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THE FY 1979

DEPARTMENT OF DEFENSE

PROGRAM FOR

RESEARCH, DEVELOPMENT,

AND ACQUISITION

Statement by

The Honorable William J. Perry
Under Secretary of

Defense, Research, and Engineering to the Congress of the United States

95th Congress, Second Session

1 February 1978

1. OVERVIEW OF DEFENSE ACQUISITION

"Our principal long-term problem continues to be
the Soviet Union. Whether we like it or not,
the Soviet leadership seems intent on challenging
us to a major military competition... Whatever the
motive behind it, the challenge is serious. We
must not underestimate it."

Secretary of Defense Harold Brown

"The center of gravity in the competition between
the two (world-opposed) systems is now to be
found precisely in (the field of science and
technology),...making the further intensive develop-
ment of the latest scientific-technical achievements
not only the central economic but also a critical
political task, (and giving) to questions of
scientific-technical progress... decisive significance."
L. I. Brezhnev

Mr. Chairman and Members of the Committee,

This is an important occasion for me from both a personal and professional viewpoint.

This is my first report to the Congress, and therefore it is my initial opportunity to discuss in detail with you my views on the objectives, rationale and key thrusts of the DoD's research and acquisition program for FY 1979 and beyond. I sincerely appreciate this opportunity and look forward to receiving the benefit of your perspectives and assessments.

It is also the first report of the newly created Under Secretary of Defense for Research and Engineering. The expanded functions and

responsibilities which I hold as the incumbent of this position directly reflect several important changes which the Carter Administration has instituted in tackling long-standing problems of the Department's research and acquisition programs. I believe the Congress understands the rationale for these changes; indeed, the Congress has actively encouraged and supported them for some time. Nevertheless, this report

will describe what we in the Department expect them to accomplish and why the continued support of the Congress is essential if their payoff is ultimately to be achieved.

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As a lead to this Statement, I have quoted Secretary of Defense Brown's views that the Soviet Union--"Whether we like it or not"--is conducting an intense competition with the U.S. to achieve superior military power. One measure of this competition is given in the recent assessment by the Central Intelligence Agency which indicates that the Soviet Union's equivalent defense spending (the CIA measures equivalent defense spending by the comparable expense it would have taken the U.S. to accomplish the same result) has steadily increased at a rate of 3 percent per year or more for the last decade while the defense spending of the United States has declined each year in real terms. As a result, Soviet expenditures exceeded that of the U.S. by 1970 and today exceed ours by about 40 percent. The cumulative effect of this imbalance has led to an observable disparity in our comparative research and development efforts, in the production rates of military equipment, and in the

quantities of material deployed. The Soviet Union is producing major items of equipment--tanks, armored personnel carriers, tactical aircraft, and ICBM's--at a rate which exceeds ours by several times; they have deployed about twice the quantity of modern equipment as we have; and in their strategic forces, they have in the last five years gone from a position of marked inferiority to one of essential equivalence, and they show no signs of stopping. Their large investment in research and development apparently has the objective of overcoming our present lead in defense technology.

The defense budget proposed for FY 1979 and planned for the next five years is intended to stop this relative decline by providing for an approximate real growth of 3 percent per year. However, even if these budget growths are achieved, we only will be maintaining the present level of disparity. However, I believe it is possible for us to effectively compete, even in the face of this disadvantage, by employing an investment strategy that exploits some of the fundamental advantages we have over the Soviet Union. These fundamental advantages are our Allies, our Industrial Base, and our Technology.

The NATO alliance embodies the greatest economic strength in the world. The aggregation of the Gross National Product of our countries exceeds that of the Warsaw Pact countries by almost three to one. Other allies of the United States, notably Japan, Australia, and New Zealand, tip the balance even more in our favor. Defense expenditures of the other NATO countries, for example, approximately equal the

present disparity in defense spending between the U.S. and the Soviet Union. If the NATO defense spending could be done in an efficient and mutually supportive manner, NATO would be competing on nearly equal expenditure terms with the Warsaw Pact nations. However, there is significant redundancy in our collective R&D programs, and very often four or five nations will produce the same type of equipment, so that none of them get the cost benefits of large production runs. The Soviet Union effectively dominates the materiel acquisition programs of the Pact, thereby avoiding those problems.

In order to take real advantage of the resources of the Alliance, we must embark on a major new program of cooperation with our allies in the development and production of our weapon systems. This will involve the selective sharing of technology so that weapons developed by allies have the benefit of each other's research and developments; it will involve cooperative research and development programs; and it will involve much more extensive coproduction and buying of each other's equipment. We believe we can get greatly improved efficiency through this improved cooperation, while maintaining an equitable balance in the economic benefits that accrue to each country.

We must also achieve much more efficient use of our own industrial

base. In segments of our industry critical to defense, the Department of Defense is no longer the dominant customer. In 1965, for example, defense represented more than half of the market for integrated circuits; today we represent only 7 percent of that market. This means that

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