Thank you, Richard, for -- for the introduction, for the opportunity to be with you, and all of my friends and colleagues at CNAS, Bob Work, I think, who left us, now here at CNAS. I don't know whether Michele or any of the other founders are here, but let me salute all of the leadership and scholars at CNAS for work past, present, and future.
Just read one of your excellent reports, which was very helpful to us. I remember the days of the founding of this institution, and it's one of Washington's proudest and most productive. And to the young folks who are working at CNAS or working associated with -- working in association with CNAS who are trying to decide whether this is how you want to spend your life or at least a portion of your life, I hope you stick with it, because public service is a great calling. You don't always get paid the best. You don't always get treated the best. But on the other hand, you get to wake up every morning and be a part of something bigger than yourselves. And that's a great honor in life.
So I encourage you -- those who are trying it out, starting out, stick with it. We need another generation of folks as great as the founders, leaders of this institution.
Also, I understand that my great friend, Senator John Warner, is here, and I'll ask -- I don't know where he is, but if he is, sir, I always appreciate the opportunity to see you.
And then I got some predecessors in my job, my current job. I see John White there, for example, and maybe even some former undersecretaries or assistant secretaries, so all the former officials, also, thank you for being here.
And the last folks I wanted to salute -- I know that some of my industry partners are here. I saw Sean O'Keefe and Wes Bush at least. And let me just say, thank you for your partnership. I always say, we don't make anything in the Department of Defense. We count upon private industry to produce the weapons system which, second only to our men and women, are what make us -- give us the greatest military in the world, so thank you, also.
I thought I'd say something today about the circumstances in which we find ourselves and how we're trying to manage through them, but more importantly, how we're trying to be prepared for the wide range of circumstances that might confront us in the future.
The -- Let me start with the present. We are working as hard as we can to minimize the disruptive effects of sequestration. We're doing everything we can to manage our way through this very difficult and abrupt circumstance. You might ask yourselves for starters why it is so difficult, why it's so awkward. And the reason for that goes like this. The $37 billion of sequestration cuts that we were required to take this year are spread over all our accounts, basically evenly or in proportion, and the problem hits most heavily upon the operations and maintenance accounts.
The -- and the story goes like this, the story, essentially, of why does it hit so hard, so fast, the sequester business, and why is it such a challenge for us, as we try to manage through it? First of all, we take off the table, as we face those $37 billion in cuts, we take the war in Afghanistan off the table. We protect that. We have to. It's a war. And so we're not going to cut that; we're not going to apply sequester to that.
The President decided not to apply sequester to military compensation for our troops who are in a war. And then we exempted a number of other critical functions from sequester, for example, nuclear deterrence, our ability to respond immediately to crises, what we call "fight tonight" on the Korean peninsula, for example, if that were to become necessary, and on down the line, taking some things off the table entirely. Pardon me.
And then we tried to protect things that were most critical, not exempt entirely, but protect things that are critical, particularly those things that are critical to the execution of our strategy. And then you end up applying that $37 billion to what is left. That hits particularly hard, that remainder, as I said, in the operations and maintenance accounts, and those are the accounts that support training and, therefore, readiness.
And so, for example, in the Air Force, we have been forced to ground 13 combat-coded squadrons, which is more than a quarter of the force's active-duty squadrons in the remainder of this year. In the Navy, we have had to cancel ship deployments and defer maintenance on a number of ships, large number of aircraft, and so forth.
Sequester hits particularly hard on the Army, because as I said, the Army -- we protected the war, and it is the Army which is in the main bearing the burden of fighting the war in Afghanistan. And as a consequence, their accounts get hit especially hard. And so the Army is having a particularly difficult year, and we're all working especially hard on the Army's issues. They've had to cancel most of their major collective training events for this year, very serious impact.
So that should give you some idea of why and how sequester actually hits us on the force. And despite our best efforts to minimize this damage, it is -- I guess I would say -- at a minimum, embarrassing, in the -- to be doing this in the eyes of friends and foes alike around the world and, at a maximum, unsafe.
And what reinforces in the Secretary of Defense Hagel's mind, my mind, and all the rest of the leadership of the department and the President, too, is the necessity in this very uncertain budgetary circumstance we find ourselves [sic] to be prepared for what might befall us in the future.
