Remarks by Deputy Secretary Carter at Munich Security Conference, Germany

            DEPUTY SECRETARY OF DEFENSE ASHTON B. CARTER:   Thank you, thank you Javier. 

            You are a good friend.  I've known Javier for a long time.  He's a physicist also and even though he's only a solid-state physicist, I've come to respect him over time and all he's done for European defense. 

            It's great to be here in Werkunde.  I first came here in 1984 as a physics post-doc, and the subject for the day was Star Wars at the time. 

            And speaking of physicists, Edward Teller was here and it was his last year.  And I say that just because so many of us have come here for so long and it's a great testament to the solidity of the community – of the security community that we represent. 

            Wolfgang is carrying that forward now and I think that says a great deal. 

            I don't know whether any of the Senators from the CODEL are here, but for a long time, I came here because Senator McCain, Senator Lieberman and Senator Graham invited me and I wanted to thank them if they're here.  It's good to be back here in a different role, but if any of their staffs are here or anything, just acknowledge that.  

            Back at that time, within the NATO community at least we talked about pooling and sharing in a purely theoretical way; and thank God it remained theoretical in that period. 

            Now we pool and share in the operational sense all the time.  Afghanistan for sure, I go to Afghanistan all the time.  I've been doing that for years now and -- and if you're in the Department of Defense, you spend a significant part of every day on that because your heart's in it, your heart has to be in it and will be as long as the conflict in Afghanistan lasts. 

            But there, you can go in a command center and there'll be Americans and other coalition partners and you can't tell the difference in terms of what they're doing. 

            Libya, Mali -- I was in Paris yesterday and I was congratulating the French Defense Minister and defense leadership because there are very few militaries, you can count them on one hand that could attempt an independent initiative in the security field. 

            France is one of them and I, for one, hope they remain and that others join that small group.  But, you know, none of us prefers to go it alone, we're much better if we go together and France was very close to the edge in terms of the ability to carry through those first few days and I'm pleased to say the United States was able to offer some help and continues to do so. 

            But the risk of scale is a serious one because if you attempt to do a little bit of everything, you end up not doing enough of anything. 

            So in the operational sense, at least, that problem isn't -- has now been routine.  I think what Javier wanted us to address in this panel was, how does it come about that one has something to pool and share in the first place? 

            And that's kind of where the rubber meets the road and I thought I would share with you a little of the American perspective on the underlying issues as we see them and as they affect us because that -- we'd prefer alignment with our friends, in all of the countries represented up here in this -- on this stage and many more.  It helps to know -- us to know where they're headed and them to know where we're headed. 

            And in terms of where we're headed, we, in the United States, are embarked on a great strategic transition at this time -- a transition from the era of Iraq and Afghanistan to the security challenges that will define our future. 

            We have, of necessity, been very, very focused on the wars in Iraq and Afghanistan.  They have been consuming of our attentions and resources.  That was the way it had to be, but that era's coming to an end. 

            And while we were preoccupied with those two wars of a particular kind and prosecuting them successfully, you know, we know that the world didn't stand still and technology didn't stand still and other nations didn't stand still.  And we have some -- we need to look up from the foxhole so to speak we've been in, look up, look out, look forward and address the security challenges of the future.  

            And we're trying to do that now and that's reflected in the new strategy that we developed a year ago, and I'll just pick a few of the tenets of that strategy to illustrate what we're trying to do to turn this strategic corner and how there are opportunities to do that together with our security partners. 

            The first thing is we have learned the lessons -- tried to learn and absorb some of the lessons of the Iraq and Afghanistan conflicts.  Particularly they taught us about rotational presence, how to operate with a lean (inaudible) formations, how to be more agile and flexible.  

            And you see us incorporating those practices in concepts like the rotational presence of the littoral combat ship in Rota, our regionally-aligned brigades, concept which will -- which is related to the NATO response force concept and will align with the NATO response force concept. 

            Going beyond the lessons of the last decade, the Europeans have taken a lot of note of what -- of what we call the rebalancing to the Asia-Pacific theater.  I thought I would say something about that and its purpose. 

