In the early 1990s, the Department of Defense made a pivotal decision that has shaped American defense production for decades. Then-Secretary of Defense Les Aspin’s infamous “Last Supper” meeting with defense industry leaders signaled that the end of the Cold War would mean a drastic reduction in military spending and that industry consolidation was required. This move, reminiscent of Britain’s post-war industrial policies, has led to an inefficient and uncompetitive defense sector.
As we stand at another crossroads, the Department of Government Efficiency has a unique opportunity to modernize the defense business, to bring it to the level of innovation and efficiency enjoyed by America’s private sector. As detailed in a recent American Enterprise Institute report, there are steps that the Pentagon could take to propel the modernization of the American military.
The consolidation of the defense industry, much like Britain’s failed “national champions” policy, has stifled competition and innovation. The Pentagon’s long, inflexible procurement process, last overhauled in 1986, has only exacerbated these issues. Each successive reform has added layers of complexity, making the system less responsive and more bureaucratic. The result is a defense sector plagued by cost overruns and delays.
Today, we have a chance to change this trajectory. The presence of tech industry titans at the recent inauguration, coupled with Google’s decision to allow its AI technology to be used in American military weapons, suggests that big tech firms are beginning to recognize their American identity and the importance of supporting national defense. This shift could mark the beginning of a more innovative, efficient and productive future for the Department of Defense.
To achieve this future, DOGE must help the Pentagon rethink its approach to defense production. Here are 10 specific actions that can help align requirements with warfighting needs, eliminate excessive acquisition regulations, promote competition and modernize the defense budget:
- Eliminate the acquirer-operator divide: The defense organizational structure currently separates innovators and acquirers from the people who will actually use the innovations. The services should reallocate by mission area those innovation organizations that have been established to work around the system so they are closely in touch with the warfighters they support. This would start to reverse the centralization of power that began with the Goldwater-Nichols legislation in 1986. Special Operations Command has demonstrated the effectiveness of this model, innovating faster and better than the services.
- Cut regulations: Reduce the Defense Acquisition rulebook by 75 percent, starting with non-statutory regulations. Encourage the acquisition workforce to balance diligence with aggressive creativity and seek input from industry on regulatory barriers.
- Rescind executive orders: Work with the White House to find and rescind executive orders that impose unnecessary compliance burdens on defense contractors.
- Forbid joint programs: Stop creating joint and multi-service programs to drive competition back into the procurement system. The Joint Strike Fighter program exemplifies the inefficiencies and cost overruns these programs currently create.
- Prioritize scalability: Focus on scalable, cost-effective and timely delivery of weapons and munitions. The military should prepare for two long-duration wars — one in Europe and one in the Pacific — and avoid expensive, un-scalable weapons.
- Simplify accounting: Eliminate the requirement for defense companies to maintain separate financials for the Department of Defense, reducing administrative overhead in industry and encouraging commercial best practices.
- Modernize the budget: Overhaul the defense budget structure by eliminating legacy statutory appropriations titles to remove barriers between development, procurement and sustainment. Consolidate program elements and budget line items to simplify oversight and execution.
- Create a rapid response fund: Establish a large, no-color, multi-year appropriation for buying drones and new information technology systems, allowing for rapid response to national security challenges.
- Revise contracting practices: Empower contracting officers to write new contracts faster and more efficiently and prohibit the use of “thin primes” that subcontract most of the work. This will save taxpayer money and improve control over contractors.
- Strip obsolete statutes: Propose that the fiscal 2026 National Defense Authorization Act remove statutory provisions that no longer make sense, fostering a more dynamic and competitive defense sector.
The post-“Last Supper” consolidations of the 1990s transformed the U.S. defense industry into a state-managed sector, echoing the failed industrial policies of post-war Britain. The result has been monopolization, inefficiency and stagnation. To maintain its military and technological edge, the U.S. must break free from this legacy and restore genuine industrial competition.
The Pentagon must stop acting as a central planner and start fostering an environment where innovation, efficiency and competition can thrive once again. Otherwise, America’s defense industrial base risks suffering the same fate as British industry: once dominant, now a cautionary tale.
Elaine McCusker is a senior fellow at the American Enterprise Institute. She previously served as the Pentagon’s acting undersecretary of defense (comptroller). Todd Harrison is a senior fellow at AEI. He previously worked as a senior executive in the defense industry and as an officer in the Air Force Reserves. Retired U.S. Army Maj. Gen. John G. Ferrari is a senior nonresident fellow at AEI. He previously served as a director of program analysis and evaluation for the service.