We know the budget circumstance that we would prefer, but this year has shown us that, in today's Washington, you don't necessarily get either predictability or stability. And we need to be prepared for a wide range of circumstances.
Our fundamental duty, as the leadership of the department, are, first of all, to defend the country and, second, to preserve the U.S. military as one of the most respected institutions of our society and the most effective and the most trusted. Those are our two sacred duties.
And to do that in today's environment, we are required to make two major -- to have our department undergo two major transitions simultaneously. The first is a strategic transition, a strategic transition from the first post-9/11 era, which was defined importantly by a necessary and near-total preoccupation -- and I've been as much a part of this as anyone -- with prosecuting effectively the wars in Iraq and Afghanistan, from that preoccupation to the threats and opportunities that are going to define our nation's future.
We know what they are. The world hasn't gotten any safer in the last year, year-and-a-half. And while we accomplish that strategic transition, we have also to make simultaneously a second transition, a transition from an era of ever increasing defense budgets, characterizing the last 10 years, to an era of constrained budgets, including the reality of the Budget Control Act and the possibility of continued drastic reductions in our top line.
As for the strategic transition, we have outlined -- and the president has outlined -- the key precepts of that, which aren't surprising to any thoughtful person, certainly not to members of CNAS.
One precept was the so-called rebalance to the Asia Pacific region, an area where much of our future, obviously, lies. I've spoken about this at length and what it entails and what its ingredients are. The rebalance overall, as President Obama explained over the last few days, is principally an economic and political concept. But since I'm the Deputy Secretary of Defense, it has a security dimension, as well, and one that we pay a great deal of attention to in our strategy.
And in -- in essence, the rationale behind the rebalance goes like this. For decades now, the Asia Pacific region has enjoyed a peace and a level of stability that has permitted the prosperity and political development that we've seen, first as Japan rose and prospered, and then as South Korea rose and prospered, and then as much of Southeast Asia rose and prospered, and now as China and, in their different way, India rise and prosper. And all that's been terrific, for us and for the region, and we want it to continue.
But that's not a birthright. That is something that has been earned in important measure because of the steady and stabilizing pivotal role of U.S. military power in the region. And in a sentence, the rebalance expresses the United States' intention to keep that going in the decades ahead.
I'm -- I'm usually asked two questions about the rebalance. The first is, can you really do it, particularly given the budget circumstance I was going to talk about? And the answer to that is, yes, and there are two reasons for that. And you can kind of do the math, if you need to.
The first is that we have with the end of the wars in Iraq and Afghanistan the ability to shift a great weight, physically and intellectually, from Iraq and Afghanistan to the challenges of the Asia-Pacific region. And secondly, whatever happens to our budget within the still substantial budget that remains, we are prioritizing the kinds of capabilities and the kinds of forces that are most relevant to that part of the world, both in our investment programs and in our actual deployments and operations plans, and most importantly, in our alliances and partnerships.
And that's where the second question usually comes up, which is, is this all about China? And the answer to that is that if you see the point I made earlier about the role that the United States has played in that region for these decades, we have played that for all and with all. And that is why, in addition to the wide range of alliance and partnership activities which are part of the rebalance, the growing military-to-military relationship and just general security engagement with China is an essential part of the rebalancing.
So it's not about China. It's not about the United States. It's not about any individual country or group of countries. It's about peace and stability in the region and keeping a good thing going, which that region has enjoyed for decades, despite the fact that there is no overarching security structure in the region, despite the fact that the wounds of World War II were never completely healed. It has enjoyed peace and stability, and that came with American military power and, I should add, with the values that people in the region find attractive that come with us, as well, which is a commitment to democracy, a commitment to civilian control of the military, a commitment to the rule of law, a commitment to free traverse through the world's commons, and other things that human beings find attractive and, therefore, we find that our rebalance is reciprocated and welcomed in the region.
Another precept of the strategy is -- and President Obama was himself very insistent on this -- that we make sure that in an era of change that we don't just keep the old and forsake the new, because the easiest way to make change is according to the “last in, first out” principle, which is you tear out the things that you've done most recently, because they have the shallowest roots, and he was determined that we not do that.
