over five years, and allocated those funds to make new priority investments and deal with higher than projected expenses.  Across the department as a whole, we were able to save another 54 billion (dollars) through freezing civilian staff and pay levels, eliminating one four-star command and downgrading two others, eliminating or downgrading more than 350 generals, admirals, and civilian executive positions, reducing reliance on contractors, getting rid of unnecessary reports and studies, and more.

            Then there was the effort to pare down the overhead costs of DOD components outside the military services -- in particular, the Office of Secretary of Defense, the Joint Staff, the defense agencies and field activities, plus the major regional and functional military headquarters -- referred to as combatant commands -- apart from Iraq and Afghanistan.

            With respect to these components, known internally as the fourth estate, the efficiencies experience was something akin to an Easter egg hunt.  My staff and I learned that it was nearly impossible to get accurate information and answers to questions such as "how much money did you spend" and "how many people do you have?"  For example, when I launched the efficiencies effort in 2010, we projected the savings from closing Joint Forces Command to be about $250 million.  That number doubled over the next four months as more details trickled in about how this organization was funded and staffed from dozens of sources across the department.

            Overall, the fourth estate savings were disappointing:  less than a billion dollars in annual projected savings from a group of organizations that consume at least $64 billion a year by our latest estimate.  I believe we can and should do much better.  There are still too many headquarters, offices, and agencies employing too many high ranking personnel and contractors, consuming too many resources relative to real military missions and measurable results.

            The efficiencies project also showed that the current apparatus for managing people and money across the DOD enterprise is woefully inadequate.  The agencies, field activities, joint headquarters, and support staff functions of the department operate as a semi-feudal system -- an amalgam of fiefdoms without centralized mechanisms to allocate resources, track expenditures, and measure results relative to the department's overall priorities.

            I've always believed inspired leadership can overcome deficient organization charts.  But in this case, it may be time to consider new governance structures and arrangements.   And here, the Congress has been ahead of the department by pushing us to establish a centralized structure led by a chief management officer.

            So I believe there are more savings possible by culling more overhead and better accounting for, and thus better managing, the funds and people we have.  But one thing is quite clear.  These efficiencies efforts will not come close to meeting the budget targets laid out by the president, much less other, higher targets being bandied about.  Some perspective is important.  What's being proposed by the president is nothing close to the dramatic cuts of the past.  For example, defense spending in constant dollars declined by roughly a third between 1985 and 1998.  What's being considered today, assuming all $400 billion comes from DOD over 12 years, corresponds to a projected reduction of about 5 percent in projected -- in constant dollars, or slightly less than keeping pace with inflation.

            Nonetheless, meeting this savings target will require real cuts given the escalating costs of so many parts of the defense budget, and as a result, real choices.  I am determined that we not repeat the mistakes of the past, where budget targets were met mostly by taking a percentage off the top of everything, the simplest and most politically expedient approach both inside the Pentagon and outside of it.  That kind of salami-slicing approach preserves overhead and maintains force structure on paper, but results in a hollowing-out of the force from a lack of proper training, maintenance and equipment -- and manpower.  That's what happened in the 1970s, a disastrous period for our military, and to a lesser extent, during the late 1990s.

            That is why I launched a comprehensive review last week to ensure that future pet spending decisions are focused on priorities, strategy and risks, and are not simply a math and accounting exercise.  In the end, this process must be about identifying options for the president and the Congress, to ensure that the nation consciously acknowledges and accepts additional risk in exchange for reduced investment in the military.

            Part of this analysis will entail going places that have been avoided by politicians in the past.  Taking on some of these issues could entail  re-examining military compensation levels in light of the fact that, apart from the U.S. Army during the worst years of Iraq, all the services have consistently exceeded their recruiting and retention goals.

            It could mean taking a look at the rigid, one-size-fits-all approach to retirement, pay and pensions left over from the last century.   A more tiered and targeted system, one that weights compensation towards the most high demand and dangerous specialties, could bring down costs while attracting and retaining the high quality personnel we need.

            And it will require doing something about spiraling health care costs and, in particular, the health insurance benefit for working age retirees whose fees are one-tenth those of federal civil servants, and have not been raised since 1995.

            But above all, if we are to avoid a hollowing effect, this process will need to address force structure:  the military's fighting formations such as Army brigades, Marine expeditionary units, Air Force wings, Navy ships, and supporting aviation assets.   The overarching goal will be to preserve a U.S. military capable of meeting crucial national security priorities, even if fiscal pressure requires reductions in that force's size.  I've said repeatedly that I'd rather have a smaller, superbly capable military then a larger, hollow, less capable one.   However, we need to be honest with the president, with the Congress, with the American people, indeed ourselves, about what those consequences are:  that a smaller military, no matter how superb, will be able to go fewer places and be able to do fewer things. 

