Podcast: Innovating in the Defense Sector to Remain Competitive With China, Featuring Michael Brown

It has become abundantly clear that the United States faces a robust economic and military competitor in China. In at least one respect, this is a more daunting challenge than America faced in the Cold War, because while the former Soviet Union had a strong military, it struggled with a weak economy. In those days, the United States also could rely on specialized defense contractors to provide most of the technologies that the Defense Department needed to maintain military superiority, but that’s no longer true. Now, many of the capabilities the country needs for its defense reside in the private sector. It is, therefore, critical to establish better links between the commercial sector and the military.

Enter the Defense Innovation Unit (DIU), a Defense Department entity that was launched in 2015 to work more closely with the private sector. Rob and Jackie talk to Michael Brown, DIU’s director and a former CEO of Symantec, about remaining competitive by innovating in the defense sector.

Mentioned

• Stephen Ezell and Caleb Foote, “How Stringent Export Controls on Emerging Technologies Would Harm the U.S. Economy” (ITIF, May 2019).
• Nigel Cory and Robert D. Atkinson, “Why and How to Mount a Strong, Trilateral Response to China’s Innovation Mercantilism” (ITIF, January 2020).
• Robert D. Atkinson, “Emerging Defense Technologies Need Funding to Cross ‘The Valley of Death’,” RealClearDefense, February 15, 2020.

Auto-Transcript

Rob Atkinson: Welcome to Innovation Files. I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation. We’re a DC based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman. I handle outreach at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.

Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF from the broad economics of innovation to specific policy and regulatory questions about new technologies. Today, we’re going to be talking about innovation in the defense sector.

Jackie Whisman: Michael Brown is our guest. He’s the director of the Defense Innovation Unit at the US Department of Defense. DIU, which was established in 2015, fields leading edge, commercial capabilities to the military faster and more cost-effectively than traditional defense acquisition methods. And Mike is going to explain all about what that means. Prior to government service, Mike was the CEO of Symantec Corporation, the global leader in cybersecurity, and the world’s 10th largest software company. And we’re so happy to have you here. Welcome.

Michael Brown: Thanks so much. Great to be with you, Jackie and Rob.

Jackie Whisman: And not many government officials have a background like yours. So I’m excited to talk to you. Can you tell us a little bit about your history and what brought you to DIU?

Michael Brown: Absolutely. I found that at Symantec, one of the more interesting parts of the job was the interaction with government, supporting in the cyber arena, work with the FBI, the NSA ,and frankly our international partners like GCHQ in the UK. And when I came to the end of my time being CEO at Symantec, I wondered, is there anything I can do in government service having spent my whole career in the private sector? And talked to my predecessor, Raj Shah at the time, and he said, “Well, we’ve got a pretty interesting assignment that just came from Ash Carter,” who was defense secretary at the time and the vice chairman at that time of the Joint Chiefs, General Selva. And it was, what are the Chinese doing with their investments in early stage technology? Why are they making them, what are they investing in? Where does that lead to?

And he said, “I need somebody who could start work on that.” And I said, “Sure, that sounds like a pretty interesting assignment.” And so I had no idea at the time that would be one of the most widely read papers in DC when it was completed, but it really shone a light. It was really the right topic at the right time. It really shone a light on this part of the Chinese technology transfer strategy. Well documented are the cyber theft, the industrial espionage but little [inaudible 00:02:38] known that the Chinese were very active in investing in early stage technology in Silicon Valley and elsewhere across the country. And it really highlighted what are the implications of that. So that’s how I got involved and I couldn’t be more enthused because I love the mission and the work and the people that I get to work with at DIU.

Rob Atkinson: I was just going to say, Mike, I remember that paper came out and it really opened a lot of people’s eyes in Washington. Because you were the first group, first entity that really dug into Chinese venture capital investments in Silicon Valley in California. And it was shocking how much was going on there. And I don’t think most people realized that at the time.