And so when it comes to things like cyber, special operations forces, electronic warfare, certainly our space activities and science and technology activities, and the ability of the Department of Defense to continue to deliver surprise, to do things that no one else can do, in all of those respects, we intend to sustain our investments and make sure that we're playing the long game in our investments.
And another tenet of the -- of the strategy was to -- while the war in Iraq is over and the war in Afghanistan is winding down to an enduring presence, and we want to retain -- and we're not going to retain the large rotational force structure that we built up for a long, large counterinsurgency campaign, let alone two of them, we do want to retain the -- the wherewithal, the know-how, what we've learned in the last decade in Iraq and Afghanistan, about the integration of intelligence and operations, about the value of the all-volunteer force, about the use of Guard and Reserve forces, about the use of unmanned aerial [sic] vehicles, and on and on. And we intend to do that, as well.
Now, at the same time, we're trying to turn this strategic corner and make this -- this strategic transition, we're also having to make a massive budgetary transition. And let me just remind you of the numbers there. Most of the people in this room know this. We were required to remove $487 billion from our budgetary plans over the 10 years beginning in FY 13, and we have accomplished that.
That was on top of some cuts we already began under -- going back to the Secretary Gates' time. And on top of that, of course, our wartime budget -- the overseas contingency operations budget -- is also coming down. And taken together, those two sources of reduction compare in size and speed with other historic transitions in American defense spending, such as after the Vietnam War and at the end of the Cold War, though, of course, in this case, very importantly, this is not accompanied by a reduction in the threat we face.
Now we face a great uncertainty, including the possibility of the Budget Control Act persisting and the cuts I described earlier and their effect in F.Y. '13 persisting. And that is the circumstance we face now, and as we face that, both of those great strategic transitions, the Secretary of Defense directed us to conduct something we called the Strategic Choices and Management Review, the essence of which was to ensure that we were prepared for the wide range of budgetary circumstances that face us.
And what we did in the -- in the review was look at every nickel in the department, every way we spend money, dozens of categories, ranging from bombers to compensation, from IT modernization to submarines, from business practices to operations plans, the whole deal, every bit of our spend, people, systems. The third of the money we spend on uniformed people, the sixth that we spend on civilian people, and then the other half that we essentially contract out for business. That's basically how the defense budget is divided from the execution point of view.
And look at it both from the bottom up -- I was an Undersecretary of Defense, so I know what it's like to manage a piece of the department, and we wanted to make sure that we got the best ideas from the senior managers, as well as having a top-down or department-wide approach, so get the best of breed of both of those approaches, and that process of conducting that review and identifying those choices is now complete. And the results are being presented to Secretary Hagel, and we'll continue to refine them, but ultimately they will serve as the basis for our F.Y. '15 budget and the five-year defense plan that goes with that, and also to be prepared for whatever emerges as the President and Congress work to resolve what is now fiscal gridlock.
A few things -- when you conduct a review like this, a few things become abundantly clear. The first is that we can be and we now are prepared for a wide range of future budget contingencies. You know, we're very good at adapting. We're very good at planning in the Department of Defense, but we do need to plan. Now, much of these choices we hope never to have to make, but we have formulated them and framed them, and we're now ready.
The second thing that jumps out of you is that your range of choices is much wider if you have time and flexibility. Force structure and personnel changes, for example, take time, by their nature, by law, and by the economics of how they work. Some things, like BRAC (Base Realignment and Closure) [sic] and IT system reform and modernization, pay off only in years ahead, but are worth doing. Only readiness and investment are easy to get at quickly. And so if you follow only that principle, you -- that leads to unbalanced reductions.
And in addition to time to do it right, you need flexibility. And in that -- ability to do the right thing. And in that connection, we need support. And in particular, we need the support of Congress to do the right thing.
Next thing that is immediately apparent to you is that to avoid disproportionate adjustments to force structure, to the tooth, to force structure investment readiness, we have to make significant managerial changes in efficiency and in compensation. Otherwise, we will be driven to unbalanced adjustments.
And in this connection, I want to align myself strongly with the CNAS study that was released just in the last couple of weeks and some other think-tank work around town, which also stressed this same insight. We really have to do that.