            For example, the assumption behind most of our military planning ever since the end of the Cold War has been that the U.S. must be able to fight two major regional wars at the same time.  One might conclude that the odds of that contingency are sufficiently low, or that any eruption of conflicts would happen one after the other, not simultaneously.  What are the implications of that with respect to force structure, and what are the risks?  One can assume certain things won't happen on account of their apparent low probability.  But the enemy always has a vote.

            These are the kinds of scenarios we need to consider, the kinds of discussions we need to have.  If we are to -- going to reduce these -- the resources and the size of the U.S. military, people need to make conscious choices about what the implications are for the security of the country, as well as for the variety of military operations we have around the world if lower-priority missions are scaled back or eliminated.  They need to understand what it could mean for a smaller pool of troops and their families if America is forced into a protracted land war again -- yeah, the kind that no secretary of defense should recommend anytime soon, but one we may not be able to avoid.  To shirk this discussion of risks and consequences and the hard decisions that must follow, I would regard as managerial cowardice.

            In closing, while I've spent a good deal of time on programmatic particulars, the tough choices ahead are really about the kind of role the American people -- accustomed to unquestioned military dominance for the past two decades -- want their country to play in the world.

            Since I entered government 45 years ago, I've shifted my views and changed my mind on a good many things as circumstances, new information or logic dictated.  But I have yet to see evidence that would dissuade me from this fundamental belief:  that America does have a special position and set of responsibilities on this planet.  I share Winston Churchill's belief that "the price of greatness is responsibility" and "the people of the United States cannot escape world responsibility."  This status provides enormous benefits -- for allies, partners, and others abroad to be sure.  But in the final analysis the greatest beneficiaries are the American people, in terms of our security, our prosperity and our freedom. 

            I know that after a decade of conflict, the American people are tired of war.  But there is no doubt in my mind that the continued strength and global reach of the American military will remain the greatest deterrent against aggression and the most effective means of preserving peace in the 20th -- first century, as it was in the 20th.

            So my thanks again to AEI for providing this venue and opportunity for my remarks today, and I look forward to your questions.

            (Applause.)

            MODERATOR:  Mr. Secretary?  This is not working.

            The secretary has graciously agreed to take some questions, which I am going to moderate.  I just want to remind everybody of our rules.  Do please raise your hand and wait for me to call on you, identify yourself, and put your very, very short statement in the form of a very, very short question.

            Let me turn first to our own Tom Donnelly.

            Q:  I would like to invite you to speculate a little step beyond where you just ended.  It's been very difficult for the department to put a two-war benchmark on the wall and keep it there over a long period of time, with the result that answering the fundamental question of defense planning,  how much is enough, is very difficult to do.

            If you had to recommend what the benchmark should be for the future, what would your metric be?  What would your standard of capacity and sufficiency be?

            SEC. GATES:  Well, I think the honest answer to your question is that I don't know.  And that's one of the purposes of the review.

            One of the things that the Quadrennial Defense Review does is identify a variety of scenarios that are used to shape and size U.S. military forces.  But QDRs, including the one done on my watch, do not directly translate from strategy into force structure.  And so, frankly, the first piece of this review that has to be done is not to redo the QDR -- that would cause everyone in the department to go off a cliff -- (laughter) -- but rather to do the analytical work required to translate the strategies that the QDR calls for the department to be able to carry out into force structure.

            What force structure is actually required to do these, so that you can then go to the president and the Congress and say, OK, what are the actual force structure implications of sequential regional wars are opposed to simultaneous?  We're only doing one, instead of doing two.

            We have never translated that into ships, BCTs, aircraft and so on.  We have to do that work.

            Q:  Hello.  Kim Kagan from the Institute for the Study of War.  Thank you, Mr. Secretary, for your long service.

            I have a question for you on force requirements.  What do you think are the force requirements to support the foreign policy that the president laid out last week in his Middle East speech?  And do you think that there are no international conflicts or new existential threats that are likely to arise over the period of defense spending contractions that you spoke of?

            SEC. GATES:  Well, as I like to take our -- tell our military folks when I talk to them out in the field, our record of predicting where we will use military force since Vietnam is perfect.  We have never once gotten it right.  (Laughter.)

            There isn't a single instance -- Grenada, Panama, the first Gulf War, the Balkans, Haiti, and just keep going through the list -- where we knew and planned for such a conflict six months in advance, or knew that we would be involved as early as six months ahead of time.

