Can tech reshape the Pentagon? Defence technology.

 

"Silicon Valley gets back together with the military-industrial complex

SOON AFTER Nancy Pelosi, speaker of America's House of Representatives, left Taiwan on August 3rd, China launched a series of war games around the island, which it claims as its own. This was a furious response to Ms Pelosi's intentionally provocative act. It was also a dry run for a bid to reunify Taiwan with the mainland by force, which China does not rule out. Troubling, then, for Taiwan and its Western backers, that in American simulations of the conflict the Chinese side often prevails. One congressional report in 2018 warned that America could plausibly face a "decisive military defeat" against China in a battle over Taiwan.

China has since kept chipping away at American military superiority, including its technological edge. Pushing that edge is therefore a priority for the Department of Defence (Do D). And that would be easier if America's world-beating software developers worked more closely with its equally formidable armsmakers, thinks Michael Brown, who heads the department's Defence Innovation Unit.

Katherine Boyle of Andreessen Horowitz, a venture-capital (VC) firm, observes that America's largest weapons manufacturers lack top-flight programmers. Silicon Valley has them in spades--but has also long displayed an aversion to battlefield technology.

Now geopolitical strife, from Chinese bellicosity to sanctions on Russia, is suddenly making the defence sector look more moral in techies' eyes (see Bartleby). At the same time, technology is changing how wars are fought. And big tech and scrappy startups alike see the Do D's $140bn annual procurement budget, plus American allies' smaller but cumulatively significant kitties, as ripe for eating into.

Giants from Amazon to Microsoft are pitching for Do D contracts. VC funding for American aerospace and defence startups tripled between 2019 and 2021, to $10bn (see chart). In the first half of 2022 such firms raised $4bn, down a bit from the last six months of 2021 but not as sharply as for startups overall.

On August 8th Palantir, a listed data-analytics firm which works with soldiers and spooks, reported better-than-expected second-quarter revenues of $473m, up by 26% year on year.

The estrangement between the crucible of America's tech and the Pentagon may, in other words, be coming to an end. The rekindled bonhomie may reshape America's mighty military-industrial complex.

The Do D played a large role in seeding Silicon Valley's early technologies, from radar to semiconductors. Lockheed once built missiles in Sunnyvale, wedged between Mountain View (now home to Google's parent company, Alphabet) and Cupertino (home to Apple).

The Vietnam war changed all that. Anti-war sentiment permeated Stanford University's lecture halls and faculty lounges, and the garages of startup founders of the day. Protests against the conflict led Stanford to ban classified research and military recruitment on its campus in Palo Alto. In 2018 a protest by thousands of Google employees successfully stopped their employer from bidding for a Pentagon cloud-computing contract. The search giant's guidelines for its artificial-intelligence (AI) projects explicitly rule out weapons-related work.

Now two forces are pulling the Valley closer to the Pentagon. The first is the mounting geopolitical risk. Even before sanctions on Russia reminded the West that big conflicts can still occur, a growing sense of insecurity was causing countries to beef up their defence budgets. Globally these exceeded $2trn for the first time in 2021. Citigroup, a bank, reckons that 2% of GDP will go from being a largely ignored target for defence spending among NATO members to the alliance's floor. That would expand the worldwide market for tech firms dabbling in defence. Christian Brose, strategy chief of Anduril, which makes anti-drone and other defence systems, says his firm will look to America's allies to fuel growth. Since the start of the sanctions on Russia several European defence ministries have expressed interest in Palantir's data analytics.

The second force is technology. Advanced computing, and in particular AI, is finding its way into weapons and the command-and-control systems that connect them to one another. The Pentagon is therefore looking beyond its usual contractors to places like Silicon Valley, whose machine-learning chops put to shame the "primes", as defence giants such as Raytheon or Lockheed Martin are known. That is a big reason why Ash Carter, defence secretary under Barack Obama, created the Defence Innovation Unit in 2015. "Less of the tech the Pentagon needs is developed inside and more of it is becoming commercial and dual-use," explains Mr Brown.

Rather than buy isolated "platforms"--aircraft, tanks and other advanced systems--the Do D would like to build more networks of cheaper battle units.

Last year Israel demonstrated how this might work by deploying swarms of connected drones in Gaza.

The Pentagon hopes to do something similar through its Joint All-Domain Command and Control (JADC2) system, which enables data-sharing among sensors and battle units in real time.