Michael Brown: I think that we’ve really opened people’s eyes to the phenomenon and then their reaction was, what can we do to stop this? And what are the defensive actions? I was fortunate enough to work on some of those like the Foreign Investment Risk Review Modernization Act would strengthen CFIUS, to give CFIUS some additional jurisdiction beyond straight up acquisition when technology transfer was involved. But as I know, Rob, you and I will agree the real wake up call needs to be, what do we need to be doing to invest in ourselves? So what do we need to do to be increasing federally funded R&D, make sure our innovation system is vibrant. And then from the defense standpoint, we’re accessing all of the phenomenal commercial technology that’s being developed.

Jackie Whisman: I think it’d be helpful for context if you could tell us and our listeners what the mission of DIU is and how you carry it out, because you’re essentially running a government startup since it’s only been around for a few years now.

Rob Atkinson: It used to be DIUX too. That’s the other thing.

Michael Brown: Well, that’s right. It was formed as the Defense Innovation Unit Experimental, and interesting story is that when Secretary Mattis took it over, fortunately he was extremely supportive of the effort. He decided that he didn’t want us to be confused as the experiment. So he removed that and it became just Defense Innovation Unit, was a little bit simpler. So the mission as Ash Carter conceived it was, how can we accelerate the adoption of commercial technology? So it won’t be any surprise that the Defense Department being as large as it is and with its well-established processes is not the easiest to work with if you’re a small company. So the idea is, how can we reduce those barriers so that if you have relevant technology, you produce autonomous systems or you supply AI, how can we incorporate what you do and get that to an end user and for the Defense Department, a war fighter, a soldier, sailor, airman, marine. How can we get that in their hands as quickly as possible?

Part of that is acquisition. Part of it is a scouting function of looking at what’s available in the commercial sector. And then part of it is the prototyping and production scaling process that the military uses to get things in high volume to the field. And the way we carry that out is on a project basis. So we’re not determining our own priorities. We’re constantly scanning different areas of the Defense Department. In fact, we have a dedicated team of people, we call them Defense Engagement. They’re looking for one of the most interesting problems to work on. We have an analogous group called Commercial Engagement. They’re scanning what’s happening in different technology areas like AI or autonomous systems or commercial space. So they’re experts on who are the companies in that ecosystem that are providing leading capability. And then we have project managers at DIU put that together so that we decide on interesting problems we’re going to take on.

We match that with interesting commercial providers and then go through a process where we’re testing, we call it prototyping. It’s not working with early stage solutions from the commercial sector but really mature solutions, but we prototype it in a military application and then work on getting that scale once the milestones have been proven. So it makes sure that it’s a very competitive process. We’re getting the best of American technology that’s out there and it’s proven capability. So we’re not buying slide ware. We actually test it before we would send it out to help the soldiers, airmen, sailors, and marines.

Rob Atkinson: Just a quick intervention here. One of my heroes in innovation policy world is a Canadian economist named Dick Lipsey, Richard Lipsey. And Dick is just finishing up a really major paper looking at how do you know when innovation policy is successful? What makes good innovation policy? And one of the points he and a lot of other innovation scholars have made in the past is exactly what you’re trying to do, Mike, is this matching. Because oftentimes technology, it’s either technology push, well we got something, we’ll see what happens with it. And there’s no customer need there or it’s the opposite, well, we’ll pull but we don’t really know who’s developing it. You’re putting the pull and the push together and you’re in the middle of that as a matchmaker, facilitator, coordinator, enabler. And that seems to me to be a powerful model that we could use more of.

Michael Brown: Thanks. I think it really is working, reason being, we make sure that there’s the right pull when there’s an interesting, cool technology from people who need it. And what we’ve found in the few cases where we’ve seen something that’s cool and think, gee, there must be a tremendous need for that and then try and push that into defense. It doesn’t go anywhere. One, because people don’t have time to work on something that’s not already at the top of their priority list in terms of what needs to be solved. And two, there’s not an ongoing source of funding that’s available to pull that solution through. So the last thing we want to do is frustrate the companies that we would work with. We don’t want to have interesting conversations that don’t go anywhere. They’re also dealing with an opportunity cost of the military versus other commercial customers.