            So my mantra actually has been, for the last several years in the department, that as we train and as we equip, we need to have in mind the greatest possible flexibility and versatility for the broadest range of conflict, because we now face a situation where a non-state actor, like Hezbollah, has more missiles and rockets than most states.  They may have chemical or biological weapons.  We don't know; I don't think we have any evidence of that.  So you could be dealing with them as a terrorism problem or you could be dealing with them as a threat to our Navy ships through their possession of anti-ship cruise missiles, which we know they have and have a range of 65 miles.

            So I think that we have to shape -- shape a force that can be adapted to a range of conflict that may be going on simultaneously in a number of different places around the world.  Now, how much is required to be able to do that gets back to the answer to Tom's question, and that's what we need to translate.

            And do we -- you know, one of the fundamental choices is, do we focus our force structure on being able to deal with high-end sophisticated threats and then assume that that will handle all lesser included cases?  Or do we continue to emphasize what we've been emphasizing in the last few years, which is counterinsurgency and counterterrorism, with less emphasis on the high-end threats?  You know, that's the analysis that we're doing.

            My view is, you've got to figure out a way to be able to deal with all of that.  How much you need to deal with that, I think, is the analytical challenge that's in front of us.

            MODERATOR:  We're going to have a race to see which microphone can get to you first.

            Q:  Thank you very much, Mr. Secretary.  Hedrick Smith, PBS. 

            Given your emphasis on the need for flexibility and a variety of potential foes we have to deal with, whether strategic or counterterrorism and counterinsurgency, do we still need forces based -- land forces based in Europe?  And if not, would that save money, and how much?

            SEC. GATES:  Actually, we've looked at this a lot.  And the reality is, with the support that we get and the investments that we've already made, the differential in cost between keeping, for example, three -- (audio break) -- brigade combat teams in Europe and the cost of bringing them home and building the facilities for them is close to a wash.

            Over a long period of time, you probably realize greater benefit by bringing them home, but for the -- I would say for the period of this 12-year period we're talking about, my guess is that there's not a lot of money to be found there.

            Furthermore, I think this is one of these places where the American presence has a significant impact on our allies, on our friends, and on everybody, for that matter.  And I think our judgment was that -- well, the decision was made in the Bush administration in 2005 to bring home two of the four brigade combat teams that were in Europe.  We've looked at it in terms of the cost as well as the strategic value of the presence in Europe -- and the importance, for example, to the East Europeans as well as others, of our force presence there -- and have decided that we would keep three BCTs there. 

            So it'll still be -- will be coming down by one BCT, but as I've told the Europeans, the truth of the matter is they're going to end up with more American boots on the ground in Germany in two or three years, even if we have three BCTs, than they've had for the last 10 years, because two of those BCTs have generally been rotating into either Iraq or Afghanistan.

            So our global force posture I know is an issue of contention on the Hill.  Our judgment, particularly with respect to the European presence, which is the only one where we're made some -- where the president's made some final decisions, is that some reduction is justified, but we think that that presence ought to remain.

            MODERATOR:  Let's find some -- this gentleman with the red tie in the back.

            Q:  (inaudible)

            MODERATOR:  OK, thank you, sir.  So just more generally, perhaps, since not all of us could hear, on the challenge of Pakistan a little bit.

            SEC. GATES:  I think that -- I do not think that the money that we have spent in Pakistan has been a waste.  The reality is that Pakistan now has 140,000 troops on the border.  Their actions in Swat and in South Waziristan have been helpful to us. 

            Our relationship with Pakistan is not what we wish it were.  There is, as the Pakistanis are fond of pointing out, a deficit of trust, in their view because the United States has abandoned them on several occasions in the past; most recently, in 1990 and in 1989 after the Soviets left and then with the Pressler Amendment.

            And I would say this administration has made a significant effort to try and change the nature of our relationship with Pakistan, in terms of a more enduring partnership.  And I would say that, obviously, the record is a mixed one.  And we both have concerns, but there's also no doubt in my mind that we have to continue to make our best efforts to manage this relationship going forward.

            Pakistan is very important, not just because of Afghanistan but because of its nuclear weapons, because of the importance of stability in the subcontinent.  So we need to keep working at this.

            MODERATOR:  Let me just turn to Michael O'Hanlon here.

            Q:  Thank you, Mr. Secretary, for your service, and the chance to ask a question.  Michael O'Hanlon from Brookings.  The Bowles-Simpson and the Domenici-Rivlin commissions last year talked about broad-based deficit reduction that would include entitlement reform and also tax reform.  And yet it appears that the Department of Defense being asked to consider very deep cuts before entitlement programs or tax reform are being considered, at least by some, with the partial exception of Congressman Ryan on health care. 

            Is that a problem?  Is that something that causes you worry, that the department is being asked to consider these deep cuts before the broad-based deficit reduction effort seems to be fully under way?