This has led to a shift in how the Pentagon views technology, says Raj Shah of Shield Capital, a military-focused VC firm. The future of warfighting is "software first", reckons Seth Robinson of Palantir.

This is good news for software pedlars. Big tech already equips the armed forces and law enforcement with cloud storage, databases, app support, admin tools and logistics. Now it is moving closer to the battlefield. Alphabet, Amazon, Microsoft and Oracle are expected to divvy up the $9bn five-year contract to operate the Pentagon's Joint Warfighting Cloud Capability (JWCC). Last year Microsoft was awarded a $22bn contract to supply its HoloLens augmented-reality headset to simulate battles for army training for up to ten years. It is also helping develop the air force's battle-management system, which aims to integrate data sources from across the battlefield. In June Alphabet launched a new unit, Google Public Sector, which will compete for the Do D's battle-networks contracts. In a departure from Google's earlier wariness of the Pentagon, its cloud chief, Thomas Kurian, has insisted: "We wouldn't be working on a programme like JWCC purely to do back-office work."

Smaller firms, too, spy an opportunity. In January Anduril secured a contract to build anti-drone defences worth $1bn over ten years. The following month another startup, Skydio, won one to sell the US Army $100m-worth of drones. Palantir is one of several tech firms with contracts to flesh out the JADC2 vision. In July C3.ai, a software firm that went public in 2020, was picked by Raytheon to develop AI for a long-range precision-targeting system. Steve Walker, chief technology officer of Lockheed Martin, says that his company is also looking to work with such firms.

Tech's conquest of warfare is far from assured. The tech giants' earlier sorties into defence have a mixed record. Little appears to have come out of a big Do D programme from 2015, joined by Apple, to develop battle-ready wearables. The JWCC project was revived after an earlier version, called JEDI, was cancelled amid lawsuits from Amazon, which had lost the contract to Microsoft. The HoloLens deal has been plagued by delays and criticised as wasteful. Despite robust revenue growth, Palantir reported another loss last quarter, disappointing investors who were expecting the 18-year-old firm to make money at last. Its share price tumbled by more than 10%.

Among the upstarts, Anduril and Skydio remain exceptions in having won big contracts. Most smaller startups, says Ms Boyle, are "waiting to see if they are going to get a major contract". A fraction of the $1trn that America has spent on defence procurement since 2016 has gone to non-conventional defence contractors. As that share rises, the primes, which retain a lot of power (and armies of lobbyists) in Washington, may become less welcoming of the newcomers.

Such obstacles may yet be overcome. That appears to be in the interests not just of the tech disrupters but of the Pentagon, too. In late 2020 America at last defeated China in one of the Do D's war games. The winning move was not more and better hardware. It was the roll-out of clever software-enabled systems like JADC2." [1]

1. "Can tech reshape the Pentagon? Defence technology." The Economist, 13 Aug. 2022, p. 58(US).

Naujoji Vokietija; Europa

„Vladimiro Putino dėka pabudo svarbiausia Europos šalis

 

    SKOLINTA frazė iš velionio imperatoriaus Hirohito: veiksmas Ukrainoje išsivystė nebūtinai gerai Vladimirui Putinui. Jis išsiuntė Suomiją ir Švediją siekti narystės NATO. Tai pagilino ukrainiečių nacionalizmą, sustiprino demokratinę alternatyvą, kurią Ukraina siūlo paties V. Putino tvarkai, ir paskatino Rusijos energijos klientus ieškoti kitur. Ji taip pat pastūmėjo mieguistą milžinę Vokietiją, sužadindama šalį, kuri buvo ir geriausia Rusijos partnerė, ir didžiausia jos priešė. V. Putino veiksmai gali tapti katalizatoriumi, paverčiančiu Vokietiją jo paties košmaru: stipresne, drąsesne, ryžtingesne vieningesnės Europos lydere.

 

    Vokietijai labai reikėjo to pokyčio. Rami ir šiek tiek savimi patenkinta, buvo vėlu suprasti, kaip greitai aplink ją keičiasi pasaulis. Tačiau dabar yra nepaprasta galimybė, nes vokiečiai demokratijoje patiria retą dalyką: sutarimą dėl būtinybės plataus masto ekonomikos ir saugumo pokyčių.