So we want to make valuable use of the time they spend with us. And that means designing a process that minimizes their time up to the point when a selection is made, when we’re really engaging them on their way to a production contract. And I think that’s working very well for the companies that we’re working with. In fact, we saw a 40% increase in the amount of submissions that we get when we go out to the market and say, “We’ve got a problem to solve.” So we’re excited about that many more companies that we’re working with. We’ve introduced 60 first-time vendors to DOD, and we’re also seeing an uptick in the demand for what we do from the Defense Department. So we’re doing three times the number of projects we did two years ago.

Rob Atkinson: That’s really impressive. That’s amazing.

Jackie Whisman: I mean, the Department of Defense is not exactly known as a nimble operator when it comes to the acquisition process. So I’m impressed. I am curious how you make sure that everyone around you at the agency is thinking like an innovator, because obviously you bring your background to the table but it’s just, I mean, got to be tough.

Michael Brown: Well, there are so many talented folks at the Defense Department. I wish everyone as an American citizen could have the experience I’ve had of working with leadership in the defense department. Such talented, dedicated people who are innovative and want to do the right things. Now, they are saddled with processes probably put in place for good reason that make the department not agile. And that’s really the challenge. If you hear General Hyten, the current vice chairman, talk about what we need to do to improve the culture at the Defense Department, he will say [inaudible 00:10:02], “It’s all about speed.” We could solve a lot of the ills that we see by emphasizing the need to look at every process and go fast. And this is an outcome of the history of having won the Cold War and not having any near peer adversaries for some time that now we’re faced with.

And when we’re in this situation and we’re in a tech race with China, for sure, we need to make sure that we’re going fast enough to compete. The energy is there, the capability is there from the folks, the people on the Defense Department, but I would say the budgeting process is something that really needs some reform so that we can go faster. If we want to spend a dollar at the Pentagon, we would had to have started on that process two years in advance to get that approved by the leadership at DOD and then Congress. That’s just not competitive today.

Rob Atkinson: Yeah. If we want to spend a dollar at ITIF, it basically takes about five minutes.

Jackie Whisman: Yeah. Because Rob says no.

Michael Brown: Well, that’s something the Defense Department needs to learn from the private sector. The senior leaders in a private company have a lot of discretion on how they’re going to spend the funds. And that’s not the case at DOD.

Rob Atkinson: We can get into that maybe a little bit later, but I just want to go up a little bit on another level, which is in this new piece that I think you saw today, Mike, “Understanding the U.S. Innovation System.” We argue in that piece that the US had the world’s greatest innovation system that we put in place during world war II but really after world war II, during the Cold War, all the way through Kennedy and later. And during that period, DOD worked extensively with the commercial sector. Intel sold most of its chips early on to the Air Force because they were willing to pay a whole lot of money for a chip because it had the performance characteristics it needed. And then Intel used that to then go down to the next generation, the next generation, and finally got cheap enough to get into the commercial space. Oracle, a lot of people don’t know this was started with a CIA contract. Larry Ellison’s first project was to help the CIA organize information. But it seems like over time, there’s been less focus on dual use companies, dual use technologies. Do you think that’s right? I mean, it seems like a big portion of what you’re trying to do is you’re not reaching out to defense only suppliers. You’re trying to reach commercial companies to think about, oh, and the defense sector.

Michael Brown: Well, I think that’s right. We’re trying to make sure that the bridges are built there to access the commercial sector for the areas where defense spending is not leading the investment. As you well know Rob, if we go back to the history of Silicon Valley and where it’s got its name, it was from the semiconductor industry, as you just referenced Intel. In fact, I read an interesting statistic that in the mid 60s, one third of the output of the semiconductor industry went straight to the space program. So just a phenomenal fact that the government was leading. We were an early adopter and the financiers really of the semiconductor industry. And if you think about that period, going from the Defense Department leading the development and being an early adopter to many of the key technologies that we need today, artificial intelligence, autonomous systems, what we’re doing with commercial space, Defense Department is not leading the development.

