<html><body>The Future of the United States Navy June 20, 2005 Unedited transcript prepared from a tape recording. <TABLE width="100%" border=0> <TBODY> <TR> <TD vAlign=top align=left width="17%">8:30 a.m.</TD> <TD vAlign=top align=left width="83%" colSpan=2> Registration</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%"> </TD></TR> <TR> <TD vAlign=top align=left width="17%">8:45</TD> <TD vAlign=top align=left width="83%" colSpan=2>Panel I: Strategy and Missions of the Future Navy</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%">Discussants:</TD> <TD vAlign=top align=left width="62%">Rear Admiral (Sel.) Michael K. Mahon, director, Deep Blue, U.S. Navy </TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Thomas Mahnken, Johns Hopkins University SAIS</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Rear Admiral Mike McDevitt, U.S. Navy (Ret.), Center for Naval Analyses</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Robert Work, Center for Strategic and Budgetary Assessments</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%">Moderator:</TD> <TD vAlign=top align=left width="62%">Dan Blumenthal, AEI</TD></TR> <TR> <TD vAlign=top align=left width="17%">10:30</TD> <TD vAlign=top align=left width="21%">Coffee Break</TD> <TD vAlign=top align=left width="62%"> </TD></TR> <TR> <TD vAlign=top align=left width="17%">10:45</TD> <TD vAlign=top align=left width="83%" colSpan=2>Panel II: Sizing, Shaping, and Posturing the Fleet</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%">Discussants: </TD> <TD vAlign=top align=left width="62%">Terry J. Pudas, acting director, Office of Force Transformation, U.S. Department of Defense</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Captain Karl Hasslinger, U.S. Navy (Ret.), General Dynamics Electric Boat</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Robert Work, Center for Strategic and Budgetary Assessments</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%">Moderator:</TD> <TD vAlign=top align=left width="62%">Thomas Donnelly, AEI</TD></TR> <TR> <TD vAlign=top align=left width="17%">12:30 p.m.</TD> <TD vAlign=top align=left width="21%">Luncheon</TD> <TD vAlign=top align=left width="62%"> </TD></TR> <TR> <TD vAlign=top align=left width="17%">1:00</TD> <TD vAlign=top align=left width="21%">Keynote Address:</TD> <TD vAlign=top align=left width="62%">Admiral Vern Clark, chief of naval operations, U.S. Navy</TD></TR> <TR> <TD vAlign=top align=left width="17%">1:45</TD> <TD vAlign=top align=left width="83%" colSpan=2>Panel III: Budgeting, Transformation, and the Defense Industrial Base</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%">Discussants:</TD> <TD vAlign=top align=left width="62%">The Honorable John J. Young, assistant secretary of the Navy for research, development, and acquisition</TD></TR> <TR> <TD vAlign=top align=left width="17%"></TD> <TD vAlign=top align=left width="21%"></TD> <TD vAlign=top align=left width="62%">Rear Admiral Paul Robinson, U.S. Navy (Ret.), Northrop Grumman Ship Systems</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Ronald O'Rourke, Congressional Research Service, Library of Congress</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%">Andrew L. Ross, Naval War College</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%">Moderator:</TD> <TD vAlign=top align=left width="62%">Frederick W. Kagan, AEI</TD></TR> <TR> <TD vAlign=top align=left width="17%"> </TD> <TD vAlign=top align=left width="21%"> </TD> <TD vAlign=top align=left width="62%"> </TD></TR> <TR> <TD vAlign=top align=left width="17%">3:30</TD> <TD vAlign=top align=left width="83%" colSpan=2> Adjournment</TD></TR></TBODY></TABLE> Proceedings: MR. DONNELLY:  Good morning everyone.  Welcome to the American Enterprise Institute.  My name is Tom Donnelly, and I do defense and national security studies here at AEI. We've got a full day for you, so I'm not going to give too many introductory remarks except to point out that this is the second in our series of conferences devoted to the future of the military services, the armed services.  Back in April we did a similar day-long conference on the future of the Army.  And everybody should mark their calendars for August 18th, because it will be the Marine Corps turn that day.  We have the Air Force scheduled for the fall.  And we're also in negotiations with the SOCOM and the Coast Guard.  So we are an inclusive bunch here. We've got three panels for you today.  The first one, which is about to kick off is essentially a panel on grand strategy.  Essentially, what do we need the Navy to do in the post-9/11, post-Iraq world?  The second panel will be more on military posture, military strategy and operations.  In other words, what missions flow from the strategic realities. And this afternoon's program will be on the programs and budgets and other specifics about how to conduct these  missions that we foresee for future and that we have before us today. Between the second and third panel, we'll be hearing a lunchtime address by Admiral Vernon Clark, which everybody knows is the CNO.  And he's a man who has done a lot to shape the Navy and reshape it for the missions it's got today and the missions before it.  So it's in some ways a valedictory address by Admiral Clark, but it will still be a quite one, I know. A few quick ground rule administrative notes.  Everybody sees the television cameras.  We are thus under the tyranny of time even more than usual.  So we're going to try to keep it as closely as possible to the schedule.  And there may be only marginal breaks between the events.  So if you've got personal business to attend to, just keep that in mind. Also, finally, the trinity of AEI rules about the Q and A sessions, first of all, wait for the microphone, identify yourself for the purposes of a transcript; secondly, keep your question brief; and most importantly -- third -- of all, ask a question.  Statements can be submitted later for the record. [Laughter.] I'm particularly pleased that this conference, because I've got two of my new colleagues here at AEI in Defense and Security Studies who are going to be moderating the panels, or two of the panels, which lifts the burden for me, which I'm very pleased about.  And therefore, I'd like to turn the microphone and the proceedings over to Dan Blumenthal to chair the first panel. Dan, the floor is yours. MR. BLUMENTHAL:  Thanks, Dan.  And thanks everyone for coming this morning.  I am Dan Blumenthal as Tom as said.  And I'm a resident fellow in Asian Studies here at AEI.  And I just recently left service in the Office of the Secretary of Defense, where I was in the Asia Pacific Division.  And I'm delighted to moderate this distinguished and important panel on the future of naval strategy. And we really have an exceptional group of experts to discuss this subject, some of the nation's leading thinkers and practitioners within the naval profession who are deeply involved both inside and outside of the military and the government in analyzing the Navy's future goals and how they fit into the Pentagon's transformation plans. And we have here--I won't go into too much detail on their biographies because you have it in their packet--but we have Dr. Thomas Mahnken, who is a Business Fellow at the Johns Hopkins School for Advanced International Studies and has written on a broad array of subjects on everything from naval strategy to intelligence to conventional and nuclear deterrence and is very well equipped to handle the topics he'll be discussing today. Next to him we have Admiral--or Admiral-Select, I'm sorry--Michael Mahon, who his the Director of the Deep Blue, which is the sort of in-house think tank to the chief of staff of Naval Operations.  And he's also a surface combattant officer.  And so he's both a the thinker and a practitioner in the naval arts. And then we have Robert Work of the Center for Strategic and Budgetary Assessments, who is a retired Marine colonel and served in a number of both combat and staff positions throughout his career in the Navy and in the Marine Corps. And to his right, we have Admiral Mike McDevitt, who is a expert on the Navy and on strategy and on specifically the Asia Pacific Region, who will tackle the difficult issues of what the U.S. Navy should be thinking about as it faces some very challenging issues in the Asia Pacific Region. And so this group of panelists, I can't think of a better group to bring together.  They've written on a broad array of subjects relating to the Navy, everything from how to combat the war on terrorism to the emerging threats the nation faces over a longer period of time and basically how to use the Navy to support the nation's rather ambitious national security strategy. So without further ado, let me turn it over to Dr. Mahnken to begin.  And we'll follow in the order that they're seated, which makes things easier. Thanks. MR. MEHNKEN:  Great.  Thanks, Dan.  Given the time I have this morning, what I thought I would talk about is the role of the Navy in the so-called global war on terrorism.  And the basic argument that I'd like to make is first, that the Navy can make a major, though perhaps not a decisive contribution to this war.  And second, maybe perhaps theoretically (ph) that there's nothing novel about the role sea power can play in this war.  The Navy's role in this war will be similar to that that other navies have played in past protracted wars. In other words, an 18th century sailor, a 19th century sailor, even an early 20th century sailor would intuitively grasp the role that the Navy needs to play. However, the role that I'm going to sketch out does challenge the role that certain parts of the Navy have set out for themselves in more recent history. So, first, what is it that navies do?  How in other words, do navies contribute to victory in war?  Navies rarely win wars by themselves.  I mean, although, history focuses on decisive naval battles, those battles are, you know, rare historically for a whole host of reasons. That doesn't mean that navies are useless.  I would argue that navies make six contributions to strategy overall, two that are sort of in the realm of grand strategy and four that are in the realm of strategy proper, fighting and winning wars.  And each will be important in this war. First, beginning kind of in the realm of grand strategy, merely by their existence, navies affect the way other states and other actors regard them, and they shape the competition that exists. Second, through their presence, they shape the activity of other states, both friends, neutrals and potential adversaries.  They act as a deterrent to potential adversaries, an enforcer of international law and international norms, and as a coalition builder, a coalition enabler. And then in moving to the realm of kind of strategy proper, the conduct of wars, navies have four roles, again, that will be important in this war as in other ones:  sea control, permitting friendly forces to use the sea and denying its use to adversaries, protecting and disrupting sea lines of communication, acting as a platform for launching strikes, including expeditionary forces.  And then last, but not least, everything else, because I think if history teaches us anything, it's that we buy navies to do one set of things, but often they're used for very different purposes.  So we should acknowledge that up front. So, what is the role of the Navy in U.S. strategy?  And before I move to the future, I just want to point out that the Navy has already played an important role in Operation Enduring Freedom, Operation Iraqi Freedom and the broader global war on terrorism.  And if I have a fault with the Navy, it's that it hasn't done as good a job as it could in getting this story out and explaining the role that the Navy has already played. Just three quick examples.  One, from OEF, one from OIF and one from the broader global war on terrorism.  For OEF, perhaps a fairly traditional Navy contribution, but naval air provided much of the air power at the beginning of Operation Enduring Freedom.  I say that, sort of a traditional contribution until you realize that of course Afghanistan has no coastline, and that the Navy was actually projecting power far inland at the beginning of the OEF. OIF, it was Navy Seals, who seized Iraq's oil export infrastructure at the beginning of Operation Iraqi Freedom, preventing the Iraqis from sabotaging it.  This is something that usually gets one or many two lines in histories of the 2003 Iraq war, but it was actually very significant and would have--if it hadn't happened, if the Iraqis had sabotaged the infrastructure, it would have set back reconstruction efforts quite significantly. Finally, on the broader global war on terrorism, I would just highlight again another sort of non-traditional contribution, that of Navy interrogators.  We hear a lot about Army interrogators--some positive, much negative--Navy interrogators, all Reservists, by the way, don't get much, if any press, but are working, quote, "professionally and effectively" around the globe. So the Navy already is making, you know, a contribution.  What might that contribution look like over the long term?  So beginning with sort of the contribution to grand strategy, first, the mere existence of a strong Navy affects how others regard us.  The U.S. possesses the most powerful Navy in the world.  The next most powerful Navy, the Royal Navy, is an ally.  So too with many of the other most powerful navies in the world.  They're friends or allies. I personally don't have a problem with that.  It's perfectly fine with me, and I think it's great that we don't have to face another strong navy.  And I think we should try to keep it that way.  I think a strong Navy may also be able to dissuade potential adversaries from challenging us.  Even if not, I think it's worth a shot. Now that doesn't mean that other countries, other navies cannot pose a threat.  It doesn't mean that they won't seek to counter us in one way or another.  But having a strong Navy does give us a significant advantage, an advantage that others pay attention to. Second, the U.S. presence abroad affects how others act--friends, neutrals and adversaries.  This is a traditional bread and butter Navy mission--presence--or as we now call it shaping.  And naval forces have particular strengths as tools of presence and engagement. First, they're sustainable.  Naval forces are built to be expeditionary.  You can sustain a forward posture ad infinitum.  That's the way the Navy is built. Second, they're less of an irritant than ground forces.  It's more acceptable to have naval forces deployed abroad.  Also easier to protect. And they're also a more acceptable means of coalition building for a lot of countries.  I go back just a couple of years ago to when Japan started sending troops, or made a force contribution to Operation Enduring Freedom after 9/11.  It was naval forces they deployed to the Arabian Gulf.  That was seen as an acceptable way to contribute without making a large political step. Similarly, as we've improved our military-to-military ties with India, naval forces have kind of been at the forefront as an acceptable way of building military-to-military cooperation. Second, let's talk about naval power in the so-called global war on terrorism.  And the reason I say so-called global war on terrorism is because I think how we talk about things matters and how we talk about things shape the way we think about them.  And I think the term global war on terrorism is misleading in at least two senses.  First, it's not truly global.  And second, it's not a war against terrorism in the abstract.  In fact, what we're engaged in is a protracted war against a coalition of Sulafist Islamic terrorist groups. These groups exist at the national level, some exist at the regional level, and they're sort of aggregated over the umbrella of Al Qaeda, if you look at the global level. And I think thinking about this war in this way is important because it points to some of the things that navies can do, and specifically the U.S. Navy can. And the first thing that the Navy can do is exert sea control.  Now when I mention sea control in the context of this war, I usually see people's eyes rolling, because the term has kind of a musty 19th century air to it.  And it evokes images of lines of battle and Alfred Thayer Mahan. But in fact, sea control is central to what we need to do in this war.  Now a number of years ago, back when Saturday Night Live was actually funny and back when Steve Martin consider himself a comedian and not just a serious actor, so a number of years ago, decades ago. I remember he was hosting a Thanksgiving show of Saturday Night Live, and he was doing the opening monologue.  And the monologue was all about things I'm thankful for.  And it was a litany of things he's thankful for.  And one point he said, and I'm thankful for the Atlantic Ocean because without it thousands of Portuguese would be walking to the eastern United States. Now with all due respect to Portugal, but to me this is a great metaphor for sea control because without the U.S. Navy and without frankly the Coast Guard, also, terrorists would have options that they currently do not have for attacking the United States.  Through sea control we can hope to prevent terrorists from attacking the U.S. by sea. Again, not to say that it's 100 percent effective, but by exerting sea control we can make it an unattractive approach, make other approaches more attractive. Another mission, protecting and interdicting sea lines of communication.  As I noted above, what we talk about as Al Qaeda or the global war on terrorism, is in fact an international network or coalition that operates across multiple theaters.  Some of their lines of communication are in cyberspace.  Some are on land.  But some are also at sea.  And interdicting those sea lines of communication through maritime intercept operations, is a central contribution that the Navy can make to this war. This too, is a traditional naval mission.  The Navy has a rich history of doing this, going back to its earliest days, a rich tradition of combatting criminal organizations, lawlessness.  Think about anti-slavery controls, anti-piracy patrols.  Again, is kind of a bread and butter Navy mission. And then finally, the Navy provides a platform from which we can launch strikes.  And I include air strikes, missiles, and expeditionary forces under this category. This war has had some major campaigns--Afghanistan, Iraq.  It's likely to have others, but it's also likely to have many more small scale operations, raids, if you will.  And sea provides a great medium for maneuver and for launching these types of operations. So, in conclusion, the Navy has an important role to play in this war.  It's what navies do and it's what the United States does and the United States Navy does.  And I think much of what I'm saying is that the Navy really needs to rediscover and recover its heritage. The U.S. Navy is not only the Navy of Nimitz and Spruentz (ph) but also Stephen Decatur and Matthew Perry.  And the Navy needs to do a better job of tapping into that historical experience that it has in these basic Navy missions. That having been said, the role that I've sketched out is different from much of what parts of the Navy perceive the role of the Navy to be.  If you follow the logic of my presentation, I think we're talking about a relative increase in emphasis on the surface Navy, perhaps decrease on naval aviation, more emphasis on smaller craft, less on larger craft.  And so this will require over time a Navy with a new culture, or more accurately a old culture, a Navy that returns to its roots. And with that, I'll end. MR. DONNELLY:  Well, thank you very much, Tom, for a very good, clear, succinct presentation.  I would take issue on the Saturday Night Live issue.  It's still occasionally funny. [Laughter.] But different panel.  Anyway, let's move on.  What we should do is move through the presentations and then start the questions since we have a lot of ground to cover. So Admiral-Select, over to you. ADMIRAL MAHON:  Thank you, Dan. And I'm in the position here right now  feeling like I should just agree with the previous speaker and turn it over to Bob.  But I'd like to first thank the American Enterprize Institute for hosting this conference and the opportunity to participate in this panel.  Up front I want to be absolutely clear.  I am not the strategist on this panel.  I am an operational planner or some people might say a pump kicker.  My job as Director of Deep Blue is to help fleet commanders around the globe take the forces that they have today and find better ways to use them, to get more combat capability out of them. The CNO created Deep Blue in the wake of 9/11,  We're modeled after the Air Forces checkmate, which has been around since the 1970 and he's tasked us to provide him innovative and transformational ideas to support joint combat operations.  And that's what we pretty much do. He's also specifically told us to focus our efforts on the global war on terrorism, and help the fleet commanders and conforming (ph) commanders beater perform their missions. With that context for Deep Blue, let me move on to what our three principle drivers or imperatives are in our day-to-day work.  First and foremost, as you all know, our country is at war.  And supporting Navy joint and coalition forces in that war is our first priority. Second, the U.S. is and will continue to be a global power with global interests.  That puts us in regions where there are competitors that challenge us.  And we are willing to work with the other services and coalition allies.  We are willing to work with the other services and coalition allies to protect those interests. Finally, we live in a fiscal constrained world.  And we have limited resources.  And because of the realities of the budget process, and those limited resources, we are forced to squeeze every ounce of combat capability out of the forces we have. And we look for ideas rather than resources solutions to problems first. The timing of this conference, I think, could not be better.  As you know, the Pentagon is in the midst of a Quadrennial Defense Review.  And that QDR comes at a time right after the publication of a new national defense strategy. The Quadrennial Defense Review is launching a discussion of strategies, roles and missions and capabilities.  And it's pretty clear that the QDR provides and opportunity to operationalize this new national military strategy. The National Defense Strategy recognizes that we are in a time of unconditional challenges and strategic uncertainty, but it also asserts that we will still live in an era of advantage and opportunity. This strategy implements the President's commitment to the forward defense of freedom as articulated in National Security Strategy using an active way or approach.  The strategy emphasizes the importance of influencing events before challenges become dangerous and less manageable. Most importantly, the new National Defense Strategy outlines how we will deal with challenges we will likely confront, not just those we are currently best prepared to meet. The four key strategic challenges are listed here in the top left hand corner of this slide.  From those challenges, the strategy postulates four national strategic objectives, how we will accomplish those objectives and then implementation guidelines for the strategy. Now the Navy's view comes in in the execution phase.  And this is an important point to make.  The Navy does not make strategy.  We implement the strategy given to us by the Office of Secretary of Defense and the National Military Strategy, which is agreed upon between the services. Frankly, as a naval officer, I'd like a strategy.  Throughout history all great navies have been offensive organizations.  They defended their national interests by being forward and taking the fight to the enemy.  Fundamentally, sailors are offensive warriors. Because of rules of engagement, we may not be able to take the first shot, but we are trained and equipped not to take the first hit while seizing the initiative as soon as possible. We'll also understand the importance and value of forward presence.  If you want to influence events before challenges become more dangerous, you must be forward in the right places with the right forces at the right time and able to project power and sustain those forces without asking permission. So what is the role of the Navy in the post-9/11 world?  To provide all weather combat credible power to the four corners of the earth under U.S. sovereignty maximizing options for the President any time, any where without a permission slip.  That is exactly what the Navy provides the nation.  That's what we've been doing since 9/11, and it will continue to be our role as we move forward in the 21st century. Now every year the CNO provides guidance to the Navy and adjustments on how we'll organize, training and equip to execute the national strategy and defend America. Admiral Clark has used his guidance to assign very specific tasks to individuals with deadlines to meet.  It's really a plan of action.  Now for the last three years, he's established three consistent priorities in his guidance. First and foremost, to win the war on terror.  Second, to increase the operational availability of the Navy.  And third, to provide for homeland defense and homeland security. Now this guidance is underscored by a division that he provided the Navy in 2002--Sea Power 21.  It is his path on we will organize, integrate and transform the Navy for the 21st century. Along the lines of the comments that Tom made concerning the traditional roles of the Navy, Admiral Clark's vision for the 21st century involves the concepts of Sea Strike, Sea Shield, Sea Basing and Force Net.  They are essentially the traditional power projections sea control roles, but they are designed to take that capability from the sea, across the sea lane interface and move into the land environment. Under Sea Strike, we project persistent offensive power ashore. Under Sea Shield, we also project defensive global assurance with our defensive capabilities of the fleet.  And Sea Basing, we provide the capability to project joint operational independence ashore. Force Net is an over-arching effort to integrate warriors, censors, networks, command and control, platforms and weapons into a fully netted combat force. Admiral Clark's vision published in 2002, I believe, stands us well as we move into the 21st century.  And it certainly has positioned us to fight the global war on terror. Prior to 9/11, the Navy and the other services planned to conduct two major regional conflicts or theater wars.  A key assumption of this strategy is depicted on the left side of the this slide.  The strategy assumed that if we had the capabilities to prevail in these two major regional conflicts, we could also accomplish other lesser included tasks like counter-piracy, peacekeeping and enforcement counter-terrorism and humanitarian assistance and disaster relief. Thus, Admiral John Morgan, the Navy's Director of Strategy Plans and Information, has proposed a new three-one construct that supports the new National Defense Strategy that's depicted on the right hand of this slide. The three-one construct postulates the capabilities required for stability operations, the global war on terror, and homeland defense and homeland security are not wholly captured by the capabilities required for major combat operations or the new term, for major regional conflicts. This construct is intended to provide strategic context to help inform the investment.  There has been a lot of debate inside the Navy about the role or size of the circles and where they are really located.  But the construct has been useful in helping to inform investment decisions. So far our analysis indicates there are several missions, tasks and capabilities that may not be part of major combat operations, but are unique to stability operations, the global war on terrorism and homeland defense and homeland security. Sea Power 21 was implemented by a new global concept of operations that began taking shape in 2001.  The new global CONOPS disperses the combat striking power of the Navy by creating additional independent operational groups capable of responding to crisis situations simultaneously around the world. This increase in combat power is possible because of the current capabilities of our ships, submarines and aircraft to project power and defend themselves in a variety of threatened environments.    As the technological advancements envisioned in Sea Power 21 become available, the netted war fighting affect of our disbursed independent operational groups will grow.  The first step in implementing the new global CONOPS was the establishment of new independent strike groups from within existing force structure.  In the past, the Navy had 19 independent strike groups.  Under the new global CONOPS, the Navy expanded to 37 independent strike groups consisting of our traditional carrier strike groups that provide the full range of operational capabilities.  And these strike groups will continue to provide unmatched sustained power projection capability, extended situational awareness and combat survivability. Expeditionary strike groups, which is really the new concept within these global CONOPS, consisting of amphibious ready groups, augmented with strike capable surface ships and submarines. These strike groups are capable of conducting missions in lesser-threatened environments and have already proven themselves very effective in prosecuting the global war on terrorism. Missile defense surface action groups provide security to allies and joint forces ashore by projecting their defensive capabilities.  Specifically modified Trident submarines will join this new global CONOPS.  They will have the capability of also projecting power ashore with Cruise Missiles and the insertion of SOF (ph). These additional strike groups allow the Navy to better posture its forces for the global war on terrorism and to dissuade and deter regional threats from around the globe. As the Navy transitioned out of major combat operations in Iraq, we implemented the fleet response plan, which was designed to dramatically increase the readiness and operational availability of our carrier strike groups.  In the past, our carrier strike groups went through an operating cycle that began at the end of a six month deployment and ended 24 months later at the end of another deployment. As depicted in the top left of this slide, the aircraft carrier and its associated surface combatants and submarines would return from deployment and essentially have several months in home port awaiting the start of maintenance availability. After the maintenance availability, the strike group began an intensive exercise training period that culminated in the Joint Task Force Exercise, or JTFX a few months before deploying again.  These periods of time before and after the maintenance availability were lost operational opportunities because the strike group was not ready for employment. Under the fleet response plan, significant investments were made to increase the readiness of our carrier strike groups throughout their operating cycle.  Now, instead of returning from deployment, splitting up and standing down in preparation for a maintenance availability, the carrier strike groups maintain their integrity and readiness to surge on short notice and response to crisis. Similarly, as soon as possible after they have completed their maintenance availability, they complete basic and intermediate phase training so they are ready again to surge in an emergency. With the fleet response plan in place to support the new global CONOPS of disbursed naval forces posture to prosecute GWOT and deterrence, the Navy is ready, responsive and relevant. To support the execution of the global CONOPS and fully exploit the readiness and responsiveness of the fleet response plan, the Navy supports a more flexible deployment construct that enables it to deliver the right mix of presence in surgeable forces.  We need to be postured for the global war on terrorism and deterrence.  We need to be able to surge naval forces on short notice on crisis response and we would use the concept of pulsing for joint and coalition exercise and theater cooperation under this flexible deployment concept with the naval strike force training, experimentation, and operations to strengthen our war fighting capabilities. As I mentioned earlier, we have identified several task and capabilities that apply to the post-9/11 world.  In the prosecution of GWOT, the Navy is projecting power, sea strike, projecting defense, defensive assurance, sea shield and projecting joint operational independence, sea basing from the Latorals (ph).  This slide depicts some of these missions. Right now in the Arabian Gulf, naval forces, coalition and U.S. Navy forces are conducting maritime security operations.  The idea here is that we are actually providing security for bridle (ph) infrastructure throughout the region.  It's something that the Navy really hasn't done in the past.  But we're doing it today, and we're doing it with our coalition allies. We're also doing expanded maritime interdiction operations where we are actually on the hunt for terrorists on the high seas.  As Tom indicated, we're out there trying to interdict the flow of terrorist activity on the high seas and actually captured terrorists are using that to move between places. We are also doing time sensitive precession strike, something that's kind of again kind of unique, something that we had not planned to do before, where you actually are dropping bombs in a very precise way inside of a country that you don't want to destroy.  And you want to protect the people that live in that country but take out the insurgents that are challenging the government. Finally, and I think this is an important point that Tom made as well.  The Navy is enabling our allies and coalition partners to help fight the global war on terrorism.  Today we have an Australian commodore who is commanding Task Force 58 in the Northern Arabian Gulf, providing maritime security for the infrastructure in the Gulf, and the Iraqi oil platforms in particular.  He's embarked in the U.S. Navy Aegis cruiser (ph), and he's performing that mission as the task force commander. We also have French and German ships operating off the Horn of Africa providing maritime interdiction and maritime security in the Horn of Africa, the Gulf of Aden region. Similarly, we have allies who are operating in the Northern Arabian Sea off the coast of Pakistan interdicting the potential movement of terrorists and terrorist activity on the high seas.  The Navy is enabling our allies to participate in this war. Emerging regional competitors have learned through Dessert Storm, Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom, that our success is made possible by our unfettered access from the sea.  As a result, they are developing capabilities to deny us access with submarines, mines, swarms of small craft with anti-ship missiles, torpedoes, guns and rockets and high technology mobile air-breathing and ballistic anti-ship missiles.  These capabilities mean we must put a premium on a traditional mission of sea control from blue water to the Latorals and perform theater missile defense to enable joint access. On several occasions the CNO has been quoted as saying,"I need tomorrow's Navy today." We have taken advantage of the significant investment in our current platforms and modified them so that they can perform the missions required in the post-9/11 world.  Good examples are the SSGN where we've taken a Trident submarine and modified it to launch Cruise Missiles and to insert SOF (ph).  Aegis guided missile cruisers and destroyers are being modified to do ballistic missile defense, a mission they were not originally intended to do. The F-18 E and F provides increased combat readiness, persistence and striking power and with the introduction of its APG-79 [inaudible] radar, the full capabilities of the F-18 Hornet will be realized. We're using high speed vessels that are commercially available from our allies.  We'll kaput them to use in OIF.  We're getting ready to deploy a high speed vessel to Southeast Asia to conduct expanding naval operations and maritime security operations in that region. The SSNs are actively providing intelligence surveillance and reconnaissance in support of the global war on terrorism.  The maritime prepositioning ships continue with their vital mission, but are also looking for ways modify them for GWOT.  We're currently using a maritime prepositioning ship in Southeast Asia to serve as a forward staging base to support expanded meal operations and other GWOT missions. Based on the cost and success of this platform, we could be modifying many more of these ships. To keep pace with the threat in the post-9/11, we will require capabilities that are current platforms just do not provide.  That's the reason why we need JSF, LCS, TDX and CJX.  And there will be speakers this afternoon that will address the those issues in detail or the those platforms in detail.   The global war on terrorism is about finding, fixing and finishing terrorists and their networks.  The finding and fixing dominate the process and require the most significant resources.  In major combat operations, the reverse is true.  We usually know who and where the bad guys are most of the resources are spent.  Most of our resources are spent putting ordinance on target.  But generation of actionable intelligence are abilities required. Data mining of terabytes of data, with visualization techniques to help us identify key nodes and breakdown networks.  Biometrics--Assistant Secretary McHail said it best in October of 2004:  Our enemies are brutal, clever and no longer in uniform. I believe that in identifying these 21st century enemies, biometrics can play an extremely important role.  The Navy is deploying its first ships with biometric capabilities that are netted into the FBI data base, which allow us to identify terrorists on the high seas today. Intrusive persistent ISR, capabilities that can get in to the terrorists' domain.  We're deploying those capabilities on our ships in the very near future. In port, boarding team capabilities, our boarding teams have gone from non-compliant capability--correction, from compliant capability that we needed in enforcing sanctions to a non-compliant war fighting capability that we need in the global war on terrorism. I mentioned time sensitive precision strike.  That's a mission that we expect will continue to be important. We've also been doing an experiment with our expeditionary strike groups with the Marine Corps.  Over the last two years, we've been looking at what the right command structure is for expeditionary strike groups.  And what we've learned from that experiment, we deploy expeditionary strike groups lead by either a Navy flag officer or a Marine Corps One Star is that command capability itself provides a unique addition to the global war on terrorism. It enables in operations across the sea-land seam that could not be accomplished with our normal O6-lead ESGs, because the combattant commanders are willing to assign that flag officer, general officer-led expeditionary strike group a joint task force mission. Emerging regional competitors are developing capabilities to challenge our access.  And again, theater missile defense and distributed netted ASW capabilities will be critical in keeping pace with those threats. As Tom indicated, we may take a look at our roots.  We may need to take a look at our roots and going back to the turn of the 18th century and thinking about how we employed our Navy then. There are over 6,000 U.S. Navy sailors on the ground in Central Area Command area of responsibility.  