 

    Debesys ilgai rinkdavosi. Taip, Vokietija gali pasigirti pavydėtinu rekordu, kaip stipriausia Europos ekonomika, stabiliausia politika ir, vokiečiams patinka manyti, atsakingiausia pilietė. Tačiau sankcijos Rusijai atskleidė Vokietijos priklausomybę nuo pigių rusiškų degalų, kurią kruopščiai augino Rusija. Vokiečiai yra ne tik pažeidžiami Kremliaus energetinio šantažo, bet ir bankrutavo dėl V. Putino veiksmų.

 

    Ta apgailėtina padėtis buvo kitos Vokietijos nesėkmės rezultatas: nenoras abejoti rožinėmis prielaidomis, kurių šaknys yra jos pačios laiminga nesena istorija. Paguodžiančios mintys, pavyzdžiui, kad prekyba su Rusija sutramdytų jos karingumą, – tokia tema, kurią pamėgo ilgametė kanclerė Angela Merkel, leido Vokietijai per ilgai negirdėti sąjungininkų prašymų ryžtingai investuoti į savo ir Europos  gynybą.

 

    Vokietija taip pat vengė kitų iššūkių. Jos ekonomika tebėra per daug priklausoma nuo tradicinių inžinerinių produktų eksporto, kur yra mažai galimybių augti, ir per daug priklausoma nuo vienos šalies, Kinijos, kaip žaliavų šaltinio ir savo prekių rinkos. Iš dalies dėl griežtų viešųjų išlaidų taisyklių Vokietija nepakankamai investavo į infrastruktūrą; pernelyg dažnai jos traukiniai nevažiuoja laiku. Viešąjį ir privatųjį sektorius stabdo lėtas paslaugų skaitmeninimas, taip pat kvalifikuotų darbuotojų trūkumas – tai demografinio pavojaus pranašas, nes per ateinantį dešimtmetį daugiau vokiečių išeis į pensiją, nei įsidarbins.

 

    Dabar auga nauja Vokietija. Praėjus trims dienoms po sankcijų Rusijai, Olafas Scholzas, tuomet buvęs naujas kancleris, vadovavęs neišbandytai koalicijai, Bundestagui pasakė daug liaupsių sulaukusią Zeitenwende kalbą, reikšdamas, kad pokario šalis atitrūko nuo pacifizmo. Jis nustatė darbotvarkę ateinantiems metams.

 

    Geros naujienos yra tai, kad šalies iššūkiai yra įveikiami. Pasižiūrėkime į energiją. Kai V. Putinui buvo skirtos sankcijos, Vokietija 55% dujų pasikliovė Rusija. Atsargesni perspėjo, kad tiekimas bus priblokštas, Vokietijos gamyklos bus uždarytos ir šeimos drebės savo virtuvėse. Tiesą sakant, net jei Rusijos dalis Vokietijos dujų rinkoje sumažėjo perpus, žiemai skirtų dujų atsargos kuriasi įprastu tempu. Pramonė teigia, kad ji gali sumažinti naudojimą daugiau, nei tikėtasi. Susidūrę su aukštesnėmis kainomis ir išsaugojimo kampanijomis, namų ūkiai darys tą patį. Vokietija atnaujina anglimi kūrenamų elektrinių veiklą. Ji investuos į atsinaujinančius energijos šaltinius. Tai turėtų (ir, tikriausiai, pailgins) trijų atominių elektrinių, kurias buvo netikėtai planuota uždaryti, eksploatavimo laiką. Ji taip pat turėtų panaikinti skalūnų ardymo draudimą, dėl kurio jos didelės skalūnų dujų atsargos tapo nepasiekiamos.

 

    Esant pakankamai ryžto, kitos bėdos taip pat gali būti išspręstos. Scholzas pažadėjo trečdaliu padidinti išlaidas gynybai, nors pagrindinis šių metų biudžetas yra nepakitęs. Iš naujų išlaidų bus finansuojamas radikalus įrangos atnaujinimas. Jis taip pat pažadėjo ne tokį žvaigždėtą požiūrį į užsienio reikalus, siųsdamas sunkiąją ginkluotę į Ukrainą, nepaisydamas senojo pacifistinio tabu. Jo vyriausybė inicijavo nuodugnią santykių su Kinija peržiūrą ir netrukus paskelbs nacionalinio saugumo strategiją. Akivaizdu, kad tai yra pirmosios tokios Vokietijos pastangos nustatyti savo geostrateginius tikslus.

 

    Suskaitmeninti pramonę ir padaryti ją ekologiškesnę bei į derinį įtraukti aukščiausios klasės paslaugas bus sunkiau. Daugybė įmonių savo Mittelstand gali išlikti Vokietijos ekonominės stiprybės pagrindu, jei jos priimtų skaitmeninį iššūkį. 

