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ACTING DEPUTY SECRETARY OF DEFENSE CHRISTINE H. FOX PREPARED REMARKS AFCEA-NAVAL INSTITUTE, SAN DIEGO, CA FEBRUARY 11, 2014 Admiral Daly, thank you for that kind introduction and thanks to the Armed Force Communications and Electronics Association and to the Naval Institute for this invitation and opportunity. Its good to see so many valued colleagues and friends from the military leadership, the strategy and analyst community, as well as our industry partners. Since joining the Office of the Secretary of Defense more than four years ago first at CAPE, now as acting deputy defense secretary I have needed to be studiously neutral when it comes to the military services. But I must admit that its a special pleasure to address a Navy gathering. As you know, I spent most of my professional life as an analyst working with the Navy and Marine Corps at the Center for Naval Analysis. At CNA I had many opportunities to ride ships, fly in naval aircraft and support integrated training exercises. And, rest assured articles in Proceedings still continue to get my attention! Spending any length of time with the Navy invariably means spending some time in San Diego where I lived for five years. So its a pleasure to be back, especially at this time of year. Beyond the great weather and beautiful scenery, this city has a unique place in the history of America as a maritime nation; a city that continues to be a critical home to American sea power in all of its dimensions. Its pretty extraordinary that one metropolitan area is home to where each year:

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Thousands of young men and women still boys and girls in some cases are turned into United States Marines; Tens of thousands of those Marines live and prepare for their next mission; The next elite group of Navy SEALs are selected, vetted, and trained, and Where much of the vaunted Pacific fleet is ported, maintained and deployed to show the flag and police the commons. I spent part of yesterday seeing some of San Diegos military assets and getting back in touch with my CNA roots visiting the Naval Air Station North Island, the Navy Special Warfare Command, and U.S.S. Freedom. So were here today to talk about maritime strategy how to make it work and, I would add, how to make it affordable. For the U.S. military as a whole this is a time of transition and corresponding uncertainty. The past decade has been dominated by the protracted land wars in the Middle East and Central Asia. Today, even as the fight continues in Afghanistan, we are in the process of transitioning to prepare the military to contend with a variety of interconnected threats in the 21st Century. Recognizing this historic inflection point, President Obamas defense strategic guidance issued two years ago contained several important priorities from counter-terrorism and counter-proliferation to strategic deterrence and sustaining alliances. None was more relevant to Americas overall national interests security, economic, political than whats been called the re-balance to Asia. The re-balance, to be sure, is a whole-of-government concept, not just a military one, and it is unfortunate that its been interpreted as such in many quarters. But theres no denying the importance of modernizing our military posture in the Asia 2

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Pacific. Given that the Pacific is a predominantly maritime theater this has refocused attention, resources, and strategic thinking in Americas sea services: The Defense Department has already committed to focusing 60 percent of the Navys fleet on the Pacific Command area of responsibility; The Marines, as you know, began rotational deployments in Australia, the first of its kind since the Korean War; and Up to four Littoral Combat Ships will deploy regularly to Singapore. Were updating the U.S. force posture in Japan by moving several thousand Marines from Okinawa to Guam and plans for relocating the naval-air station at Futenma are making progress. These efforts will all help maintain a welldistributed and politically sustainable force posture throughout the Pacific. So theres some positive movement in making the Asia re-balance a reality on the military side. But also a good deal of uncertainty on two major, interrelated fronts that I would like to discuss in my remaining time today. First, the strategic environment in particular the emerging challenges to U.S. airsea dominance and the implications for how we think about Navy modernization priorities. Second, the fiscal uncertainty and continued budget austerity which, as my remarks will make clear, require that we make tough and far-sighted choices now in order to achieve a ready and modern force in the future. With respect to the geo-strategic environment in the Pacific theres no avoiding the tremendous impact of the rise of China. U.S. defense leaders are frequently asked if our re-balance is really all about China. In reality its not about any one

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country, but about ensuring the stability and growing prosperity that the Asia Pacific has enjoyed for more than 60 years. Clearly Chinas economic dynamism has been a welcome development in terms of rising standards of living for the Chinese people and the resulting growth in commerce in the region and globally. The Sino-American leadership is one that needs to be managed carefully, with every opportunity taken to strengthen transparency and establish measures of trust where they can exist. All three defense secretaries I have worked for sought to forge a military-to-military relationship with China, and have those defense-ties reach the level of our bilateral political and economic relationship. Improving that defense relationship and understanding Chinas intentions is so important because of the comprehensive military modernization program being pursued by the Peoples Liberation Army. It is no secret that China is developing its military capabilities designed to thwart the freedom of movement of others in the region and to expand their influence the so called Anti-Access AreaDenial. Irrespective of the ebbs and flows of Americas relationship with any country, those of us entrusted with leadership positions at the Defense Department do not wish to see the U.S. lose its decisive advantage or end up in a situation of parity against any military power. If either of those possibilities came to pass, the United States would lose influence, regional rivalries and security dilemmas would increase, as would the possibility, however remote, of a conflict due to a miscalculation. The U.S. military may also face exported versions of these modern systems in other regions and situations where conflict is more likely.