We need to make sure that we move from the early adopter to a fast follower. And we’re today sometimes a late adopter because interestingly enough, a lot of those technologies first go to consumer applications because they’re the quickest to try something out and start to use it. So that’s the change that the department’s got to go through. What do we need to do to be a fast follower there? And the department is used to being in the driver’s seat where it was determining these development cycles. So it’s asking in that time period, commercial companies to adapt to its system or our system in the military and that’s what needs to change. DIU is a part of that change. The department’s now got to be a customer, not the only customer of companies that have a lot of opportunity outside the defense sector. So how do we make ourselves an attractive customer? We’ve got to have access to the leading technology and then we’ve got to be an attractive customer so that those companies don’t just decide to go elsewhere where it’s easier to do the sale. Very different from China, they have a strategy called Civil Military Fusion, which means that every commercial innovation that occurs immediately gets transferred to the military by fiat. So we have a very different system. We have to work a little bit harder to make that work.

Rob Atkinson: Yeah. And that actually raises, I think a broader point which is, historically DOD has ... Well, in the last 20 years, really looked at the defense industrial base as its core. As long as the DIB is strong, everything’s fine. And I think there’s two problems with that today. One is the DIB is not as strong as it used to be, the latest Office of Industrial Policy report that DOD puts out to Congress, it showed that in detail, in many, many areas where fighters systems, vehicles optics, you name it, they identify weaknesses in the commercial sector of the US. And that suggests to me particularly as you and DIU and others in the defense [inaudible 00:15:22] understand that we need to have a strong, advanced technology commercial sector of the US and then your job is really to tie that together, to tap into it.

But if we don’t have that, it makes your job very, very difficult. And that gets to my key point, which is, it seems like we need to do a better job of linking up the needs of having a strong, advanced technology sector in the US commercial economy with our defense capabilities. And some of the recent bills in Congress have really focused on that, the CHIPS Act, the Endless Frontier Act. I’m somewhat optimistic that we’re doing that but how do you think about that issue?

Michael Brown: I’m very concerned because I see that if we don’t take these steps, it will be easy for the US to fall behind. We’ve been the leading economy for everyone’s lifetime. So it’s hard to imagine we’re a second-largest economy. Most economists think China will overtake us in the coming decade. It’s hard to envision a world where we’re not setting the technology standards, but here we are with 5G. It’s giving us a concrete example of China being out there in front with one of their national champions, Huawei and trying to set the pace. Now, we’ve put some roadblocks in their way but I think unless we do the work that you’re implying, which is make it clear that we want to be preeminent in science, make the investments in federally funded R&D which have these tremendous spillover effects in the commercial economy, that really is the long-term science and technology investments that lead to breakthroughs in the economy like Internet, GPS, miniaturized electronics. Unless we think long-term and make those investments, it will be easy for the technology sector to get behind and become second.

We just don’t know what that’s like and I think it’s going to be scary when we get there. 5G is a glimpse into what that will be like. So I’m like you, cautiously optimistic that we are now going to see some reenergizing through congressional action of the national innovation system but that really is the key. I think there’s an increasing recognition of what you’re implying, which is that we need a very vibrant technology sector commercially to ensure our national security. And we need that both because the products and solutions are important for the military but also because there’s no better guarantor of national security than having a very strong economy. And technology is going to be key among the industries of leading the way of a very strong economy. You don’t have to look any further than the influence of FAANG in the stock market to see how important that is going to be for the future.