 

Laimei, verslo lyderiai ir Scholzo vyriausybė atrodo pragmatiški. Imigracijos taisyklės koreguojamos, siekiant privilioti į šalį daugiau kvalifikuotų darbuotojų. Vokietija taip pat yra daug atviresnė deficitinėms išlaidoms ne tik savo šalyje, bet ir Europoje.

 

    Jos tvirti santykiai su Europa yra dar vienas privalumas, dešimtmečius trukusių sąjungininkų, įskaitant retkarčiais įkyrią Ameriką, rezultatas. Kadangi įmonės ieško būdų, kaip sustiprinti savo tiekimo grandines, patikima Vokietija bus patraukli vieta investuoti.

 

    Pavojai vis dar tyko. Turkija arba antroji D. Trumpo administracija gali „ištrūkti“ iš NATO aljanso. Tada Vokietija, kaip antra pagal dydį, bet kariniu požiūriu nepakankamai veikianti aljanso narė, susidurtų su daug sunkesniu saugumo iššūkiu. Išlaidų didinimas turėtų būti tik pirmas žingsnis radikaliai pertvarkant niūrią ir biurokratizuotą armiją, kuri yra prastai pritaikyta ginti labiau pažeidžiamas NATO periferijos šalis.

 

    Vokietija išmintingai ir nuosekliai iškėlė Europą į savo rūpesčių centrą. Tačiau susidūrus su politiniais iššūkiais ES iš Lenkijos, Vengrijos ir, galbūt, naujos dešiniosios vyriausybės Italijoje, Vokietijai tenka itin svarbus vaidmuo, palaikant ES projektą. Šiuo klausimu ir tokiais klausimais, kaip gilesnė bendroji rinka, M. Scholzas turėtų pakilti nuo galinės sėdynės ir atsisėsti priekyje.

 

    Kas buvo anksčiau, erelis ar kiaušinis?

 

    Tačiau didžiausias pavojus yra tai, kad ši akimirka yra prarasta, o Vokietija vėl paslysta į atsargumą ir sąstingį.

 

    Visapusiški pokyčiai užtrunka ne vienerius metus, o p. Scholzas nėra ypač populiarus.

 

    Ukraina bus ankstyvas Vokietijos jėgų išbandymas. Nors griežta M. Scholzo pozicija prieš V. Putiną vis dar įtikina daugumą vokiečių, ši parama jam sušvelnėjo, o sankcijų kaina dar nepasiekė šildymo sąskaitų." [1]

 

Tikrai vargšas, ponas Scholzas. JK sterilizavo save, iššokdama iš ES rinkos. Scholzas sudavė mirtiną smūgį Vokietijos pramonei, atsisakydamas Rusijos dujų ir naftos, kol nėra dar paruoštos atsinaujinančių išteklių technologijos. Švaraus vandenilio, gal pageidaujate? Per brangu? O Dievuli Tu mano... Kinija, tikriausiai, šypsosi. Labiausiai industrializuota iš JAV draugiškų šalių praranda savo pramonę. Liūdnas atvejis.

 

1. "The new Germany; Europe." The Economist, 13 Aug. 2022, p. 10(US).

The new Germany; Europe.

"Thanks to Vladimir Putin, Europe's most important country has woken up

T O BORROW A phrase from the late Emperor Hirohito, the action in Ukraine has developed not necessarily to Vladimir Putin's advantage. It has sent Finland and Sweden bolting for the cover of NATO membership. It has deepened Ukrainian nationalism, strengthened the democratic alternative Ukraine offers to Mr Putin's own order, and led customers for Russia's energy to look elsewhere. It has also prodded a sleepy giant, Germany, rousing a country that has been both Russia's best partner and its worst enemy. Mr Putin's actions may prove to be the catalyst that turns Germany into his own nightmare: a stronger, bolder, more determined leader of a more united Europe.

Germany badly needed that prod. Complacent and just a little self-satisfied, it was late to realise how fast the world was changing around it (see Briefing). Now, however, a remarkable opportunity is within its grasp, as Germans experience a rare thing in a democracy: a consensus about the need for broad, sweeping change to the economy and security.