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Yet in an era when Chinas defense budget is increasing at around 10 per cent each year, the United States due to a variety of political and fiscal factors is disproportionately reducing the very investments that are intended to sustain our technological superiority. As a result of sequester in 2013, for example, the Defense Department cut nearly $16 billion from its modernization accounts procurement, research, development and testing. This year looked to be even worse until the department received

some relief in the form of the Bipartisan Budget Act. With defense dollars investment dollars in particular growing scarcer, it is all the more of an imperative for defense leaders to make strategically sound choices when it comes to the militarys modernization portfolio. The U.S. Navy is unique amongst the military services in never having been seriously challenged in direct at sea combat since the end of the Second World War. The U.S. enjoys a margin of military superiority today in the Pacific but we cannot ignore the reality that American dominance on the seas, in the skies, and even in space, can no longer be taken for granted going forward. As we confront the implications of that new reality, Id like to share two major points. First, as the military transitions from a decade of fighting insurgents and terrorists, we dont have the luxury going forward of assuming a permissive environment for U.S. naval sea or air assets whether for fighters, close air support, UAVs, amphibious landings, or for surface combatants. With respect to the Navy, as I alluded to a moment ago, the threats to surface combatants continue to grow not

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just from advanced military powers, but from the proliferation of more advanced, precise anti-ship munitions around the globe. Clearly this puts a premium on undersea capabilities submarines that can deploy and strike with relative freedom of movement. For aerial platforms we need the ability to strike from over the horizon from secure locations, whether that capability comes from missiles, bombers, or tactical aircraft, manned or unmanned. But with limited resources and global responsibilities, we simply cant afford to build a navy tailored for one region and one kind of fight. We need a flexible portfolio of capabilities that can operate along the full spectrum of conflict and military operations. Nonetheless, given more advanced anti-ship munitions being developed by potential adversaries, I believe it is an imperative to devote increasing focus and resources to the survivability of our battle fleet. Niche platforms that can conduct a certain mission in a permissive environment have a valuable place in the Navys inventory. Yet we need more ships with the protection and firepower to survive against a more advanced military adversary. Presence is important presence with a purpose, and with capability. Second, when defense budgets decline there is a natural tendency to hang on to combat forces at the expense of enablers. Yet we all know that enablers can be decisive force multipliers. With the U.S. Navy able to out-gun any and all comers, potential adversaries will look to take away our inherent military advantages to include the use of electronic warfare and other countermeasures. Capabilities that can overcome these threats represent critical enablers that we neglect at our peril. In many respects the U.S. Navy has been so dominant for so long at sea that I

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worry we never really embraced these solutions. The time to start investing in the next generation of electronic warfare is now. However, the resources will only be available to buy these and other modern capabilities our military needs on air, sea, and land if we start re-shaping and re-balancing Americas defense institutions and soon. Let me provide some context. As you know, early next month the president will submit a budget request for the defense department. At this point I obviously cant share any particular program decisions including the ones you have probably already read stories about in the trade press. But I can provide the fiscal and budgetary context that shaped our recommendations. Today we are in the midst of Americas fifth defense drawdown in the past 70 years. The first three came at the end of the warsWorld War II, Korea, and Vietnam. The fourth came at the end of the Cold War. All of these drawdowns resulted in a force that led to a disproportionate loss in readiness and capability. The reason was that, in each case, the U.S. military kept more force structure than could be adequately trained, maintained and equipped given defense budgets at the time. In general the force was used more often than planned and its operating and overhead costs stayed high. The Defense Department was thus forced to cut disproportionately into accounts that fund readiness and modernization. The worst example of this phenomenon was the hollow military of the 1970s. Afterwards, when conflict loomed again, budgets rose, or strategic priorities changed, it has always required a large infusion of money to restore the health of the force. As we speak the department is finishing off the 2014 Quadrennial Defense Review. I cant share any particulars, but suffice it to say this QDR will show that the world