Rob Atkinson: Yeah. I once recently sat next at a dinner with ... I won’t say who it was. It was a private conversation. The chief of staff of one of the three major services and the general. And I said to him in this conversation, I said, “I think there’s a great line ...” I think you remember, you’re old enough to, “when EF Hutton talks, people listen.” Essentially he was like, oh, this [crosstalk 00:18:31] analyst [inaudible 00:00:18:32]. And I feel like when DOD talks, Congress listens. So we’ve been pushing for a quote national industrial strategy for a long time and we’re making progress. But I feel like when DOD says that it really has a lot of more gravitas, particularly on both sides of the aisle. Do you think DOD is being, I think, a little more comfortable with that? Because when I talked to the general, he said, “Well, we’re not sure that’s really our job. That’s more the White House’s job.” And I feel like unless DOD is a little more assertive of saying these are our needs and we see this need of having a strong commercial technology sector to defend our nation, that would have an important role going forward.

Michael Brown: Well, I think we’re certainly recognizing that at DIU. And I think there’s an increasing recognition of that this needs to be really a whole of government approach. Because I think frankly, to revitalize the national innovation system, we really need that to be a part of our national agenda and that’s got to be driven from the White House as well. And that also needs to affect obviously the budget priorities. I do think, as you alluded to, we are seeing some increased interest in Congress. I was very pleased to see as an example that the Endless Frontiers Act as was bicameral and bipartisan. And I would also point to the future of defense task force work, if you haven’t seen that by Representatives Seth Moulton and Jim Banks. So another bipartisan effort from the House Armed Services Committee that really highlights many of the same themes that we’d need to make sure we’ve got a very vibrant commercial technology sector. And we’re drawing upon that. And they put AI at the top of the list. The National Security Council just came out with their critical and emerging technologies list. There’s 20 some game-changing technologies there. So I think that we’re seeing different efforts underway that would point to an increasing recognition of the importance of this. But I think it will need to be driven by the top and a whole of government effort to really make it happen.

Jackie Whisman: And I did want to flag, ITIF was very supportive of, and we wrote an op-ed about a proposal to give DIU a venture capital arm to invest in startups related to military needs, something I’m sure you support. And why do you think you need that? And what’s the status of it legislatively?

Michael Brown: Well, Jackie, thanks for mentioning that. Yes, we think that’s important. In fact, that is what brought me to lead the Defense Innovation Unit, because after doing the work on China and seeing that their response was so much defensive activity, what can we do to raise barriers to China? And as we’ve already talked about the real answer, yes, you can do some of that activity but you’re never going to win a tech race on defense. The real answer is, we need to increase our investment in a lot of areas. And what I observed is that the US venture capital industry for a very good reason has moved almost exclusively to software. There’s very little investment that’s being done through venture capital into hardware and the military needs hardware. So how were those startups getting funded? With foreign capital and a lot of it coming from China. That frustrates our efforts to have a secure supply chain.

So we made a proposal, it’s called National Security Innovation Capital that fortunately was adopted in the 2018 NDAA to have a fund that serves as a catalyst. So not a fund that would make these companies government owned but could the defense department do some market signaling? Could we indicate, this is an important technology and a company that’s got a promising technology, and if they’re successful, we could be a pretty large buyer of what they’re doing. So think about this for batteries or quantum sensors for precision navigation and timing without GPS or certain space components, rare earths distillation. These are areas that we know we need in the US but there was very little venture capital going into developing these firms. So the idea is, can we be a catalyst by providing the market signaling and then bring in private money for these type of investments?

So legislatively, that has not been appropriated any dollars until the current House Appropriations Bill. So I’m pleased that in the version of the House Appropriations Bill, the Senate will, of course have to look at that and there’ll be a conference committee before we get an actual Defense Appropriations Bill for this year. But in that is the first funding, $15 million for National Security Innovation capital. We think it could be a vital tool, not the only tool but a vital tool to help fund some of these promising technology startups in the dual use hardware space. I’m also pleased to say that there’s been some more aggressive use of the Defense Production Act this year that’s gone to quite a few things beyond COVID that help alleviate the supply bottlenecks that Rob, you mentioned earlier that had come from an earlier report that industrial policy had done looking at the choke points in the supply chain for the US military. So pleased that the Defense Department is being more aggressive in seeing how it can provide the right funding sources for some of the companies that we need to make sure there’s a vibrant sector of some of these supplies that we need.