            You know, unlike Europe, Asia has no NATO, has not had a NATO, has had no way of knitting together countries and healing the wounds of the Second World War and even preceding history out there.  And yet, the Asia-Pacific theater has enjoyed the peace and stability and therefore, prosperity for 70 years.  And in that climate, first Japan rose and prospered and then South Korea rose and prospered and then South East Asia rose and prospered, and today, China, and in a very different way, India rise and prosper. 

            And that's good, but it's not automatic.  And one of the reasons that that has -- and I think a central reason -- for that peace and prosperity has been the pivotal role of American military power in that part of the world. 

            And in a sentence what the rebalancing about -- is about is keeping on this -- that 70-year-old pivotal role.  We intend to do that and can do that. 

            Now, I (inaudible) advise and I know other Americans have done this.  This is not a rebalancing away from Europe, because our interests are enduring here, but you know, Europe is a source of security and not a consumer of security in today's world fortunately.  And we look at it that way and, therefore, we look to rebalance with Europe, not away from Europe. 

            And then there are real ways we can do that and are doing that, engaging with our Asian allies and doing all the things that we talk about and this panel's talked about, but with and within that theater. 

            Another very important tenet of our new -- of our strategy was to pursue the very newest in technology and operational (inaudible). President Obama was very insistent on this.  He says I don't want you, particularly as we were trimming the budget, to pull out the things that are most shallowly rooted, that's the easiest thing to do.  But they are the most important things to the future. 

            So when it comes to a special operating force is to space to ISR and above all, to cyber in which we're making very substantial advances and investments including with partners, I think Keith Alexander has been describing that. 

            In all of those areas, our direction was that we were to -- not only protect but enhance those areas and our strategy and our investments.  And we're doing that. 

            So there's some of the examples of the tenets that we're following as we make this great transition.  We don't see this as something we do alone.  We looked at our principal security allies, many of whom have been involved at least in Afghanistan as making the same kind of transition.  You're all challenged by that transition. 

            And it has a managerial dimension as well as a strategic dimension and it has an industrial dimension as well as a-- operational dimension.  And I ought to say something about that. 

            Our partnership with industry for us in the United States Department of Defense is central.  It's second only to our people in uniform who are absolutely fantastic.  It is the systems provided by the defense industry to us that make our military great. 

            So we regard industry as our partners in protecting the country and so as we make this strategic transition, we must do it in a way that ensures that our industry remains strong, technologically vibrant and financially successful. 

            We don't, I always tell people, we don't make anything in the Pentagon. 

            And so in that sense, our interests in the Pentagon are aligned with long term investors and we will accordingly promote policies, industrial policies and spur long term innovation, efficiency, profitability and productivity growth. 

            We understand and we expect that the strategic transition upon which we are embarked and many of you are in embarked will cause adjustments in our industry, adjustments to the structure of our industry.  This is normal.  We understand that and in the main, we will rely upon market forces to make the most economically efficient adjustments in the defense industry. 

            That in accordance with good economic theory and it will -- it prevents the defense industry from becoming further distanced from the mainstreams of modern technology, commerce and industry, which would be dangerous for us. 

            We rely mostly on market forces, we will insist upon transparency in these transactions.  We want to avoid any excessive short term perspectives and the kind that have affected the United States other markets like housing and the financial industry.  We won't let that happen to the defense industry. 

            We will continue to strive to protect the principal engine of productivity and value which is competition but with competition, I talk about competitive strategies.  Competition doesn't have to take and increasingly does not in the defense sector take the form of head-to-head competition between two primes, although we obviously value that. 

            There are other forms of competition for value and competition for profit that provide appropriate incentives and that draw the best out of industry in a way that is also financially successful for them. 

            We will -- we understand that the defense industry, like industry everywhere, has to globalize, otherwise it will become a ghetto.  So that's not an option, it's a reality and even as it is rare that we will fight alone, it is rare that we make things alone anymore.  And we in the United States at least are committed to opening our markets while balancing security concerns. 

            We're also committed to promoting exports.  Exports are a two-fer, they build the strength and power of our partners and allies and they help build the strength of our underlying industry. 

            We pay attention to all tiers of the defense industry, all tiers.  Between two-thirds and three-quarters of every dollar that we spend in a prime contract is subcontracted for goods and services or what are called the lower tiers of the defense industry.  And while they're lower in this sense, their vibrancy, their technology is incredibly important to the future health of the upper tiers. 

