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With his pen in hand, Dwight Eisenhower sits at his desk.
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Last week, three incidents occurred, two of which mirror one other and the third of which is logically related together. The first is the Chinese internet regulator’s decision to prohibit the use of the Didi (effectively a Chinese version of Uber, or rather, Uber is a Western version of Didi) web application due to concerns about how it collected personal data and potential governance and disclosure flaws in the Didi initial public offering.
The second was the US Department of Defense’s decision to reopen the JEDI Cloud contracting process (note to all arms dealers if you want to convince a government to buy a weapon or weapons system, it needs to have an appropriately convincing name).
President Biden’s midweek statement on the departure of forces from Afghanistan, in which he declared, “We will be more formidable to our adversaries and competitors in the long term if we fight the fights of the next 20 years, not the last 20 years,” ties the two events together. China and Russia share this vision, and the wars of the next two decades will be ‘total,’ encompassing cyber security, banking, social media, and trade in addition to military aspects, and they will be fiercely competitive (rather than outright conflictual).
Part of the bargain is data and markets.
As a result, the broad topic of security will become all-encompassing; stock markets and cloud computing are only two examples of the elements that will be dragged into this vortex. This reminds me of another President, Ike Eisenhower, who warned, “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.” Eisenhower was one of only three Presidents to hold a high military rank (after Washington and Grant), and he was one of only three to say, “We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.” The risk of a calamitous ascent of misplaced power exists and will continue to exist. We must never allow the combined weight of these factors to jeopardize our liberty or democratic process.’
His words are still relevant today, especially in the context of data and cyber security. They should also warn us that the MIFD (military-industrial-financial-data complex) is going to be pricey. Military spending in the United States, at least, is massive and frequently wasteful. Keep in mind that one of George W. Bush’s economic advisers, Larry Lindsay, was fired for estimated the cost of the Iraq War to be between $100 billion and $200 billion (it was multiples of this).
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Consider the Future Combat Systems Program (USD 46 billion), the Crusader gun, a new Bradley tank, and the Commanche helicopter, all of which were canceled (again pay attention to the project names). Set against the US Defense Intelligence Agency’s early warning of a growing epidemic in China in November 2019 and the government’s subsequent failure to spend on preventative measures, we get the impression that military hardware-led investment is overprioritized.
The Army and Finance
To be fair to the military, all of this raises two financial issues. The first is whether the US-China geopolitical rivalry will skew government spending, while the second concerns the mix of military research and innovation.
The Napoleonic Wars, the massive price of the German and British navies in the 1910s, and nuclear weapons spending during the Cold War are all examples of warring states pushing themselves to the edge of bankruptcy. The danger here, as with the contrast of military and COVID-health spending, is that a massive, ultimately value-destroying surge of investment spending in cloud computing, cyber and data security, and drone technology will emerge.
The risk also exists that the MIF’D will take the lead in the increasingly popular concept of industrial strategy in the United States (yet another evidence of America becoming more like France). President Biden’s National Economic Council adviser, Brian Deese, is already pointing to expanding vital industries like semiconductors and telecoms, but there’s a risk that this plan may be influenced by the geopolitical discussion rather than the critical focus on productivity.
Drones
My third point is about innovation, which, despite inefficiencies in the way military procurement is conducted, is an underestimated aspect of military spending. Israel, in a slightly controversial manner, demonstrates this idea. Many of its leading technology companies were founded as a result of its soldiers’ efforts, and some of its battlefield technologies (Iron Dome, as well as its drone and robotic battlefield programs) have spawned successful commercial applications, demonstrating a thriving public-private innovation partnership. Mariana Mazzucato uses Israel as an example in her thesis that states play a critical role in encouraging innovation.
Beyond extreme data points like Israel, the reality is that the countries that excel at innovating have solid education systems, progressive incentive structures, and state support, not MIFD complexes (rather than control). In this regard, the most significant impediment to innovation in the United States is that it has become a pawn of geopolitics and, increasingly, of a tiny group of investors who appear to perceive invention as a commodity to be traded rather than nurtured./nRead More

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