From Afghanistan to Iraq and throughout the rest of the region, Navy aviators, maintenance personnel, corpsmen, doctors and nurse, Seabeds and SEALS, as well as numerous individual augmentees from active units or mobilized Reserves have been put in the line of fire. To ensure success in the global war on terror, should the Navy returned to its roots and formally trained units of sailors for expeditionary missions ashore?  I offer that as a question for discussion. Along those same lines, should the Navy reestablish a conventional riverine capability to counter irregular threats?  To support stability operations, theater security cooperation and to more effectively shape the environment, should the Navy develop an expeditionary training capability?  And again, to support stability OPS and help shape the environment, should the Navy establish its own civil affairs capability? Now arguably, the performance of the Navy during the tsunami relief effort, was something I'm very proud of.  Abraham Lincoln Strike Group not trained in the mission was able to go out there and do it and do it extremely well. But if we had our own civil affairs capability, would that have given us a leg up in making that happen? I offer those questions for consideration. This afternoon, the CNO will give you his perspectives on today's topic.  His visionary leadership over the last five years has served us well. And I thank you again for this opportunity to participate on this panel.  And I look forward to your questions and comments. MR. BLUMENTHAL:  Thank you very much for a very thought provoking presentation.  The PowerPoint and the slides are making me nostalgic for my old job at the Department of Defense.  But really, thank you very much for that.  And you posed a number of questions that either will be turned on you to answer yourself or maybe others here will be able to take a stab at it. But let's move on to the strategy and missions of the future Navy.  Robert Work? MR. WORK:  Thanks, Dan. Well, I was going to describe myself as the runt of the litter, but after seeing my fellow panelists, I decided to say I'm the ugly duckling. [Laughter.] You know, you might ask why a Marine is on this panel.  And I'm really gratified that Tom included one on the panel on the future of the U.S. Navy.  My last job in the Department of the Navy was as the military assistant and senior military aide to the Secretary of the Navy.  And I went into that position as a Marine first and a MAGTFO (ph)--a Marine Air-Ground Task Force Officer--second, and an artillery man, third.  I was an artillery man.  But I left that job as a Marine first--I'll never be able to get that out of my system, nor do I want to, but I'm a departmentalist, second.  And I'm a MAGTFO (ph) officer, third. So including a Marine on this panel, I think, is totally appropriate.  And thank Tom and AEI for including me. I think it's good to think about this strategy in terms of an enduring naval competition.  You can track it all the way back to the Delian League and the Athenian empire, and they were always a constant, differing group of players.  And they all are trying to do different things. Some are always trying to become the number one global competitor.  Others are just trying to participate in the race and maybe become a respected regional power.  And others are just in the race to become part of the nations that use the sea and do not try to compete against the top powers. Now in 1890, the U.S. Navy made a very critical break.  It decided it was going to become either pushing number one or number one.  Up to that point it had been content to just do hemispheric blockade breaking and gear to course. Well, about six decades later, some time between 1944 and 1945, the U.S. Navy achieved its goal and surpassed the British Royal Navy as the number one naval power on the planet.  The combined chiefs of staff of the British--imperial staff--sent Admiral King a text, an illuminated text on his retirement in '45, and having held the mantle of the number one power for over 150 years, graciously acknowledged that the U.S. had surpassed the Royal Navy. And despite being pushed in the Cold War, it's a position we've never relinquished since. Now a lot of people--I constantly use data points just to say the first thing you have to ask is if you're in this competition to win, where are you in the race?  Are you in the lead?  Is your lead shrinking?  Is the lead widening?  Are you behind?  All of those things will inform what you want to do. If you take a look at the U.S. Navy today, it is astounding the lead that they have.  Now you can use all sorts of different metrics to do this, but essentially there are only 17 navies in the world that operate a combined fleet greater than 50,000 tons, including combat capable aircraft carriers, submarines and surface combatants with a full load displacement of greater than 2,000 tons.  Only 17 besides the United States. The United States has 2.86 million tons of warships and they have less than that.  Those 17 competitors have less than that.  We have a 17 Navy standard in tonnage. And you can just take a look at some of the other things.  It truly is a remarkable state of affairs. The reason why I emphasize this is because many people--it used to be that you would count the number of ships in the fleet and compare it against another Navy and you would judge, oh, my gosh, the relative--our Navy is falling behind. Now we use numbers of our Navy as an absolute measure.  And we only compare ourselves against past U.S. fleets.  So a 600 ship Navy 20 years ago has to be better than the 290 Navy today.  And that's simply not true. Now the Greeks had a different way of thinking about the past than we do.  The Greeks thought the past was before them, and they always studied the terrain of the past that they had traversed.  They were afraid of the future.  The future was a like a thief in the night.  It came up behind them. Too often we view the future in front of us and the past behind us, and we don't think about the past.  So I applaud both Tom and Mike's position that you really have to go back to your roots and study this. Now Samuel Huntington divided this race for the United States, I think, quite nicely into eras.  The continental era, in which we were not competing against the top powers and the frigate was the ship of the time.  We were really focused on hemispheric threats.  In the oceanic or expeditionary era, we started projecting power over seas, and that's when we decided we had to compete against the number one navies in the world.  And that was known primarily as a battleship era.  In the trans-oceanic era, I refer to as the garrison era, because for the first time, we had large standing forces over seas.  The Navy is now worried more about reinforcing garrisons over seas rather than projecting power.  They do do independent power projection, but it's very critical for them to be able to reinforce forward garrisons.  And that was characterized by the carrier era. So what the Navy has to struggle with right now is we know we're in a new national security era.  It started in 1989, not 9/11.  1989 started the new era.  9/11 just happens to be one of the wars in this era.  And you would expect the battle force to change as a result. I think that you have to call this one--you take a look.  This is a quote by Winston Churchill in 1942.  And you ought to take the time to read it because it describes, I think, exactly the situation that the United States finds itself in today. "The oceans are once again a threat, but they are also a bar because more of our forces are coming back to the continental United States and we're doing expeditionary operations primarily from a colonialist power projection base." Now joint operations are greatly facilitated by our lead.  We command the seas. Samuel Huntington says you have to conceive of the sea as base, and it is critical that because sea basing is not what he was talking about.  He said conceive of the sea as base from the coast--both coasts of the United States to just off shore, a country anywhere in the world that you can get to.  And if conceive of the sea as base, you don't need frigates because--as many frigates--you don't need to escort them across the base that you hold. So when he was thinking--I think of it in terms as sea as base rather than sea basing. Now Mike mentioned the QDR.  I want to spend some time on here because I think the QDR will be the first true defense review in this new national security era. Essentially what we did in the '90s was take the Cold War defense problem, of defending the inner-German border and regionalize into two what were first called major regional contingencies and then major theater wars and now major combat operations. It was a decade that I think historians will look back upon and say it was conservative strategy, a lot of uncertainty, not certain which way things are going, and it was right for the times. But now our lens of the future sharpened by 9/11 is much clearer and prescription that we had been using with the Cold War is now out of date and needs to be updated. As Mike said, there's really not a lot of concern about traditional threats.  We're moving more to these irregular threats.  And I think this is the first time that there really is a chance that there's going to be a new standard, force standing and sizing construct that's going to change. Budget pressures are building up.  And it's really hard for me to see.  Right now we size our force for two major regional contingencies as Mike said.  We have to have enough forces to be able to go to one contingency and then about 30 days to 60 days later ship to another contingency. It's really hard for me to see that surviving in this QDR.  I don't know what it's going to be called, but my prediction is it will be called something like one, one, one or something different. The Navy will be tasked to conduct maritime defense and depth of the  homeland to include all types of WMD attacks against the United States--weapons of mass destruction.  So not only will they try to stop sea-born attacks coming in from containers, for example, but they will try to assist in stopping missile attacks against the homeland. The second one, as both Tom and Mike have talked about, is to fight this persistent irregular war against extremists.  From a Marine's perspective, we're fighting a global counter insurgency.  From the Navy's perspective, it's this very sea-controlled aspect that Tom was talking about. That is one of the big things.  And so we will probably be tasked only to do one major regional contingency shipping right out of our posture in this global war. Now there's a metric called 10-30-30.  It is in my mind a metric that needs to be retired as quickly as possible, and I hope in this QDR it will.  What that calls for is you have to be able to seize the initiative anywhere in the world in 10 days.  You have to be able to win the war in 30.  And then 30 days after that, you have to go and win another war in exactly the same way. Now there are a lot of proponents for the 10-30-30, but I am not one of them primarily because speed is very, very good at the tactical and operational levels of war.  But at the strategic level of war, it has a much more mixed record.  Anytime you conflate speed with strategy, you start to get into a short war scenario, which really starts to get you if you're off (ph). So looking back as Tom and Mike have said, if you look back in history, you say, wow, we really are kind of like the first expeditionary era and the Navy is going to be extremely important, as far as the one, the first one, maritime defense and depth of the homeland. In the mid-'90s the Navy and the Coast Guard signed an MOU called the National Fleet.  A CNO and the Commandant of the Coast Guard agreed to have a national force of small cutters.  Normally in war time, or not always, but a lot of times the Navy and the Coast Guard merge in time of war.  I believe that would have been one of the options, to merge the Coast Guard and Navy to fight this persistent irregular war.  That is not going to happen right now.  The Coast Guard will stay in the Department of Homeland Security. But it is imperative that you be able to draw upon the capabilities of the Coast Guard and that the Coast Guard can draw upon the capabilities of the Navy, if necessary. So the idea of a national fleet really starts to come to the fore.  The Navy already is starting to help on sea-borne ballistic missile defense of the homeland.  As many of you probably already know, 15 guided missile destroyers are being converted by the Missile Defense Agency to have a long-range search and track mission to que the national missile defenses of the nation. And three cruisers are going to actually have an ability to try to do intercepts.  By 2010, all 18 of these are supposed to be capable of doing both.  That mission may grow over time.  Eighteen vessels may be enough, but it is going to be a new mission for the navy. Now as Tom said, the enemy doesn't have a Navy, per se, but he has a naval strategy.  It's called guerre de course.  We should be very familiar with it.  We practiced it for over a century.  And the British are very familiar with it because they had a heck of a time trying to stop us from getting out on the open sea. Therefore, sea control is important.  The way you fight against an enemy fighting guerre de course is you conduct what is called a close blockade.  This theater is too big to do a close blockade along every bit of literal, but once you start to network and once you have broad area maritime surveillance platforms like the Global Hawk feeding multi-mission manned aircraft and LCSs, you can start to do a distributed blockade even though this is a very large area.  It's a conceptual problem, which is right now stressing the Navy, but in my mind I think they're on the right track with the LCS, which I'll talk about later. Once again, however, you have to conceive of the national fleet.  There's about 160 cutters and boats that the Coast Guard has that the Navy would probably have to duplicate if the Coast Guard wasn't here.  If you do not count those as part of your Navy and you do not use them as part of your strategy, you're really going to have problems. Now as far as joint power projection operations, in my mind, the one thing about this era that's going to be different than the garrison era is the likelihood of the nuclear weapon being used I think is very much higher than it's ever been before. The enemy is not deterred and is obviously seeking to gain this capability and therefore, what the Navy and the Marine Corps have to do is, okay, we definitely wouldn't want to have this mission, but if we were told to go into a literal in which nuclear weapons might be used, how would we go about it?  The Navy and the Marine Corps thought a lot about that in the late '40s and '50s, but haven't thought about it since.  It's time to renew that. It's also--try to think about that should be forcible entries.  In other words, we have to think just like in the first expeditionary era, that we may have to create access where there is not.  We do not have to do that in the garrison era.  We generally had access.  As a result, the sea-based maneuver fleet became a transport fleet designed to get reinforcements to theater.  And we allowed the amphibious assault capability of the fleet to get down to 2.5 MEBs worth of lift.  Now I don't believe you need to go much beyond that, but you definitely don't want to go below it in an era where everyone admits there's uncertain access. Finally, you have to hedge against a disruptive maritime competition with China.  It seems to be there's two groups of people, people who say, oh, my gosh, we're going to fight the Chinese and people who say, no, no, they're in the WTO, we'll never fight them.  You know, everyone will sing cum-by-ya. Well, when you look back over history at these race, the leading naval power always looks around and says, who is then next guy that I might have to fight?  The U.S. Navy planned to fight the British Royal Navy until 1924.  That is just what navies do.  They are constantly looking at other naval powers and they're trying to figure out, okay, even if it is unlikely, how would we fight against them?    So we have to hedge against the Chinese disruptive threat.  Tom Hone (ph) from the Office of Force Transformation just wrote an article, which is very enlightening in that just by building a navy, the Chinese will disrupt the competition. In 1908 the British, First Lord of the Admiralty, looked at America and he said, you know, my countrymen haven't figured out that if America decides to build ships, they will out-build us.  And I'm not certain they're not going to do it. Well, the same thing.  China is a growing power.  It needs a navy.  It will build a navy.  So just by doing so, it will make our competition strategy change.  It doesn't mean we will fight them, but we certainly have to hedge against it. Now the range of tasks presents a really tough design problem for the Navy right now.  Conceptually, they need four different fleets.  They have to have this strategic deterrent fleet to stop anybody from firing a missile against the United States.  That's our SSVN fleet as well as our theater ballistic missile shooters.  And as Tom said, you have to have dissuasion fleet.  In my mind, that's your nuclear powered attack force.  Nuclear powered boats can sink anything on or under the ocean with a great deal of impunity.  And therefore, you have to have that fleet.  Then you have to have this irregular fleet that's going to fight the global war on terror.  It's going to be a small navy.  Then you're going to have your sea as base power projection fleet.  It's going to look a lot like what we had in the Cold War.  And then you're going to have this, what I call a counter-A2/AD fleet, anti-access aerial denial fleet.  Because certainly, some nations are saying, how would you keep the U.S. out? And so, you're going to have to have a component of the fleet that can crack that network open. The problem is, from our perspective, we think that the most that the Navy can hope for over the next 10 to 20 years on average is about $9 to $11 billion a year.  So building four different fleets is totally out.  And so this is going to push the Navy towards developing a modular fleet platform architecture that's designed to form these integrated naval battle networks. So the key thing will be, can you refigure your components?  Can you adapt the network to the threat?  And two, if you're going to do all of this, you're going to enter this new battle era that we've been talking about and just as Huntington predicted, when you shift to an era, you will get a new naval architecture. Now in 1815 the British defeated revolutionary France.  In one fell swoop, they knocked off the top three naval competitors in the world--Spain, France and Holland.  They constantly would try to have a two navy standard.  They wanted to keep as many battleships at least as the next two biggest naval powers as combined.  By knocking off those three powers, they could do that with about a dozen ships of the line in home waters and nine around the world. So in two years, they went from 99 ships in the line down to about a dozen.  They declared war on a trans-national actor.  It was called human slavery, human slavers.  And they started building a lot of small ships.  And in the meantime, they kept track of all of the different competitors and whenever they needed to make a move, whenever they needed to adopt something that threatened their tactical superiority, like exploding shells--the French decided to experiment with exploding shells in 1824.  By 1838, it's standard in all British combatants.  In 1840, there are 720 steamships in Lloyds of London, but there is not one British war ship because nobody else was making the move. If you look back in that time, you say, how were they able to stay on top for 150 years and generally within budget, although it got really tough towards the end. They adopted a strategy of the second move.  They said, we're number one.  We're going to exploit our lead, and we will make moves only when necessary to keep the lead. And I think it's going to be important for the Navy to the think about this in this very difficult budget climate. Again, I would like to thank you for inviting me.  And I look forward to your questions. MR. BLUMENTHAL:  Thank you very much, Rob. And let's move on the Admiral Mike McDevitt to cover the Navy will face the challenges out of the Asia Pacific region. ADMIRAL MCDEVITT:  Thanks, Dan. I'm going to change the paradigm a little bit from what you've been hearing for the three previous panelists.  And I want you to put yourself in Beijing and look at your strategic circumstances from, if it's possible, from a Beijing point of view. In the interest of time, let me just assert that over the past 15 years, Chinese diplomacy has been very effective in securing all of its land frontiers, resolving territorial disputes, reaching security partnerships with all of its important neighbors.  But if you look out to your East Coast, to your maritime frontier, you see lots of problems and lots of vulnerabilities. Now of course from a Beijing perspective, the weakness on your maritime frontier also has historic resonance because how did the century of humiliation start?  The Westerners, the big noses came from the sea. And so the reality that Beijing faces today is that the vast majority of their outstanding, unresolved sovereignty or strategic issues are maritime in nature. Taiwan is an island.  It's the U.S. Navy that effectively keeps the Taiwan Strait a mote rather than a highway.  They have a territorial dispute with Japan over islands and sea-based resources.  Again, maritime in nature. Territorial issues in the South China Sea, the Spratly Islands--again, maritime in nature. Where is China's economic center of gravity?  On their East Coast, vulnerable to attack from the sea.  How does their oil and most of their trade travel?  By sea.  Getting Chinese exports to the world and oil into China comes via the sea.  Again, maritime in nature. And China's primary maritime competitor, at least the one country that can thwart Chinese ambitions is a maritime power that controls China's literal (ph), the United States, who is also closely allied, as it happens with one of China's historical antagonists, Japan, who also has an excellent navy in a formidable maritime tradition. So, I think, if you're sitting in Beijing or standing in Beijing, you understand that control of the Western Pacific by the U.S. Navy is currently the greatest potential spoiler to your ability, if you chose to use force or military coercion or intimidation, to achieving or resolving these strategic issues. So even without the Taiwan problem, I think Beijing would still see weaknesses in its maritime frontier.  And therefore, it shouldn't be a surprise to anybody who thinks about it this way that in December of 2004, the latest Chinese defense white paper breaks with the tradition of land force dominance and clearly states that the PLA Navy and the PLA Air Force are to receive priority in funding. Let me quote from the paper.  Quote, "While continuing to attach importance to the building of the Army, the PLA gives priority to the development of the Navy, Air Force and the Second Artillery"--that's their ballistic missile force, the Second Artillery Force--"to seek balance, development of combat forces in order to strengthen the capabilities of winning both command of the sea"--now for a sailor, when somebody talks about winning command of the sea, all of a sudden, alarm bells going off--"and command of the air in conducting strategic counterstrikes." If the Chinese ambition is to win command of the sea, what kind of a navy would the PLA Navy look like?  I would argue there are two historic paradigms.  You will notice all of the people that talk about navies, we always wrap ourselves in the cloak of history.  We've got to break out that, but unfortunately it's in our--we cannot help ourselves--it's in our genes.  But in any event, one option would be a replay of the Imperial Japanese Navy, a very, very competent regional navy that was able to actively contest the U.S. Navy for regional dominance. Now if the PLA was to do that, what would a replay of the Imperial Japanese Navy look like?  It would have carriers.  It would have an amphibious capability for a Taiwan scenario.  And importantly, it would have to have an effective anti-submarine warfare capability to be able to deal with U.S. submarines and Japanese submarines.  And perhaps even a significant sea-based ballistic missile force. Like Imperial Japan, it would probably depend upon off-shore islands such as the Paracels in the South China Sea or at the mouth of the South China Sea to station aircraft. I judge, in my opinion, and I don't think this is the road that the PLA Navy is going to go down.  I don't think that they're going to try to do either a mini-me of the U.S. Navy or the Imperial Japanese replay.  They're going to, mainly because it's just simply too hard.  One, it's expensive, and two, as I mentioned this problem of making sure your surface ships are not sitting ducks, it means you have to solve the problem of dealing with U.S. nuclear submarines.  And that's really a tough problem to deal with.  And so I don't think they're going to be able to go there. Secondly, taking a significant number of tactical aircraft to sea, after all, that's what an aircraft carrier is all about, to carry airplanes.  And if you want to do it, you want to carry a lot of airplanes.  And right now I don't see the PLA going that route. Now, let me say I'm not sure that they won't have a single small carrier or two like the Thais do.  After all, if Thailand had one, why can't China have one, or the Italians or the Spanish.  But in terms of a real heavy CVN-like capability like the French or the United States have, I don't see China going down that road.  It's too hard.  The Soviets tried it.  They spent a lot of money and got very little capability to show for it. Okay, if it's not the Imperial Japanese Navy, what's the model?  Well, I think we see the model transforming in front of us as we speak.  It's what I would call the Soviet Union sea-denial strategy, updated with Chinese characteristics. This is a maritime force that I believe will satisfy the vast majority of China's strategic requirements and deal with their maritime frontier.  What it would consist of would be land-based air power mated with cruise missiles.  Both the PLA Naval Air Force and the PLA Air Force are working on those tactics.  It also would be based upon the offensive use of submarines against approaching maritime forces approaching their frontier.  We see them going into the submarine role.  This is a role that the Soviet SSGNs were fulfilling in the Cold War. The thing that's new that the Soviets didn't have the ability to do and the thing that I think has most people in the U.S. Navy concerned is the Chinese have a tremendous capability to turn out a lot of conventionally tipped ballistic missiles.  If they can ever figure out a way to make those warheads maneuver on the way down, so that in fact they could hit a moving target--which I should say it not a trivial problem--to hit a moving target, that would be a significant denial capability.  But to do that, you have to build an incredibly sophisticated targeting network based upon satellites and communications link and what have you that would be highly vulnerable to disruptions. So once again, though, but that's an issue I think is a component of the PLAs sea denial strategy that I think we see playing out in front of us. So if it turns out that--and I should say in this sea-denial capability they would also need certainly--and we see them doing this--but building a modest amphibious lift capability at least to be able to deal with the Taiwan problem. So what does that mean for the U.S. Navy?  If that's the road that we think the PLA Navy is going to go down in the Western Pacific, what should the U.S. Navy be doing about it? It seems to me there are four operational imperatives, war-fighting imperatives, USM has to do.  First, you have to consider that as long as we have a defense obligation to Taiwan, we need to recognize that sea-based tactical aircraft is the best way to trump any attempt to invade Taiwan.  In other words, to put it simply, as long as the United States maintains air superiority over the Taiwan Straits, the PLA Army cannot come. Secondly, the prospect of these maneuverable warheads on ballistic missiles presents a real potential--presents a potential for giving the PLA Navy a real bonified ship killing capability.  So what do we need to do? We need to do two things, I think.  First of all, as I suggested, we need to be able to defeat their network so that in fact that targeting is just too hard to do. In other words, they're system of systems, we have to be able to defeat.  And then we also have to be able to shoot them down.  And so those two things.  And I suppose there's a third alternative and that's what some people would call spoofing or using decoys so that when that seeker turns on, it doesn't see one target, it sees many, many, many. And the seeker has to make choices. These are all tried and true things that the U.S. Navy has been involved in ever since cruise missiles arrived on the scene 35 years ago.  So it's not terra incognita in terms of the intellectual effort that needs to go into dealing with this. The third thing the U.S. Navy has to do, I think, is what I would call a step function improvement in its anti-submarine warfare capability.  It's gotten quite good.  I don't mean to suggest that it's not capable, but as long as the PLA Navy continued to field very-difficult-to-detect-diesel submarines and multiply them in numbers, the U.S. Navy has to get better. The sailor in me suggests that the most difficult task in all of warfare is to find a submarine because the laws of physics have not been repealed in terms of making the oceans transparent.  And it's just really hard. Fourth, a thing that we have to do is I think is make sure that we maintain at least an adequate number of submarines in the Western Pacific or stationed in the Pacific Ocean.  And I'm not arguing that we need to build more submarines--far from it.  But I think we maybe need to think about how we distribute those forces between the Atlantic Fleet and the Pacific Fleet so that more of them should start showing up in the Pacific Fleet and less of them in the Atlantic Fleet. Finally, I think the key to maintaining stability during this long, long period that we're going to envision that the rise of China perhaps over the next 30 or 40 years is to make sure that we keep an eye on what the PLA Navy is going and making sure that we rise on the same tide. Today we have a decided advantage.  We need to make sure, that Delta, if you will, that advantage we have we maintain it.  So as we see them making developments, we make developments or change force structure around so that we keep our advantage.  And so long as China never for a moment believes that they could successfully pull off an invasion of Taiwan or successfully challenge the U.S. Navy in the Western Pacific, I think stability in that region will be maintained. So what's my bottom line?  The Chinese have defined for themselves a really very ambitious agenda, establishing a sea-control navy.  Now they may not mean control.  I chose to parse their term into sea-denial.  But whatever road they chose, in the face of U.S. presence in the region is really a rather daunting task if that's what they really mean. They clearly have a long way to go.  The Chinese is not 10 feet tall.  But what the PLA has been able to accomplish over the past few years has been very impressive.  They clearly are a learning organization.  They're dedicated to improving and becoming a more professional force.  They've put in place all of the head work associated with becoming better.  They've thought about it. They've written down their doctrine.  They've changed their regulations.  They're doing all of that. Now we're watching them begin to try to execute it. They're at the very beginning of translating all of this head work, if you will, into operations.  Can they do it?  Don't know.  The jury is still out. The U.S. Navy needs to become just as focused in thinking through the implications of what it must be able to do in order to ensure that U.S. sea control in East Asia remains in our hands and that we're not denied the East Asian Latorals. I've spelled out what I think is required:  tact, sea-based tactical air, more specifically two carriers in the Western Pacific full time I think would be important contribution to maintaining stability, more attack submarines in the Pacific, improved anti-submarine warfare capability and the means to deal with maneuvering warheads if they ever get there. The PLA Navy modernization is going to happen.  It just won't happen over night.  Navies take a long time to grow and a long time to turn over.  For example, most of the ships in the U.S. fleet today are going to be there 15 years from now.  We will be able to watch what the PLA is doing and evaluate its progress.  And we'll have time to take the appropriate actions.  So we don't need to have our hair on fire. Thank you very much. MR. BLUMENTHAL:  Thank you very much Admiral McDevitt. We're going to open it up to questions now.  I would like to use the moderator's prerogative to ask one question.  And that has to do with something that everyone touched on a little bit, but I'd like to kind of tease out a little bit more, and that's this question called inner-operability.  And what I mean is, these tremendous access problems, I think whether with regard to China or--you touched on it a little bit in terms of other operations we're conducting in the war on terrorism.  But if you could ask--it's not really the work of the Navy--but if you could ask the State Department or the National Security Council what you need to do in the region, the Asian Pacific Region--let's concentrate on the Asia Pacific Region--in order to gain access in terms of security cooperation, in terms of which navies you deal with, which countries you deal with, where you need to be, where you need to base and so on and so forth, what would those tasks be?  What would the tasks be to get the Navy to the places that it needs to get to in this very, very challenging access environment? ADMIRAL MCDEVITT:  Now, I was a former J-5 out at Pacific Command a few years ago, and one of the interesting phenomenon that I think continues to live on is the very good relationship between the Pacific Command, the U.S. embassies in the region, and the State Department on looking for in those days, we called it engagement--the new term of art is theater security cooperation--looking for agreements and help from embassies to facilitate the message that the U.S. would like to have various forms of access depending upon the political circumstances in the countries and the region. I think things have gone fairly well.  Obviously, over the long term building a better relationship--security relationship with Indonesia would provide an interesting opportunity to access that we do not currently have, continuing to work with the government of the Philippines so that we can perhaps over time evolve temporary access arrangements with the Philippines.  That would be a couple of things that come to mind, and in both cases, those imperatives are dictated to large degree by the old maxim of location, location, location. ADMIRAL MAHON:  I guess my view is slightly different, although I don't disagree with anything the Admiral is saying.  But access is what the Navy provides, and the concept of sea basing or joint sea basing allows us to operate independently of shore bases--it will allow us to operate independently of shore bases, and that's why the concept of sea basing has been adopted in the joint environment.  So it's being able to establish a sea shield around that joint sea base so that we can project power from it. MR. MAHNKEN:  I'd like to take the question on [inaudible] from the perspective of interoperability.  Now, when the Royal Navy commissioned the Dread Not in 1906, it totally upended the combatant design regime, and everyone had to scramble to catch up.  So everyone started building all big gun battleships. The U.S. introduction of the VLS, actually the Soviets were a  little bit ahead of us, but it was a single purpose system where the multi-purpose Mark 41 VLS upended the design regime, but its effects were not immediate. Right now, almost all of U.S. Navy battle line combatants I'll all them are VLS standard, and the rest of the world is now catching up, to the point that within the next five years or so, there's going to be 2,000 allied VLS cells in the world.  Mark 41 VLS cells. In the Pacific alone, three of our major allies are pursuing Aegis VLS combatants.  In the past, in the Cold War, we had a blue water fleet, and the allies had more coastal fleets, and we tended to be dismissive of their contributions in our independent strike operations. In this war, if we do not include them as part of the naval coalition of forces fighting this war, and we do not take the time to interoperate with them, and it will be a really, really, really loss in overall naval capability. ADMIRAL MCDEVITT:  One quick point.  There is an important new  term of art entering the lexicon, and it's called capacity building.  And it relates to this issue of interoperability.  It doesn't relate to the State Department, but it relates to interoperability, and the idea is that one way to empower these many friendly and allied navies around the world is to help them improve capacity by sharing our network information in a way that they can use it, and, therefore, things that they could never afford to pay for themselves, if we can help them improve their capacity by making their situational awareness of their own region better, it will, in fact, contribute to the overall security of all of us. And so that I think is something that you're going to be seeing.  You're going to be seeing it play out in the--with the Litoral countries in the Straits of Malacca.  You'll see it play out elsewhere around the world. MR. BLUMENTHAL:  Thank you very much.  Let's open it up and just remember the ground rules.  Right here.  Wait for the--there you go. MR. PREEG:  Ernie Preeg [ph.], the Manufacturers Alliance. A follow up to Admiral on China, Admiral McDevitt and perhaps Dan Blumenthal. Two related questions.  One is the--my understanding is the Chinese strategy is more than a naval strategy.  It's a maritime strategy.  The rapid buildup of the Navy modernization, together with the rapid expansion of modern shipbuilding, merchant marine, with the intent--not just the Taiwan of balancing, but to be the number one maritime nation throughout the East Pacific around to the Bay of Bengal. And I wondered how this prospect, which to me seems quite real and moving fast, would affect what our strategy would be in terms of a maritime presence in Asia. And the related question is a couple stories in the last 10 days--Bill Gertz of the Washington Times--that we've been behind the curve.  Our intelligence people--we'll continually surprised-- the Chinese moving much faster, particularly in the navy, and what is your reaction to this? Is this really moving faster where it's not that much in the future, but it's not--it's happening rather short to medium term? ADMIRAL MCDEVITT:  Well, with regard to their merchant marine capability, I really don't pretend to have any particular expertise on that.  I wouldn't be surprised to see if they're building merchant marine or merchant vessels at a high rate, both to sell and to use.  