Remarks by Secretary Panetta on the Challenge of a National Defense at the Woodrow Wilson Center, Washington, D.C.

     Thank you Jane for that introduction and for your leadership, thank you for the commitment to serve this nation that you've demonstrated throughout your career -- as an outstanding member of Congress from my home state of California, and now as President of the Woodrow Wilson Center. You and Sidney always represented the very best in citizenship and the very best in commitment to America.

     I am also pleased to be able to participate in this lecture series named in honor of my dear friend, Lee Hamilton. I had the privilege of working very closely with Lee during my time as a member of Congress and in the Clinton administration, and then I had the opportunity to work with Lee as a member of the Iraq Study Group in 2006. His leadership on issues of national security -- in particular the tireless efforts to ensure that our government drew the necessary lessons from the 9/11 attacks and took the steps necessary to make sure that would never happen again -- have rightfully earned Lee Hamilton a place among the great statesmen of our time.

     It is appropriate that the theme of this lecture series is "civil discourse and democracy" because, over the course of Lee Hamilton's extraordinary career, Lee developed a reputation as someone who speaks thoughtfully, directly, clearly, and honestly about his views. It is in that spirit that I come here today, to share my views on the challenges and the threats, the choices and the risks, and the opportunities, facing the United States and the institution charged with defending it, the armed forces.

     The Wilson Center has brought together for this event a large number of familiar faces, many of them foreign policy experts, strategists and leaders in the national security arena. In speaking to you, I'm reminded of a great story I often tell of the Nobel Prize winner from the University of California who was going throughout the state of California giving exactly the same lecture on a very intricate area of physics law -- the area that he won his Nobel Prize in.

     One day, he was heading toward Fresno and his chauffeur leaned back and he said "You know professor I've heard that lecture so many times that I really think I could give it by memory myself. " Well the professor said look "Well look why don't you put on my suit and I'll put on your uniform and you give the lecture. They don't know me that well in Fresno." They did that and the chauffeur got up for a standing room audience and gave the lecture word for word, talked for an hour and he gave the lecture perfectly and he got a standing ovation and the professor who was seated in the audience just couldn't believe what had happened.

     But then, people began to raise their hands. Somebody raised their hand and said "Professor, that was an outstanding address on a very complex area of physics law, but I have a question," so he went into a prolonged question about three paragraphs long that included some mathematical formulas and equations and he said "Now, what do you think of that?" There was this long pause and the chauffeur said, "You know. That's the stupidest question I've ever gotten and just to show you how stupid it is I'm gonna have my chauffeur answer it."

     Well, there are a lot of chauffeurs in this audience when it comes to issues of national security -- and I look forward to having a good discussion here today with you, a conversation that contributes to the thoughtful debate the entire country needs to have on how to sustain the nation's strength, and protect our security in a time of growing fiscal constraint at home, and at a time of increasing concern about America's future prosperity and its place in the world.

     There is no doubt that we are going through a very challenging time in this country -- "an era of transformation." We are beginning to emerge out of a decade of war, but facing economic hardship, record debt, and a partisan paralysis in our political system that is threatening our ability to tackle these problems and find the solutions that have to be found if we are to maintain our leadership in the world. Meanwhile, we live in a world that is rapidly changing. A world that is growing in complexity and uncertainty. We continue to face threats -- both old and new. From terrorism to nuclear proliferation; from rogue states to cyber attacks; from revolutions in the Middle East, to economic crisis in Europe, to the rise of new powers like China and India. All of these changes represent security, geopolitical, economic and demographic shifts in the international order that make the world more unpredictable, more volatile and, yes, more dangerous.

     During this time of change abroad, and adversity at home, questions are being raised about America's strength and its influence, about whether we can sustain our place as a leader in the world. As someone who has seen America overcome great challenges in the past and yet prevail, I reject the idea that somehow America is in decline.

     My immigrant parents made very clear to me that in America, there is no challenge that cannot be overcome by people willing to work and to fight for what is right. We are strong today because of our people, because of our constitution. Strong because we are hardworking and we are productive. And we are strong because we are still a country of promise, a country of opportunity for people throughout the world, with the most dynamic economy on the face of the earth. And finally, we are strong because of our willingness to invest body and soul in a military that can defend our country, protect our values, and advance our interests in the world.