            SEC. GATES:  Well, I would say the answer to that question's above my pay grade.  (Laughter.)  I believe that -- as I said in my remarks, I believe we have to play a part in this, but I also believe what I said in my remarks, which is, the defense budget is not the cause of the deficit and debt problem that we have as a country.

            MODERATOR:  And are we to infer that -- from your willingness to tackle those issues within the Pentagon budget -- you talked about entitlements within that budget -- that in fact you think that that's really an important priority that needs to be addressed?

            SEC. GATES:  Well, I think -- I think, frankly, that the pressure on the defense budget -- and I think sort of across the political spectrum, in many respects -- does provide us an opportunity to tackle some issues that the department has avoided for a long time because they're so politically fraught and there is such difficulty in -- if all of -- all of these things would require congressional approval.  I mean, I'm -- the first two years I was in this job, in the Bush administration, I went up to the Hill dutifully each year with a request for a tiny increase in the fee for TRICARE and got my head lopped off.  And so the third year I didn't -- I didn't try.  Well, we're going to try again.

            But I'll give you a good example.  I mean, one thing that -- even from the standpoint of the military, that we need to look at is military retirement.  And the veterans service organizations immediately react to this sort of thing, but the fact is that, depending on which service you're talking about and whether you're talking about enlisted or officers, roughly 70 percent of the force does not stay for retirement, but somebody who has served for 10 years leaves with nothing.  That doesn't make any sense.  That's not fair.

            Another piece of this is, we take somebody who's highly skilled, he gets to lieutenant colonel, he has 20 years in, he's reached his period of maximum contribution and value to the department, and we give him every incentive to leave instead of stick around and give us the value that we've invested in for 20 years.

            So I don't know what the right answer is these questions, and you know, there have been almost as many studies done on military compensation and retirement as there are on acquisition.  But we may have a political window here where we can look at the long-term interests of the military as well as the budgetary interest and see if we can't do some smart things that politically have been impossible up to now.

            MODERATOR:  I'm going to turn back to family for one last question -- and we've promised not to presume on your time too much -- our own Fred Kagan.

            Q:  Mr. Secretary, I want to first of all congratulate you on having accomplished what you came into office seeking to do, which is to turn around a conflict in Iraq that was headed toward defeat.  And then you received also the mission of turning around the conflict in Afghanistan, and I think you've done a terrific job overseeing the process in both places and deserve our -- the thanks of a grateful nation for that.

            But I want to ask you now, specifically about Iraq, a question -- I'm going to phrase it in a way that I hope you can answer -- which is, can you describe for us what interests the United States has in maintaining a long-term relationship with Iraq, including, assuming the Iraqis desire it, the continued presence of American military forces in Iraq after the end of this year?

            SEC. GATES:  Something we could not have predicted five months ago is that Iraq would emerge as the most advanced Arab democracy in the entire region.  As messy as it is, when you think back to the months and months that it took to form a government and the fact that the conflict was political, they weren't in the streets shooting each other, the government wasn't in the streets shooting its people -- so I think that sustaining that is worthy of an investment -- we've made a big investment already, a huge investment, in treasure and in lives -- and to sustain that, in some respects as a model for a multi-sectarian, multiethnic society in the Arab world that shows that democracy can work -- not exactly like ours, that -- there's some pros and cons associated with that -- but can sustain itself.

            Now I think that the Iraqi military would say they need continued assistance in terms of logistics, intelligence.  They have no capacity to defend their own airspace.  So there are some areas where we could continue to assist them, and I think at relatively small cost to ourselves, especially given the investment that's already been made.

            But I think it also sends a powerful signal to the region that we're not leaving, that we will continue to play a part.  I think it would be reassuring to the Gulf States.  I think it would not be reassuring to Iran, and that's a good thing.  I think it would be reassuring elsewhere in the region as well and beyond the Gulf. 

            So I think that -- I think that there is a mutual interest, both in Iraq and in the United States, in sustaining this relationship.

            That said, we have to realize that it is a political challenge for the Iraqis, because, whether we like it or not, we're not very popular there.  And the Sadrists clearly want us out, and how much of that is the Sadrists and how much of that is the Iranians behind the Sadrists you can argue about. 

            But I think, as is often the case in Iraq, it will take some time for the political leaders to figure out a way to move forward on this.  And all I can say is that from the standpoint of Iraq's future but also our role in the region, I hope they figure out a way to ask.  And I think that the Unites States will be willing to say yes when that time comes.

            MODERATOR:  Amen.

            Let me ask our audience to remain seated as we see the secretary out and thank him once again for an outstanding address and for -- (Applause.)

            SEC. GATES:  Thank you.