But, for example, I think as we've discovered with the shipment of oil over the years, the carriers tend to be--once it's pumped and it's in a tanker, it tends to be fungible, and, you know, the flag carrier isn't nearly as important.  So whether China wants to carry everything in Chinese flag ships, they may or may not chose to go that route, but the United States in terms of the competition, you know, we stopped competing in the merchant marine era decades ago.  And so there is no competition.  The competition that the PLA--or excuse me--the PRC would have in shipbuilding would be with the Koreans and the Japanese, and the other people who are--who have the lion's share of the commercial shipbuilding business in the world today. Regarding the intelligence issues, I--you know, I'm not in a position to judge whether we've been surprised or not on the intelligence.  I'm just suggesting to you it takes a long time for navies to turn over and ships and submarines are hard to hide.  I mean you can build big shelters so that satellites can't look down on them, but eventually you're going to see them.  So the point is in terms of--we're not talking about waking up tomorrow--a year from now and finding, whoops, gee, we didn't know about those 50 PLA submarines.  I--our capability is better than that and so we may be surprised in terms of unique aspects of how good, bad, or indifferent they are, but in terms of the total numbers I would be surprised if we're surprised. MR. MAHNKEN:  Just actually on the second part, and again I won't speak knowledgeably of the intelligence but just, you know,  another way that I think about that same issue is Mike started off by saying, you know, there's two groups of people on China:  those who see China as a threat, those who don't.  What's been remarkable to me is maybe over the past maybe five years is how that--the locus of opinion has really shifted.  In other words, people that I know and respect who five years ago would have said well, we really don't have to be concerned about a Chinese military buildup aren't saying that anymore. They're much more concerned, which, in turn, makes me more concerned that--in other words, the locus of expert opinion has--I think has shifted pretty significantly. MR. BLUMENTHAL:  I'll just add one thing because you asked me the direct question and that is as Admiral McDevitt pointed out very well, it's a different kind of power projection.  They're a continental power. One thing to look.  You know, so they don't need to do the same sort of power projection that the United States needs to do necessarily to project power, but one very interesting thing to look at is the military relationships that China is forming throughout the region, whether they be in Pakistan, deep water ports or Cambodia or at different choke points or in the Philippines for that matter.  So I think there's this kind of subtle game for, you know, for access and influence and power projection in that sense. MR. MAZAFURF:  Hi, I'm Joe Mazafurf [ph] from the John Hopkins Applied Physics Laboratory, and let me first--I do follow intelligence, having been a naval intelligence officer, and my reaction to the Gertz article was his sources were surprised, not naval intelligence. My question is this: in this room, taking Mr. Work's [ph.] observation about navies in competition, my sense is that the United States Navy is not in competition with any other navy in the world right now.  It's, in fact, in competition with its other sister services, particularly the Coast Guard. And this goes back to the observation that several of you made about going back to its roots, where the United States Navy was, in fact, a coastal, relatively small expeditionary force, somewhat similar to the way the Coast Guard is operating today, even in the Persian Gulf. The question I have is that being so, what's then the strategic case for why I ought to invest in a navy as opposed to a coast guard? ADMIRAL MCDEVITT:  Obviously, from my perspective, is to defend this country forward instead of along our coast lines, and that forward layered active defense is what the Navy provides.  It's what we've always provided.  I think that's pretty self evident. MR. MAZAFURF:  [Off mike.]  Well, you pushed back.  The government, in fact, [inaudible] does not. ADMIRAL MAHON:  If you take a look back through 1890, through waves of euphoria, through all sorts of different things, it turns out that the United States goes to war with large land forces about once every 16 years on average.  The range can be as low as five years.  It might be as high as 23. The period of peace between those declarations of war is about 13 years on average. So sometime after we get out of Iraq or maybe even before we get out of Iraq, it would be prudent to say that sometime over the next two decades, we will have a major power projection operation on our hands. The thing that will be different about it is unlike the Garrison era, we have to assume we will not have access; and, therefore, the role of the Navy will be what it was and that is to go and create access where it is not and support joint power projection forces when it gets there. So you have to have a small navy to fight the irregular war, but you need to have this big navy and keep your powder dry. ADMIRAL MCDEVITT:  We need to remember the Coast Guard is a law enforcement agency, and they have many missions other than the War on Terrorism.  If you conceive of the War on Terrorism as a law enforcement agency, then maybe your hypothesis would be--or a law enforcement problem, then maybe your hypothesis would be correct.  But if you conceive of the War on Terrorism as a combat operation and we'd like it to be an away game, not a home game, then, in fact, the money ought to go into naval forces whose primary mission is combat operations and away games, not home games. MR. BLUMENTHAL:  Just wait for the mike. MR. PHILLIPS:  I'm Howard Phillips with the Conservative Caucus. One of the panelists said, if I interpreted it correctly, that today's 289 ship navy is superior to the Reagan era 600 ship navy.  I'd like to understand why that is the case, and second I'd like someone to comment on whether our shipbuilding capabilities are dangerously deteriorating, as some have suggested. MR. BLUMENTHAL:  Who would like to take that one?  Who said it? [Laughter.] ADMIRAL MAHON:  I haven't talked with any Navy officer who has said, hey, while I'd trade in this fleet for the one that we were sailing in 1989.  I have never spoken to a single one. We had 14 deployable carriers in 1989.  Each of the carrier air wings, for example, could strike about 162 targets a day.  Now, an air wing can strike over--almost 700 targets a day.  So it is the equivalent of having almost six carriers forward for every single one you have. The introduction of the VLS, this 289-ship Navy, these 71 battle line combatants have a bigger magazine capacity of the 600-ship Navy.  The force ratios that the--in other words, it can carry more missiles. Now, there's fewer platforms, but they're more dense.  So once you concentrate your forces, you bring an awful lot of power to bear. In 1990, there were 93 U.S. SSNs.  There were about 264 Soviet SSVNs, SSGNs, SSNs.  It was a force ratio of about one sub to every 2.84 Soviet subs.  About one sub to every three. And I never talked to one U.S. submariner who didn't think that we could go and wipe them out; that we could take them on. Now, it started to get a little bit hinky when the Akula came out, but the submariners were extremely confident. Now, if you count up all the submarines in the Soviet and--excuse me--the Russian Federation and the Chinese fleet, the force ratio is better with a two navy standard than it was in one. So if you take a look at this navy, I just don't think there's any comparison.  This is a much more capable, networked, interoperable.  It can talk with joint forces.  It can call upon joint multi-dimensional battle network assets like B-2s carrying 2,000 pound J-DAMS.  This is a heck of a fleet. I think it's probably the finest fleet this Navy has ever put to sea, and it's certainly the best navy in the history of the world. Shipbuilding.  Yeah.  That's a tough one.  In 1815, what the British Royal Navy had is it could stop building war ships because they had the largest merchant capacity in the world, knowing that they could start building war ships very easily.  We do not have that luxury. For the first time since 1890, we're faced with a potential competitor who might be able to outproduce us. So shipyard capacity is an extremely important issue and one that needs to be worked out relatively quickly., MR. BLUMENTHAL: And we'll take on the shipbuilding in a later panel as well.  Right back there.  The gentleman back there.  A mike is coming. MR. PULMAR:  Norman Pulmar.  Only one of our four speakers has given any significant comment to the U.S. submarine situation. I'd appreciate hearing some views from some of the other members on how many SSNs they believe we need, what kinds of submarines, and at what rate we should be building them. MR. BLUMENTHAL:  Submarines.  Go ahead. ADMIRAL MCDEVITT:  I'll start, since I have no vested interest.  I'm a surface officer, a black shoe.  I spent my career looking at for submarines, unsuccessfully.  I think we have just about the right [inaudible] quite frankly.  Should they be conventional or nuclear powered?  As long as we're interested--where all of our most interests are is across oceans, I think we probably need nuclear powered submarines because they can go fast and they can stay a long time, and they don't have to put anything up to recharge batteries or whatever it is. And so my problem is like everything else in the shipbuilding account the cost per ship or cost per sub has continued to skyrocket.  So how do you get the cost down?  I don't know.  But certainly having 50 or I think it's about 50 or 51 whatever we have right now SSNs seems to me about the right number, and probably we need to, as I suggest, figure out how better to distribute them around the world so they can be in areas where they may have more leverage than the do right now. MR. BLUMENTHAL:  Tom, plese. MR. MAHNKEN:  Yeah.  I agree with what Mike said.  I mean in terms of overall posture, I think it's about right.  In terms of nuclear versus conventional, yeah, it's--it should be a nuclear force.  I think it's important to work closely with our allies who have quiet diesels and with friends such as we're doing with the Swedes so we can figure out how to operate with and against quiet diesels.  And as to redistribution, yeah, I mean I think Asia is the primary theater where subs are going to be used, so we might want to think about how to base them. MR. BLUMENTHAL:  Over here. MR. DIAMOND:  Vick Diamond [ph.] from Raytheon.  My question is for Mike McDevitt.  Mike, I understand that you're hedging against a competition at sea with China, and you put the perspective from Beijing as a negative, pessimistic one, looking at their security challenges.  It would seem to me that in the interest of a fair, balanced hedge, you would have to consider positive outcomes of policy on our side, and if you took those same laundry lists of security challenges that China faces that are mostly at sea, it would at least be possible to consider that changing the word U.S. spoiler to the U.S. is the only potential guarantor of those security concerns, shouldn't we then at least consider a policy option that encourages China to cooperate with us and see a mutual security benefit at sea and what would that policy agenda look like if we wanted to come out favorably rather than being forced towards a conflict? ADMIRAL MCDEVITT:  By what I said in terms of Mr. Teat, China is the strategic problems that they're trying to reconcile is based strictly upon what China says they want to do.  It certainly doesn't preclude.  In fact, I'm not suggesting that conflict is inevitable.  To the contrary, it doesn't preclude or suggest any one outcome.  It could be the whole range of plausible outcomes.  My only point is that, so far, if you think about the last post-Vietnam era maintenance of stability in the Western Pacific, there has really been this sharing of stability, if you will, or sharing of military dominance, let me put it that way. China has been the military dominant power on the continent of Asia for some time, and nobody is talking about invading China.  But by the same token, the U.S. and its allies has been the predominant military power on the Litoral or the seaward approaches to China.  All of our allies, most of them are archipelagic or island states and what have you.  So, we've maintained this region of stability. Well, as long as the PRC now--or the PLA--in terms of its avowed statement in its white paper--now, they could certainly repeal that next year, saying that they want to achieve control of the sea.  I'm not sure how much of the sea they're talking about, but that suggests that they're putting the gauntlet down and so that that suggests that there may be some incipient naval or maritime--the competition for influence in the maritime domain, which is kind of been our backyard, our turf. I'm not suggesting this is good or bad. I'm just saying we need to watch what' going on and keep track of what's going on an make sure that the current advantage we maintain is not lost through inattention or deciding that our interests are elsewhere.  As long as our primary allies in that region are island and archipelagic states, many of them very close to the mainland of China, we need to pay attention to that. MR. BLUMENTHAL:  One more question, so let's--this gentleman over here.  Yeah. MR. CROFT:  Stan Croft from Business Week.  Tom, you said that the existence and the presence of a navy affects the behavior of others.  And, Mr. McDevitt, you said that the Chinese have been very adept at diplomacy recently.  So my question is not how the existence and presence of an expanded Chinese naval force will affect the U.S., but rather how it will affect the neighbors. Will they be afraid and be closer to us or because China is there and is not moving, will they be more estranged from us?  Will it be a backlash against the successful diplomacy?  Will the Chinese back off, as they did after Mischief Reef [ph]?  How does this play out in the region? ADMIRAL MCDEVITT:  Most countries in Asia don't want to have to chose between Beijing or Washington.  And most countries in Asia don't want to only have--have the only choice be Beijing.  They don't want to have to feel like they need to run all their policy through Beijing to get a chop if that's okay if they do X, Y, or Z. And so they like the U.S. around as a balancing force that acts as--in their--from their point of view as a hedge.  So you--whenever you talk privately to friends and allies throughout the region, they're encouraging us, the United States, don't leave.  Don't leave. It's not that the--as I say, they don't want to have to choose, but by having us present, they hope to avoid having to choose. MR. MAHNKEN:  Yeah.  Much the same way--I think--you know, we are a much more attractive naval ally or naval collaborator than the Chinese, first because we are a Pacific power, yet we're not right next to them, and we don't threaten them; second, because of the capabilities that we bring to bear are much more attractive to the Asian Litoral states than the capabilities that the Chinese bring to bear.  So, yeah, I think we're just a much more attractive partner in that sense. MR. BLUMENTHAL:  Well, thank you very much.  We've run out of time, and we're going to take I guess a short 10-minute break, 10-minute coffee break, and then go on to panel two. So thank you very much to an exceptional panel. [Applause.] [End Tape 1, side B, begin Tape 2.] MR.         :  I think we have just about the right number, quite frankly.  Should they be conventional or nuclear powered--as long as we're interested, all of our most important interests are across oceans.  I think we probably need nuclear powered submarines because they can go fast and they can stay a long time.  And they don't have to put anything up, to recharge batteries or whatever it is. So, my problem is, it's like everything else, in the shipbuilding account, the cost per ship or cost per sub has continued to skyrocket.  So how do you get the costs down?  I don't know.  But certainly having 50--I think it's about 50 or 51--whatever we have right now, SSNS, it seems to me to be about the right number.  And probably we need to, as I suggest, figure out how better to distribute them around the world so they can be in areas where they may have more leverage than they do right now. MR.         :  Yes, I agree with what Mike said.  I mean, in terms of overall posture, I think it's about right, in terms of nuclear versus conventional.  Yes, there should be a nuclear force.  I think it's important to work closely with our allies who have quiet diesels, and with friends, such as we are doing with the Swedes, so we can figure out how to operate with and against quiet diesels. And as to redistribution, yes, I think Asia is the primary theater where subs are going to be used, so we might want to think about how to base them. MR. DIAMOND:  Dick Diamond from Raytheon.  My question is for Mike McDevitt. Mike, I understand that you are hedging against a competition at sea with China, and you put the perspective from Beijing as a negative, pessimistic one, looking at their security challenges. It would seem to me that in the interest of a fair, balanced hedge, you would have to consider positive outcomes of policy on our side.  And if you took those same laundry lists of security challenges that China faces that are mostly at sea, it would at least be possible to consider that changing the word U.S. "spoiler" to U.S. as the only "potential guarantor" of those security concerns, shouldn't we then at least consider a policy option that encourages China to cooperate with us and see a mutual security benefit at sea.  And what would that policy agenda look like, if we wanted to come out favorably rather than being forced toward a conflict. ADMIRAL McDEVITT:  By what I said in terms of China's strategic problem that they are trying to reconcile is based strictly on what China says they want to do.  It certainly doesn't preclude--in fact, I'm not suggesting that conflict is inevitable.  To the contrary.  It doesn't preclude or suggest any one outcome.  It could be a whole range of plausible outcomes. My only point is that so far, if you think about the last post-Vietnam era maintenance of stability in the Western Pacific, there has really been a sharing of stability, if you will, or sharing of military dominance.  Let me put it that way. China has been the militarily dominant power on the continent of Asia for some time.  Nobody's talking about invading China.  But by the same token, the U.S. and its allies has been the predominant military power on the littoral or the seaward approaches to China.  All of our allies, most of them are archipelagic or island states, and what have you.  So we've maintained this region of stability. Well, as long as the PRC, or the PLA, in terms of its avowed statement and its white paper--now they could certainly repeal that next year--saying that they want to achieve control of the sea, I'm not sure how much of the sea they are talking about.  That suggests that they are putting the gauntlet down. So that suggests that there may be some incipient naval or maritime competition for influence in the maritime domain, which has kind of been our backyard, our turf.  I'm not suggesting this is good or bad.  I'm just saying we need to watch what is going on and keep track of what's going on and make sure that the current advantage we maintain is not lost through inattention or deciding that our interests are elsewhere. As long as our primary allies in that region are island and archipelagic states, many of them very close to the mainland of China, we need to pay attention to that. MR. BLUMENTHAL:  One more question.  This gentleman over here.  Yes. MR. CROCK:  Stan Crock from Business Week.  Tom, you said that the existence and the presence of the Navy affects the behavior of others.  And, Mr. McDevitt, you said that the Chinese have been very adept at diplomacy recently.  My question is not how the existence and presence of an expanded Chinese naval force will affect the U.S. but, rather, how it will affect the neighbors.  Will they be afraid and be closer to us, or because China is there and is not moving, will they be more estranged from us?  Will there be a backlash against the successful diplomacy?  Will the Chinese back off, as they did after Mischief Reef?  How does this play out in the region? ADMIRAL McDEVITT:  Most countries in Asia don't want to have to choose between Beijing and Washington.  And most countries in Asia don't want to have the only choice be Beijing.  They don't want to have to feel like they need to run all their policies through Beijing to get a chop if that's okay if they do X, Y or Z. So they like the U.S. around as a balancing force that acts, from their point of view, as a hedge.  So whenever you talk privately to friends and allies throughout the region, they are encouraging us, the United States:  don't  leave. As I say, they don't want to have to choose, but by having us present, they hope to avoid having to choose. MR. MAHNKEN:  Much the same way.  We are a much more attractive naval ally or naval collaborator than the Chinese.  First, because we are a Pacific power, yet we are not right next to them and we don't threaten them.  Second, because the capabilities that we bring to bear are much more attractive to the Asian littoral states than the capabilities that the Chinese bring to bear. So, yes, I think we're just a much more attractive partner in that sense. MR. BLUMENTHAL:  Well, thank you very much.  We're run out of time and we are going to take a short, ten-minute break, a ten-minute coffee break and then go on to Panel 2.  Thank you very much to an exceptional panel. [Applause.] [Recess.] MR. DONNELLY:  Okay.  I was waiting for a cue from my stage manager, but I'm going to go ahead and proceed anyway.  And actually take a moment for shameless commerce, and try to move a few copies of my most recent work, called "The Military We Need:  Defense Requirements of the Bush Doctrine" available from AEI Press.  It's got actually all the answers you need, not only for today, but for all the conferences we're going to be having. [Laughter.] MR. DONNELLY:  But lest you think that this is simply a prop for book sales, let's proceed on to the second panel.   And, as we saw from the first panel, the line between the grandest of strategies and the most minute details of programmatics if a fairly thin one, which we manage to, I'm not sure ignore is the right word, but we certainly trampled it into the sand in the first panel.  So I expect we'll do something of the same in the second panel.  So, the distinction between the panels may fade with the course of time, but actually I think that's a good thing because all of these things are so intimately interwoven. So, our nominal topic for the second panel was meant to be a refinement of the broader picture presented in the first panel, discussing the sizing, the shaping, the posturing of the fleet for the large scale missions that were outlined in the first panel.  And in particular I want to add a third consideration for the panel to undertake today. We talked at great length about the Navy's role in the global war on terrorism, although we did sort of focus on the actual terrorism end of that spectrum.  So I would hope that in the course of this discussion we could regard the mission a little bit more broadly. This is my chance to get a shot in at Bob because looked at in terms of what we're actually done over the last couple of years, pretty conventional invasions of Iraq and Afghanistan, even though they were pretty sporty operations to begin with, they sure as heck began to look like garrisons over the long haul.  Although there's still a lot of rhetoric about withdrawing from Iraq, I for one am somewhat doubtful about it. There is a second interpretation of the global war on terrorism that really includes a long term strategic relationship with a very large region and a variety of countries.  So I'm hoping on this panel we can get our arms around that a bit. And secondly, one of the QDR missions that we didn't address so much was the catastrophic one.  I'm thinking in particular about a conflict with a nuclear state or the situation wherein a nuclear state begins to unravel a bit.  So I would toss those out as last minute additions for this panel. But we're got some really outstanding folks who are going to address that.  Again, the biographical material should be available in the folders, so I'm not going to dwell at length. Addressing us first will be Terry Pudas, current acting director of the Office of Force Transformation.  Admiral Cebrowski would have liked to have been here today, and Terry very ably is not deputizing for him really anymore, but taking the OFT perspective on things.  We're very grateful for that. Second up will be Karl Hasslinger, who now works for GD's Electric Boat Division, which sort of should suggest that he has a submarine perspective on life to a certain degree.  That issue was raised somewhat in the first panel, but I think Karl will give us some deeper insights there. And finally, we get a second bite at Bob Work.  This is actually the first Bob Work Memorial Conference. [Laughter.] MR. DONNELLY:  And if he doesn't do better this time, we are going to have him back for the third panel. Unfortunately, Dave Trachtenberg was called away, he says by Secretary Rumsfeld.  I worked with Dave for a long time, so I'll choose to believe his excuse rather than the fact that he's trying to get back at a friend for past offenses.  He laments the fact that he can't be here.  So I guess a task for us is to try to stand in a bit and try to talk to a certain degree about the missile defense role that the Navy has taken on. So without any more gab from me, Terry, the microphone is yours.  Take it away. MR. PUDAS:  First of all, thank you very much for holding this conference and inviting me.  It's a real honor to be here. When I started to prepare for this morning, I thought what I might do would be to focus the sizing and shaping issue in the context of some of the work that we did for a future fleet architecture study that we did for Congress last year, some of which is quite relevant. That study initially focused specifically on reexamining the logic and the rules by which we make force operations and force fielding choices.  So the real deliverable for the study was of course the rule set which governs the core relationships.  Also incorporated in the study are the three broad elements of our transformation strategy, clearly implementing network-centric warfare, broadening the capabilities base, and responding to falling barriers to competition. As we began the study, we asked some key questions, much of which I heard discussed in the first panel.  Clearly the breadth of challenges facing the Navy is significantly broad.  Is there a way to bring force building and force operations into coherence?  Of course we're all worried about costs.  Are there new technologies that can be reached for?  And of course, how long does it really take?  What is the real capability cycle time for the Navy?  So these then essentially are the five key questions. And of course these are the four challenges articulated by the Undersecretary of Defense for Policy for the new future security environment.  We have traditionally focused a lot of effort in that particular box.  We feel very competent about that.  We have indeed a great deal of very high capability. But the dynamic is, of course, as you great more and more overmatching capability in that particular box, the competition tends to move to the other quadrants.  That is indeed exactly what is happening to us now. So the challenge then is what are the capabilities, modes of operation, that would yield the competencies and relevancies for some sort of future fleet architecture. Expressed another way, what is the balance of capabilities that allow us to get to the domain of political victory.  Clearly the lower left-hand quadrant is the go-it-alone, that area where the U.S. Navy has historically been a very good custodian of the commons.  The upper left is where we develop our strategic partnerships.  The lower right is the support for joint ops on land.  But up in the upper right is where the real domain of political victory is.  No, it is not necessarily strike-oriented.  Those are the kinds of things like stability and reconstruction, blockages, enforcement, etc. This is taken from some work from Dr. Tom Barnett.  Some of you may be familiar with that work.  He argues that we are moving from an era where we talk in terms of containment to one where we talk in terms of connectedness.  Indeed, we spend a majority of our time over the last 15 years in that particular red zone in the upper right-hand quadrant.  That is essentially where 109 of 118 of the force countries reside.  That's where 49 of the 50 countries with the lowest life expectancy reside.  That's where the 12 million refugees come from each year.  Thirty-one of the 36 terrorist organizations operate in or from there.  Nineteen of the 23 largest drug-producing nations are in that particular area. As we move up the vertical axis we talk in terms of competencies.  What are those things that we need to be able to do to be competent for the information age.  A great deal of dialogue now is focused on what are the kinds of things that the force, indeed the Navy, needs to do to become relevant for the future world. These then are what we call our Navy rule set.  Those things on the left are what we call the relevancies, those things that you need to do to maintain your relevance.  Those on the right are a paraphrase of the Navy staff's competencies that they believe that the Navy needs to possess in the future. Maintaining strategic advantage in the commons and advantages in the gap is the basis of our competencies and relevancies. This then is reflected in what we call the force building imperatives.  Do you indeed need two navies or three navies, or can you develop metrics and logic that allows you to make force-building decisions and force operations decisions with some sort of coherence. That's what we embarked on here.  That's what this slide is intended to convey.  How to achieve coherence and architectural logic and choices for force-building to meet the two operational imperatives. Everybody's familiar with this.  The fiscal contradictions.  This is somewhat dated, but these are the assumptions that would have to come true for the Navy to pursue the current shipbuilding program.  Indeed, not just one of those but essentially all of those.  We're all very familiar with the trajectory of all those.  This isn't intended to be a critique of the Navy.  It's just intended to reinforce the fact that there is a great sense of urgency in reexamining our alternative architectures. Embedded in our work was also what we call our strategic approach to cost.  What kinds of things can we do to decrease our operational costs, broaden the capabilities base, transform nondiscretionary areas.  Clearly the Navy has made a great deal of progress in this area.  What kind of architecture or Navy might be produce that essentially might impose a cost to some potential competitor. So let me jump real quickly to some of the technology opportunities.  Down on the bottom are those ones that are running on very, very high cycle times.  The question there is then how do we create architectural choices and force-building paradigms to allow us to create what we call technology onramps. These are the those ones that historically have taken decades to mature, but we are at a historic point in time now where much of the R&D that we've invested in is starting to pay off.  We are seeing things in structural materials like in composites, electric drive propulsion, small diameter bombs, those sorts of things.  Proximate embedded sensors. There is a historic opportunity now which provides opportunities if we choose to reach for them. Here are some of the opportunities in payoff.  Clearly you can read those for yourselves but there are some very creative and innovative hull designs now.  Speed is very important.  Increased payload fraction.  And, of course, by virtual robotics manning is decreased.  There is an opportunity here is we choose to reach for it. This then brings us to some new metrics.  These are what I will call competency metrics.  The Navy, in fact the whole force, is doing very, very well in pursuing those.  I think we mostly understand those to a great deal. These are what I would call the information age competencies for implementing the tenets of network-centric warfare. These then are what we propose as new metrics with regard to relevancy.  Creating and preserving options.  Employing higher transaction rates.  Achieve higher learning rates.  These taken together with the competency metrics form the basis of the new rules which underpin a new logic or basis for competition. This is what that might look like.  Essentially focusing on designing an alternative fleet with those particular characteristics listed on the left. And the model on the right is intended to be a new business model, so to speak.  We spend an enormous amount of money on integrating, on interfaces.  That's where the majority of the money is spent.  You're familiar with codes.  The error rate per 100 lines of code is significant.  It drives the cost up, it takes the timeline out.  And it makes it very, very difficult to upgrade platforms as we move forward. So the idea here is then to settle on some sort of standardized interfaces, allow the industry to then focus on applications or modules, capability modules.  Those folks who want to build platforms to focus on that, and to be able to drive the costs down and the opportunities up. So let's look at how we're doing.  This is an example from the aircraft trends.  You have to ask yourself is this a healthy trend.  When I had this done for the Navy, it came out something like this.  You'd have to argue with it.  We are creating an enormous amount of complexity for some potential competitor.  Is this healthy for the industrial base?  What exactly is this telling?  My intuition tells me that this is not a healthy trend. If you use some new logic and some new metrics, you do have the opportunity to create some alternative architectures.  These are some that came out of our study.  I'm not going to go into a great amount of detail here.  That's available in the completed study. But it does show you if you reach for some different metrics and some different logic, you create alternative opportunities for yourself. So that brings me then to the conclusions.  We believe that you can achieve coherence in force-building and operations and respond to both strategic imperatives, which is of course intervention and strategic advantage.  You can build a large and more broadly capable Navy using the power of the network.  There are things you can do to drive the cost down if you do those.  And of course we need to team with our industry partners to be able to see what that might look like.  And we want to preserve and create options for ourselves as we move along. With that, I'll give back the rest of my time.  And you can move on to the next speaker. MR. DONNELLY:  Thank you very much, not only for your brevity, but one bauble on that chart that I will put in my arsenal permanently:  "deferring regret."  I think that's a principle we can all get together with. Karl, the microphone is yours.  Take it away! CAPTAIN HASSLINGER:  All right.  Thank you.  Good morning.  I appreciate the opportunity to come and talk to you today about this important issue. As a former submariner and now a strategic analyst for General Dynamics Electric Boat, as was discussed, I'm going to focus my comments on undersea forces, the size and the shape of the force, and I'd like to pose some questions that the QDR might review in that regard. However, before I get started, I want to talk about some general issues that I think affect the Navy overall. The first is the shipbuilding plan.  I think, as many people know, you can't read a newspaper article or look at any analysis out of any sector and not come away thinking that the shipbuilding plan is in a state of disarray. Over the past few years the projected fleet size has changed dramatically.  And the draft 30-year shipbuilding program that the Navy recently sent to Congress was determined to be unsupportable by the Congressional Budget Office review. An example of that disarray is clear in mind in the DDX program.  The number of expected ships continues to dwindle while the unit price goes up dramatically.  In fact, the price tag on the lead ship is now projected to be somewhere in excess of $3 billion.  At the risk of being flippant, as a submariner, looking at a $3 billion destroyer, makes it a little easier for us to take the slings and arrows about a $2.3 billion submarine. Seriously, however, in recent Congressional markups, the DDX cost was limited to $1.7 billion, a number that might affect--actually threaten--the program's overall viability.  The cancellation of the DDX, if in fact that takes place, as many suggest that it will, would make the fourth in a string of unsuccessful surface combatant programs that started with the arsenal ship and included the DD21 and SE21 programs. On a brighter note, there is the littoral combat ship that is conspicuous by its rapid evolution, its simple design and its innovative procurement method.  The modular, flexible and affordable nature of LCS makes it more palatable to defense planners, and more fighters look at it with high regard for global war and terrorism missions and other evolving concepts. Also it will serve as a laboratory of sorts and tell us what we can really get out of a truly modular ship.  Unfortunately, LCS can't fill all the combat roles we need, which leaves a gap that the surface community is going to have to fill for the Navy. So as the QDR progresses, the Navy might look carefully at understanding why several proposed surface combatant programs failed or were severely cut back.  It might fundamentally review future operational concepts before settling on a new shipbuilding plan. I bring that question up because as a shipbuilder I really wonder whether DDX represents an attempt to integrate too many technologies too quickly into a complex platform with significantly enhanced automation that was needed to deal with the proposed manning reductions.  While the technologies DDX designers envision are all worthy goals, and I think represent movement in the right direction, the sheer number of them may have been too great. My second concern is that this country's shipbuilding industrial base needs stability of it's to maintain its design/build capabilities and if it is expected to keep costs under control.  And I'll talk a little more about that later. Another topic the Navy should seriously consider is the application of nuclear propulsion to future service combatants.  In recent years studies concluded that the CVN21, the new carrier, should definitely be nuclear powered. However, the Navy hasn't evaluated whether or not other large surface ships like future cruisers and the ships we expect to populate the sea base, should be nuclear powered.  As the price of oil continues to rise due to strife in the Middle East, and increasing competition for resources by the developing populations in China and India, few analysts believe that the price of oil will drop meaningfully, and in fact many consider that it will continue to rise. Consequently, the Navy should review this issue to determine at what point the premium that we pay for including nuclear propulsion in construction would be offset by the lifecycle costs of conventionally powered ships.  