     As Secretary of Defense, and as someone who has dedicated my life in service to this country, I refuse to simply be a witness to fate. Our job is not to accept destiny, our job is to create destiny. I am determined to do my part to ensure that America emerges from this time stronger than before, with a military of unmatched strength that can protect America's interests, deter conflict, and reassure our allies. We need to build the military force that the country needs, but also help ensure that the country maintains its economic strength. The changing international security landscape and the new fiscal constraints are framing my defining challenge as Secretary of Defense: how do we build the military of the 21^st century, the military that we need to confront a wide range of threats and at the same time, how do we responsibly reduce deficits in order to protect our economy?

     I promised, and said continually, as a former Chairman of the Budget Committee and as a former Director of OMB, that I do not believe that we have to choose between national security and fiscal security. What I cannot promise is that this can be achieved without making some very difficult choices. Those choices are essential if we are not to hollow out the force and at the same time meet the threats we confront.

     To that end, we are adjusting our strategy and rebalancing our military to better confront the most pressing security needs. As a Department, we have to seize the moment as an opportunity to think long and hard about the future security environment and the kind of military we need in order to confront that challenge in the future.

     As we look ahead, our overriding priority must remain to succeed in current operations. In Iraq, thanks to the sacrifices and dedication of our men and women in uniform, we will be bringing the current mission to a close this year. Iraq now has a chance -- its going to be difficult, its going to be challenging -- to emerge as a sovereign, stable, self-reliant nation and a positive force for stability in a vital region of the world.

     In Afghanistan, a tough fight remains underway, but we have weakened the Taliban and made substantial gains in building Afghan forces that are allowing us to begin transitioning to Afghan security lead. Still, we must build an enduring relationship with Afghanistan, to maintain pressure on al-Qaeda and its affiliates, and to ensure we continue to deny them safe haven.

     More broadly, we must continue to maintain the relentless pressure we've applied on al-Qaeda and its affiliates everywhere in the world. Al-Qaeda has spawned branches in Yemen, Somalia and North Africa that are both deadly and destabilizing. We have aggressively gone after their key leaders, damaging their ability to plan and conduct attacks. Meanwhile, the situation in Pakistan is likely to remain volatile and fragile as we try to reduce terrorist safe havens in a nation that continues to expand its nuclear arsenal. We are going to have to maintain a whole of government effort in order to achieve the President's goal of dismantling, disrupting and defeating al-Qaeda.

     We face the dangers of nuclear proliferation with countries like North Korea and Iran -- and we have to be able to deter their nuclear ambitions. North Korea has already tested a weapon, and Iran continues to pursue nuclear enrichment far beyond its needs. These countries refuse to respect their international obligations and risk destabilizing vital regions and threatening key allies with their nuclear ambitions.

     Alongside this nuclear danger is an entirely new kind of threat we have to be better prepared to confront -- the threat of cyber attacks. Cyber has become a major concern as we face large numbers of attacks from non-state actors and large nations alike, and the prospect of a catastrophic disruption of critical infrastructure that would cripple our nation. The potential to paralyze this country from a cyber attack is very real.

     And then we must contend with rising powers, and rapidly modernizing militaries, particularly in the Asia-Pacific region -- where the security and economic future of our nation will largely rest in the 21^st century. The rise of China will continue to shape the international system, and we will have to stay competitive and reassure our allies in the region. That means continuing to project our power and maintaining forward-deployed forces in the Asia-Pacific region.

     While all these challenges are significant, the American military today is without question the finest fighting force that has ever existed. It turned the tide in Iraq. It is putting Afghanistan on a path to stability. It has seriously weakened al-Qaeda and its militant allies. It helped NATO achieve its mission in Libya. And it has been a bulwark against aggression around the world.

     Still, the military needs to constantly adapt and to constantly change to remain at its best -- and that is true, frankly, regardless of the budget situation we face. The strategy that we are developing as a Department, one that I am working closely with the Chiefs of the Services on, one that we are in discussions with the President on, is to achieve a roadmap for the military, a roadmap we need for the future as the wars begin to wind down. There are without question things that we know we are going to have to see as we go through this process. We know that the military of the 21^st century will be smaller. But even if smaller, it must be supremely capable and effective as a force to deal with a range of security challenges. A military that, as President Obama has said, "will remain the greatest force for freedom and security that the world has ever known."