And in that connection, we looked very hard at IT. We looked at base operations, acquisition program cost structure, headquarters, all kinds of overhead. And you have to do that. Otherwise, you end up making adjustments in the wrong place.
And regarding compensation, our key -- the key thing is, what does it take to attract and retain the kind of people we now have who make our military the strongest in the world? That's our criteria as we look at compensation changes, both military and civilian, both in terms of force size and composition and force compensation. So just to repeat, we need to make balanced overall adjustments. You need to look at our budget in its totality and not piece by piece.
And finally and crucially, beyond a certain point, without flexibility, or if cuts are too large, we will be forced to take risk in certain parts of our strategy, excessive risk in some parts of our strategy. And obviously, we don't want that.
Now, using the Strategic Choices and Management Review as the background, we are -- the service leadership, the departmental leadership, the COCOMs -- altogether will formulate budgets at three levels, first at the president's budget level, which is our normal budget process, but this year, also at the sequester level, which is the -- about $50 billion less per year, each and every year over the next 10 years, and then at levels in between, using those choices that we have teed up in the review as the building blocks. And at the same time that we do that, we will be preparing a plan for execution of fiscal year '14, a plan if the Congress passes the President's budget, but also an alternative plan, if gridlock persists and we end up with some continuation of what we had this year, namely a steeply reduced budget level, and either flexibility or no flexibility.
We're going to build two plans. And we're going to do that over the next few weeks. We have to, because fiscal year '14 is upon us and we don't want to replay the movie of fiscal year '13 and fiscal year '14. So our objectives in both of these planning efforts, the farther term one and the nearer term one, is to make sure, as I've said, that we're prepared, as prepared as we can possibly be, for a wide range of circumstances.
So in closing, I think the department -- the Secretary of Defense Hagel and all of us in the senior leadership of the department pledge to try to be as prepared as we possibly can, with the most balanced and thoughtful adjustments in whatever circumstance we end up with. That's what we owe the taxpayer and the warfighter. But make no mistake -- these adjustments are going to be painful. And they could entail considerable risk.
As we do that, we'll appreciate the continuing support of CNAS, the scholars here, the leaders here, the insights that you have. You've already given us many. Please keep it up. Thank you.
Q & A
MR. FONTAINE: Okay. Thank you very much, Dr. Carter. He has agreed to take some questions, so please wait for the mikes to come around, identify yourself, and use a question mark at the end of your statement.
Yes, sir, right here.
Q: Hi. (Michael Persicky ?), Lenox Consulting. In a recent issue of Foreign Affairs, there were two arguments for what the Army should invest in, in future years, one emphasizing a more expeditionary force with a heavy armor as a big part of it and of the other -- or with an emphasis on short-range missiles already -- that would be already be in overseas bases. And I'm wondering if you see any need to emphasize one or the other of those or a combination.
DR. CARTER: I haven't read that article. And it sounds like it points out two dimensions of, I guess, my response would be a -- what should be a multi-dimensional approach to the future of the Army. And let me say something about that.
The Army has the most titanic transition of all our armed services to make, because it has been the most all-in for the last 10 years in Iraq and Afghanistan. And so the leadership of the Army, Secretary McHugh, General Odierno, are doing a fantastic job of trying to climb on top of this big challenge that they have.
What we know is that -- as I said earlier, we don't need to retain bulk of the kind that we just bulked up for counterinsurgency, because, remember, you had to have three or even four of everything, because you're rotating them in and out over a decade. What we want going forward is a smaller, but much more agile and wide spectrum Army, not a COIN-focused Army, but a wide spectrum Army, and the best Army in the world, by a long shot. That's the challenge that Secretary McHugh and General Odierno are pursuing. That has a bunch of ingredients to it. Has a lot of modernization, a lot of networking, lot of mobility. It's important to be able to get our Army from where it is to where it's going, so it can be rapidly deployed.
It has a lot of potential for international partnering with other armies, and building partnership capacity is still a very big deal for us, something Michele has championed over the years, which is a huge win-win for the United States. And the Army has a big role in that.
So there are a number of dimensions to the -- moving the Army forward, and the future armor is certainly one of them, but it's a multidimensional thing. But it's a big challenge, but it's one that McHugh and Odierno are really all over.