That study should not only look at individual ship costs, but it should also consider the cost of logistic trains in terms of auxiliary ships that carry the oil and the related infrastructure and personnel costs associated therewith. Moving now to the submarine force, we find a somewhat different situation.  On the program side, there has been considerable success. Last year, Electric Boat launched USS Virginia, the first of a new class of attack submarines.  Virginia is important because she is the first ship that the Navy designed after the Cold War.  She has systems and capabilities that significantly enhanced over Los Angeles and Sea Wolf class attack submarines, especially for operations and littoral environments. During recent at-sea testing of that ship, Virginia exceeded our expectations and the submarine force is quite excited to have her in the fleet. Also last year, Electric Boat delivered USS Jimmy Carter, the last of the Sea Wolf class of submarines.  As you may know, Jimmy Carter is quite unique.  She has several special modifications that include a 100-foot hull insert that we call the multimission platform. This portion of the ship contains a very large ocean interface that will allow her to use offboard systems to conduct experiments and develop new capabilities. And finally, the original four Ohio class ballistic missile submarines have entered shipyards for conversion to SSGN, or guided missile nuclear powered submarines.  These amazing ships are being refueled so they can operate for another 20 years. The first ship, USS Ohio, will complete conversion and reenter the fleet shortly.  In my mind, SSGN represents perhaps the most important development in the submarine force, because I think she is going to have the greatest impact on the future of undersea warfare. These 18,800-ton ships were built with 24 Trident D5 missile tubes that are about eight feet across and 40 feet deep.  Instead of carrying ICBMs, as they did in the Cold War and some continue now, these tubes will provide a huge payload volume with a very flexible ocean interface for the deployment of future payloads that can include anything from SEAL delivery systems to autonomous vehicles, and even unmanned aircraft. SSGN will initially deploy with 154 Tomahawks and two advanced SEAL delivery minisubs.  She'll also have other facilities that allow her to employ special operations forces in large numbers. More importantly, however, they'll have two payload tubes that are permanently reserved for experimentation, allowing them to evaluate and experiment with new payloads on a near continuous basis.  It's in fact this experimentation capability that excites me the most, because it allows the submarine force to develop offboard vehicles and distributed systems--something you can't do with current SSNs due to the limited payload volume and torpedo tube constraints. Small manned submarines, unmanned underwater vehicles, distributed sensors and weapons, will all play a greater role in future joint warfare missions.  While these emerging systems won't replace individual submarines in the near term, they can significantly increase each ship's area of regard, they can help populate joint C4 IS databases to enhance the speed and quality of our war fighters' decisions, and they can even deliver weapons from close range with no risk to our manned ships. This type of near-continuous experimentation and development is a powerful tool. If you look at military history, we're informed that fleet experimentation by actual war fighters instead of laboratory personnel, produce the most transformational capabilities.  Accordingly, I think the Navy should ensure that all of its warfare communities have similar plans as well as the funding necessary to develop the hardware and new joint operational concepts. In recent years, submarine R&D has been largely unfunded.  If that trend continues, it puts U.S. undersea superiority at risk and it also fails to completely leverage our investment in the SSGN program. Now, despite these programmatic successes, there are other undersea warfare issues the Navy needs to look at for the QDR. First and foremost in my mind is our submarine force structure.  And that issue, I think, has two parts that include both the size and the nature of the force.  I believe the Navy should continue to strive for an attack submarine force of about 55 ships. That belief is based on three notable studies:  the last QDR, the PA&E study done at the direction of Secretary Wolfowitz, and the recent Joint Capabilities Assessment for Undersea Superiority, conducted by the Joint Staff.  Each of those studies had Navy and submarine force participation. The second basis for my belief is a significant increase in requests from combatant commanders for attacks of remission since the end of the Cold War and especially after 9/11.  As a matter of fact, that demand is now about 150% of what the current force can provide. My third reason for that force structure is based on a concern that there are some disturbing trends that could lead to an inability to assure access in any region if we allow our submarine force to shrink to the around 30 ships some studies have suggested, and as the current build rate will eventually ensure. Worse, a severe reduction in submarine force structure and capability could lead to strategic surprise.  If 9/11 reminded us of anything, it was that our ability to accurately forecast the future and anticipate the nature of new threats has been abysmal.  Currently, trends of concern include the proliferation of submarines worldwide.  Nations recognize that stealthy submarines are high leverage, asymmetric weapons, unlike their armies, air forces, surface combatants, missile batteries, ports and other bases, submarines operating submerged at sea cannot be preempted by the United States, or anyone. Also, they can't be easily located and destroyed during combat operations.  Now, while the United States can eventually deal with any nation's  submarine threat, it could take a lot of time, and that could significantly slow the pace of our joint power projection operations. Separately, both nations and non-state entities recognize the stealth provided by the oceans and they may try to use it in novel ways.  For example, on several occasions, the Colombian government's agents have confiscated small manned submarines loaded with narcotics and capable of transporting hundreds of pounds of cargo or dangerous individuals into the United States. Despite those publicized interdictions, one can only speculate on the success or failure of similar vessels that weren't discovered. Also, there are other concerns, like the security of our telecommunications network.  Many people don't understand that over 80% of all government, military and commercial information travels on fiber optic networks lying on the seabed.  Even Navy ships at sea depend on these cables to route signals from satellite ground stations on Hawaii and elsewhere to the end users in the continental United States. The locations of these cable are well known, and adversaries could work unobserved for years to tap, exploit or stage explosives near them.  A successful attack against many cables would leave the United States with a very difficult problem, since our satellite communications infrastructure has excess capacity to take on only a very small fraction of the bandwidth these seabed cables currently provide. In a different but still threatening way, states and transnational entities could use the seabed along the maritime approaches to the United States as a forward operating area to stage vehicles, special operations habitat and even weapons of mass destruction. [End of tape 2, side A, begin side B.] People circumvent law enforcement inspections in ports and subsequently enter the country.  Weapons launched into U.S. cities from under the sea or detonated offshore in close proximity to coastal cities could circumvent traditional indication and warning systems and even missile defense capabilities. Thus, a fundamental change in the nature of undersea competition could be taking place such that the United States may need to concern itself with the security of the seabed in its littorals and indeed elsewhere if it depends on those areas for energy, sensors, telecommunications, or homeland defense. Finally, submarines provide the U.S. with a hedge against the proliferation of even more sophisticated cruise and ballistic missiles or more innovative attacks by irregular forces against non-stealthy surface combatants, especially in crowded littorals. To ensure the U.S. attack submarine fleet remains at or near its current level of 55, the Navy should increase Virginia class build rate to more than one per year as currently planned.  In addition to ensuring a robust attack submarine force, it would also help alleviate some industrial base problems and also help reduce costs.  Both General Dynamics and Northrop Grumman, our partners in the construction of Virginia class submarines, will tell you that the biggest contribution the Navy can make to reducing costs is to buy those ships under multiyear contracts and to produce them at rates of more than one per year.  That would help develop learning curve efficiencies.  Low-rate production and/or uncertainty in the procurement plan will undoubtedly continue to be reflected in higher costs. The second aspect now of force structure is the nature of our submarine platforms.  Some, including my distinguished panel mate to my left, have proposed in the past that the United States build these electric submarines because they are cheaper than their nuclear-powered counterparts.  The Office of Force Transformation and others have even started developing schemes by which these vessels could be transported on heavy lift ships across oceans to forward operating areas.  While such plans could indeed move those ships, when they arrive they're still the same slow, payload-poor, logistic-intense, and less stealthy submarines that they started out as in the United States. Now, let me be more specific about that issue because the nuclear-powered/diesel/electric submarine debate is an issue that surfaces from time to time, as it should, since technologies in defense environments continually change.  However, in my view, no technology, including the air independent propulsion systems, have been developed to date that provide the same stealth, agility, endurance, reliability, and overall capability that our modern nuclear propulsion plants continue to provide, both in submarines and in nuclear-powered aircraft carriers. Moreover, speaking as not just a shipbuilder but now as a former nuclear attack submarine commanding officer, it would be unimaginable to me to have to conduct our missions using diesel/electric submarines.  That's because our tactics are offensive and aggressive, and we conduct missions in far-flung areas, often with little notice, and we are often likely to be outnumbered.  For example, estimates indicate that by 2020 Chinese submarines will outnumber U.S. submarines by at least three to one.  We depend on superior ships, our superior training and tactics to prevail. Buying diesel/electric submarines would scratch only one itch, and that's the budget.  In my view, it won't solve our peacetime intelligence requirements or our warfighting needs.  Diesel submarines are the choice of countries that have defensive or anti-access strategies or simply can't develop or afford nuclear propulsion.  Rising powers like China and India clearly covet the far superior nuclear submarines we possess, and they are either building them themselves or releasing them from the Russians to the extent they can. Until the United States changes its strategy to a defensive one, with its naval forces arrayed along its borders, diesel/electric or AIP submarines just don't make sense to me. Now, given the desire to maintain an all-nuclear submarine fleet, we need to address its cost.  I think the Navy should fund cost redesign efforts for the Virginia class.  This wouldn't be a salami-slicing drill to remove capabilities from the ship; rather, it would look at innovative approaches to routine tasks, like launching weapons from external clips, placing sonar arrays in different locations on the ship to free up payload space, and even a fundamental change in the way we propel the ship through the water, including electric drive on externally mounted engines. In addition, the cost reduction effort will look at how the ship would be built in a more efficient and affordable manner.  Supermodules or a more complete installation of equipment into large hull sections before shipping them to Groton, Connecticut, or Newport News, Virginia, for final assembly and testing could provide substantial savings. During the construction of the Jimmy Carter multimission platform, Electric Boat pioneered the supermodule concept when a 2,500-ton hull insert was built entirely at Quonset Point, Rhode Island, and then shipped to Groton, Connecticut, as one piece to be integrated into the rest of the ship. Also, a submarine technology program sponsored by DARPA and the Navy called Tango Bravo, which stands for technology barriers, has recently been funded.  That program is looking at many of the technologies I just discussed and was originally started to look at half-displacement and hopefully half-cost attack submarine. However, we need to understand that Tango Bravo is only a technology demonstration program.  While we certainly like to include the output in any Virginia redesign effort, it will not produce a ship by itself.  In fact, if the Navy ordered a ship today based on those technologies, we couldn't build it.  There's still a lot of work to be done to complete a new submarine design based on those capabilities. On the other hand, there are things that we can to affordably improve our undersea forces short of designing new ships.  For one, we could insert a multimission module into a future Virginia class submarine.  This would leverage to a great extent the investment the U.S. has already made in the Virginia class and would help develop the offboard capabilities that SSGN can currently work with. In light of the uncertainty the Navy faces, it might focus on attributes during the QDR that will help it better deal with that uncertainty.  Ships with modular, flexible payload capabilities, like a multimission module in Virginia, would seem to be appropriate for the current strategic environment. Before I close, I want to address a final issue the Navy clearly needs to concern itself with, and that's the nation's shipbuilding industrial base, which I think cannot be allowed to atrophy.  That base includes more than just the ship construction yards at General Dynamics and Northrop Grumman.  It also includes the designers and the engineers at those companies, and just as importantly, the suppliers who design, manufacture, and test the unique components that go into these complex vessels. Based on low rates of submarine production since the end of the Cold War, we now face a situation where slightly over 80 percent of all components that go into our submarines are purchased from sole-source suppliers.  That situation effectively removes price competition.  It limits schedule flexibility and in some cases has even forced the Navy to buy submarine components from foreign countries. On the design and engineering side, there are a large number of individual skill sets that need to be maintained.  It should be understood that these skills cannot be maintained with some sort of corporate welfare.  Just keeping people on the payroll doesn't solve the problem.  If the designer isn't actually working on projects requiring those skills, the expertise will disappear. Now, the proof of that assertion exists in the United Kingdom.  After years of no submarine design work, the British set out to design a new class of submarine called the Astute class.  In time, it became clear that their design skills had eroded in several key areas, leaving them with no choice but to hire Electric Boat to complete the design.  If that situation were to take place in the United States, one might question who would we call. This is the first time in our history that the United States nuclear shipbuilding program has no new submarine design underway.  After next year, residual design activity from past projects will leave key design personnel with no work, and their skills will start to decay.  Also, faced with this prospect, it isn't unreasonable to expect that some of these people will seek new careers that offer greater stability.  That obviously would exacerbate the problem. The Navy needs to carefully consider how it plans to maintain a nuclear propulsion submarine design industrial base.  Alternatives could include a robust Virginia redesign effort to enhance affordability, to design and insert the multimission module in some future Virginia class ships, and to design small manned and high-endurance unmanned undersea vehicles to serve as adjuvant vehicles for SSGN and Virginia class ships equipped with a multimission module.  Additionally, it could accelerate at least concept development for a ballistic missile submarine that will be needed to replace higher-class ships when those ships reach the end of their design lives. In summary, a 55-ship U.S. attack submarine fleet made up of existing ships and supplemented by SSGN and Virginia class ships will likely ensure undersea superiority into the early decades of the 21st century.  The Navy's biggest challenge that I see will be developing a stable shipbuilding program that, among other things, includes Virginia construction at more than one per year.  It also needs to maintain both a robust R&D and experimentation programs as well as a healthy shipbuilding industrial base. Thank you for your time, and I look forward to your questions at the end of the panel. MR. DONNELLY:  Thank you, Karl, for a clarion call and a very clear one at the same time. Bob, you are on deck again.  Carry on. MR. WORK:   (?)    Karl's point on constantly shifting shipbuilding plans that have occurred over the last six or seven years, especially.  Anytime there is a shift between these national security areas, there always follows a pretty lengthy period of uncertainty.  In the first continental era, if you recall, in 1785, the nation decided we didn't even need a Navy, and by 1785 the last continental navy ship paid off, and there was no U.S. Navy.  It took until 1794 to 1798 to the quasi-war with France before we decided to get into the competition for good, but it took quite some time, almost two decades.  In the transition between the frigate and the battleship era, it took about two and a half decades before the Navy got its design right.  The USS Nevada class was the first class in which Admiral Sims thought it had reached the entire epitome of all big-gun armored battleships.  So it took about two and a half decades.  And then the shift to the carrier, of course, took two decades for sure. So the fact that right now we're about 15 decades into a new era and we still haven't quite figured it out is, from a historical perspective, not all that surprising. The key problem that we have right now is the expected budget environment over the next 10 to 15 years.  And from our perspective, after talking with a lot of analysts at OMB, CBO, the Congressional Budget Office, CRS, the Congressional Research Service, analysts at other think tanks, the chances of us getting much more than $9 to $11 billion per year for total shipbuilding I think is increasingly unlikely. So, therefore, the Navy really is in a pickle, primarily because they don't necessarily need more ships, but they need more production to keep the shipbuilding industry in place.  And how do you do that on $9 to $11 billion a year?  This is one man's attempt to do it. Now, I'm going to try to size this fleet for the one, one, one that I talked about in my first presentation.  I want this fleet to be able to do maritime defense in-depth of the homeland to prevent WMD attack against the homeland, to fight the persistent irregular war, and be prepared to support one major power projection operation.  To Tom's point, every single one of these three could involve nuclear weapons.  That's key.  Most of the ships that we designed in the latter part of the 1980s, the DVG-51, was specifically designed with a CBR, chemical, biological, and radiological citadel, to allow these ships to operate in what is called a dirty environment, nuclear radioactivity, et cetera. The LPD-17 was specifically designed with nuclear blast hardening and a CBR-protected citadel.  These ships are ideally suited for a power projection operation in a littoral where one or two or three nuclear weapons might be used. Of course, we have to stop the WMD attack against the United States, and if we went up against a really high anti-access area denial network, I would presume that high--I mean microwave pulse type weapons and other weapons of mass destruction would be used. A lot of people count ships, total ship battle force.  That's what everyone focuses on.  It's an outdated term.  We're shifting to a network.  The Navy is clearly moving in this direction and now thinks of it in terms of a total force battle network, not a total ship battle force. In this regard, the multimission manned aircraft, the broad area maritime surveillance, and the airborne common sensors, these are airborne platforms that, if we did not have, we would require many, many more ships than we otherwise would want. And by the same token, marine amphibious groups, MEBs, MEPs, these are, you know, marine expeditionary units, marine expeditionary brigades and forces, they're part of the network.  So the Navy needs to change its counting rules first.  These rules change all the time.  They are not inviolate.  The rules that we operate under right now were set by  John Lehman in the midst of a Navy on Navy competition with the Soviets.  The counting rules said that the ship had to provide immediate combat capability to the Navy.  Now, in a joint multidimensional world, it should be ships that can provide--I believe, ships that provide a contribution to the defense of the nation, which means you start counting Coast Guard cutters, and also any ship that provides joint power projection capability within 30 days. For submarines, I generally agree with everything Karl said, with the exception of the 55-boat force is for a two-major-combat-operation environment, and I would only design to one.  I would immediately reduce the SSBM fleet.  That's the strategic--the boomers, the strategic ballistic missile submarines that Karl talked about--and convert two more to SSGNs, these very capable ships that Karl spoke about, for a total fleet of six boats. Now, of all of the people that I interview, there is absolutely no question that the force could be reduced to 12 without any problem.  It meets the warfighting criteria and vulnerability studies.  There's a lot of uncertainty whether you could go to ten.  I think you would want to try to go to ten, and if you could design two SSUNXs, what I call nuclear-powered UUV tenders.  This would provide the design capability as a bridge until we can get to the submarine that Karl was talking about.  This would design flexible payload interfaces a lot different, swim in, swim out, top, bottom, but it would challenge our designers to start to get to this. I'd continue to build Virginias at the rate of one per year.  The fleet range that the Navy is shooting for, 37 to 41, is clearly enough, I think, for a single major contingency operation and will provide at least a 1.5 to 2.0 Navy standard, at least through 2020.  After that, as Karl said, it really starts to get problematic because a large number of submarines start to reduce--start to wash out of the force. So to keep the design industrial base hot, the SSUNX would keep the design teams going, and in the meantime, we do the technology barrier demonstrations and move for what I call an undersea superiority system X to go into production around 2018.  And a key thing will be to try to get production rates up.  It might be a Virginia.  We don't know.  I mean, if you can get the costs down.  But right now on a $9 to $11 billion budget, I think it's unreasonable to assume we will ever get to more than one Virginia a year. In 2020, that would give you the following fleet with the USSX in production, and I happen to believe, after thinking about this a lot, I fully subscribe to Karl's view.  We do not want to go to AIP diesels because we'd just be stepping back in the competition.  In other words, why compete against things that are in the competition now?  We should be looking for disruptive change in 2020. Aviation network combatants.  In '28, when the USS Bush is commissioned, I would immediately move to ten Nimitz class carriers and reorganize the airwing structure so there would be nine active and one reserve all Navy airwings.  This is a little bit different than what the tactical integration plan calls for now. I totally subscribe to the fact that U.S. marine squadrons should be on the carrier deck until it is certain that the Stovall, the vertical launch version of the JSF, can be integrated into the carrier cycle.  We should just assign a single U.S. Marine Corps JSF augmentation squadron to each, and we should start to pre-capitalize the fleet at a build rate of one every five years, started in FY08. The JAFSV, a float-forward staging base, twice in this era we've used carriers for different type options, one in 1994.  We put the tenth mountain on the--no, excuse me, the--which one?  Eisenhower.  Thank you very much.  We put a 10th Army division on the Eisenhower and took them to Hawaii and we used the Kitty Hawk as an offshore special operations base.  And this is something that the Navy should provide to the joint force. The Enterprise has eight nuclear reactors on it.  We have never decomm'd a nuclear carrier.  The rough order of magnitude guesstimate on a Nimitz class decomm is $1.14 billion.  We've got to spend a billion dollars just to get rid of the ship.  That's with two nuclear reactors. The Enterprise is going to cost probably $4 to $5 billion just to take out of service.  By moving it through a joint float-forward staging base, you might be able to extend her life for a little while and defray that cost.  In the meantime, if you go to a ten-carrier force, the first CBN-21 would be commissioned somewhere around 2014, 2015, and the USS George Washington is up for its complex overhaul at that time. You have a choice.  You can just launch it out of the force after 23 years of service.  That's a heck of a loss.  But you could use that money to defray the costs of the Enterprise's decommissioning.  But I think the JFSB should have a RICO that costs less and keep that and replace the Enterprise. The LHAR, that is, the LHA replacement ship, that is under design right now, it is not an amphib.  It should not have an L limit.  The LHAR as an amphib is a repeat of a failed experiment called the LPH.  Without a well deck, it is not part of an amphibious sea-base operational maneuver force.  But it is a heck of what used to be called an escort carrier, a JCBE.  In 1944, when the decision was made to bypass Rivall (ph), the U.S. Marine Corps got together because the marine had been on land, just like they have been throughout the Garrison era, but they were in the Solomons.  How do you get them to sea?  Well, they made CBEs, or they had CBEs, commencement based CBEs, and they made all marine airwings.  I think that is the model we should follow here.  Build a class of four starting in '07. By 2020, you start to distribute the force.  You go from 12 big decks to 10 big decks, four medium decks, one a joint float-forward staging base, and, of course, the LHDs have an auxiliary role, anyway.  If the JSF proves out, then you might be able to go to smaller carriers after that. Now, there's a lot of talk about the LCS, but here it is as best as I can put it.  There are 64 small combatants in the fleet right now, 30 FF-7s.  We've taken off their guided missiles.  They're nothing more than frigates.  They're littoral ASW frigates.  We have 26 mine warfare vessels and eight PCs out of the 13.  Five are being used by the Coast Guard. If you look at their average displacement, it's 2,400 tons.  Their average draft is almost 18 feet, and their average crew is 138.  The LCS is designed to replace that force, not to compete with the DDG. If you take a look at its criteria and compare it against the average of the other ones, you see what a great match this is.  And this vessel, although it was originally conceived of as an anti-access vessel, is the irregular warfare frigate.  Eighty-four of these--I would build 84 in three flotilla.  We'd have 84 ASW or--mine warfare, or special operations support packages, twice the number of automatic cannon.  Every single ship would have its own  (?)  defenses, a magazine capacity of 15,000 precision littoral attack missiles, three times the aviation capacity, and 336 ribs, unmanned surface vessels or unmanned underwater vessels.  This is a heck of an investment, and it would provide the experimentation that Karl was talking about. Forget about the deep-water cutter fleet, though.  They're part of this job.  As part of the deep-water fleet, there is going to be 155 vessels out there that if the Coast Guard didn't provide, the Navy would have to build.  A lot of people might take issue with me counting the coastal patrol boats, but they're 15 tons heavier than the PT boats of World War II.  And if we didn't have those, we'd probably have to build more fast response cutters. I was interested to see Admiral Locklear's comment the other day that they might go to a smaller vessel.  He was referring, I think, to the fast response cutter.  This is an all-composite boat with a lot of stealth, and you'd get a lot of payoff if both the Navy and the Coast Guard were using it.  (?)  compatibly with the LCS, that's 239 vessels of all type to fight the irregular war and to keep the maritime approaches to the United States intact. Now, here's the problem.  We've got the best surface combatant force in the world by a large margin.  If you take a look at the way the British used to do it and have first rates, second rates, third rates, et cetera, there's only two nations in the world building first rates.  That's the Japanese and the United States.  There's only two nations in the world building second rates, the way I define them:  the Japanese and the United States.  Our allies are essentially building fourth rates, fifth rates, and sixth rates, and the majority of the ships are just ships that have no means to defend themselves.  They do a single mission. We have 8,500 VLSLs on the way.  Just think about the amount of money you'd have to spend to fill those holes.  Nine DDXs are in addition to this, not replacing them.  That would require another 1,400 spaces because each DDX will carry 160 battle force missiles, 21-inch diameter and below. So in this case, I'd build one DDX as a technology demonstrator, and the strategy of the second move, we definitely don't need it in this design regime, and we have to go to what Terry was talking about.  How do you build these ships to replace these 84 in 2020 when they start to wash out of the force?  This force is extremely capable.  Aegis open architecture, BLS open architecture, Aegis band upgrade--all of these would make this force just unbelievably capable. I would build two additional BDGs in FY07, and to retain the industrial base, you might want to move to the Japanese submarine model.  They have 16 submarines.  They build one per year to keep their industrial base hot.  When the first one comes up, the oldest one washes out of the force.  You could build one BDG and continue to just wash out the older until you get what this SCX is, a modular ship designed for these economies of scale.  If you need a CGX, you would pop that in.  So by 2020, you would have 86 ships in the fleet with SCFs in production. Historians will look back on the first five years of the 21st century and say, wow, this looks an awful lot like the Pentomic Division.  We described a force, a world in which we have to be everywhere in the world in ten days; there will be no access within 2,000 miles; and the only way to do that is to go after the NPF fleet.  The only way you can solve that problem is go after the NPF fleet. Amphibious operations are the most complex naval task you can possibly do, and what we are trying to do is inject more friction into the process so that we can get there in ten days.  The amphibious fleet, as it exists now, the LPD-17 and the LHD, are by far superior to any option that is currently under review and cheaper. I would build 24 LPD-17s, retire all the LSD-41s, and organize them into distributed expeditionary strike bases, buy out the leases for the NPF and make them irregular warfare support squadrons.  To go back to what Tom was saying, this isn't all about strike.  It's about building partner capacity.  These irregular warfare squadrons would be designed to stay offshore, help the Philippines marines get their capacity up, help a whole bunch of different forces in the area to get their capacity up and maintain one squadron for major combat operations.  The fleet in 2020 would look as there. Without even thinking about it, using new counting rules, you can get to a 556-ship fleet in 2020.  And it's affordable, and it's the best fleet in the world.  There are problems.  You've got to solve the problem of shooting down maneuverable ballistic missile warheads.  You've got other problems you have.  But I would just like to point out the six SSGNs and the 43 SSNs would have about 1,450 VLS cells, covert VLS cells.  That just happens to be the same number of VLS cells carried by nine DDXs.  And as Karl said, if I have to go into a protected littoral, I'd rather be underwater than on top, regardless of the amount of stealth you put in the ship. This still requires you to do--the strategy of the second move is do the design work for the submarine, for the USSX.  Do the design work for the SCX to get to what Terry was talking about, so that in 2020 you can inject disruptive technologies at a time of your own choosing and still be able to stay on top without breaking the bank. Bring back the fleet stations that were part of the frigate era.  Ascension Island is the Diego Garcia of the west coast of Africa.  Put an irregular warfare squadron there supported by LCS divisions.  Med Station takes Northern Africa throughout the Med.  Irregular warfare squadron and LCS divisions. Indian Ocean, that's the primary theater for the irregular war.  You need your combat punch.  Keep your NPF squadron there that can either rapidly reinforce the irregular warfare squadrons if they get into trouble or to provide follow-on to the amphibious fleet. East Asian station in Palau, possibly northeast Australia.  That would be probably tougher, but Palau is attractive to allow a presence in the sea lanes in the Western Pacific Station.  That provides you with a framework to fight the persistent war, supportive joint major power projection operation.  It's not as sexy as all of the things we have, but in my mind, this isn't the time to be sexy.  This is the greatest Navy in the world by far, and we can ride it for a little bit longer and inject disruptive change at a time of our own choosing. MR. DONNELLY:  You gave us a huge amount to digest there, so I'd like to take some time to do so.  And I want to call on the panelists to work through a number of issues. But before we get to that, you know, you come back to a sinking feeling that our fundamental maritime strategy is being determined by a budget number and by not just an overall departmental budget number or a defense top line, but by a shipbuilding budget number. And as much as I wish that I had $9 or $11 billion per year, it doesn't seem like it's all that much money, and certainly in the context of the overall U.S. economy, and even within the context of a $400 to $500 billion defense budget, depending on how you count it, whether you count emergency supplementals as available for planning or not. So given the consequences that I think everybody has outlined, not just on this panel but on the previous panel, you know, aren't we looking through the strategic telescope from kind of the wrong end and sizing our strategy to fit an $11 billion number rather than vice versa?  And if we decided that we wanted to revisit that number and take a more clean sheet approach to--or a risk reduction approach, to use a euphemism, what should the shipbuilding number be in order to sustain a more modest risk associated with the fleet that we can afford? So if we could just sort of go down the line, and everybody sort of presented somewhat different plans about where to take the fleet, but if you had a little bit more money, how would that change your plans?  So, Terry, will you take the first chop at that? MR. PUDAS:  Yes, thank you very much. I think there's a fundamental issue of, first of all, trying to understand the strategic logic that supposedly or hopefully underpins the resourcing decisions, and one is when we talk about the future security challenges, the question is how do navies contribute, how are they relevant to, for example, irregular security challenge, the potential catastrophic or cataclysmic kinds of things that we're knotted up about and then, of course, those potential things that could be disruptive. And so that's the kind of dialogue, essentially, that goes on in the resource allocation business among the services, et cetera.  Where do I invest my money, depending on where the strategic challenges are?  And I think that's essentially exactly what's happening right now. Clearly, the Navy would like to have more money to build more ships.  But the argument has to be made:  How are these then relevant to the issues at hand and those that we potentially face in the future? MR. DONNELLY:  Terry, you're not getting off that easy, man.  There is a prior question, not how we should spend our money, but how much money should we spend in order to achieve the strategic goals that, you know, are implicit in the national security strategy and a little bit more explicit in the national military strategy. I want you to take one more chop at it, and, again, you can invest the money in, you know, stuff that you think is relevant.  But even if you want to make radically different investments, presumably you would build the fleet that's relevant faster if you were not resource constrained. MR. PUDAS:  The question is if I had more money, how would I invest it? MR. DONNELLY:  Yes. MR. PUDAS:  From a departmental standpoint or from a Navy standpoint? MR. DONNELLY:  Navy standpoint. MR. PUDAS:  I think what Bob said makes a great deal of sense, and I happen to be a fan of the LCS kinds of things.  They're very, very modular.  They give us a lot of options.  They essentially create an enormous amount of complexity for anyone who's trying to compete with us.  And I think you get a lot for the money. The last time I tallied it up, I think it was something on the order of 6 percent of the SCN budget for 15 percent of the fleet, as opposed to 70 percent of the SCN budget for 40 percent of the fleet.  So if I was going to invest, that's probably where I'd be looking to invest. MR. DONNELLY:  Okay.  Karl? CAPTAIN HASSLINGER:  I guess I'd stick with the plan that I outlined, but if we had more money, I suppose I would push toward the areas of LCS and the SSGN and other types of experimentation.  I think it would be foolish to just say, well, we now have a bigger checkbook, and I'll go off and do more of the same.  