            And so we pay a lot of attention to the lower tiers and -- and the lower tiers are much more globalized.  There's much more pooling and sharing, you just don't see it at those tiers than there is at the level of the prime. 

            Next, few people understand that for us at least, half of our contract spend is for services, not for goods, for tanks, ships but for services.  

            And there's an underlying industry there also of important scale and it's important that pooling take place within the services industry also.  And it does and it was referenced earlier the importance of looking at the entire value chain in the industry. 

            Finally, we welcome new entrants into the defense industry.  That helps us renew and refresh the technology base.  It you build barriers to that, you pay a huge penalty in that you have to constant work to remove those barriers. 

            So those are the principles upon which we're operating in as we turn this strategic corner to make sure that they health of the industry that supports us is protected as well. 

            And while technology from the industrial base and agility from learning the lessons of the wars of the last decade will allow us to operate with leaner forces.  And while we must always work to deliver better buying power for the defense dollar, Euro, pound or whatever, both to deliver more capability for the funding we receive and to sustain the taxpayers faith in us and their willingness to give us the funds. 

            The strategic transition requires a stable budgetary footing.  And at this point, at Wehrkunde its traditional for the DOD leader of the U.S. delegation to emphasize, as Bob Gates did memorably a few years ago, the need for allies to provide the necessary resources for defense. 

            He said, "In the final analysis, there's no substitute for nations providing resources as necessary to have the capability they need when faced with security challenges." 

            And this time, at Wehrkunde, I have to add my own country to this exhortations because we're now facing a very real prospect of a huge and reckless additional cut in our defense budget which I remind you, we pared by half a trillion dollars in the same strategic adjustment we made last year.  We made a budgetary adjustment. 

            Another real prospect of huge and reckless additional cuts of the size and magnitude and manner that I, as the Department of Defense's Chief Management Officer, cannot tell the president will do anything other than devastating damage to the military that has to make this transition. 

            What's tragic is that this is not a result of economic emergency, a recession.  It's not because defense cuts are the answer to the fiscal challenge—do the math.  It's not in reaction to a change to a more peaceful world.  It's not due to a breakthrough in military technology or a new strategic insight.  It's not because paths of revenue growth and entitlement spending have been explored and exhausted.  It's purely collateral damage of political gridlock. 

            So it can be avoided, and it can be reversed.  And in that regard, I used to be hopeful and optimistic and now I'm just hopeful. 

            And accordingly, I've directed that we take some immediate steps in the department to protect the department as best as it is possible to do in this eventuality.  Steps like freezing hiring of civilians -- and I'll just remind you that we hire -- the Department of Defense hires through 1,000 and 2,000 people a week.  Forty-four percent of them are veterans and we like to hire veterans. 

            And a lot of people think that Pentagon civilians are people who sit in offices in Washington, but 86 percent of them aren't even in the Washington area.  They are people who repair ships, repair aircraft, they're all over the country. 

            We're reducing temporary term employees, deferring maintenance contracts and taking a whole number of steps. 

            If we have to go further in March in what is called sequestration, every function and every state and every district will be affected.  Inefficiency is injected into -- for our program managers, both on the government side and the industry side, unit costs go up, economic inefficiency is introduced and waste -- needless waste. 

            And the result over time in -- in fact, very quickly would be a readiness crisis.  And the effect over a longer period of time would be to threaten the strategy itself that I described. 

            From this side of the Atlantic, I know that a myriad ways that are different for every country, something similar is happening, a political dynamic that threats spending at a level -- a prudent level, effective level, but at a level that will protect the common security. 

            And the willingness of the public to take their security for granted and they contribute less than they should has to be combated. 

            The fiscal challenge that we face on both sides of the Atlantic make a strategic imperative of pooling and sharing, but as I said at the beginning, in order to have pooling and sharing, you have to have something to pool and share.  And at the moment, and I hope in a way that is temporary, that is threatened in the United States. 

            And so as I said, this time at Wehrkunde, I have to speak for the Americans as well as the Europeans about the level of investment they're willing to make to protect our great countries and the great unity and values represented by our countries. 

            Thank you.

            (APPLAUSE)