     This will be an extremely agile, deployable force capable of responding to a growing variety of threats -- from counterterrorism to major combat operations anywhere in the world. It will also be a force capable of quickly reacting to surprise, a reality that we have seen time and again throughout our history, and unforeseen contingencies, and constantly adapting enemies that seek to frustrate our advantages.

     It will also remain a force that is globally engaged. As fiscal constraints grow, so too will the value and importance of our international partnerships. I've just returned from a week of consultations with key allies in the Middle East and at NATO headquarters in Brussels. My conversations made clear to me that the desire for military partnership, and American leadership, remains very strong. Even as we encourage our partners to take on more of the burden for providing their own security, we need to maintain the ability to provide reassurance to our allies in vital regions of the globe, particularly the arc extending from the Western Pacific and East Asia into the Indian Ocean. The volatility and importance of the Middle East will demand that we remain engaged and capable of deterring and responding to conflict in this region too.

     In an era where new technologies are empowering potential enemies -- state and non-state actors alike -- our military must maintain its technological edge. Over the past two decades, our military has made particularly striking advances in precision-guided weapons, unmanned systems, cyber and space technologies -- but our advantages here could erode unless we maintain a robust industrial and science and technology base. If we lose that base, it will impact on our ability to maintain a strong national defense -- it's that simple.

     Our enduring military advantage comes not from technology alone, however. The most important ingredient in our national defense is found in the extraordinary men and women who comprise our all-volunteer force. Men and women who represent less than 1% of our nation, but who have shouldered the burden of protecting the American people and who have shown the strength of the American character in their willingness to put their lives on the line to defend our values, our interests, and our freedom. The toughest thing I do in this job as Secretary of Defense is the responsibility to write condolence letters to the families of those who have lost, and in meeting those families at Dover. And yet every family I've met, whether its at Dover, at Arlington, or at Bethesda, makes the point that we have to continue the mission for which their loved ones gave their lives. And, more importantly, as I write those notes, I make very clear that although there is no word with which I can comfort them with their loss, I want them to know that their loved one gave his or her life for America, and that makes them a hero and a patriot. Those values, that strength, is what makes us strong.

     Over ten years of war, these men and women, and the families who support them, have shown their adaptability, versatility, and patriotism in the face of a new combination of threats and unexpected operating environments. We now have the most-experienced, battle-hardened all-volunteer force in our nation's history -- a generation that learned and institutionalized new concepts and new capabilities in irregular warfare. They are, quite simply, our greatest strategic asset and they are as far as I am concerned the new "greatest generation" in our history.

     We need to preserve the intellectual and battlefield capital of our military -- the innovative and battle-hardened leaders who pushed the force to adapt to changing circumstances and enemies. We need to ensure that the force we have is sufficiently trained to be ready and deployable. And we need to ensure that they and their families have what they need to meet their needs, at home as well as on the battlefield. Maintaining the quality and experience of the force -- an invaluable asset that we have today -- in the face of budget constraints and declining operational demands will be a challenge, but it is essential to our ability to have this effective military force of the future. Opportunities for full spectrum training that have been neglected due to the demands of the wars, and further opportunities for defense cooperation with key allies, will need to be pursued.

     I am committed to building this force while meeting our obligations to help get our nation's economic house in order. As I said, doing so will involve some very hard choices -- the Department will be required over the next 10 years to reduce its projected spending by more than $450 billion as a result of the debt ceiling agreement reached by Congress in August.

     Given the nature of today's security landscape, we cannot afford to repeat the mistakes of past reductions in force that followed World War II, Korea, Vietnam and the fall of the Iron Curtain -- which, to varying degrees, as a result of across the board cuts, weakened our military. We must avoid, at all costs, a hollow military -- one that lacks sufficient training and equipment to adapt to surprises and uncertainty, a defining feature of the security environment we confront. We cannot and we must not repeat the mistakes of the past.

     The Department is following a different course in implementing these spending reductions -- driven by strategy rather than expediency, and looking at all areas to achieve savings. Let me describe some of those areas.