I agree with Bob Work and with Terry on the concept that this is the time to move ahead.  But I think before we move ahead and just go off and build something because we have available money, I think we ought to do the actual field experimentation and work with these things.  And I would also say that we need to do it in a more joint sense. I would also ask that we have a greater joint voice in the types of things we go after, and then as we develop these capabilities and test them and prove them out, see where they can contribute to what the joint warfighter might really want before we make a decision to go off and buy a new class of ship. MR. DONNELLY:  Robert? MR. WORK:  Adjusted for real terms, we're spending more money right now per year on defense than we were at the height of the Reagan build-up in 1985 and at the height of the Vietnam War in 1968.  So the amount of money we're spending on defense is enormous. So I agree with Tom, if you really expect that you are only going to get $9 to $11 billion a year, then there are risk assessments that you make, and my risk assessment is you give up on the second big MCO. Now, that is not--if our defense leaders do not believe that that is prudent and that is too much risk, then you will definitely need to have more money.  I mean, I believe that Admiral Clark's plan is for two MCOs, and it's about $15 to $18 billion a year.  But CBO, as Karl said, has said that's probably a bridge too far in this budget environment. Strategy and force shaping always has to take into account available dollars, and I think this QDR is going to have an unconstrained look and then a risk assessment look based on lower bucks. I would just like to put in a plug for the U.S. Coast Guard.  I think the way they do it is exactly right.  They have a baseline plan, and if they get any extra money on any given year, they know exactly what they would want to buy.  So if I got an extra $2 billion, for me I'd buy an extra Virginia.  Now, some people might buy a DDX.  In other words, the Navy would have to know here's my baseline plan, and if I am lucky enough to get $13 or $14 billion in any given year, I know exactly what I want to buy. MR. DONNELLY:  Well, I promise not to pursue it any further, except to charge the third panel with talking about the defense industrial base issues that are subsumed in that shipbuilding budget. I have one more sort of broad question that I want to run by the panel to help me understand some of these issues better before we go to the general questioning, and that is the question of reposturing the fleet, particularly the high-end fleet in the Western Pacific. Bob, you were very kind to actually include a map--but it's more a global map than a regional map--in your presentation.  And this seems to be an issue that was addressed in the first panel, but I would like to understand better in terms of the wheres, the response time issues, the on-station requirements, et cetera, et cetera.  Just almost a question of operational research, and just ask you all to talk about what you think are the key issues in repositioning the fleet, particularly for the Taiwan Strait scenario, which is very clearly a scenario where time is of the essence. So talk about where we are, where we need to be headed, and what the implications of that are, if you will, please, all three of you. MR. PUDAS:  Okay.  Let me just answer it sort of generically a little bit.  One of the charts I used had this little red zone up in the right-hand quadrant, and I argued that that's where we have spent an enormous amount of our crisis response days over the last 12 to 15 years.  So, clearly, that's an area of the world where we're probably going to continue to see interest in those littoral regions, and so I would expect that we would posture the force generally, not only the Navy but the force specifically, to remove impediments to speed, to be able to operate there.  As was alluded to earlier, you know, we have to be able to get there before day 37 if we are going to control the initial conditions and have some influence on that.  And so I think that is part of the logic. Of course, with regard to posturing for Taiwan and those sorts of things, I think there's an enormous amount of policy issues.  I dealt with that, and quite frankly, I don't have any speculation on where that might be or how that might look.  But clearly that's an area of the world where we're going to continue to have  (?). MR. DONNELLY:  Again, just to follow on and refine my question a bit, again, generically, what are the--have we come anything close to a metric of what we need to--you know, like the old Cold War metric, the old ten divisions in ten days metric?  And I don't know how you would quantify that, but is there a benchmark of any sort we think we need to get to to have an adequate response for what we think we might be challenged by? MR. PUDAS:  The answer to that is--I don't have an answer to that.  I don't know what the metric might be.  But I do know that being there means a lot, okay?  And so we can't expect to develop that depth of local knowledge and cultural intelligence and social kind of understanding in those regions of the world when we're displaced.  We need to actually be there.  We need to be operating with those potential strategic partners so that we understand the area in which we may be called upon to operate.  And that means being there. MR. DONNELLY:  Maybe we could begin by sending flag officers to Taiwan to look at the--fill the gap in the future, but that's a separate issue.  Karl, [inaudible]. CAPTAIN HASSLINGER:  As you probably know, we've already sent a larger fraction of our submarine force to the Pacific.  Specifically, we have an experiment, if you will, underway whereby we have three SSNs currently stationed on the Island of Guam.  The distance to an area that concerns us significantly on a day-to-day basis is less than from Pearl Harbor, San Diego, or other places. That said, a lot of people say, well, why don't you put more submarines there?  And the answer to that question is there's a lot of infrastructure cost, a lot of other things that have to be done to do that, support those ships properly and the families and the crews, especially in the area of training.  We have considerable training infrastructure that goes along with operating a complex ship like a nuclear submarine. On the other side of the coin, it was interesting to note several months ago that a Chinese nuclear Han submarine circumnavigated Guam.  I suspect that wasn't a navigational accident, and perhaps it was some type of message or training plan involved in that. It's also interesting to note that because it's nuclear-powered, the submarine force has considerable flexibility, and, in fact, a lot of the ships that have deployed recently to the Pacific were Atlantic-based ships that just did a quick up and over the Pole, because they can duck under the ice no matter what time of the year it is and come out on the other side.  Those same ships obviously then are available to respond very quickly to the Mideast or other locations that still concern us. So while it would be tempting to say, you know, put almost everything in the Pacific and respond from there, that's not realistic from several perspectives, not the least of which is infrastructure, and then, of course, your own threat assessment on how many ships you have in one location. So I think the current policy of taking a careful look at how we could beef up the ships in the Pacific, what the exact fraction is, I'm not sure that would be optimum.  And with regard to the number of ships that you need on location on a day-to-day basis to support activities possibly against some type of intervention for Taiwan has been thought through, but is classified and it's contained in an operation plan.  So I'm not sure it's worth going through specifics on that. MR. DONNELLY:  I will let you off the hook on that one. Bob, what are your thoughts? MR. WORK:  Three different levels.  By distributing--by taking the NPF, an asset that we already have and that's been proven to be very good, and knowing that you're probably very seldom going to have to fight for access in this irregular war, by distributing four three-ship squadrons around the periphery of the central theater, you automatically decrease response times for that. By having larger, what I call distributed expeditionary strike bases built around amphibs, having eight of these ships forward at any given time, you can collapse on any point along the Eurasian littoral within 18 days.  You can't get to 10 to 14, but you can definitely get there from 10.  You've maintained one distributed expeditionary strike base and a carrier strike group in the Indian Ocean at all times, and you would have another one on the Western Pacific.  And the maximum amount of time it would take either of those two to collapse on the other is about 18 days' sailing time. With regard to the Chinese threat, I believe--I mean, the guidance in the QDR, 2001 QDR, is quite clear.  The Navy has been tasked to try to get another carrier into the Western Pacific, and the two options they have are Guam and Hawaii.  I think Guam has a lot of attractions as far as location, but it has a lot of other problems as far as money.  And I believe that in the end, if the Navy does move a carrier, it will probably go to Hawaii. With one in Japan, one in Hawaii, and two in Bremerton, Washington, that can take the Great Circle route, you can collapse four carriers into that region very quickly.  Whether that meets the classified response times, I honestly don't know, but also shift--I think as one of the other speakers said--60 to 70 percent of the submarine force into the Pacific.  There's enough infrastructure, as I understand it, to support 24 boats in Hawaii.  I would not put any more than six on Guam, primarily because they become a target, as Karl implied. So there are a lot of modest things you can do to increase the time, and that's the way I would go about it. MR. DONNELLY:  Thanks for indulging me. The floor is now open for further questions.  Again, please wait for the microphone, identify yourself, and ask a question. MR. BAER:  Gordon Baer, Army Retired.  Almost all the discussion this morning has been about future contingencies of uncertain probability, relatively little on present problems at a time when the Army and Marine Corps personnel systems are severely stressed by deployments in Iraq and Afghanistan. I wonder whether there is anything the Navy can do in terms of providing additional assistance ashore, presumably in combat support, combat service support, for the problems that we have right now, this year and next. MR. DONNELLY:  Any volunteers? MR. WORK:  I believe Mike Mahon said earlier today that as part of the three-one strategy, there is quite a lot of talk inside the department on making what is now referred to as sea service infantry, designating Navy units that are specifically designed to go ashore to do operations.  And the Navy already is providing an enormous amount of support in terms of the Seabees and doctors, et cetera, as they've already said. I personally believe--in 1909--between 1898 and 1909, there was constant back and forth between the Navy and the Marine Corps on whether or not the marines ought to become subordinate to the Army artillery corps and that the Navy would create their own sea service infantry. The President of the Naval War College said, well, what would happen is they'd become the Marine Corps, and I believe that's the case.  If you need more people, then I think the right answer, if you really need more people, is to increase the size of the Marine Corps for these tasks on the ground.  The Navy has many, many other tasks that they can do. MR. DONNELLY:  I think, Terry, you [inaudible]-- MR. PUDAS:  I think that you've already witnesses some of that before the first of the year with the PPD that came out and the shift of resources.  And if you look through the lens of the current challenges, I believe you'll see a shift from some of the more capital-intensive kinds of things that we normally chase after to those labor-intensive kinds of things that are dealing with the actual current problems, the increase in end strength in the Army, cuts in some of the more capital-intensive kind of programs, like the F-22. So you ask what is the Navy and the Air Force doing to contribute to the current ground battle, you know, essentially they're-- MR.           :  Giving them money. MR. PUDAS:  Giving them money, right. CAPTAIN HASSLINGER:  I guess I just wanted to add that I would have to agree that what Terry just described is probably the right way to go.  But when I look at the number of things that we ask our sailors to do on the complex ships and aircraft that they operate, often their downtime, if you will, when they're not actually engaged in some mission, is associated with training to go back to the fleet and do the things that we ask them to do.  I'm not sure what type of disruption would take place if we asked those people to go off and do some different task. So I would have to agree that for the training that the Army and the Marine Corps folks have that are over there doing the mission they need to do, I think we'd be best advised as a country to plus up that end strength, and if the only thing that the Navy and the Air Force can do to help that is to give up money, then that's probably the right answer. MR.           :  I would just say, first of all, that it takes a Marine to distinguish between naval infantry and Marines.  But, secondly, the commitment--you know, the commitment of the Marine Corps to operations in Iraq and Afghanistan is a huge contribution, and, you know, the lesson learned after the invasion of Iraq for the Marine Corps, the lesson that they wanted to publicize, at least, is, Oh, my God, let's never do that again and let's get the hell out of here as fast as possible. I think that attitude could change when the nation is at war and when -- [tape ends]. -- quantify this in a QDR [inaudible], I would say pretty clearly, you know, a mission that they have begrudgingly, perhaps, but certainly accepted, and the continued rotation of Marines to these wars has got to be a basis for planning going forward.  It's not just an Army question.  So, you know, that's certainly one way in which the sea services are making a huge contribution. That would just be my take on that. [Inaudible comment.] MR. DONNELLY:  Thanks.  I get to play interning yo-yo here.  All the way in the back. MR. FISHER:  Thank you.  I'll just come up and meet you halfway.  My name is Rick Fisher with the International Assessment and Strategy Center.  Last fall, I met a Chinese general who claimed to have written three books about why China needs aircraft carriers.  And if you look at the open information, China has done extensive research on developing aircraft carriers and, lo and behold, the Varyag has now just transitioned to a dry dock on Dalian.  And if you take Admiral McDevitt's comments from the previous panel about China's tending toward a Gorshkovian (ph) strategy, and if you even take that out, that would include some kind of Varyag pro-SSVN carrier air. My question is:  What would be the impact, possible impact, or what would be the likely, preferred result on American naval planning of the emergence of a Chinese carrier capability that would center on three or four carriers? Thank you. MR. DONNELLY:  Three or four carriers.  That's a great leap forward. CAPTAIN HASSLINGER:  --almost like--I suppose I would be inclined to say that I would encourage the Chinese to go down that path.  It's almost as if you can get them into a cost-imposing strategy on our part.  We saw the Russians try this, and for a long period of time they never really got it down pat, never really developed a carrier in the sense the way we do operations.  And, frankly, I'd like to see them put a lot of money and effort into it because it would be very easy to take them away from them if the balloon went up and we were a participant. That said, I'm not sure, frankly, today that it would make a significant difference in what we did with Navy force structure. MR. DONNELLY:  Any further comments? MR.           :  I think I would agree with Karl. I mean, I think we'd have to really sort of think through whether that was really a move that constituted some sort of threat to the commons, if that was going to be seen as a challenge, or whether that was intended to do other things or send other messages.  But, quite frankly, I think we'd have to come to grips with that question before we come up with some response. MR. DONNELLY:  Allow me to elaborate on Rick's question a little better to twist it somewhat.  And if Admiral McDevitt's view of Chinese strategy is possibly correct for the near term, isn't there potentially a logical follow-on position so that having established or created a contested space in the Western Pacific, and we take the Chinese more literally in their desire to exercise a certain amount of sea control, which would be consistent with their approach towards the control of natural resources.  In other words, this is a country that's uncertain about simply signing up to the American-led international order, the marketplace, as we tend to look at it, but, in fact, you know, there's a particular security system that underpins it. You know, let's look a little bit farther down the road, and as you said, Bob, it takes a while--and also the Admiral said this--it takes a while--it would take a while to acquire a fleet of such capacity and size.  Isn't there perhaps some longer-term view that needs to be considered here that includes a more traditional, you know, battle for the blue water, you know, not simply to deny us the use, the control of the blue water, but contests for control of it? So let me go back at you one more time.  Anybody who wants to bite on this, but somebody, please? MR.           :  It's pretty clear, at least in the open sources, that the Chinese are, I think, intent on spending more money on how to destroy U.S. carriers than they are on trying to build their own.  This is primarily an emphasis on submarines and these maneuverable ballistic missiles that Admiral McDevitt talked about. To move into the aircraft carriers would suggest that they're going out of area because they would probably get a much higher payoff by taking their SAM-10s to sea, which would really complicate U.S. long-range air dominance operations over the Taiwanese Strait.  And, in fact, they have done that.  They have just commissioned two ships that look very remarkably like a DDG-51, with four faces phased array, but they only carry 48 missiles, so not quite escapable.  But the mere fact that the SAM-10 is going to sea is really going to cause a complicating factor for air operations over the Taiwan Strait. I agree with Karl.  Once the Chinese decide to move into the open area, those are just targets for our SSN fleet.  And I have no doubt that they would be sunk forthwith.  So if they would like to buy these very expensive platforms, that's fewer maneuverable ballistic missiles that they can buy to shoot at our carriers. MR. DONNELLY:  Okay.  Yes, behind the cameraman? MS. LACKEY:  Sue Lackey (ph) from Sea Power.  I have a question for Colonel Work.  Do you see any advantage in the short term in using maritime pre-positioning force ships as actual combat assets as opposed to relying entirely on the development of high-speed connectors? MR. WORK:  The Navy is doing some very innovative stuff using modified NPF ships as kind of these interim sea bases.  It's not a lot in the press.  You just get snippets of it.  It's unclear to me exactly what they're doing, but the Navy is already considering how to use these assets.  They're there.  They're quite good.  But they were designed for unimpeded access.  They are commercial ships designed to go into a place where there's a deep-water port, and they can be modified somewhat for sea-basing operations. But in my mind, venturing into a defended littoral, it is far better to use an amphibious ship that's designed to do that.  So I think the Navy is on the right track here.  They're exploring how to get more bang for the buck out of these ships, and buying out the lease is going to be a lot cheaper than building a whole brand-new set over the near term. MR. DONNELLY:  We'll go over here. MR. SEGAL:  Adam Segal, Northrop Grumman Analysis Center.  In the comments in the presentations, there was a very major disconnect that was perhaps [inaudible] and that does have large eventual implications for force acquisition.  Captain Pudas referenced that speed--I believe the words were, "Speed, of course, is good."  And I'll question that "of course" because I can take Bob Work saying 10, 30, 30, 18 days, starting to question speed as necessarily good.  This relates to strategic level, operational level, and at times tactical level.  We could take one program area, for example, the Coast Guard, national security cutter, 13,000--in shipbuilding we're talking about an iron triangle endurance speed payload.  You got the national security cutter roughly 13,000 nautical mile range, two months plus at sea without resupply, 29 knots, LCS program up at 3,500 nautical miles, 50 knots, 21 days at sea.  You know, we could talk about police.  There are cars out on the street that go faster than anything the police, but the police also have helicopters and multiple cars and otherwise to trap that speeding car.  Speed is not necessarily good amidst the netted force, I would suggest.  It is a tradeoff, potential speed as a free good may be good, may be wonderful, but it has a cost, a very serious cost that's associated with it. MR. DONNELLY:  Excellent question. MR.           :  Well, let me just jump right in there, Adam.  I mean, the question you're asking is the tradeoff between cost of speed versus the value of time in crisis response.  And I guess I would argue that because of the path dependency of crisis, what you'd really like to do is remove any impediments to speed so that you can actually get there, influence the initial conditions, seize the initiative, all those kinds of things that we continue to talk about, because we--I guess we intuitively think that that's a good thing. But there is clearly a tradeoff, the cost of speed, right, versus the value of time.  But I think that I guess my bias is that, as I watch what we're doing when we're networking the force, I see a relationship developing between networking and speed.  You know, our ability to move bits of information around the battlefield versus our ability to move to Adam's.  And I'm starting to see a disconnect in that relationship, and so I guess that's what I was basing my "of course" on. MR. DONNELLY:  Bob, do you want to-- MR. WORK:  I come down on the side of Adam on this one.  We already are the most responsive armed forces on the planet.  We shifted into a counteroffensive on the 7th of October, just a little bit more than three weeks after we were attacked on 9/11.  Halfway around the world in a landlocked country, where we really didn't have a lot of access, we were able to put in Operation Enduring Freedom, 60,000 to 70,000 Marines on the ground ready to go north in a little less than 60 days.  And these type of strategic response times are enormous--I mean, are enormously helpful for us, and there's just nobody who can duplicate these. Now, obviously at tactical and operational level, at the tactical level I think speed has a lot of payoff; at the operational level, being able to operate at a faster tempo than the enemy does, too.  But the historical record for argument speed is not as clear.  The cult of the offensive in World War I, it was all about moving first, ending the war, and we saw where that got us.  The Japanese and German war plans were all about moving first and being, you know, rapid strategic speed, and they both, as you know, got--well, they lost. And look at what we did in Operation Iraqi Freedom.  I mean, essentially it was we're going to go there very fast.  It was the cult of the quick.  In a large measure, our post-war planning reflected this cult of the quick. So I believe that 10 to 18 to 20 days is more than sufficient, because it allows us to think through what we want to have happen after we get there.  And I don't think that paying for the extra three to four days of speed, especially against an irregular opponent, will make that much difference. MR.           :  I want to pursue this a little bit more because it is all about--or it's mostly about the irregular end of the matrix or the quadrant or whatever, and the relationship between presence and persistence and tactical speed is certainly significant. And, finally, if we want to particularly have a low-end fleet that's compatible with allies, maybe, who are more like Coast Guards than our Navy, why oughtn't we to make that--you know, aren't those the driving design factors in a surface combatant for irregular warfare, which to me begins to look more like--or as much like a deep-water vessel as it does an LCS type vessel. You know, although it's good to have a small service combatant that plays some role in higher-end conflicts, you know, again, I'm not sure that it's worth the extra investment, the extra value, when we're going to end up using this 80 percent of the time, or I don't know what, in low-end irregular stuff that seems as much like Coast Guard traditional missions as Navy. Can anyone conceive of circumstances under which it makes sense to really  (?)   those two programs together, build more of them, possibly sell more of them on the international marketplace or make them more interoperable or compatible with regional navies?  Anybody? MR.           :  I don't believe--I have always thought that going for 45 to 50 knots on the LCS is too much of a tradeoff on endurance, et cetera.  However, I wouldn't mix the LCS and the deep-water fleet to that degree.  Persistence and low speed for the Coast Guard mission I think is most appropriate, but what the LCS brings back--you know, we can argue whether it should have been a 40-knot ship or a 45-knot ship.  But what it brings back is an entire class of ships that washed out of the fleet which were extremely helpful:  the APD, the fast historic platform; the LCS will be able to take small groups of Marines very quickly and fight this irregular war.  The DM, the destroyer minelayer, being able to get somewhere really quick and do offensive mining.  The DMS, the destroyer mine sweeper, being able to get somewhere really quick. The average speed of advanced mine warfare force right now is about 12 knots.  They're out of the fight.  The LCS will bring that mission back to where you can collapse on an area and at least start your mine sweeping. So I wouldn't mix the fleets.  I wouldn't have paid for the 45 knots.  I would have asked for more endurance.  But these are tradeoffs that I think the Navy makes on a day-to-day basis, and I think we're on the right track as far as--as long as we have a national fleet where the Navy and the Coast Guard cutters act together. MR.           :  Speaking of speed, it always interests me that we want to speed along our decisions, and we want the answers to complex problems before we've done a lot of the analysis.  So when it comes to speed, and particularly using LCS as an example, I'm a little less sanguine about building 84 of them up front.  But what I would like to see is us build LCS, the two versions that have currently been contracted for, and take the ships out to sea and operate them and go do some things that we assert can be done.  And more interesting, we're probably going to find that the things that the people in the Pentagon said go build this ship to do X, the sailors are going to come back and say, well, we were able to do that, but there was a little bit of a rub, but what we found out while we were doing it is that it really did Y pretty well, so let's go off and look at that. So before I would be willing to sign up that we don't need the 50 knots on the LCS where it should have been 40, you always have the option to operate at slower speed, which does provide greater endurance.  We ought to go out and do some experimentation and see where that leads us first. MR.           :  I'd like to agree with Karl.  I think that that's absolutely what we need to do. If you remember the high-speed vessel, okay, think way back to the high-speed vessel, I'm the guy who went to Australia to go look at it and brought back the news.  And the whole thing was not about the hull form or anything like that.  It was all about this relationship between the cost of speed versus the value of time and operations.  And so we were debating this back and forth, just like we are here on this panel, but the decision was made, well, why don't we go get something so that we could actually gain some experience with this to see if this is actually useful?  Or are we just asserting this? And I would argue that we probably gained a great deal of knowledge about that and about speed and all those other sorts of things.  In fact, I think the Navy took delivery of their second one last year, and they've used it operationally in a number of ways. So I agree with Karl, and that is that we should build some of these things, gain some operational experience with them, and just like I said in my remarks, we want to create transaction rates--that means build some things, develop learning rates, so that we can make good resource allocation decisions as we go forward. MR. DONNELLY:  Fred, I guess it's your turn. MR. KAGAN:  Fred Kagan, AEI.  I've heard about, I don't know, 15 or 20 different missions that it sounds like the LCS is supposed to perform with a reduced crew on no notice, anywhere in the world at any moment.  And I'm wondering about the larger issue that this raises.  Can the Navy as it is currently trained, educated, staffed, with the doctrine that it now has, actually incorporate these ships, actually move to the sorts of force structures you're talking about?  Or are we going to have to see significant changes in the way the Navy prepares its people to go to sea and the way that it does at-sea training and the way even that it selects officers?  What are the larger implications of some of these force structure and deployment issues you're talking about? MR. DONNELLY:  For everybody, I take it. MR.           :  I'll start, take a stab at it.  I think you raise a good point, that there are several issues underway.  We have this sea swap program that's being looked at, using one hull and then either two or three crews to go through it.  That's very similar to what we've done with the SSBN world for many years. But very specifically, if you look at the SSBN world where we had two crews per ship, you find very quickly that the entire infrastructure that supports that operation is very different from what you'd find for a single destroyer or a single SSN or any other ship in the Navy.  There's a much greater land-based training infrastructure.  We even maintain the ship in a different manner. When you come to something like the LCS, that's even different from the SSBN world, because basically what you're saying is I can be in a port somewhere, be assigned this new mission, and be told that helicopters will land at the end of the pier in 20 minutes and deliver these modules, and with these modules will come people.  And those people, in many cases people I've never met before in my life, will come aboard and assert that they are experts in countermine or ASW or operating some offboard vehicles, perhaps even vehicles that I'm not very familiar with.  And I suppose that I have to accept them abroad, plug in their modules, go off to sea, and have some level of what I like to call operational confidence, that when we get in harm's way these people will press the appropriate buttons and do the things that others will claim that they do, that they're certified to do, and we now have a capability. It isn't clear to me whether before I deploy to this location, actually before the hardware, the ship was there, because I may have flown in at some later time, whether we ever trained as a team--"we" meaning myself, my nucleus crew and/or these other cadres that could some abroad with equipment. And I would only say that--and I may come off as a Luddite, and I don't mean to do that, but it was important to me during my career that my ship's crew was trained as a team.  Now, it was certainly true that I sent individuals off to different types of schools where they learned different skills or honed them.  But at the end of the day, they came back to that ship, and we all went out, we did drills, and then the ship was certified as a unit. So I think the Navy--and I'm not pooh-poohing the idea or the concept of LCS, and it may make sense in our constrained fiscal environment, and it may provide the capabilities that we don't understand and will be very happy to have.  That said, I think there's a lot of things that we need to come through that look at the very specific personnel aspects of the issue that you raised. MR.           :  The LCS, the key thing, if you take a look at the LCS, what the Navy wants to do with this ship, it is quite ambitious.  The two closest things to it, the MEKO class ships, which are specifically designed to drop in different types of mission packages on a larger vessel, it turns out that it sounds great, but no MEKO ship, once it gets its initial sweep, has ever been changed out. So then the Stanflex, the Royal Danish Navy on the Stanflex, they have a capability to change out the mission of their Stanflex combatants within hours.  But through operational experience, they found out exactly what Karl did, that you cannot do it, it's better to change out the crew at one point in time, in other words, spend three or four months as a mine warfare vessel, go in, switch out, do a training, and then go back out. The 84 vessels that I recommend buying are 42 ASW versions and 42 anti-mine versions, with a crew that has inherent anti-boat and inherent soft support, and start to experiment with sea swap and start to experiment to see how far can you push this.  And the Navy, I think, in their experimental plan wants to look at this. I'd also agree with both Karl and Terry.  If it turns out you cannot maintain cost control on this vessel and it does not meet the criteria of the Navy, then by all means you should stop production and shift to something else that does. So I think the ship has an awful lot of exciting possibilities, but it's unclear whether the Navy will be able to exploit it the way they think that they want to. MR.           :  I think you asked a very pointed and good question, and that is, clearly part of the cost to operate the fleet is in the people, and training is not an insignificant piece of that.  So if we're going to think about this in terms of a strategic approach to cost, you know, what are the things that--what are those impediments to those things that you just pointed out?  Because I do believe we have some experience with this.  I mean, not necessarily in the surface warfare business, but in flying a multimission aircraft where you expect it to be, you know, just as good air to air as you are air to ground, at night, in all weather.  I mean, there's some significant training implications to maintain skills for those kinds of things. And I think that if we--I believe that one of our multinational partners, I believe it's the Danes, who have had some experience with this whole business and swapping modular kinds of capabilities and have learned some significant lessons learned as a result of the kinds of things you were just talking about, because those are major implications. MR. DONNELLY:  I have one still in my pocket, so there is, I think, time for at least one more from you guys.  Otherwise I'll proceed to that. [No response.] MR. DONNELLY:  Not seeing any show of bravery on the part of the audience, I feel obligated to try to cover for Dave Trachtenberg's absence and ask everybody to talk a bit about missile defense and the Navy's increasing role in that.  We talked a bit earlier today about sort of fleet ballistic missile defense, the looming requirement to protect our surface groups against ballistic missile attack.  But, clearly, the missile defense community has in mind a national and theater role for ship-borne missile defense that has been an increasing--or an issue of greater visibility over the last five or ten years or so. But what's a little bit opaque to me is what the opportunity costs are that are associated with that in terms of the requirement to keep, you know, ships in certain orbits or in certain positions in order to provide a layered and robust defense, not only of the fleet but of the United States and its allies. So if I could, with that very broad guidance, ask people to walk us through their views about, you know, what the longer-term implications are of this growing mission, I'd be appreciative.  Terry, do you want to go first? MR. PUDAS:  Well, let me just try some initial thoughts here. Clearly, I think the emphasis is on, of course, protecting the joint force ashore and potential--and our allies and coalition partners.  We used to think in terms of this very high-tech world, a very sparsely populated battlefield conducted from significant distances.  But, of course, the recent lessons learned are that, you know, things are really decided up close.  And as a result, we have an enormous amount of people on the ground doing those kinds of tasks, and now we have an obligation to protect them.  And so that's sort of the dynamic. So I don't see the requirement or the urgency going away, so long as we're still going to continue to do the kinds of things that we're doing. MR. DONNELLY:  Karl? CAPTAIN HASSLINGER:  On the national side, we did a little bit of work in this area for the missile defense national team, and one of the things that came of interest is in most cases, if you're going to station ships at sea to have a maritime leg of national missile defense, you're going to have to proffer additional force structure. There was one case that we looked at, however, and that is if or when the country gets to the point where it can accept mixed loads on ballistic missile submarines, it might be realistic to put some type of kinetic energy interceptor as a payload abroad ballistic missile submarines operating in the middle of the ocean.  And we say that for several reasons, not the least of which, one, is that's the location where one might shoot from for mid-course.  It's part of the layer of this defense.  And the second is that that's where the SSBN does her business, anyway.  That's exactly where you want that ship.  If I put a surface ship out there, she could certainly operate in that missile defense mode, but there's very little, you could argue, that she could be doing with regard to other of her normal missions. That all said, I am kind of sitting back and waiting for a little more data on what happens with the kinetic energy interceptor.  As you know, that's kind of the basis of the maritime leg, and if that doesn't pan out, then there's obvious problems with going forward. MR. DONNELLY:  Bob? MR. WORK:  This is taking an awful lot of Navy thinking, three different levels--the national ballistic missile defense mission.  As I said, there's 18 vessels that are going to be modified and by 2010 will be able to align themselves along a threat access, ballistic missiles against the United States, possibility to take a boost phase or a mid-course shot, but certainly to cue our ground-based defenses. The second thing is the SM-6 missile program, often called the extended-range active missile, which will extend fleet defenses deep inland, maybe upwards of 200 miles from the firing ship.  