MR. FONTAINE: Yes, ma'am, right here.
Q: Thank you, Secretary Carter. My name is (Binmu Wong ?) with Hong Kong Phoenix TV. Thank you very much for your speech. I get some tissue just to help you cool you down.
DR. CARTER: That's all right. This is allergy season. You're very kind.
Q: I guess I'm [off mic]
DR. CARTER: It's the best question I've ever taken.
Q: Okay. Here's my question. What area, when the U.S. is shrinking budget while China is increasing its budget, is space program? And this week, China just launched a manned spacecraft. The DOD just released a report last week and it highlighted China's space program, in which I quote. The report said Beijing was pursuing a variety of activities aimed at preventing adversaries from using space-based assets during a crisis. Given the space program of China is -- (inaudible) -- by PLA, are you concerned the rapid growth of Chinese space program may pose some threat to the U.S.? And on the other hand, do you see any opportunity of cooperation between U.S. and China in space program? Thank you.
DR. CARTER: A couple of things. Excellent questions, and a number of things in there. You mentioned the manned space program. We do not see the manned space program is contributing to our security, so the Department of Defense is not investing any money in a manned space program. We don't see that it has national security value, first of all, so that's not a measure for us of any -- any security contribution in space.
Secondly, we have a large continuing investment in our -- in space. That is not changing all that much over the -- you talked about budget cuts. I mean, our budget is planned to be basically flat. It may go down at the sequester limit to about 10 percent below that.
In that picture, we will still be making substantial investments in military space now, not manned space, on top of the decades of enormous investment we've already made and the huge volume of space assets of all kinds that the United States already has. So I don't see us changing the magnitude of our presence in space very much.
And as far as cooperation with China is concerned, yes, I think that's a good thing and something that we would welcome. And I think the President said as much earlier in the week. We have a very beneficial space program with lots of countries around the world, and that's a good thing, and I welcome that with China, as well. We do some of that already on the civil side. And I think certainly at a minimum discussions about security aspects of space are something that's very advisable and something we've actually already begun.
MR. FONTAINE: Yes, sir, right there.
Q: Thank you. I'm Peter Shutley, retired from Brookings. We seem to have almost a mercenary military, where 300 million taxpayers spend a lot of money so that 1 percent of our citizens carry all the burden of fighting abroad. And my question is, what about national service, spreading the burden a little bit? What's your view on that?
DR. CARTER: I like very much the idea of national participation in the governance of the country and in service. And there have been a number of proposals made for that, some of which I've supported over the years. The reality is, we don't need universal participation in the military. We just -- we don't need those numbers. What we need is quality, which we have.
And so what's important to us in the all-volunteer force is to continue to attract and retain the quality that we have in numbers that make sense for the missions that we need to accomplish. On the other hand, to get to your point, I do -- I personally see a role -- it's not a Department of Defense job -- I see a role for wider civilian service, both to acquaint people with the public weal, and also to get the benefit of the services of young people.
And the last thing I'll say is, you know, we do have a constant need, which those of us in the department certainly feel, to reach out and connect with the public on matters of national security. I was talking to a group of attaches last night, all the defense attaches from all the countries around Washington, and I said, you know, we're in a funny business, reflecting -- saying, you know, if we do our job really well, people will totally ignore us, because that's the way it should be. They should get up in the morning, take their kids to school, go to work, as I said, live their lives and dream their dreams without having to worry about their physical security. We're blessed in this country that for most of us most of the time, that's true.
But you can never forget that that isn't -- that is not a birthright. That's something we earn, and we earn it through -- and as far as foreign defense is concerned -- through the institution of the Department of Defense, and we need that support. And I'll tell you, right now, we're not feeling that widespread recognition of the necessity to keep an adequate defense in an uncertain and dangerous world.
MR. FONTAINE: We have a Twitter question, so, Joel, if you would like to let us know what that is.
Q: Cyber is mostly not a service-specific domain, so why not create a single cyber service that is more efficient and effective?
DR. CARTER: That question was -- I don't know that everybody could hear that -- why -- since cyber is a kind of inherently joint thing, why not have a cyber service, rather? Very good question. And it may come to that someday. We're not at that point yet, and I'll give you some reasons -- reasons for that.