     First, efficiencies. We are first looking at ruthlessly pursuing efficiencies and streamlining efforts designed to eliminate overhead infrastructure, waste and duplication. We are also aggressively pursuing efforts to improve the Department's accountability, and its ability to stand up to the scrutiny of an audit. To do that we shouldn't have to wait until 2017, and we won't. The ability to audit our books ought to be something we do on a faster track, and we will. But these efforts can only go so far to achieving our savings requirements. The Department is already implementing more than $150 billion in savings from efficiency and streamlining initiatives launched by Secretary Gates last year. While we are considering an aggressive target of $60 billion in additional efficiencies over the next five years, that still only represents a small fraction of total savings required to accommodate the budget reductions that we confront.

     Secondly, personnel costs. The fiscal reality facing us means that we also have to look at the growth in personnel costs, which are a major driver of budget growth and are, simply put, on an unsustainable course. The government as a whole has instituted a two-year freeze on civilian employee pay and made other proposals, and we must, at the same time, look at what reforms we can make in military pay as well. Just since 2001, costs for military compensation and health care have risen by about 80 percent while military end strength has increased less than 5 percent. This will be an area of extreme challenge, because my highest priority is obviously to maintain the vitality of our all-volunteer force -- and keep faith with the men and women who have put their lives on the line to defend the country and been deployed time, and time, again. The 1% of the country that has served in uniform, and their families, have borne the heavy costs of war for ten years. They cannot be expected to bear the full costs of fiscal austerity as well.

     Nevertheless, we need to make sure our men and women in uniform are fairly compensated, that they get the benefits they have earned, but at the same time we must recognize that the growth in personnel costs must be addressed. If we fail to address it, then we won't be able to afford the training and equipment our troops need in order to succeed on the battlefield. There's a tradeoff here. My approach will be to try to grandfather benefits when I can in order to try to implement future reforms in these areas.

     Thirdly, force structure. We will have to look at force structure -- and the size of the ground forces after Iraq and Afghanistan -- recognizing that a smaller, highly capable and ready force is preferable to a larger, hollow force. While some limited reductions can take place, I must be able to maintain a sufficient force to confront the potential of having to fight more than one war. What can be helpful here is maintaining a strong National Guard and Reserve that can help respond to crisis.

     And fourthly, modernization and procurement reforms. The largest area to look at will be targeted changes at modernization and operating costs. In this fiscal environment, every program, contract and facility will be scrutinized for savings that won't reduce readiness or our ability to perform essential missions. These cuts will need to be carefully targeted, again to avoid a hollow force, to ensure that we maintain a robust industrial base, and to protect the new military capabilities we need in order to sustain military strength. But we will need to consider accepting reduced levels of modernization in some areas, carefully informed by strategy and rigorous analysis. In addition, we will look to procurement reforms that improve competition, cost control and delivery.

     Looking at all these areas, the potential exists, if we make the right strategy-based decisions, to build a modern force that sustains our leadership in the world, and underwrites our security and prosperity. But as I said, to accomplish this will require that we navigate through some very perilous political waters -- there are serious dangers ahead and very little margin for error.

     As we implement the changes we need in order to preserve the force capable of protecting our country with fewer resources, we above all will need the full cooperation of Congress, my former colleagues, to protect defense. Congress must be a responsible partner in this effort. They have as much responsibility for the defense of this country, as we in the executive branch. This must be a partnership. Republican and Democrat alike. They must be a responsible partner in supporting a strong defense strategy that may not always include their favorite base or weapons system. Congress, in particular, must prevent disastrous cuts from taking effect, particularly with the mechanism that was built into the budget control act known as sequester. This mechanism would force defense cuts that would do catastrophic damage to our military and its ability to protect the country. It would double the number of cuts that we confront, and it would damage our interests not only here, but around the world. It would require a mindless approach of drastic cuts to both defense and domestic discretionary accounts. I'm not arguing that sequester somehow ought not to apply to defense, and allow it to apply to domestic discretionary. The fact is sequester would be wrong for both defense and domestic discretionary spending. Why? Because the fact is, in both areas, it is important to our national security interests. The quality of life in this country is important to national security. The importance of investing in areas like education, and other important areas that impact on the quality of life, are important to our national security. Sequester would be wrong, not only because it's this mindless approach to cutting things across the board. Wrong because it would have Congress ignore the two-thirds of the federal budget made up of mandatory and revenue spending that must be addressed in any serious effort to reduce the deficit.