That would be significant because if you believe that you can provide that type of forward defense, then doing small forward operating bases on the short becomes a little bit more plausible. And then the third one is the terminal defenses against these maneuverable ballistic missiles, which are extremely--would be extremely difficult to intercept. So at all levels, the Navy is really pursuing this, and that is one of the reasons why I think they accelerated the CGX, because that vessel was specifically designed to try to fit in and slot in to this mission and do it well. MR. DONNELLY:  Thank you all for helping us connect the grand strategic to the nits and bits of particular kinds of ships and boats and the posture of the service going forward.  It's been a very informative panel. Just a couple of administrative notes.  We're now taking the lunch break.  We've got about a half-hour.  I think there are two food stations, one in the lobby and one over on the side.  If I could ask people to be expeditious in getting their sustenance and returning to their tables so we can have a smooth transition to Admiral Clark's address at 1 o'clock. So temporarily adjourned, back in a half-hour. [Applause.] [Luncheon recess.] AFTERNOON SESSION MR. DeMUTH:  Ladies and gentlemen, can we come to order, please? My name is Chris DeMuth.  I'm President of the American Enterprise Institute.  My colleagues and I are very honored that Chief of Naval Operations Vern Clark would join us today and deliver keynote remarks at this conference on the future of the United States Navy. In his distinguished and highly decorated naval career, Admiral Clark has served as commander of a variety of surface combatants squadrons, battle groups of the 2nd Fleet, and of the United States Atlantic Fleet. Onshore, he has held a variety of administrative responsibilities involving systems analysis, financial management, cruiser destroyer combat systems, and submarine warfare.  He directed the Joint Staff's Crisis Action team for Operation Desert Shield and Operation Desert Storm.  He has served as the chief of staff of the United States Atlantic Fleet and subsequently was director of the Joint Staff. He has been Chief of Naval Operations since July of 2000 and in that capacity has been responsible for directing the dramatic transformation of the United States Navy to take account of the new strategic environment following the attacks on the United States of September 11th. Admiral Clark will deliver remarks, and then he will be happy to take questions and comments from the audience, and I will get him back on schedule at the appointed time when we begin our next session at 1:45. Would everyone please give a very warm welcome to Admiral Vern Clark? [Applause.] ADMIRAL CLARK:  Thank you, Chris.  Thank you very much, Chris.  It's great to be with you all today, and Tom--there he is--and AEI.  We appreciate the fact that you all decided to engage on the subject of the United States Navy today.  We appreciate and believe it to be very important to have these kinds of discussions. It is the season, after all--isn't it?--in Washington, D.C.  QDR is on the horizon, and this is a subject that we should be speaking about. After lunch--who could ask for a better time to do this than right after lunch?  But I look forward to the next 45 minutes, and I'll ask the staff--talking about the future of the Navy, which is my topic, and doing that in 45 minutes, I've been in this job almost five years, in fact, we're four weeks and a little bit away from turning it over to a great American named Mike Mullin.  But talking about everything about the Navy that there is to talk about in four hours and 45 minutes would be a challenge.  But what I really want to do is make a few overarching remarks and get to questions and answers, and I think we all be best served by that. Let me start with this, Vern Clark's view:  The future Navy, while we understand that the Navy by its nature, because it is a high capital  investment kind of a system and structure, we do not change it overnight.  So if we look at the Navy today, my numbers say, my estimates are that we'll have 70 percent of today's Navy 15 years from now, and I was telling Chris and Tom earlier, I've done everything that I know how to do in my five years to change the shape of that curve, including getting rid of the Spruance class destroyers as rapidly as we could, and a whole series of things, airplanes early and a number of those things.  But the reality is that it takes time to transition hardware set that takes years to develop. But my belief is that the future Navy will look dramatically different from today's Navy, and that it should.  I have been vocal with the belief and the statement that I believe that we need to change the shape of the Navy so that it will be best postured to deal with the challenges that we will face in the 21st century. Having said all of that, I believe that there are some imperatives that we must keep in mind, and let me just start with this. You talked this morning about access, and you talked about irregular forces, and you talked about MBA and things that are all necessary for us to deal with.  My conviction is that we must remember always that the United States of America has been since its beginning a maritime nation, and that as a maritime nation, we are dependent upon the seas.  And this argument has been--I remember when I was in the Pentagon as a junior officer, you know, seeing tick points on a point paper about why we have a Navy.  But in the midst of the engagement that we're in today in the global war against terror and Operation Iraqi Freedom and Operation Enduring Freedom, we must remember that throughout history, peoples and organizations and institutions have made a serious mistake when they focused on singular type events and activities and then tried to design the future structure on, quote, the last war. And so let's focus instead on what we think the future global security situation will look like.  And it's my view that we will be dependent upon the seas forever, both from an economic point of view and from a global security and national security point of view. It strikes me that it's important to remember that 80 percent of the world's population is, in fact, located 500 miles from all the costs of the world, and when we look at taking on the challenges of the future, I don't know how a nation can do it and have a global view, as we do in the United States of America, without a very capable maritime force. From an access point of view, I would just say it this simply:  If we do not have the capability to dominate the seas and dominate the environment that we're operating in, it isn't too important to have a discussion about what kind of army that we're going to have or what kind of Marine Corps we're going to have, because unless we can dominate the battle space in the maritime domain, they won't be able to get there. So having the discussion about the Navy of the future I believe is spot on and something that is very worthy of our time. You're talking today about posturing and shaping, and just a couple of comments about shaping.  We all tend to get up and talk about how a military force will shape the security environment of the future, and I happen to agree that that is one of the things that we're supposed to do.  I also, though, think it's important for us to reverse the polls on that discussion and acknowledge that our military forces and in this case the Navy is being shaped by the global security environment that we exist in.  And that's one of the reasons why, for the last five years, we have been seeking to focus on building a Navy that has better near-land capability. I believe that it is imperative, given--we talked about what the nature of--you know, what the global population looks like postured around the coasts of the world.  But we have been trying to put forward a capability, and if we look at the pillars of Sea Power 21, Sea Power 21 is not meant to be a strategy but is meant to be an architecture for the future.  I don't know how to exist in the future if we do not optimize and probably I should say maximize our ability to exploit our area of maneuver, and that is the sea. When we first started talking about this in front of audiences speaking alongside Mike Hagey (ph), I told the audiences, When Mike Hagey talks to you about sea-basing from a Marine Corps point of view, he's going to talk about it with a little different focus than I'm going to speak about it, and I believe that that is okay because he's talking from the requirement that he has, and I'm going to talk about it from the requirement that I have. But I believe that in the Navy we have not talked about maneuver enough.  If you're a land-based guy, you talk about maneuver all the time.  In the Navy, we tended to talk about it less.  And I believe in the global security environment that we're going to see in the future that we must understand that there are a couple of areas that will allow this nation to have alternatives--alternatives that we then present to the commander-in-chief of this nation, and those are areas where we have freedom to maneuver.  And the two areas that come to mind, first and foremost, are space and the seas.  And it is my view that we in the Navy must figure out how to maximize the maneuver space that we possess, and that's the oceans of the world. In order to do that, then we recognize that we must have some capabilities to deal with potential threats that exist, and I'm sure that you will want to talk about that. I want to make one point on force structure versus force posture.  In the QDR season, I am told that Mike, our Deep Blue lead, talked about Vern's three R's this morning, and so I am--you know, I don't know that those are the right R's, but they sound right to me. Now, what does that mean?  Well, it means this:  I believe--and I've passed this to SecDef and the Chairman and the other Chiefs.  I believe that our nation should be investing in maritime capabilities that the nation needs, not somebody's strongly held feeling in the gut.  And I told the SecDef and the other Chiefs that we need the kind of analytical rigor that analyzes and then is able to evaluate the maritime capability that this nation needs, and if this nation doesn't need it, the taxpayers of America should not be spending their money on it. And what that means to me is that we have got to build a Navy that is able to exploit our maritime advantage, give the President of the United States of America options when there will not be other geographic possibilities.  And let me tell you one sea story. There was a mention that I spent some time on the Joint Staff.  I was the J-3 before I was the director, and as the J-3, my title was Director of Operations.  I changed "of," marked "of" out and put "for Operations," because you don't direct operations from the Pentagon.  You coordinate and tee them up so the SecDef can make the decisions, and the people that really direct operations are the combatant commanders. But I can tell you that I spent days in times of crisis in the White House, in the White House Situation Room and in the Old Executive Office Building, teeing up issues about our national security.  I remember standing there with the Secretary of Defense as he is on the telephone talking to particular nations about access kinds of issues.  I was there to talk, you know, to--because we were always talking about some particular kind of capability that we might want to introduce into a geographic location.  And I would give you this summary assessment: I don't know and I can't think of any time I was involved in any kind of national security issue in my joint time--and I would say, without bragging, I am the most joint CNO you all have ever had.  And, by the way, it's not because of superior intelligence or I came from the right family or went to the right school.  It has nothing to do with that.  It has to do with timing, doesn't it?  I mean, Goldwater-Nichols took place in 1986.  I am a progression of that law and the things that have happened.  But I believe in jointness.  My joint experience, I cannot think of a national security time I was working the problem where access was not an issue. And so I'm a believer that we better figure out how to deal with the world that we have, not the world that we wish that we had, and note how we think that we're going to provide options for the President in the future. And I say all that to get to the point that I believe that we're building the kind of Navy that we need.  I'm not going to get into platforms.  I'd love to spend some time talking about DDX, and John Young is going to be here later today, and he'll talk about how we do things like calculate what the right cost ought to be and those kinds of things.  And spiralizing cost is certainly an issue for me.  And so I believe that that's worthy of discussion. But one of the reasons why we have to change the shape and the capabilities of our Navy is that we have to enable the land forces with capability that they don't have today.  Sea Power 21 is about projecting offense and about projecting defense capability that we never, ever talked about before.  But in our ability to project both offense and defense, we need to be thinking in terms of how we provide precision through precision capability to the land forces. Let's go back all the way to Desert Shield and Storm.  What changed dramatically for us in Desert Shield and Storm?  We saw the nation sit spellbound in front of the television set watching the cross hairs on television and watching precision ordnance displayed in ways that they'd never seen before.  But, ladies and gentlemen, we have not provided that kind of capability for the land forces in a meaningful way yet.  And because we have not--and I've been reading and studying land warfare, so imagine a Navy guy and land warfare.  I want to understand the challenges that we face, and as a member of the Joint Chiefs, to talk correctly and think intelligently about the challenges that we have. And I believe that when we provide the land warfare structure precision effects in a persistent and meaningful way, it will then change the landscape for them in the way they conduct warfare in the same kind of ways that we now see it happening in the air side for principally the Air Force and the Navy.  And as we bring precision effects to bear, it allows us to provide the kind of national security capabilities with much smaller footprints than we were ever able to accomplish in the past.  And footprints in the future, as long as access is an issue, footprint is always going to be an issue.  And I got that from studying from my friends in the Army. One quick word about--I said I wouldn't do platforms, but just to say Art Cebrowski was going to be here this morning.  I guess something--he was not able to be here.  But if Art were to have been here, he would have talked about the requirement for a more distributed force.  And I want to just say that this CNO believes that in all military capability we must be developing and building a more distributed force.  And we start that off in the United States Navy with the littoral combatant ship which we confirmed the keel on June the 2nd, and this is going to create a future for us with plug-and-play technology, tailorable missions that are unlike anything that we ever understood before, and the ability to--no midlife upgrades, the kind of--the ability to get to the fight with speed and agility in ways that we never dreamed of before.  If you're a young Navy individual here--I see a young lieutenant back here--interested in the 50-knot platform that can go in and draws only 13 feet and is the size of a World War II destroyer.  You know, every time I talk to young audiences, boy, their eyes light up, and they can't wait to be part of that. The future is about maximizing the output or the product that comes from the investment that the taxpayers of America make.  But in all of the discussion about hardware and strategy and these important issues that have occurred today, individuals that have been here from my staff said there's one thing that ol' Vern ought to talk about that hasn't been talked about yet, and that's human capital. I'm convinced that at the top of our list of things that we have got to focus on is making sure that we have a human capital strategy for the future that is going to work in the 21st century.  And, ladies and gentlemen, I don't believe we have one.  Is that straightforward and direct enough? We have got to put the laser beam on building a 21st century human capital strategy, because we can have the greatest technology that exists on the face of the Earth, but if we do not have the right kind of intellectual talent and human capital that individuals are willing to commit their lives for whatever season--that means--I don't necessarily believe that we have to have the kind of careers modeled the way they're modeled today.  But for whatever the season, if we do not have individuals that are able to bring this incredible technology to bear, we will not be able to provide the kind of capability that is required for the United States of America in the 21st century. When we talk about human capital and intellectual capital, I will be relieved four weeks from Friday by Admiral Mike Mullin is a great American, a superb naval officer with an extraordinary breadth of experience, and he will serve our nation well.  And I will be sitting on the sidelines watching him do his thing with great interest, and I will be applauding trying to be louder than anybody as he sets about his business. And with that as a backdrop, let me reaffirm again what a privilege it is for me to be with you today, and I look forward to your questions.  Let's have an engaging debate, starting right here. MR. PHILLIPS:  Admiral, thank you for your service.  My name is Howard Phillips with the Conservative Caucus.  The Navy has gone on record as supporting the United Nations Law of the Sea Treaty, and this may be because it's a White House decision, which you are supporting.  There may be other reasons.  What are the reasons why the Navy is supporting this?  I recall that Don Rumsfeld during the Reagan years went all over the world campaigning against a slightly different version of the Law of the Sea Treaty, and now he's for it and you're for it.  Please explain why. ADMIRAL CLARK:  Well, let me say first that I have had no discussions with the White House or even Don Rumsfeld on Vern Clark's position.  They have allowed me to speak freely my mind, and my belief is that the sons and daughters of America in the future, those that are steaming around in places where they need protection of some stance in international law and protection need to be part of a structure that gives them some guarantees.  And my view is that--and, by the way, we so agree with the tenets of the Law of the Sea that even though we're not a signatory, we have announced that we will act as if we are, even though we're not a signatory.  So we intend to comply with the Law of the Sea the way it is written today. Now, I will tell you that as a naval officer, I have been involved in freedom of navigation operations, challenging particular claims.  And I will tell you that some of those things get pretty tense.  And here's the position of a senior sailor in the Navy:  I want tomorrow's sons and daughters that are wearing this uniform to have the protection of a document that this nation stands behind, is signatory to, and when anybody tries to change it, they're going to be in the room so they can be heard.  And if we fail to do that, everything that I said that I'd like to have happen won't happen. Right here?  I think you need the mike. MR. SCARBOROUGH:  Bob Scarborough, former nautical person.  Would you elaborate a bit, perhaps give us some specifics on what you would do to improve the human capital? ADMIRAL CLARK:  You bet.  Thank you for asking the question. I believe that we have got to change our belief in what a career even looks like.  We want to make the world the way it was when I came into the Navy, and today's world isn't like that.  If you go out in industry, you don't find very many people that have been with the same company for 37 years like I have.  In fact, young people today love to--they go commit themselves to a project that might be an 18-month to three-year project and that's what they're going to do.  And because this is about intellectual capital, I believe that we've got to focus on a system that allows us to bring the skill sets into play that we need, not to cling to some architecture that fits a model that was really great in the Cold War. Let me give you an example of what I think is wrong. I think we're going to have a continuing challenge to be able to compete on a remuneration basis for the kind of talent that we are going to need.  In the Navy, recognizing that I'm spending 60 percent of my top-line authority, total obligation authority on the whole business of people--and I mean housing them, doing medical forms, teaching them, training them, and all this--we have been on a drive to figure out how to learn from industry and to learn practices that would make us a lot more effective.  Notice I didn't say "efficient."  I said "more effective."  I found out that in this effort that 10,000 people cost the taxpayers of America a billion two a year. Now, when we talk about the daunting challenges--I understand it's been discussed today--of recapitalizing the Navy, you know, how do you deal with that?  Well, the way you deal with it is that you create a lean organization that's lean and tough and mean, that isn't bloated with individuals that you don't need.  And so what I told our sailors is, look, we'll spend whatever we need for every sailor we have to have to provide the kind of national security the United States of America needs.  But I don't want to spend one thin dime for an individual that we really don't need. Now, when we then pack the content of everybody's job, we're going to have to remunerate them in from ways, and we're going to have to figure out how to provide for their growth and development in ways--it makes it kind of hard if you're in the Navy, and I don't know what service you were in.  So I think we're going to have to be more innovative, and we're going to have to do some things like this. Instead of having one pat retirement system, I think we're going to have to do what the really progressive companies are doing in industry.  They have a cafeteria plan kind of remuneration system, and people get to pick the kinds of benefits that they want. So what I am really talking about, I am talking about going down to the baseline and starting over, with one simple goal in mind:  How do I get the intellectual capital that is going to be required to win in the future? And I'm not just talking about sailors.  I'm talking about the civilians that are part of the government system, and I'm talking about the contractor set, because they're every bit as much as this intellectual capital structure as our sailors are.  But we haven't looked at them that way, and it's high time that we did. Right here? MR.           :  Admiral, I'd like to ask you about force investment and the tradeoffs--sorry.  Joe  (?)   from Johns Hopkins Applied Physics Laboratory.  I'd like to ask you about investment tradeoffs between ISR capabilities and platforms and where you see the knee in the curve there? ADMIRAL CLARK:  Well, I didn't even talk about force net and any of that, but the way you have a much smaller force that is more lethal and more effective in the future is that you have a knowledge base force, and the only way you're going to do that is to have a truly netted force.  And so Sea Power 21 talks about force net being the centerpiece of our triad, and I use force net instead of network-centric warfare because I really thought network-centric warfare was a term that had become overused and identified with hardware.  And what I was trying to communicate with my audience, which was, first and foremost, our sailors, give us a sense of vector for the future, was that in our Navy we're going to develop a system that the human being is the centerpiece of, not the hardware is the center of it. Now, all of this knowledge, the knowledge base that I'm talking about possessing that's going to change footprint, that's going to allow us to create combat capability with much smaller force sets, none of that works without the most effective ISR structure that we can afford to put in place. Now, how do you talk about knee in the curve until you know what the product of--what the ROI is, a dollar invested in ISR?  And I will tell you that I gave the staff the task that year to do that, and it's a classified--the  (?)  of it obviously are classified.  But what we are beginning to see is that we have some conventional wisdom that when we really study this and get to the analytics of it, we find may be off base. For example, none of us have enough bandwidth, right?  Wrong.  The analysis shows clear that if you get machine to machine algorithms working the way they could work for us and support us, we're dumping more stuff on the floor than we're using.  And if we figure out how to get the right kind of decisionmaking and agent-based kind of processes going inside our architectures, bandwidth is only the issue today because we don't know how to use it effectively. So I can't give you a single answer knee in the curve, but I can tell you that a fundamental issue for the big department, the Department of Defense, is figuring out to put together coherent ISR programs and structures in the future that fit into the multiservice constructs to provide the kind of warfighting capability of the future, and we won't solve that in one year.  That's going to be analytical work that's going to continue for decades. Yes, sir, Norman, how are you? MR.           :  Thank you, sir.  Norman Polmar (ph).  This morning we spent a good bit of time talking about the Chinese investment in naval forces.  Would you give us a few groups on that please? ADMIRAL CLARK:  Well, I think that, you know, we're always quick to point out that China's not our enemy, but China is building a very capable maritime capability, and so we should not be blind to that. So what does it mean?  Well, here's what I believe that it means.  I believe that if you study the Chinese, you see that there's been some change in their thinking over the course of the last number of years.  Here's this mammoth land, continent; here's--you know, it would be easy to think about this country as being land-centric in terms of its national security focus, but what we're seeing is that that really isn't where they're putting their money.  They're putting their investments in, and what it looks like, if you interpret their actions, is that their primary concerns are in the area of aviation and maritime capability that other nations would bring to bear in their area, in their region of the world.  And so they're trying to build a capability to make sure that they're not pushed into a corner in their own part of the world. I understand that this morning there was conjecture about their ability to build missile systems that will threaten long-range land bases and moving targets in the future, like ships at sea.  And I will tell you that whether they're going to do that or not, I guarantee you that I believe that it is my duty and responsibility to expect that, based on what I understand about what they're doing, to expect that they're trying to do that.  And I will tell you that the budget submit that's on the Hill is providing the kind of capability to make sure that the United States Navy can fight in that theater or exist in that theater, understanding the kind of capability that they're trying to bring to bear. I do see two parts of the sea shield architecture that are critical for us to take on and make sure that we can deal with.  The first one is sea-based missile defense.  Because I talked earlier about the requirement for us to have a capable maritime enabled force in the United States of America that can go where it needs to go and exploit our maneuver space, it goes without saying that I don't want to cede parts of the world either because I don't have the right kind of capability in any kind of capability that somebody might possess.  So if somebody's going to build missile systems to come after us, I want to make sure that I've got a missile system, a defensive system that not only can protect ourselves, but can project that defense over other coalition or friendly forces in the theater.  So missile defense is one area. The other area is anti-submarine warfare.  They're building submarines at a rapid rate.  They're buying them from other countries.  They're building their own capabilities.  And let me just--to make a long story short, I published a new ASW concept a couple of months ago.  I fundamentally don't believe that the old attrition warfare force on force anti-submarine warfare construct is the right way to go in the 21st century.  He mentioned that I had spent part of my past life in the submarine warfare business.  I have.  I trailed the Soviets around.  I know what that's about.  And what I really believe is going to happen in the future is that when we apply the netted force construct in anti-submarine warfare, it will change the calculus in that area of warfighting forever.  And it will be a courageous commander who decides that he's going to come waltzing into our network. All the way back there. MR. BURGESS:  Admiral, Rick Burgess with Sea Power.  Attack air integration for the Navy and Marine Corps was instituted on your watch, and I was just wondering if you could give us a status report.  Is it progressing or is the Iraq War stressing the Marine Corps too much to make it happen? ADMIRAL CLARK:  Great question.  By the way, there's a lot of things that have gone on that in 20 minutes I didn't talk about, but attack air integration between the Marine Corps and the Navy is a great example of the way I think we have to think anew.  See, the Marine Corps had its air force and I had my air force, and ne'er the 'twain shall meet.  It started with Jim Jones and I--actually, what happened is I wanted them to bring their F-18s aboard my carriers, so I wanted to reduce my own expenditure and investment and recapitalize -- [End of tape 3, side b, begin tape 4.] -- and it was really, it was a watershed experience for me, and so that you know, that little act is going to save the taxpayers of America $35 billion, 35 billion.  And in every metric--there were about a dozen metrics--in every metric except one, when we were through integrating this, saving $35 billion, we are going to have more combat capability than we had before. So, how are we progressing?  Well, in 2004 I sent Navy airplanes to go fill the Marine mission in the Western Pacific.  They continue F-18s on the carriers.  We are fine tuning the solution set.  In fact, we had a briefing just 10 days ago, and General Hagy [ph] and I sat through additional work that has gone on, and I expect that we're going to continue to fine tune the solution as we get smarter about this, but, yeah, it's alive and well. It is absolutely true that we are all very, very busy.  We have 8,000 sailors on land over in Iraqi Freedom, Enduring Freedom today, and we continue to have thousands of sailors deployed around the world, but we're not nearly as tied up as the Marine Corps is.  So we're working with them to take burden off of them where we can and vice versa, and that's why we did it in the first place. One other thing.  Let me just tell the rest of this audience.  In order for tach air integration to work, there had to be some commitment from the leaders.  So that all of you know, in 2004 we selected a Marine to be the Deputy Commander of a air wing on a United States Navy aircraft carrier, and that Colonel will soon fleet up to be commander of the air group on a U.S. Navy aircraft carrier. Now, you know, you're either sincere or you're not, and I just wanted to pass that along to let you know that this is really about transformation.  I talk about our Marines being the No. 1 joint partner, and we're trying to make it a reality, and I believe we are. Right here. MR. COHEN:  [Inaudible] Brian Cohen [inaudible]. ADMIRAL CLARK:  Yeah, Brian.  Good to see you. MR. COHEN:  Good to see you too, sir.  You spoke in a very excited way about LCS. ADMIRAL CLARK:  Yes, sir. MR. COHEN:  I wonder if you could talk a little bit about why DDX and maybe why not a substitute? ADMIRAL CLARK:  Thank you for leading me there.  And I said I was hoping, I didn't want to do just programs in the 20 minutes that I had.  But let me just say, of course the cost of DDX is the big issue.  Now, I talked about people.  Here's what I didn't tell you.  At the height of Operation Iraqi Freedom I had 400,000 people on active duty in the Navy.  I'm down to 363,000 this morning.  You multiply, say, 1.2 billion times 10,000, we're doing this.  The program I've got in front of the Congress takes me down to 340 some thousand.  We are learning how to run this place better.  This isn't reduced capability, this is better capability with smarter sailors and all that goes with it. Cost is important to me, and a major part of my testimony this year, I talked about the challenge of rising costs. In the DDX program we have invested $7.7 billion in research and development.  Now, that sounds like a lot of money, doesn't it?  There isn't an aviation program that has ever delivered that each individual aircraft didn't cost 4 or 5 times that. Now, over the last 30 years in the Navy, in fact, let's go back 40 years.  In the carrier aviation business, up until we started investing in CVN-21, we hadn't even invested a billion in over 40 years in research and development in the carrier programs. The DDX program is the technological driver for all of the ships that exist in our Navy, and we have to have this ship.  And if we don't then we are sentencing the sons and daughters of America to a future that will not have directed or high-energy weapons.  We are sentencing our Navy to a future that will not produce that kind of combat capability with dramatically fewer people, so we get to continue to pay the high cost of--that ship would have 4 or 5 hundred more people on it without the research and development that's gone into it to create a manpower footprint on that that will change the risk sets of the future. We desperately need DDX.  If I could show you the classified pictures that who what DDX does--for example, if DDX meanders off into a mine field, it's a totally different game, because DDX is quieter than a 688 submarine.  DDX has a radar cross-section that's small as a fishing boat. So if--back to, Norman, your question--if a nation is trying to develop the capability to hit maneuvering targets and wants to make sure that we never come into their neck of the woods, if you were them, wouldn't you like for the nation that you're worried about not to build the capability that make it really, really difficult for you to ever see them? This is the kind of thing that, you know, I scratch my head sometimes and--but it's part of the wonderful experience and game that we get to have here as we're going after what the shape of this is going to look like in the future.  The short answer is we desperately need the technological capability that's going to come to us, and spiral through the whole rest of our force. All the way back there in the back, and we have just-- MR. PHILPOTT:  Thank you.  Admiral, Tom Philpott with Military Update. ADMIRAL CLARK:  Hello, Tom.  How are you? MR. PHILPOTT:  Just fine, sir.  Thank you. A human capital question again.  For probably as long as you've been in the Navy, there have been chairmen, Joint Chiefs who have been defending the 20-year retirement system, saying that the military is unlike any other occupation that you're going to find, and you need it.  You're suggesting flexibility here to move away from that system, and I wondered if you could expand upon that a little bit more? ADMIRAL CLARK:  Well, see, there are several reasons, Tom, why I've come to this viewpoint, but it's fundamentally because--you know, my background is different than most.  My track to this position is unique.  I'm a sea warrior, but my preparation--and when I was a lieutenant I worked for Harry Trane [ph].  I came to the Pentagon the first time as a lieutenant in 1973.  And so I've been working at this a long time.  And along the way I started studying this, the whole issue of human behavior and the way people respond.  The kind of principles that we've tried to put in place in the Navy have really altered the environment inside the United States Navy. I don't know if you know this, but did you know that 4 years ago we broke the all-time record in retention in the United States Navy?  This in the year before 9/11.  We did it because we started talking to our young people about a commitment to their growth and development and what the future was about, and then I'm talking to the senior enlisted people about that--you know, when I came in the Navy, the senior enlisted structure, a lot of them didn't have high school degrees, but none of them had college.  You know, I've got something like 17 E-4s that have PhDs.  56 or 7 percent of my senior enlisted structure, the fleet and force master chiefs have college degrees.  This is a different world. And so when I came online, I said, we're going to support targeted pay raises because we've got imbalances, and if we don't figure out how to go compete economically in areas--if we're not competing economically we're going to let that incredible intellectual capital walk out the door, and the nation is going to be the loser. Now, you can't just pay everybody more money and still have 400,000 people in the Navy, which is one of the reasons--and I always thought we had more people than we needed, and that's a whole other story--and then studying the generations.  I studied Gen-X, Gen-Y and the Millennials.  And you know what the study results turned out to be?  I had a young lieutenant commander do this work for me, and I was a 3-star, commanding the Second Fleet at the time. I asked her to go research the literature and come talk to me about this.  And she came back in, and I had called all my admirals in that worked for me at Second Fleet.  And I'm not sure they were all as excited about hearing this brief as I was, but they were there. [Laughter.] ADMIRAL CLARK:  And to get to the bottom line, at the end of the brief, I said, "What are we doing that they don't like?"  She said to me, "You really want me to give you the answer to that?"  And I said, "Yes, I do."  She said, "Stop talking about taking care of them.  It sounds pretty paternalistic, doesn't it?"  She said, "What they want is a chance to prove what they can do.  You spend your time focusing on giving them a chance to make a difference.  That's what they want to do." And it made a real impact on me.  That was back in 1996.  And you know, here I got to be the CNO and I got to bring some of these ideas to the table.  And when I study this I see these kids, young people today, they're not risk averse.  They're willing to go take on a job for 3 years knowing that there's no lifetime guarantee to it.  They're managing their resources a lot better than I did when I was 26-years-old.  But they want a change to carve out their own future. So I believe that a mobile workplace, which is the kind of world that we live in, needs to have a retirement system that can adapt to the kind of world and environment we really live and work in, and that those old folks like me, you know, that have been here for 37 years, that believe that it's got to look just like it did in the '60s when I came in, need to understand that the shape of this is different today, and so that we can do this in a better way. And I'll tell you, when I talk to our young people about this, they are resonating with this, which is why we have had the highest sustained retention numbers we've ever had in our 229-year history, and the same thing goes on the recruitment side of the house. It's time for me to go.  