Rob Atkinson: Yeah. And it’s certainly not unprecedented. I mean, you and I both know CIA has had In-Q-Tel which is their venture investment arm for, I think 20, 25 years now and it’s been quite successful. So this is just really a follow-up and a building off of that in a new area that we need from a national security perspective. So I hope it goes through.

Michael Brown: Thank you. We do too. We’ve got big plans for it if we’re lucky enough to have the appropriation.

Jackie Whisman: I guess I wanted to close just by asking you, what else is on your wishlist? Do you have a couple of top two ... If you were talking to the House Committee right now, what would you ask for?

Michael Brown: I think from the broadest macro perspective, we’ve already touched on the importance of revitalizing the national innovation system. And a big part there is more federal funding of R&D. That’s been on steady decline as Rob noted in that report from 2% of GDP in the 1960s to now 0.7, only half of which is spent on the national security side. The other half goes to health-related spending, which is a great thing. We need more of that and the pandemic has highlighted the need for that as well. But in general, we’re getting far behind many other countries who are spending a much bigger proportion. That’s no way to provide the right seed corn that we need for vibrant technology sector for the future. As we talked about before, that’s the way you get the big breakthroughs that then benefit the whole economy.

If I’m looking a little bit closer to home at DIU, because that’s important for funding the innovation that DIU withdrawn for years to come, closer to DIU would be the budget reform that we talked about so that there’s more flexibility in spending. We find the biggest obstacle to scaling successful prototypes or successful solutions that we’re testing for the military is this ongoing funding source. So in other words, if the DOD partner customer hasn’t planned two years in advance for a prototype to be successful, they didn’t even know they were going to be doing this prototype two years in advance. There’s no money there to scale it. So the last thing we want to do is get a commercial vendor to the point of having a successful solution and then say, “Please wait. We have a budgeting process now that we’re going to undergo.” So I’d love to see more flexibility for senior leaders to be able to reallocate some dollars. If they see a solution that’s faster and cheaper, they should be able to put some dollars towards that. Of course, be transparent to Congress. We can report immediately if we’re changing the priorities but not be holding strictly to whatever the priorities were two years ago the budget was put together. That will be a huge roadblock that we can remove so that more innovations can scale more productively in the military.

Jackie Whisman: And the technologies would probably be cheaper two years [crosstalk 00:26:29].

Michael Brown: Yes, that’s right.

Rob Atkinson: That whole thing, as you describe it Mike is so antithetical innovation. First of all, in an innovation world, you can’t predict what’s going to be available or what’s an opportunity in two months, much less two years. So you got to be able to have the flexibility. And if you’re a company, you can’t wait two years to do something. So both on the supply and the demand side is just basically saying, let’s just keep doing the status quo. Status quo is not going to cut it anymore with the Chinese. I mean, they’re not in the status quo, they’re in the pedal to the metal at a hundred miles an hour. So we got to wake up to that and I know we are, and it’s good.

Michael Brown: That’s absolutely right. It comes back to speed. If we have speed as our metric, that will help us do the right thing.

Rob Atkinson: Well, Mike, thank you so much.

Michael Brown: Pleasure being with you. Thanks for having me.

Jackie Whisman: And that’s it for this week. If you liked it, please be sure to rate us and subscribe, feel free to email show ideas or questions to [email protected]. You can find the show notes and sign up for our weekly email newsletter on our website, which is itif.org and follow us on Twitter, Facebook and LinkedIn @ITIFdc.

Rob Atkinson: And we have more episodes and great guests lined up. New episodes will drop every other Monday. So we hope you’ll continue to tune in.