     Going forward, as we debate the proper size and role of the American military in the 21^st century, we must remember that the American people and our partners across the globe are safer, more stable, and more prosperous because of our global leadership, and the strength of our military. Debates about our proper role in the world are a natural part of any time of sweeping change and uncertainty. We experienced it during the period after World War II, when our country took on the burden and challenge of global leadership. Summoning a nation to confront this new world, President Truman said, "The process of adapting ourselves to the new concept of our world responsibility is naturally a difficult and painful one. The cost is necessarily great." But, he said, "It is not our nature to shirk our obligations. We have a heritage that constitutes the greatest resource of this Nation. I call it the spirit and character of the American people."

     That spirit and that character remains, and we must summon it to do what's necessary to build our national defense, the kind of national defense that we need to meet our responsibilities to in order to provide for the safety and security of the American people -- now and into the 21^st century.

     Thank you.

     (Applause).

     JANE HARMAN: Thank you, Secretary Panetta, for a very thorough and very thoughtful address. As one who represented what I called the aerospace center of the universe in our state of California, I was listening carefully to every word. It's a long, tough road ahead. But I think working together and with Congress as partner, it seems to me there is a sensible way forward.

     We have time for three questions. And I'm going to get blamed for not calling on people, but there's somebody very eager right over here. Please state your name and use the microphone.

     Q: (Inaudible) -- for the Pakistani Spectator. My question is very simple. I've been living in Washington for 25 years, in ghetto part of Washington. If I start saying something stupid or write something stupid, would you recommend a drone attack for me?

     And my second question is --

     SECREATARY LEON PANETTA: Whoa, whoa, whoa --

     Q: OK.

     SEC. PANETTA: Say the first question again. (Laughter.)

     Q: OK. Let -- the second is more important.

     SEC. PANETTA: OK.

     Q: I asked this question to -- see, I have tremendous respect for you. I used to work for Cynthia McKinney when you were -- when you helped Bill Clinton balance the budget. And I -- really, I mean it; I have tremendous respect for you. But I asked this question to Mike Mullen, like -- (inaudible) -- Carnegie. He told public that --

     MS. HARMAN: Could you state your question, please?

     Q: Afghanistan issue is very regional. And unless we resolve two other issues -- for example, Kashmir, if we resolve Kashmir issue -- there would be -- (inaudible). What is your -- (inaudible).

     MS. HARMAN: So -- thank you. So I think the question has to do with Kashmir. (Laughter.)

     SEC. PANETTA: (Laughs.) Well, look, obviously, in dealing with both Afghanistan and Pakistan, and India, these are all part of a very vital area, a very vital region. And, you know, the challenge has always been to try to get these nations to try to come together to confront the common challenges and the common threats and the common issues that they face. But we're dealing with an awful lot of history here that has created incredible complexities and difficulties as they try to deal with these issues.

     The reality is that we cannot resolve the issues of Afghanistan without resolving the issues of Pakistan; that as we try to draw down and transition to a stable and secure Afghanistan, in many ways we have to also have a stable and secure Pakistan. And so it will require that we continue to pursue the efforts, the diplomatic efforts, to try to work with Pakistan, to be a good partner.

     This is a complicated relationship in Pakistan for the United States, and admittedly, there are a lot of reasons for that. I mean, we are fighting a war in their country. And they have in fact given us cooperation in the operations of trying to confront al-Qaida in the FATA, and they continue to work with us. But at the same time, obviously, we have great differences, particularly with regards to the relations they maintain with some of the militant groups in that country.

     In addition to that, we have urged them to try to work with India to try to resolve the issues along the border area, because ultimately, until that is done, we are going to continue to have a great deal of instability. In many ways, Pakistan focuses on India as the primary concern, and so in many ways it's been difficult to get them to focus on terrorism and militancy within their own country because they have faced that threat that they consider to be more prominent.