I so appreciate the chance to be with you today, and thank you for your continuing interest in the national security of the United States of America.  Thank you very much. [Applause.] MR.          :  If I could jump in for a second.  I want to thank the Admiral for his most impressive and really inspiring presentation here, but also, if I may, I want to say to him thank you and congratulations for his great service to the United States, as his tour comes to an end next month. Thank you, Admiral. [Laughter.] MR.          :  Lest the microphone be quiet for a moment, let's take about a 3-minute break, and then we'll roll right into the next panel. [Recess.] MR. KAGAN:  Well, it's a pleasure to welcome you back to the final panel of this conference on the United States Navy and its future. I'm Fred Kagan of AEI.  I'm just newly at AEI, finishing up my first month here.  And it's a little bit ironic that I should find myself, as one of my first duties, moderating a panel on the United States Navy, considering that I have just come from spending 10 years at the U.S. Military Academy at West Point, learning a completely different perspective on how one should regard the Navy.  But I'm working to become very joint, and I see this as an excellent opportunity to get over some of my "beat Navy" traditional views of this problem. We're here to discuss a series of extremely important issues, and try to tie together a lot of the things that we have been addressing all day. Budgeting is obviously one of the most important, if not necessarily the most interesting topics, especially when there's a QDR under way.  And so we will certainly want to address that. Military transformation has been the hot-button topic for many years now, and I think it's one of those terms that's more frequently used than defined or understood, but I think it is very important to consider where the Navy is head, what course it's on for the future, recognizing that it's very difficult for so large an organization to change course, and where we might think that it should be headed if we think that it's not quite on the right course. And lastly, the extremely topic of the defense industrial base.  I think in this regard it's important to keep in mind that this is not just a Navy issue, that the political leadership of the country in the '90s made the decision deliberately to contract the defense industrial base as a way of saving money and reaping a peace dividend, which we did several times.  But it does hit the Navy particularly hard I think for reasons that are peculiar to the service, and so that's an important issue to address as well. We have a very distinguished panel to discuss these issues for us.  Their bios are available to you.  I'm just going quickly down.  John Young, Assistant Secretary of the Navy for Research, Development and Acquisition; Admiral Paul Robinson of Northrop Grumman; Ronald O'Rourke of the Congressional Research Service; and Andrew Ross of the Naval War College, a terrific panel who will enlighten us, I'm sure, about these very important issues. Without further ado, we'll begin our panel and we'll simply go down in order, and then we will take questions. MR. YOUNG:  Good afternoon, everyone, and I first want to start by saying thank you to AEI for sponsoring and organizing and putting in all the efforts that allow a conference like this to come together and bring to the table an important discussion. I certainly couldn't echo more Admiral Clark's comments that this is a timely topic and very useful opportunity for us to cover several--it's a change to cover several issues, and especially talk about the shipbuilding issues that have been the subject of much debate lately, and I think put everybody's opinions, but also put a lot of facts and contexts with those discussions, so I really look forward to it. I'll touch each of the topics that were raised briefly here, and then look forward to your questions following comments from my colleagues. First, the Navy has--you heard the CNO touch it very briefly and lightly--but we have 10 new shipbuilding programs and 14 aircraft programs in process.  We are transforming, I believe, at an unprecedented pace. DDX, you've heard much discussion about that.  It brings to the shipbuilding world, stealth, a tool embraced by the aircraft community as essential over 30 years ago.  DDX brings to naval warships electric drive and integrated electric power.  These technologies are necessary for today's high-power sensors, for electric motors to lower acoustic noise, and improve efficiency and to accommodate technologies of the future that the nation's working on.  DDX automation and electrification reduces crew and maintenance requirements, the keys that you heard the CNO talk about in terms of lowering cost. LCS, he mentioned, changes the model.  It's a C-frame for us, like an airframe, that can continually and affordably be upgraded to pace America's development of technology and the needs of sailors and marines in the fleet. We have embraced LHAR as almost a small aircraft carrier, intended to leverage our substantial investment in the joint strike fighter, and that was discussed early this morning in the panels. Finally, we've defined a maritime pre-positioning force future concept which leverages our current generation ships to provide a sea base and cut in one-half or more the time necessary to put ashore a Marine expeditionary brigade.  The Navy and Marine Corps are transforming at a rapid pace. Budgeting in a perfect world is coupled to requirements, so accepting that linkage I offer a few comments.  First, accuracy in the budget is critical.  Given my past experience on the Hill, the Department of Defense has a unique and important opportunity to build a 5-year, 6-year plan that is stable and offers the potential for stability, planning and efficient execution.  We have to take full advantage of that opportunity. In some cases we've not done that as well, and we've seen adjustments in particularly operating and personnel costs that have put pressures on the modernization program.  We need to redouble our efforts to build a budget that provides the best possible estimate of the future going forward. To deal with the budget and the budget pressures that we've seen, and to carefully spend tax dollars, the acquisition team is continually questioning requirements.  Our initiatives, for example, saved over a billion dollars as we shifted that LHAR design mentioned earlier from a plug plus concept to a modification of the LHD-8 design that's in production now.  The acquisition team is also following through on Secretary Aldridge's initiative to fund to independent cost estimates. Unfortunately, I worry people are losing sight of this change and adding additional premiums on top of those independent cost estimates that we've already tables.  For example, I saw a recent press estimate that said DDX could easily be $5 billion, which is--there's no basis for that discussion and I regret those kinds of comments. But lastly, I do not own the budget.  It's built by the requirements and resource sponsor, so I can table pricing and industrial based concerns--and we do.  However, the minimum shipbuilding plan is defined by the requirements and that very high-quality analysis that you heard the CNO talk about, and I would comment he and his team for the analytical rigor they're bringing to looking at war-fighting scenarios, and then extracting requirements for platform, for sailors, for munitions, the whole package force out of those analyses. The minimum shipbuilding plan that we tabled from an industrial-based point of view really exceeded the budget and the requirements.  Partly in light of robust DDG procurement and potential reductions in the number of aircraft carriers, the Navy has a 30-year plan to build well below two destroyers or cruisers per year for the next 20 years, and many of you have had a chance to see that.  Under current practices this low-build rate is unaffordable at 2 yards. Congress rejected the competition, which was driven by requirements and the budget, so the Navy was forced to define a new strategy that I'm sure we'll have a chance to talk about today.  The Navy's changing that strategy because Congress forced us to, but in all areas the Navy is prepared and looking to find out what the taxpayer expects and what's best for tax dollars, and that is, openly and actively looking for new ways to do business and better ways to accomplish our mission. This leads to a discussion, as mentioned, of industrial base and program stability.  I think first I want to start with a comment that the inaccurate discussions suggest there is constant churn.  I want to look at the facts.  This administration added a DDG to the budget when the President first took office.  LPD-17 was on the verge of termination under the Nunn-McCurdy Act because of cost growth and delays.  And then the Navy Acquisition Team tabled the DDG-LPD swap deal, where many of you are familiar.  Three LPDs moved from the north to the south, if you will.  DDGs moved from south to north.  If the LPD-17 program had been terminated, as were other programs under Nunn-McCurdy, the industrial base would truly be in distress.  The swap deal also did something else.  It locked in three DDGs per year for the last two years in addition to the one that was added by the President. These DDGs very well might not have been in the budget had they not been required, if you will, by the swap deal, and required by the operational community.  So the swap deal also pushed additional labor into the yards and put great stability in our industrial base.  Then with the help of the Congress, we accelerated both LHAR and filled an LPD-17 gap here. All of this was done as the Navy also had to find almost $2 billion to fund cost growth on programs that were put under contracts in the late '90s.  And I could go through each of those. You can see that financially we work very hard to keep stability in the programs and the industrial base, and pay bills that really were made after the fact of contracting for ships.  So suggestions that the programs in shipbuilding are unstable are just wrong, I believe.  The Navy continually works to keep stability in this space.  Stability has improved and shipyards are hiring in many cases.  Indeed at some yards I recently visited, there are labor deficiencies in getting the work down on time and on schedule, and the number of new programs has created a robust workload demand for designers in that space. So at the end of the day our job is to purchase, to validate requirements.  The acquisition team has worked very hard to push back on requirements in the areas such as LHAR and DDX.  We advocate full and accurate pricing to enhance that budget stability I talked about, but I can only buy to the fleet's requirements, regardless of industrial issues. Continuing on that industrial-based discussion, the Navy cannot run private shipyards.  I do need to use contracts, acquisition strategies and incentives to encourage industry behavior.  However, if shipbuilding is to be a jobs program, we will never be able to control cost. DDX is very important to both the industrial base's stability and the Navy's future, as you heard the CNO say.  I mentioned the death grip the other day.  It's a grip to avoid the death of DDX because of inaccurate information and a lack of foresight into the future, and thus, potentially the demise of our nation's excellent destroyer design and production capability. We have laid out a DDX strategy which incentivizes cost control and reduction of cost and allows both destroyer yards to continue production.  This strategy further allows both destroyer yards to continue production if costs are reduced and requirements demand destroyers and cruisers in the future, as I fully expect they will. I am grateful again for the chance to talk with you today and cover this topic in detail.  I really look forward to the comments from my colleagues as well as your questions.  Many of you in the audience are working very hard to propose ideas to make acquisition better, more affordable, more timely, delivering more capable products for our toolbox so we have resiliency in the nation's toolbox.  We have to have this discussion in the context of facts and a consciousness that the nation will expect us to give the best possible capability to the men and women who put their lives at risk to protect our interest. So I thank you for your contributions and your attention, and look forward to your questions. ADMIRAL ROBINSON:  Good afternoon and thank you for this opportunity to participate in today's panel.  Dr. Phil Durr sends his regrets for not being able to attend, but in his absence, I will do my best to offer an industry perspective to the discussion on the sea services and American shipbuilding. I would like to speak from the perspective of both a former career naval officer and that of a shipbuilder.  By way of background, in my career as an engineering duty officer, I spent 12 years in shipyards and 2 years as a program executive officer.  The past 7 years in the private sector have been served at the Pascagoula shipyard of Northrop Grumman Ship Systems. During this time I have seen the Navy and the shipbuilding industry in a constant state of flux, adjusting to budgets and requirements, taking initiatives to adopt changing acquisition strategies and responding to pressures to reduce overall costs, while still producing superb ships for the naval warfighter. Perhaps the character of this change has never been as critical as it is today in mapping a way ahead. I want to examine the issue by looking at what the keys to success in designing and building surface combatant ships for our nation today.  To understand where we are we need to assess where we have been.  I'll briefly review three families of ships, and I'm proud to say that I was present and involved with the development and delivery of all three classes. They start in the '70s with the DD-963, the Spruance Class, which was contracted to Litton-Ingalls at the time.  The '70s marked the claims era, where the total package procurement acquisition strategy for DD-963 offered industry the ultimate prize of 30 ships.  The winner was essentially given a performance specification and a schedule and was expected to deliver a series of fully capable warships.  This backlog was of course a shipbuilder's dream, but reality set in when the government and shipbuilder ran into difficulty introducing the program into a brand new shipyard. The relationship failed.  There was a significant lack of teamwork, and the claims followed.  Ultimately, the program overcame early problems and the shipyard delivered 6 to 7 ships a year for over 3 years running.  On the DD-963 the technical innovation was gas turbines and controllable pitch propellers.  Until this time all previous U.S. Navy ships were steam, and prior to that many had been diesel propelled. So the Navy took the risk to convert the combatant fleets to gas turbine propulsion.  We would all look back and say this was the right choice.  That whole forum and propulsion system would go on to serve in 62 ships. The 1980s brought the Reagan years, and gave us the vision of a 600-ship Navy.  Order books at most shipyards were filled, and at Ingalls the introduction of cost plus award fee contracts put the claims era in the rearview mirror.  Record level backlogs generated stability and award fee type contracts produced the desired result. And at the end of the Spruance Class build, the Aegis Combat System was being developed, so some very creative naval architects found a way to integrate the Aegis Combat Systems onto a modified Spruance hull.  The real innovation of ship integration on that ship was that a new class of ships could be designed as a derivative of a previous class.  But as with all new classes, there was an intense scrutiny and pressure on the system to develop the affordable ship.  Those who were there at the time recalled the critics of this approach who believed the ship would be top-heavy and unstable, but the enduring success of this 27-ship class proved those critics wrong. The real innovation of the CG-47 was the combat system, and for its time Aegis Combat System was the most integrated anti-warfare and combat system.  The challenge, as I stated earlier, was physically integrating this new combat system into a baseline hull form.  It was in this program the Navy introduced the requirement for shipyards, for two shipyards to be individual.  In this case Ingalls was the leader and Bath Iron Works was the follower.  The Navy assumed the role of technical authority and authored the contract design specifications.   They also contracted directly for the combat systems and accepted the risk for that equipment and information provided to the shipbuilders. The program manager wanted to be sure that a team would form that could execute the complex integration needed for success.  By the mid '80s, the new DDG-51 Class was in design.  The acquisition approach was essentially the same as that for the CG-47 program, including the fact that the Navy required a two-shipyard leader/follower approach.  This program still in production today dominated the '90s under the leadership of General Dynamic Bath Iron Works.  The customer controlled costs through award fee and other fee incentives.  Once again the number of ships in the backlog provided a stable plan for these two surface combatant builders. Now, DDG-51 was a new design ship, but in this case there was a derivative of the CG-47 Aegis Combat System and a derivative of the CG-47 gas turbine propulsion system put into place into the design.  What was different on the DDG-51 was this integration into a new hull form.  We ended up with 62 ships of that class, and these ships had been delivered from two shipyards on cost and schedule with high quality, while incorporating significant technology upgrades along the way. But as in the previous programs, the early days were marked by significant questions about affordability and capability similar to those being raised about DDX today.  If you look at the history books, that's the largest single class of naval ships built by any navy during peacetime, and the Navy industry team has delivered superb capability. The early '90s marked the end of the Cold War and begin the downsizing of budgets and personnel and infrastructure, fleet sizes, et cetera, and of course this continues to this day. By the mid '90s a new transformational ship was envisioned that could capture the best of technology and be capable of defeating threats well into the 21st century.  This futuristic ship is the DDX. The acquisition approach for this new ship was completely different from any of these earlier classes I have discussed.  The Navy rightly decided to invest heavily in R&D and technology to deliver a transformational capability to the ship.  They turned to the industry to create a national team to manage the concurrent development of these technologies and to create a contract design.  The team of Northrop Grumman and Raytheon were selected to lead this program.  DDX is by far the most transformational surface ship design ship development program the U.S. Navy has ever undertaken. Much of the DDX is new.  We have a new tumblehome hull form, designed to reduce radar signatures, essential to survivability and lethality in the battle space in the period we expect this ship to operate. There's a brand new composite deck house approach with integrated embedded arrays.  The propulsion system is an integrated power system to support present and future weapons systems for the life of the platform.  The damage control system is fully automated to allow firefighting to happen automatically with a minimum of manpower and a great savings to the life cycle cost of the ship.  The ship's vertical launch sails are set along the periphery of the ship for enhanced survivability.  DDX has a brand new dual-band radar as innovative and new as the Aegis radar was when it was introduced.  It has a new dual-band sonar, an unprecedented way of integrating sonar into the ship.  It has a completely integrated total ship computing environment.  The ship has a new gun system with a magazine that requires no manning in it whatsoever.  It fires very long-range rocket-propelled projectiles that can project power nearly 100 miles from the ship with pinpoint accuracy. These program developments are very demanding R&D programs in and of themselves.  The approach with DDX was to tuck all of these R&D programs under the program manager and to develop all of those innovations concurrently with the ship design process.  Under the leadership of Northrop Grumman and Raytheon, what has enabled this very large team to manage this degree of concurrency and integration is the fact that it is a very integrated national team.  Six teams under the three technical directors integrate 80 companies in 34 states, comprised of over 4,000 engineers. What enables this to happen is both the teamwork among these key integrators and a very sophisticated integrated data environment and smart product model.  Without these collaborative tools we could not have integrated this diverse team in a virtual fashion. And the results are in.  The DDX national team, in concert with the Navy Program Office has successfully fulfilled contractual and schedule requirements to date, on time and within budget.  We have laid out a robust risk reduction plan and risks are being retired as anticipated.  Ship designs adjust with time in order to fulfill the need and requirements set forth by our customer.  We as a team have consistently met those challenging requirements.  We have successfully managed and accommodated changes in weight, propulsion, materials and costs in addition to meeting all the technical milestones. All of these engineering development models have passed the Navy's preliminary design reviews, and most have completed critical design reviews.  Testing of full-scale and smaller-scale articles continue, and we will continue to retire risk in this transformational program. So the bottom line is that DDX design is feasible, it's balanced and it's ready for critical design review.  We are where we planned to be in this phase of the program. As you can see over these 35 years, we have taken a different approach over these 4 classes of ships, in the area of accommodating concurrency and developing those systems to meet the ship integration challenge. Although approaches have changed, one constant success factor in all of these 35 years has been the teamwork across the Navy, the shipbuilder and combat system integrator. The Navy technical and acquisition team throughout these four classes of ships always had the same job and the same perspective.  They are the customer and industry would say that we need a strong, knowledgeable, technically competent customer.  In all the cases mentioned, the Navy's technical acquisition community is the voice of the fleet.  So no matter what responsibility is delegated to the industry, the Navy customer will always be the right one to be in charge. Over the last 35 years this process has evolved.  What started with industry acting as the prime has come full circle again.  On Spruance there was one prime.  On Ticonderoga and early Burke, two primes, one for shipbuilding and one for the combat systems integration and two shipbuilders. For DDX the Navy chose to have one contract with an overall prime contractor.  In this case it was Northrop Grumman and it was Northrop Grumman's job to have subcontracts with everyone else.  One prime contractor managing the national team of four principal teammates and then literally hundreds of vendors.  As prime we have successfully balanced cost, risk and technical execution, a job far greater for a ship prime contractor than had ever been attempted by the Navy before. So what has been the common denominator across all these programs?  First of all, they're all great ships, and they are ships that the fleet is very proud of, and DDX will take that to an even higher level.  What is required to make these ships great is not so much the contractual or business approach, but rather the need to have collaboration and cooperation among the Navy and industry.  And in all cases what turns out to be the common denominator, which we managed to focus on the end product, is the fleet. On that focus the American shipbuilding industry knows and appreciates who our customers are.  To ensure our men and women in uniform have the best ships available, we are doing an enormous amount of investing and improving first-time quality.  For Ship Systems of Northrop Grumman that means a huge investment in capital improvements, not only by the corporation but also by the states of Louisiana and Mississippi, and I know other shipyards are investing heavily as well.  Improvements in facilities, automation, design tools using best practices and streamlining how lean we run our businesses have yielded great results. So the first decade of the 21st century is marked by physical challenges which are leading us now to a low-rate production of Navy capital ships.  Of course, low-rate production shrinks shipbuilder backlogs and threatens affordability targets.  But low-rate production also has the downside of slowing the rate of technology insertion. The decision to implement transformational concurrent technology in time for insertion in the first of the DDX class is the best way to ensure fielding credible solutions for future threats, paying for the nonrecurring costs of development once, and using it in other new ship classes, like LHAR and CVN-21, helps to amortize the investment. Developing a common hull form with all the inherent shipboard capabilities in DDX to become CGX, as we saw in transitioning from Spruance to Ticonderoga, further returns the initial investment and could provide the stability for planning that is so important for the shipbuilding affordability question.  The cost of a more gradual risk-averse approach might save resources in the short term, but the cost will be far greater further down the line. We have arrived at where we are through a shared understanding that the state of the nation's sea-based defenses is critical to the overall defense of America and our allies, as the CNO so rightly pointed out.  Understanding, cooperation, flexibility and teamwork toward reaching mutual goals, these are the hall marks of the Navy industry relationship, and the only way we'll see critical programs succeed in the future. Thank you very much for allowing me to share my views and I look forward to your questions also. MR. ROSS:  First of all I would like to thank Tom Donnelly and AEI for inviting me to participate in this forum.  It's been a great day. Both Tom and Fred Kagan last week asked me to focus on what Navy transformation means for industry, and I am going to do that by drawing on a project that I've been involved in with two colleagues, Peter Dombrowski and Eugene Gholz up at the Naval War College.  It's called Defense Industry After Next Project.  An initial report has already come out on that two years ago actually, but this is an ongoing work, especially by Peter Dombrowski and Eugene Gholz, who are going to have a book coming out on this soon.  They have stayed with the industry side of this.  I went on to do more of the transformation work, and I can say things about Navy transformation a little bit later too, especially perhaps in the Q&A. What I would like to talk about a little bit is the origins of this project under Admiral Sobrowski [ph], and then the approach that we took and the sectors of the industry that we looked at, specifically looking at what Navy transformation means for industry, because given that there's only three of us, it was difficult to do an across-the-board industrial assessment of what Navy transformation meant. Admiral Sobrowski asked the Dean of the Center for Naval Warfare Studies to undertake a study of the defense industrial base, and the guidance was exactly that specific.  After floundering around for a little bit we were the ones that proposed that we take a look at specifically what does transformation, and specifically Navy transformation, mean for industry.  So it was requirements driven.  It wasn't starting with industry and issues that industry was dealing with, and you know, what does that mean for the Navy?  It was what does the Navy want to build for the future?  What does that mean for the industry? So we started with the defense industrial implications of joint and service visions of the military after next, especially the Navy's vision, which, since we were working for Admiral Sobrowski at the time when we kicked this off--although not when we finished--that meant net centric warfare. And of course that has morphed, transformed itself into what we all now know and love as FORCEnet under Sea Power 21.  And we asked, does military transformation require defense industrial transformation?  Are we going to need a defense industry after next in addition to a military after next?  Will military transformation will lead to major changes in the composition of the defense industrial sector?  Is the landscape going to look differently than it does now, or just a few years ago. I think this is an important question to ask.  When we kick this off, especially among the transformation advocates--and I should note that we did this as analysts of the implications industrial-- [tape change] -- not an advocate to transformation, which may perhaps give you a hint about my approach to thinking about transformation. But the initial expectations among the transformation crowd was that we'd soon no longer be talking about a defense industrial base, we'd be talking about an industrial base, especially since transformation visions and the net centric worker component of transformation vision emphasized information technology, both hardware and software, that the defense industry was in for some still competition from nontraditional players in the defense industry, specifically commercial IT firms, whether hardware or software firms. So we should be soon talking about the industrial base and that traditional suppliers may well not be up to task when it came to implementing transformation, and specifically Navy transformation, that new nontraditional players, suppliers, were going to be needed, in fact, required, and specifically commercial IT firms would be entering the game. Our findings were a little bit different, and I'll get to that especially when I talk about systems integration implications of Navy transformation. So we started out with transformation visions, generally neck down to Navy transformation, tried to work through operational concepts and military capabilities that would be needed, especially given the emphasis today on capability based planning, and tried to identify system performance metrics to an extent that they might be changing under transformation, that is, the standards and requirements, and ask what does that mean for the defense industry after next? As I've mentioned, we did in fact start out with what was then simply being called net centric warfare or network centric warfare, now known as FORCEnet. All along, even though we were using Navy transformation as a vehicle for examining the defense industrial implications of transformation, we wanted to be able to generalize beyond the Navy.  And as everybody here is aware, net centric warfare has become embedded in all the services' visions of future capabilities, of transformation, joint and service, because not only dealing with the requirement for FORCEnet from the Navy, the joint level, the integral information grid for the Air Force CTC, Land War Net for the Army, everybody had bought into net centric warfare at one level or another. Now, we had to make some choices about how to proceed, and I alluded to this already.  There was only three of us working on the study, only really two of us close to full time.  We decided to focus on three sectors, and of course that had nothing to do with the fact there were three of us working on the project.  We were looking at the language or the approach, the thinking about future requirements that net centric warfare proponents adopted, focusing on networks and nodes, nodes simply being platforms.  We focused of course on the shipbuilding industry, as critical or ship requirements, it's critical of course to the future of the Navy. We focused on another case that linked networks and nodes, an unmanned vehicle, and we found even there we had to neck it down to the specific type of unmanned vehicle, and we did UAVs, in part to allow us to get into the aviation sector as well as the shipbuilding sector, and also because unmanned vehicles populate all of the service visions, Navy and otherwise, visions of future capabilities.  All the transformation visions feature unmanned vehicles of one kind or another.  But instead we focused on UAVs in the end. We already mentioned systems integration.  A different kind of sector, not a hardware sector, not a traditional sector for the industry, a sector that the industry has been placing increasing emphasis or attention on, a service sector essentially.  But for those of you--and probably nobody in this room hasn't seen these, you know, all the lightning bolt sites, if the service is used for the kinds of capabilities we're going to have in the future from space down to underwater, and they're all linked right?  Amazingly, they're all linked. Who does that?  You know it's probably not going to be the Navy.  The Navy doesn't quite have the same capabilities it used to have to do systems integration.  They're going to be looking to industry to do that.  It's interesting to see how industry has attempted to position itself for this systems integration task.  It's not that systems integration hasn't been done before--obviously, there are many different levels, you can talk about systems integration at many levels--but we're talking about system assistance, networks of networks being integrated when we're going from space to surface to subsurface, especially for the Navy. So obviously we're using net centric warfare, now known as FORCEnet to inform our approach.  Analytically what we did was draw on a distinction, a very useful distinction I think that increasingly people are drawing on, and I heard it used today, although not attributed.  We drew it on Clayton Christianson's [ph] work in his book, The Innovative Dilemma, and he's done work since then, his distinction between sustaining innovation and disruptive innovation, and we've heard it today.  Bob Work was talking about disruptive innovation. Basically to the extent that sustaining innovation is involved in what's being called transformation, Navy or otherwise, you would expect the services, Navy and otherwise, to continue working with the suppliers it has relationships with now.  To the extent that disruptive innovation is entailed, that is, disruption that provides--that makes existing technologies obsolete--might be leaping up, for instance, skipping generations of technologies, transformation advocates talk about.  That might at the very least provide opportunities for new suppliers to enter the market. Now, here's actually where--me more than some of my colleagues--but expected nontraditional players, especially in the commercial IT industry to make an appearance. So we looked at these three sectors, and interestingly enough it wasn't the systems integration sector but the shipbuilding sector that we saw the greatest potential for disruptive innovation.  Not necessarily for major surface combatants.  We're not surprised to see Northrop Grumman and General Dynamics continue to dominate programs like DDX, or to see Newport News take the lead on CVN-21.  Who else is going to do that kind of work? It's platforms like LCS that provide the opportunity for nontraditional support, but in a very interesting way.  Gone through a couple of different phases now in the LCS program, and we're down to two teams.  Those teams are interesting, at least from my perspective.  One of them--and maybe this is the unsurprising part--is headed by General Dynamics as a prime contractor, and of course, its Bath Iron Works.  But interestingly, they're working with Austal, Austal, USA, which is a subsidiary of Austal of Australia, and BAE systems is involved in putting together mission systems for this, two international suppliers, not major players in the past in the naval shipbuilding game. It's also interesting because there's a trimaran hull form, and it's aluminum, and of course it's also [inaudible] of Australia that in the recent past has pioneered work, large ferries, fast ferries. The other team that has survived the competition is interesting, who's the prime, Lockheed Martin.  Not one of the big six shipbuilders, is it?  You've got a systems integrator playing a lead role, a role of prime contractor in a shipbuilding context for the Navy.  They too have brought in nontraditional players, Marinette [ph] Marine--when's the last time they played in Navy competition, they always played in Coast Guard competitions--Bollinger [ph]. In our work we went out, we did some 250 interviews, both public and private sector, and we didn't get to Marinette Marine, but we got to Bollinger.  They were salivating about the opportunity to go after LCS.  But it's interesting, they did not want to team with the likes of Northrop Grumman or GD, because they figured they'd be swallowed up.  But they were willing to team with a systems integrator like Lockheed Martin. So we've got now the first LCS under construction and it's at Marinette Marine, a nontraditional player in this industry.  It might be nontraditional players because we've got a mono-hulled steel design out of this team. And this competition has also been interesting because one of the other teams, or one of the other players in the shipbuilding game that you would have expected to be in this from the beginning to the end, Northrop Grumman, didn't make it past the initial phases of the competition. So you've got opportunities here for nontraditional players, and it might be that you'll see similar kinds of things once we actually find out what sea-basing might look like, that there would be opportunities here too for nontraditional players.  Shipbuilding firms or platform firms, for instance, that have been after the new oil industry, might have an in whether independently or again teaming with existing shipbuilders, prime shipbuilders or systems integrators.  So it's actually in the shipbuilding sector that we found the most potential for disruption of what the industrial landscape looks like and the possibility for new players making entry. And the UAV sector is a bit more mixed.  The metric for UAVs are now really being developed and defined for the first time.  For shipbuilding the metrics have been around for a long time, and it's clear when it comes to things like the LCS, or at least more clear, what might be disruptive, what might be sustaining.  All that is being sorted out in the unmanned vehicle and specifically UAV sector. And the UAV sector so far, again, still relatively new despite all the attention it's been given in systems in both Afghanistan and Iraq.  There's a potential for Boeing, Northrop Grumman and General [inaudible] to dominate in this field.  Two of those [inaudible] sort of traditional aviator, aviation suppliers to the Navy and to the other services.  General [inaudible] is, compared to Boeing and Northrop Grumman, a mid-level firm, still a large firm, but relatively mid-level, but not a major player in aviation overall.  