The clouds were long gathering. Yes, Germany boasts an enviable record as Europe's strongest economy, most stable polity and, Germans like to think, most responsible citizen. But Germany's dependence on cheap Russian fuel, carefully cultivated by Russia, has been exposed by the sanctions on Russia. Germans are not only vulnerable to the Kremlin's energy blackmail, but have also been bankrolling Mr Putin's actions.

That wretched situation was a product of another of Germany's failings: a reluctance to question rosy assumptions rooted in its own happy recent history. Comforting notions, such as that trading with Russia would tame its belligerence, a theme beloved of Angela Merkel, a long-serving chancellor, allowed Germany to turn a deaf ear for too long to pleas from allies for more robust investment in its own and Europe's defence.

Germany has shied away from other challenges, too. Its economy remains over-reliant on the export of traditional engineering products where there is little room for growth, and over-reliant on one country, China, as a source of inputs and a market for its goods. Partly because of strict rules on public spending, Germany has underinvested in infrastructure; all too often its trains do not run on time. The public and private sectors are held back by the slow digitisation of services as well as a shortage of skilled workers--a harbinger of a demographic danger, as over the next decade more Germans will retire than enter the workforce.

Now a new Germany is hatching. Three days after the sanctions on Russia, Olaf Scholz, then a new chancellor heading an untested coalition, gave his much-applauded Zeitenwende speech to the Bundestag, signalling a break with the country's post-war tendency towards pacifism. He has set the agenda for years to come.

The good news is the country's challenges are manageable. Take energy. When Mr Putin was sanctioned, Germany relied on Russia for 55% of its gas. Doomsayers warned that supplies would be choked off, German factories would close and families would shiver in their kitchens. In fact, even as Russia's share of the German gas market has halved, stores of gas for winter are building at a normal pace. Industry says it can cut back use more than expected. Faced with higher prices and conservation campaigns, households will do the same. Germany is restarting mothballed coal-fired power plants. It will invest in renewables. It should (and probably will) extend the life of three nuclear plants that had been rashly scheduled to close. It should also lift a ban on fracking that has put its hefty reserves of shale gas out of reach.

With enough determination, other troubles have fixes, too. Mr Scholz has pledged to boost defence spending by a third--though the core budget this year is flat. New outlays will fund a sweeping equipment upgrade. He has also promised a less starry-eyed approach to foreign affairs, sending heavy weapons to Ukraine in defiance of the old pacifist taboo. His government has initiated a thorough review of relations with China, and is soon to issue a national-security strategy. Tellingly, that is Germany's first such effort at framing its own geostrategic goals.

Digitising and greening its industry and adding high-end services to the mix will be harder. The myriad companies in its Mittelstand could remain the bedrock of Germany's economic strength if they embraced the digital challenge. Luckily, business leaders and Mr Scholz's government both appear pragmatic. Immigration rules are being tweaked to entice more skilled workers into the country. Germany is also much more open towards deficit spending, not only at home but in Europe, too.

Its solid relations with Europe are another advantage, the result of decades of nurturing allies, including an occasionally obstreperous America. In the future, as firms look for ways to make their supply chains more robust, reliable Germany will be an attractive place to invest.

Dangers still lurk. Turkey or a second Trump administration could "defect" from the NATO alliance. Germany would then face a far more burdensome security challenge as the alliance's second-biggest, but militarily most underpowered, member. Ramping up spending should be just the first step in a radical overhaul of a squeamish and bureaucratised army that is poorly geared to defend the more exposed countries on NATO's periphery.

Germany has wisely and consistently put Europe at the centre of its concerns. But in the face of political challenges to the EU from Poland, Hungary and, potentially, a new right-wing government in Italy, Germany has a vital role to play in holding the project together. On this, and matters such as a deeper single market, Mr Scholz should get off the back seat and sit up front.

Which came first, the eagle or the egg?

The greatest danger, though, is that this moment is lost and Germany slips back into caution and stasis.

Comprehensive change takes years and Mr Scholz is not especially popular.

Ukraine will be an early test of Germany's mettle. Though Mr Scholz's tough stance against Mr Putin still convinces most Germans, support has been softening and the cost of the sanctions has yet to hit heating bills. [1]

Poor Mr Scholz indeed. UK neutered itself jumping out of EU market. Mr Scholz neutered Germany’s industry by jumping off Russia gas and oil before renevables are ready. Clean hydrogen, anyone? Too expensive? O Dear… China must be smiling. The most industrious of US friendly countries is losing its industry. Sad.

1. "The new Germany; Europe." The Economist, 13 Aug. 2022, p. 10(US).