     If we're going to resolve the issues of that region, yes, we have to find a solution to Afghanistan. Yes, we have to try to continue to work with Pakistan. But more importantly, we have to bring all of these countries together to resolve the larger issues that had divided them for so long.

     MS. HARMAN: Thank you.

     How about on this side? OK. How about in the middle? Yes.

     Q: Thank you, Mr. Secretary. Geoff Dabelko from the Woodrow Wilson Center. Sir, perhaps you could talk about how you see investments in diplomacy and development helping you achieve some of the defense outcomes that you're talking about.

     SEC. PANETTA: Yeah. No, I mean, it goes to the point I made about, you know, as these cuts are made, I mean, the reality is that it isn't just the defense cuts; it's the cuts on the State Department budget that will impact as well on our ability to try to be able to promote our interests in the world.

     I mean, national security -- national security is a word I know that we oftentimes use just when it comes to the military, and there's no question that we carry a large part of the burden. But national security is something that is dependent on a number of factors. It's dependent on strong diplomacy. It's dependent on our ability to reach out and try to help other countries. It's dependent on our ability to try to do what we can to inspire development.

     I mean, if we're dealing with al-Qaida and dealing with the message that al-Qaida sends, one of the effective ways to undermine that message is to be able to reach out to the Muslim world and try to be able to advance their ability to find opportunity and to be able to seek a -- you know, a better quality of life. That only happens if we bring all of these tools to bear in the effort to try to promote national security.

     In addition to that, I mean, look, you know, we've learned the lessons of the Soviet Union, the old Soviet Union and others that if they fail to invest in their people, if they fail to promote the quality of life in their country, they -- no matter how much they spend on the military, no matter how much they spend on defense, their national security will be undermined. We have to remember that lesson: that for us to maintain a strong national security in this country, we've got to be aware that we have to invest not only in strong defense, but we have to invest in the quality of life in this country.

     MS. HARMAN: A final question in the back -- I'm pointing to you there. Yeah, there you go. It's your question. Yes.

     Q: Mr. Secretary, how important is continuing draft registration --

     MS. HARMAN: Identify yourself, please.

     Q: I'm sorry?

     MS. HARMAN: Identify yourself.

     Q: Oh, Steven -- my name is Steven Shore (sp). How important, Mr. Secretary, is continuing draft registration for national security?

     SEC. PANETTA: Well, you know, I think it's important to be able to continue that, because we don't know what's going to happen in the future. We really don't. We don't know what surprises there will be; we don't know what crises we are going to confront. And as we reduce the size of the military, we are going to have to always maintain the capability to mobilize quickly if we have to.

     Now, I have to say that the National Guard and the Reserve I think has performed a very important role over these last 10 years, for several reasons. Number one, we've taken the National Guard and the Reserve and we've actually put them into operations; we've put them into combat. They've drawn tremendous experience. They've performed well, and I think they have really developed a tremendous capability as a -- as a reserve force. That's important.

     Secondly, having the National Guard, having the Reserve, to be able to use those units to rotate in and out reaches into the grassroots of America. It makes every community in this country bear some responsibility for our national defense. Yes, overall, it's been 1 percent, you know, that have -- that have served. But the fact is, when I write these notes, when I talk to the troops, they're from everywhere across this country: from the East to the Midwest to the West to the South to the North. Everyone in some way is participating in our national defense, and that's good.

     I -- look, I came out of the draft era. I went to ROTC, but the draft was on at that point. And going into the military gave me the opportunity to meet everyone from everywhere in this country who was bearing a responsibility to serve this country.

     Right now the volunteer force has been very effective, and I think it's one of the best volunteer forces in the world. But I think at the same time, that we always need to have the capability to reach out if we have to if we face a major crisis in this country. And for that reason, I would continue that process of having everyone continue to register.

     OK, thank you very much. (Applause.)

     MS. HARMAN: On behalf of the Wilson Center Board, sitting in our front row, and our able chairman, Joe Gildenhorn; on behalf of the Wilson Center Council and our staff; and on behalf of myself: Leon Panetta, you have a huge assignment ahead. Lee Hamilton -- I'm volunteering him now -- will be happy to help you with it. And together, we will solve this most serious problem. We will have a strong country and a strong defense at the same time.

     Thank you so much. And thank you to the Reagan Center for hosting us. (Applause.)