The first is that, from a management point of view, we are trying to attract, retain and make the best use of the talent we have. So when we set out to create our cyber force, we had that choice. We could have made it inherently joint. We have not done that. We have decided for the moment to involve all the -- all the services that already had cyber components in that mission.
We've done that for a simply expeditious reason of using what we have. I don't rule out that over time we may decide to combine all of that into something that would be like SOCOM, only cyber. I don't want to rule out your idea at all. At the moment, we're not going to take that leap, simply because we want to make sure that we use the people, the organizations, and the enthusiasm that are now currently resident in the services. We may migrate there over time.
And just to tell everybody what we're doing in cyber, cyber is an area that is strategically very important. It's not all that expensive, actually, so it doesn't drive the budget. Therefore, we're not going to short it in any way. We'll be spending more on it, and we have basically three missions. We have to defend our own networks, job one. Number two is to develop, deploy, and prepare to employ cyber weapons. And the third is to play our part in defending the nation's networks. Now, those are the three missions that fall on the Department of Defense. And that's what we're using these people for and trying to apportion them to those missions.
MR. FONTAINE: Ma'am, over here in the white.
Q: Good morning, Secretary Carter. Andrea Shalal-Esa with Reuters. I have a two-part question for you. One has to do with the -- just a quick follow-up on cyber and your thoughts on the dual-hatting of Cyber Command and having such a close relationship between the military component and the NSA component, particularly given all of the concerns that have been raised over the past few days.
And then I wanted to draw you out on some of those challenges that you have. You said the world is not a less dangerous place. So in terms of Syria and to what extent you can rely on international allies to help you arm Syrian rebels and to have a coalition approach to dealing with the situation there, as you did in Libya.
DR. CARTER: Let's see, Andrea. On Syria, I don't have anything new for you on Syria.
On dual hat and NSA, CYBERCOM, for those of you who don't know what that issue is, we have a unified command called CYBERCOM, and we have a National Security Agency, which is part of the intelligence community. Keith Alexander wears both of those hats -- and very ably, I should say -- and the question arises that Andrea is exploring is, over time, should those two functions be separated?
We're not making that decision at this time. The -- a very important reason not to is -- gets back to the question raised earlier -- we're trying to play the best game we can with the talent that we have. And so we have a talent base in NSA, and we're trying to apply it to all the things that the country needs cyber talent for.
Now, we do that in a way that is -- that rigorously obeys the legal authorities for each of the different kinds of things they do, and that's been going on for years at NSA, different authorities. There are law enforcement authorities. There are national security authorities. There are intelligence authorities. And in our system, appropriately so, different legal structures define all those domains, and, you know, we conduct all our activities in accordance with the rule of law.
But we don't have enough good people to scatter them all over. Maybe over time, similar to the answer I gave to the gentleman who asked a question earlier, we may evolve in a different way, but for now, for that reason, for no other reason, we're going to continue the dual-hat system.
MR. FONTAINE: We have time for just one more question, so we'll take this last one and then let Secretary Carter get back to his job. Yes, sir?
Q: Sure. Byron Callan, Capital Alpha Partners. On the strategic reviews, how are you going to communicate the results of those? Are they going to stay within the building and just get folded into a normal budget process? I know you have to inform the Senate, I believe, by January 1st, but it's going to be very impactful on industry. I realize these are options, but how are you thinking about that?
DR. CARTER: Yeah, I think the first thing that you'll see is there are plans for F.Y. '14, for the very simple reason that F.Y. '14 is only four months away. So we need to complete that plan, and parenthetically, we have also promised it to the leadership of the Senate Armed Services Committee, it’s a promise that we'll keep.
The other choices that we have framed up we will make as and when our budget situation -- I would love to be in the position of knowing exactly what the budget was going to be and being able to tell you now or decide now everything we're -- but that's the antithesis of the situation that we're in and, therefore, of the exercise we have conducted.
It is about preparedness and teeing up the choices that we could make, make sure we understand them. Many, of course, we don't want to have to make and hope not to have to make.
MR. FONTAINE: Secretary Carter, you've done a great service to us by being here today. Thank you for everything you've done today and for the country. Thank you very much.
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