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has gotten no less turbulent, complex, or in need of American leadership and American military power. In short, even as the U.S. military resets after a decade of war, there is no peace dividend in the offing. Last summer Secretary Hagel decided that it was time for the Pentagon to begin preparing for the possibility that we would have significantly less funding then we wanted or needed for a defense strategy to contend with this global security environment. The result was the Strategic Choices and Management Review. Since then the departments financial outlook has improved somewhat, as the Bipartisan Budget Act provided substantial sequester relief for Fiscal Year 2014. The BBA provides much less relief $9.5 billion worth for FY 2015. And sequestration continues to be the law of the land starting in 2016. So given these fiscal realities the Department cannot postpone further difficult decisions about the militarys size and operating costs. The SCMR results provided a guide to how much can be saved where and how fast. What we found is that achieving savings in the militarys proverbial tail by reducing overhead and slimming the bureaucracy takes several years and produces significantly less in bankable savings than is commonly believed. So far congress has shown little interest in launching another base realignment and closure process. Even if a BRAC started tomorrow, the savings would begin four to five years from now at the earliest and would actually cost money up front. Zeroing in on the vaunted Pentagon bureaucracy the Office of the Secretary of Defense, service headquarters, Joint Staff, defense agencies and field activities some reductions are necessary and some savings are possible. Yet when all is said and done, an enterprise of the US militarys size, complexity and global reach
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requires a substantial administrative and support operation. Much of the bureaucracy is there for a reason: It performs tasks that need to be done though these tasks can be done more efficiently, with less duplication, fewer contractors, and with fewer executives, generals and admirals plus associated staff support. That is why Secretary Hagel last summer announced that he would cut civilian and contractor personnel from all headquarters by 20 percent, which will be disruptive and affect some missions but is, on balance, the right thing to do. Yet the total savings are a fraction of the reductions required by a return to sequestration over the next decade. Going where the real money is invariably leads to compensation, about half of all defense spending, broadly defined as all pay and benefits, military and civilian, current and retirees, direct and in-kind (such as DoD schools and the commissaries). The 2000s saw substantial military pay and benefit increases which was justified by the circumstances at the time. The result, however, is a compensation package that will be difficult to sustain under todays budget circumstances at least without making truly damaging (and dangerous) cuts elsewhere. In all, what the SCMR showed was that managerial savings typically accumulate slowly and take years to realize at least if done in a sound, legal, and humane way. In the meantime, without tough choices based on strategic priorities, readiness and modernization will continue to suffer as security threats grow and multiply. All of these factors the strategic environment, the fiscal environment, the political and bureaucratic realities of the defense enterprise point to the
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conclusion that the military must get smaller over the next five to ten years. It is not an ideal course of action. It contains real risks as a smaller force, no matter how ready or technologically advanced, can go to fewer places and do fewer things. But given current realities, it is the only plausible way to generate the savings necessary to adequately fund training, maintenance, and sustain the militarys technological superiority for the next generation to avoid the prospect of a hollow force in the future. It also puts the department in the best position to accomplish the highest priority military missions associated with the current defense strategy. I would close by noting that, to be quite honest, we dont really know what the future will bring in terms of defense budgets or global geo-politics. Todays political climate gives us little comfort or certainty. Id like to think that returning to sequestration level budgets in 2016 with $50 billion across the board cuts is highly unlikely, given the consequences I just described to our military and national security. But I worry. I think we should worry together and here Im talking as well to our partners in industry. We must work even more closely togetheras a teamto figure out how we can get through these trying times. It will require addressing: Are there more ways we can make modernization affordable? Are there ways to reduce the growth in the cost of our people in industry and increase our buying power? How can we reduce the operating and support costs for new and existing systems to relieve some pressure on the operating accounts? What are the most vulnerable parts of our industrial base? How likely is it that we will be able to quickly reverse course and build up our force if we decide we got this wrong or end up in an unanticipated crisis? I would like to see more critical and creative thinking on, for example, how to develop

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technology and then keep it on the shelf so to speak ready to be turned into procurement when there is a change in either defense budgets or strategic needs. These are all really difficult questions and the answers must be doablenot sound bites or assertions that sound good but dont really add up in the real world. Finally, I would like to thank all of you for what you do. These are trying times for everyone, especially and including our partners in industry. You are vital members of the team and we should not lose sight of the fact that we are doing something vitally important for our country. Whether uniform, government civilian, or industry, you are the best at what you do. These trying times will passsomehow, we always figure it out. Or, as Churchill once said, You can always count on the Americans to do the right thing after theyve exhausted all the alternatives. And while the American political system exhausts all the alternatives, it is up to all of us to get prepared and make the tough choices for the men and women in uniform, for our countrys security and credibility as a global power. Thank you again for the opportunity to talk with you today. I look forward to your questions. ###

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