So there's potential for some disruption in what the aviation sector looks like here. But there's also a lot of smaller firms including start-ups that have an interest in the UAV market.  And we spent time with some folks, a group called In Situ in the Columbia River Valley, great place to go do research for over a weekend.  But, you know, the stories you hear about what some of these start-ups look like was exactly what we saw. Engineers, earth-based engineers or aeronautical engineers, largely from the University of Washington, who had hired a business manager, basically had a large garage on the Columbia River.  And we went there for a flight demonstration, and we talked to them about their business model.  They weren't in this game to displace the likes of Boeing, Northrop Grumman or General [inaudible].  Their business model was develop technologies that would have appeal to the Navy specifically, to the other services, but they knew that they couldn't deal with federal acquisition regulations on their own.  They didn't have the business expertise, they didn't have the manpower to do that.  They couldn't go out and hire retired captains and admirals to work that issue for them. Their business model was to team with a major player, a prime contractor, and maybe eventually even to be bought out by a prime contractor. What are they doing now?  They've developed this one platform called Scan Eagle that the Navy's working with.  They're teamed with Boeing.  It's the Boeing In Situ Scan Eagle. Basically that's the way we see in this sector especially the opportunities for start-ups and smaller firms playing in Navy and larger military transformation. Now systems integration.  As I mentioned earlier, systems integration is critical for making Navy transformation, military transformation generally work.  We're talking about innovating systems with systems, networks and networks.  Who's going to do that?  Again, systems integration is not new.  Many firms, or several firms at least, have positioned themselves to do systems integration for the Navy, Lockheed Martin of course, Raytheon, increasingly Northrop Grumman and GD, General Dynamics have attempted to position themselves as systems integrators. And systems integration is basically where we see the least disruption.  The systems integrators out there that you see now are likely to be systems integrators you see in the future, not the commercial IT firms.  They simply don't have the expertise.  They don't have the customer/supplier relationships.  They don't have the expertise when it comes to Navy and more general military requirements, are as aware as Lockheed Martin, Northrop Grumman, Boeing and GD are, and Raytheon, of what Navy requirements are likely to be. But it's interesting to see how these fronts have positioned themselves.  They specifically have gone about bulking up their IT capabilities, both their IT hardware and software capabilities, and they've done it in different ways.  Acquisitions over many years, all these firms have done that.  Some have done, you know, innovative conceptual work, Boeing, for instance, [inaudible], in some ways late 1990s was ahead of the Navy in developing the notion of net centric warfare.  And my colleague and I saw some of the work.  They presented it to us.  Northrop Grumman has long been billing itself as an RMA firm, and so what you see is each firm systematically bulk up IT capabilities, hardware and software capabilities, and basically make sure that the commercial firms, if they're going to play, they're going to play through existing prime contractors. The good news in that case for the major primes out there, the largest of our defense industries, is that the defense industrial sector is not going to disappear.  And I think that some of their firms have positioned themselves quite well to take advantage of where the major program growth is going to take place in the systems integration section. And smaller, nontraditional players primarily--it's not that they're cut out of the action, but for the most part they're going to get into the action through teaming arrangements with existing primes. MR. O'ROURKE:  Thank you.  You've asked me to talk about transformation and budgets and also the defense industrial base.  I'll start with a couple of comments about transformation. You mentioned at the outset, Fred, that the topic's been around for some time now and the word has gotten to be a little bit overused.  There have been various definitions put out, some of which I think are more rigorous than others.  I tried to use what I think is a fairly rigorous definition of transformation, and even applying that definition, in my own work I come up with a list of 8 major areas of change currently under way in the Navy, which to me is a very substantial list of transformation efforts for a single service to be undertaking, and I'll just make three comments about that list of 8 items. The first is that in relation to budgets, limited budgets can sometimes mean less money for developing and procuring new things, which can sometimes impede transformation.  On the other hand, limited budgets can also force people to consider new ways of doing business, ways that are more efficient, and several of the Navy's transformation efforts I think can actually be grouped under that category. The second thing I would say about the Navy's transformation efforts is that many of these changes focus on changes in organization and concepts of operation, rather than on simply acquisition of new platforms and weapons, and that's probably a good sign because transformation arguably should focus on organization and concepts of operation, as much as, if not even more than it focuses on new weapons and technology. The third thing I'll say is that if the Navy can even accomplish a fraction of the efforts that it has under way to transform itself, then it will in fact accomplish a significant change, a significant transformation. Now, the challenge for the Navy--and we heard about this earlier today--is how to adapt this transformation effort to the near-term operational demands associated with the global war on terrorism and the potential downstream operational demands associated with countering improved Chinese maritime forces. The kinds of capabilities that you might want to stress for the first of these two priorities, overlap with but are not identical to the kinds of capabilities you might want to stress for the second of the two.  So in a situation of finite resources, the challenge for the Navy is to find a way to balance its investments in the first set of capabilities against investments in the second. I'll switch now to a more pure budgeting focus.  The federal budget situation in coming years, in my view, will likely dampen down the rate of real growth in defense spending, and I don't find any particular reason to believe that the Navy will be getting an increased share of whatever that budget is.  The near-term demands associated with things like Iraq and Afghanistan could, other things held equal, shift resources to the Army and the Marine Corps.  On the other hand, concern with potential future Chinese maritime capabilities could, other things held equal, encourage a shift in resources back to the Navy.  And my sense is that these two effects might more or less cancel each other out, leaving the Navy with about the same share of the DOD budget that it has today. So the DOD budget pie may not grow that much in real terms in coming years, and the Navy's slice of that pie may not change very much either. To make the most of the resources it expects to have, the Navy has undertaken a broad-based efficiency effort to reduce its day-to-day operating costs, so that the resulting savings can be applied to its acquisition accounts, and that effort has produced savings, but those savings have been offset by rising costs in other areas, particularly personnel-related costs for health care and other things.  And we actually had the CNO mention one of those areas where there have been savings, and that's been Navy-Marine Corps TAC [ph] Area Integration Plan.  And the CNO mentioned that as a result of that plan the Navy will have avoided about $35 billion in previously planned aircraft acquisition costs. On the other side of that ledger, that TAC Area Integration Plan is made possible in part by increasing the interdeployment readiness of the Navy strike fighters, and over that same 20-year period that the Navy will be avoiding $35 billion in aircraft procurement costs, the Navy has also estimated it will spend about $20 billion in additional R&D costs to increase the readiness of those Navy strike fighters.  So the net savings there is closer to 15 billion, and it's important I think, as people listen to stories about how the Navy is saving money in one place or another, that there are sometimes offsetting costs elsewhere. As a result of how the Navy's efforts to save money in some areas have sort of met with the reality of rising costs in others, especially for personnel costs, it now appears that the Navy's acquisition accounts in future years may not increase as much as some people had once hoped or projected that they would. In response to this growing realization, there has been an increasing interest over the last couple of years in, among other things, new funding approaches for things like ships, in the hopes that if you were to fund them differently, you might be able to afford more of them for a given amount of money.  And these new approaches can in some cases reduce costs somewhat, but the potential gains are at the margin and should not be exaggerated.  They can increase procurement quantities at the margin, but they can't turn one ship into two, they can't turn a 6-ship budget into a 10-ship budget. So the bottom line is that funding for acquisition will likely be constrained, and the Navy may need to reduce the scope of its acquisition programs to fit them into future budgets, and we had reference earlier to estimates, again, in the shipbuilding area, of what future costs might be.  The Navy has submitted to Congress a plan for a fleet ranging from 260 to 325 ships.  The Navy preliminarily had estimated that that might cost about 12 to 15 billion dollars per year on average in shipbuilding funds, and CBO has estimated the figure somewhat higher, in the range, if you do it on apples to apples, the CBO figure is actually 14 to 17 billion.  But whether it's the 12 to 15 or the 14 to 17 billion, you're still talking about something substantially more than the 9 or 10 billion dollars per year on average that the Navy has actually achieved in this area. So if that's the kind of difference that you might have trouble achieving, then that's going to force you into a situation of having to make choices.  And this will occur in various areas of Navy acquisition, not just in shipbuilding, but it will include shipbuilding which has been an increasing concern and anxiety for people over the last few years. And with regard to shipbuilding there are at least three areas where the Navy may need to make adjustments to reduce future procurement funding demands.  The first area are the amphibious and pre-positioning ships for implementing the sea-basing concept.  And from what I read in the trade press, the Navy is currently moving to reduce the scope and cost of what it wants to do in this area. The second area, among at least three that may need adjusting, is in the area of attack submarines, which were discussed a little bit earlier on in today's proceedings.  And the central challenge for the attack submarine force is to find a way to get to two submarines per year, because the submarine procurement rate will need to be increased to two per year starting in FY12 or FY13, and be maintained at that rate for about a dozen years, simply to avoid falling below 40 boats.  And if you want to go to that higher number that Karl mentioned in his presentation, 55 boats, you're actually going to have to get up to 2-1/2 or more than 2-1/2 boats per year. But even if your number is just 40 and you want to avoid dropping below that, you will have to get to 2 per year and maintain it in the timeframe that I just mentioned. Now, the reduction in the Virginia Class procurement rate in the current set up to 1 per year is a signal that unless budget conditions change, procurement of Virginia Class submarines may never be more than one per year.  And if that's the case, then there are some options that people might want to examine.  One which Karl mentioned was the strategy of modifying the Virginia design and taking best advantage of the learning curve.  I'm not sure whether that strategy will be enough to trigger a decision to increase the submarine procurement rate above one per year.  I don't find that approach, frankly, very persuasive in terms of the amount of cost savings it can achieve relative to what you need to achieve, in my view, to trigger a decision to move to 2 per year. A second option also has been mentioned earlier, is to go to an AIP-equipped non-nuclear powered submarine.  I don't know whether submarines like that would be cost effective for performing U.S. submarine missions, but in any event, I think in a situation of constrained resources there would be a temptation or a pressure to substitute additional AIP submarines for some of the Virginia class submarines that you were in theory planning to procure in tandem with the AIP submarines.  You can call that a substitution risk, and if that were to open--and I do think there was a significant risk of that sort of thing happening--it would result in a submarine force with significantly less total capability than planned. A third option would be to go to a less capable, less expensive nuclear-powered attack submarine, and also procure that in tandem with the Virginia class.  I'm not sure whether some policymakers would even see that as an option.  I've tested some people's views on that, and they see that as a non-started.  But even if you think it's something that can be contemplated, it would be subject to the same kind of substitution risk, as would be the case with the AIP-equipped non-nuclear powered submarine. And that then leaves you with your fourth option, which would be to start design work now on an equal capability reduced-cost Virginia Class submarine, something that would employ new technologies such as those being developed in the Tango Bravo Program.  That would address the substitution issue because that submarine would be no less capable than the Virginia Class, and that strategy might also be able to achieve greater unit cost savings than a strategy of simply trying to modify the Virginia Class. And the third area where the Navy might need to contemplate adjusting its programs is in the area of surface combatants, and here the focus is on the DDX, which has been talked about quite a lot today already.  This is a 14,000-ton ship which is about 50 percent bigger than today's Aegis destroyers and cruisers, and it's bigger than any destroyer or cruiser that the Navy has procured since the nuclear-powered cruiser Long Beach in 1957, and I don't say that to criticize the ship, but I have found that there actually is not in all areas that much awareness of just how large this ship is compared to previous cruisers and destroyers.  It's a very capable design.  I mean the Navy's making very good use of the real estate on that ship, but estimate procurement costs, particularly for the follow-on ships in the program, have risen considerably since last year. Again, the reduction in planned DDX procurement to one per year in the FDIP [ph] is a signal that, as with the Virginia Class, that unless budget conditions change, procurement of DDXs and CGXs may never be more than one per year.  Now, the Navy had attempted to address this through changes in acquisition strategy by going to a single yard, and the Navy had estimated that that could reduce the cost of each ship on average in a 10-ship program by about $300 million per ship.  My sense is that the affordability issue with the DDX, what keeps it from moving from one per year to something more than one per year is a lot more than $300 million, so I'm not saying that you don't want to save $300 million where you can, but I don't think that would be enough again to move the ship above a one per year rate. Supporters of the DDX also point out the lower life cycle O&S costs with lower annual O&S costs of the DDX compared to previous classes.  And the Navy estimates that the DDX would have on a life cycle basis an annual O&S cost that is about $12 million less than that of the DDG-51 design.  And so over a 35-year life you would be saving about $420 million.  A lot of those expenditures are way in the future, so on a discounted basis that would be a lot less, but let's just use the $420 million figure as it is.  That's a significant savings, but when you add that together with the procurement costs of the DDX you still wind up with a total ownership cost, if you will, of the DDX that is considerably higher than that of the DDG. I'm not saying that you shouldn't try for O&S cost reductions or that this isn't a strength of the DDX design, I'm just saying that you should not overestimate the effect of that lower O&S cost on the Navy's overall funding demands over time, because they are not enough to offset entirely the increased initial procurement costs of the design. Now, if the DDX or the CGX looks like something that would be procured at no more than one per year, then people would have to decide whether they would be happy with that situation.  They'd have to decide, for example, whether they would find that acceptable in terms of whether such a procurement rate would introduce the new DDX or DGX technologies into the fleet in sufficient numbers, or whether that rate would result in an overall program with an acceptable average unit acquisition cost, and under this scenario it could be more than $3 billion a ship, or you would have to ask whether a one per year rate would have acceptable consequences for the industrial base. If it turns out that people decide that a one per year rate would not be acceptable on one or more of those three grounds, then again there are some options to look at. And if you wanted to find savings to somehow increase the procurement rate greater without disrupting other parts of the shipbuilding budget or other parts of the Navy or DOD budget, then you would look at the other surface combatant program that's in there right now, the Littoral Combat Ship, as a source of additional funding for the DDX. Now, that ship, the LCS, is much less expensive on a unit basis than the DDX, but at the currently planned rate of 5 per year that you ramp up to in the outer years of the FDIP, the Navy is currently planning to spend--once you also include the cost of the mission modules--something close to $2 billion per year in procurement funding for the program, which is a sum that would go a long way toward procuring a second DDX or a second CGX in a given year. Now, if you don't want to do that for all the reasons that have been argued earlier today about the merits of the LCS program, then a second option would be to reduce the cost of the DDX design by taking things off the ship.  And the Navy has already made some steps in that direction.  The ship is somewhat smaller and less expensive than the design that existed two or three years ago, but that doesn't change the situation that it still costs right now what it's estimated to cost. And so you might want to look at taking more off, but at this late stage in the design process you're probably in a situation where if you pursue that strategy you might wind up reducing cost by not very much, and capability by a lot more.  And the possible outcome of that strategy is that because you haven't reduced costs very much, you still wind up limiting the procurement to one per year, except now you have a less capable ship and a less cost effective ship because you've reduced its capability a lot more than you have its cost. And that takes you to the third option, which has been discussed again by some of the other speakers today, which would be to build one DDX as a technology demonstrator, and possibly a second to give the other shipyard experience in building the design, and start design work now on a smaller and less expensive ship, and that could perhaps be a ship about the same size as today's Aegis cruisers and destroyers, about a 9,500 ton ship.  That ship would have a smaller total payload than the DDX, and therefore it would be less capable in some respects than the DDX, but the ship could still be quite capable, and it might achieve a more balanced reduction in cost and capability compared to the option of taking things off the DDX design at this point in the design process. If the Navy were to pursue that option, it would be then an issue of the Navy coming together and figuring out what it is that's currently on the DDX or the CGX that they most want to have.  They clearly would like to have everything that's on the design, but they probably want to have some things more than others, and if you could take those and wrap them into a smaller design, you might wind up with a ship that could be procured at two per year rather than one per year, which was the originally envisaged rate for the DDX and the CGX. That rate might introduce the DDX and CGX technologies into the fleet in more sufficient numbers, and it might be a rate that's easier to divide between two shipyards. And finally, a couple of comments about the defense industrial base.  Again, these will be skewed toward comments on the shipbuilding industrial base because concern has mostly focused on that portion of the Navy's industrial base. To sort of characterize the current situation regarding the shipbuilding industrial base, these companies have taken steps over the last 5 or 10 years to modernize their facilities and their processes.  They are still somewhat behind some of the best practices that you'll see around the world, but the recent DOD shipbuilding benchmarking study shows in fact that these shipyards are perhaps not as bad off in terms of their facilities and processes, as they are sometimes assumed to be. A second thing you can characterize about the situation is that these yards have a lot of currently unused capacity.  They're currently being asked to build about 6 ships per year.  They could build 2 or even 3 times as many. Related to that is that they are currently experiencing low and uneconomic rates of production.  If you set aside the LCS, then the rest of the Navy shipbuilding plan currently--you can call it a digital shipbuilding plan because it's mostly composed of ones an zeroes. A fourth thing you could say about the plan or about the state of the industrial base is that there's limited use of competition, particularly in the awarding of contracts for the production of follow-on ships in a class. A fifth thing that you could say to characterize the industrial base is that it includes a lot of sole source suppliers.  We heard earlier from--I think it was Karl--about how more than 80 percent of the submarine suppliers are sole source, and to more or less degrees that applies to the supplier base for some of the other ship categories as well. And then lastly, there's concern, as Karl mentioned, for the design and engineering base with the submarines. Now, with the industrial base there are multiple perspectives that are at work here.  The Navy and DOD have their concerns and their frustrations.  They're concerned about rising shipbuilding costs and about limits that have been placed on the kinds of acquisition strategies that they might want to entertain. The firms that make up the industrial base have their own concerns and anxieties.  They are frustrated by ambiguity in Navy forestructure planning by volatility in the composition of the shipbuilding budget from one year to the next, and by the low rates of shipbuilding. And Congress has its own concerns and frustrations.  They share the concerns that Navy and DOD have about rising shipbuilding costs.  They share industry's concerns about ambiguity in Navy forestructure planning and volatility in the composition of the Navy shipbuilding plan from year to year.  And they are also concerned about the implications that some proposed Navy acquisition strategies might have for the future of some of these shipyards. These concerns and frustrations are, as I say, most acute regarding the shipbuilding industry, but there are concerns for other sectors as well. The one point I want to make--and it's my concluding point--is that reconciling the concerns of all three of these groups is not going to be easy.  I've had people come to me with any number of solutions to the industrial base issue, and usually what those solutions have in common is that they solve the problem by discounting or ignoring the concerns or the interest of one or more of those three parties. So this is not an easy solution to find, at least in terms if you're looking for something that's really going to go a long way toward meeting the concerns of all three of these groups at the same time.  And I'll stop there. MR. KAGAN:  Thank you very much, and thank you all for a very interesting panel. Before I turn this over to open questions, I'm going to exercise my moderator prerogative briefly to ask you to do something that I think will be a little bit hard, which is to try to draw conclusions about the DDX experience without worrying for the moment about what's going to happen to DDX.  And what I mean is I look at DDX and I look at FCS and the Army  (?)  and I'm wondering if we have not started to develop a notion of what transformational systems look like that's unrealistic. Should we really be looking for systems that are completely transformation in all of their aspects, that reach so ambitiously for so many technologies all at once?  And without laboring the point, I think if you go back through the history of the American military development, you'll see a lot of transformational systems like the F-14, which was very transformational of its time, that used virtually no leap-ahead technology. Are we thinking too broadly, too deeply and too ambitiously, and therefore getting ourselves into trouble with some of these programs? I throw that open to anyone who wants to take it. MR. ROSS:  I'll give that a shot.  Given what we've been hearing recently about DDX, I suspect that there's fear in industry that we're seeing another arsenal ship, and that left--that was a rather bitter pill for the industry to swallow. This morning we heard about, we heard DDX--I forget which speaker it was now--but one person characterized DDX as--we're talking about the concurrent development of the platform and all the new systems that are going into it.  For some of these systems that entails a fair degree of risk.  We're also hearing talk now about the possibility of DDX being terminated.  Whether it's--you know, we build one and then figure out what we want to do next, and maybe go to a smaller substitute for DDX.  My suspicion, the Navy relies on the shipbuilding partners it's got right now.  Do another arsenal ship on them, and they're going to feel like they've been shafted. MR.          :  I guess I'd be the appropriate person to comment some about that question.  I feel like the DDX acquisition strategy is well managed, and what we can't seem to get the message out there is that we have engineering development models for each of the key technologies, and most of them have proven themselves.  The multi-function is in tests at WWOPS [ph].  The partner to the dual-band radar is in progress, and the radars are well within our reach.  We had a primary path and a risk reduction path for electric drive, and electric drive is increasingly prevalent in the commercial industry, and it is a very achievable technology. The gun systems are in development and have fired test rounds, so we have that technology. We have a total ship computing environment, basically the combat system, up and operating at Dahlgren.  We've built the test ship and applied the autonomic fire suppression system, detonated a warhead and convinced ourselves that we can reconfigure the water mains and the water system and control damage and aid the crew. And I could go on and on.  In each area we have mitigated those risks.  I see that as the best practice across DOD programs right now.  We have the same experience with joint strike fighter, where there's--each of the subsystems have models in hardware to be tested in buy-down your risk, and that's what best practices are doing. In DDX, we're coming under some concern because it is a fairly large ship.  Started out at 18,000 tons, was downsized to 14 to control cost and to get capability to right sizing.  We reduced the fire rate of the gun to take complexity out of that.  I talked about that this morning at a speech.  By changing from 12 to 10 we dramatically changed the complexity of the auto-loader for that gun.  And so in every area--and there's more work to be done--we've reduced it, we've made it a--not reduced, but made proper adjustments in the requirements to help control costs and give us an affordable platform.  That's different. FCS is not mine to talk about, but in some areas FCS is strictly constrained by size and weight and transportability, which is the contrast I wanted to draw with DDX, where we have a bigger ship and we're putting a substantial amount of capability on board.  FCS has significant constraints in terms of what it can put on and be transportable.  And so they're very different issues and I don't want to compare them because I'm not sure they're comparable in terms of risk. MR.          :  Just very quickly, the DDX is the end result of a process that began with the predecessor ship, the DD-21, which is a project that was initiated around the 1994-95 timeframe, and when you look over the period of time that has elapsed since then, I think when the Navy began that process, there were two things they weren't as clear on, they didn't have an ability to be as clear on as they can be today, and one of those is what their future budgets might look like, and I think they have a much better sense of what their future budgets might look like than they might have had 10 years ago in the early years of the post-Cold War era. The second thing has to do with I think the Navy today has a better sense of what its requirements are or what they should be, because in the early years of the post-Cold War era there was a lot of wandering about intellectually, well, what should the Navy be doing and what do we need to have in a Navy?  And I think that too has narrowed down somewhat. I think the Navy today has a much firmer basis for putting down on paper a more realistic sense of what its future budgets might be, and also a more narrowly defined sense of what really are its most critical requirements or desired capabilities versus those things that you would like to have but are perhaps not quite as critical. And if you were to take both of those things together, you could be in a situation analogous to where you were at the start of the DDG-51 program, where they projected their future budgets, they said they would need to build 5 ships per year with the amount of shipbuilding funding they would have available for surface combatants.  They took that sum of money, divided it by 5.  They got a little relief from the Secretary of the Navy at the time, John Lehman, and they wound up with a cost target for what that ship should be.  They then went ahead and designed a ship to meet that cost target. Now, in a perfect requirements driven world that's not really the best way to design a ship because it gets you into a lot of sub-optimization sort of decisions.  But we don't live in a perfect world, so maybe trying to have a perfect or optimal way of designing ships doesn't lead you to a good design.  And so if you were to take this final option of going back and designing a smaller ship, then you could learn from the heritage of the DDG-51 program. Now, that's not a perfect ship, and people have had some criticisms of it over the years, but by and large, that was a very successful program, and in part I think it was successful because it started off with that sort of constraint on its cost, and the DDX, going back to the DD-21, did not exist in the same kind of thing, so a lot of things that people wanted to have got turned into requirements with a capital R, and the next thing you know the ship had a lot of different really great capabilities on it.  But somewhere along the way, the constraint on cost was relaxed. And John has tried to bring that back now in the time that he's had, but he was coming into that situation after it had already been several years under way. MR. KAGAN:  Thank you. We have a question over here. MR. CROFT:  Stan Croft from Business Week.  Tom Donnelly asked an earlier panel if the Navy had more money, what would it spend it on?  If Mr. O'Rourke is right, the real question is going to be, you have less money, what are you going to cut?  Secretary Young, could you answer that question, please? [Laughter.] [End of Tape 4, side b, begin Tape 5.] [In progress] --I actually have some experience in this.  I struggle with that question.  I'll stay true with some principles, and that is I feel like the Navy has got to table its requirements and we've got to try to prioritize those requirements and bide to them.  So I've raised issues about making sure we fully fund any new programs we have going forward.  So I think you got to look at all your new programs and ask questions, and that's why in Hill testimony this year I made clear we have to fully fund 53-X.  I think it is a very high priority requirement for the Marines especially in light of the time we're putting on 53-Es.  But you can't start new programs until you know you've paid for what's on the table or you've reviewed and decided to assign them higher priorities. I've talked with Admiral Mullens (ph).  I certainly would not pretend to speak for him, but we're going to sit down and have another discussion.  Ron was kind enough to point out we had a discussion about DDX and said where could we make some more trades and bring the costs down.  Lacking insight which gets better and better about budget pressures, not a lot of things came off the table.  But we had the discussion and Admiral Mullens agreed to chair another discussion like that. So we're going to look, and I think you'll see us across the board keep trying to do modest things that don't significantly affect your capability because the analytical rigor is increasingly there to say I need this kind of capability.  So an adjustment from 21 to 10 so that instead of loading the gun in any position you always load the gun vertically and then tip it back down and shoot, it doesn't compromise severely the operators' and war fighters' capability and it dramatically reduces the complexity of the auto loader.  Can we do things on 53-X?  Can we do more things on DDX?  Can we do things in Virginia Class?  I think people are prepared to table areas there to do business differently. And I will tell you we also have to look at the acquisition process and you see us working that every day.  I think the companies are looking hard at finding better ways to build Virginia in an integrated manner and it's going to require some of those hard issues about swapping work between yards, but in every case we've got to bring down--recognize that we are probably looking at low rate production going forward, trying to optimize industry to deliver to that, doing things in increased competition where we can like open architecture, and then having a hard discussion about requirements where we can make modest adjustments and still meet the war fighter's basic needs. So there's not a program to be killed, I'm sorry.  I'm not really trying to evade it.  It's a matter of prioritization and then adjusting some of the things we have down because many of the capabilities in light of some--that's why I'll point to the CNO.  He talked to you about the need and even the willingness to reduce his force structure in order to recapitalize because we've come through a period where our assets are aging.  Secretary England made it a very high priority to modernize our tactical aviation forces because they were actually higher average age than our fleet service combatants and ships across the board. So in areas we've looked pretty hard at this and they're not platforms we would immediately walk away from. MR. KAGAN:  In the back? MR. POLMAR:  Norman Polmar (ph).  A subject not raised by our panel is aircraft carriers.  The carrier program is in absolutely no danger thanks to my former boss John Warner. But two questions. One, can the panel address the costs of the next carrier, CVN-78 or 21, compared to its predecessor?  Also how realistic is the potential saving we're hearing about of 3-, 4- or 5-, 800 people in the next carrier?  Thank you. MR.          :  I could start and allow the colleagues to speak to this.  I think the carrier issue is still something the Navy has got to keep looking at and studying internally.  You know the discussion is out there about going to 11.  The operational analytical models, again I keep referring back to the CNO, but I think one thing I want to mention is we talked about being joint, and I got to tell you this truly a joint CNO and a CNO that's open to change and discussion including a more integrated fight.  I think a piece of adjust the carrier numbers is the more integrated fight we can bring in the future. Once you get the carrier numbers right, we got to talk about exactly what I answered to the previous question, capability and cost.  I believe the costs are higher than they should be for 78; 77 is helping to set that template.  We've used at least all the tools in our trick bag, much stricter contracts, incentives to modernizing their facilities which was mentioned I think by members of the panel, to take some steps towards build efficiency. So we're doing everything we can to that end and we will continue to have discussions about requirements.  We had one of those with OSD the other week on sortie generation rate, and we want to find the right knee in the curve and pay for no more capability than necessary.  So we'll keep working those issues. Achieving the people I think is probably--we've seen analytical and study work that it's well within our reach.  It's probably very, very doable.  Everything has been done on DDX, says it's doable.  To the anxiety factor, we have a robust research and development budget that lets us design that carrier to engineer out that level of manpower, and that's the fundamental issue. The CNO made the point and I'd agree with him, we have 40 something billion dollars engineering the Joint Strike Fighter, $7 billion engineering DDX, and across the board I'd point to that.  People are concerned about CVN-21 that has something like $5 to $6 billion and yet it is probably the most sophisticated piece of equipment America builds. We probably have to robust up some of our investments in our platforms in nonrecurring, our research and development, to engineer in, and I gave a speech about this this morning, human systems integration, to engineer in the automation and the robustness and resilience so that we have maintainability, reduced crew size, damage control, et cetera. The long answer is to say I think CVN-78 or 21 on track to achieve manpower reductions.  We're going to continue to have discussions about lowering the cost of that carrier, I guarantee you that. MR.          :  Just a couple of comments.  The first would be on the acquisition cost which has certainly caught a lot of people's eyes because it seems so much spectacularly greater than the procurement cost of the previous carrier. In defense of the costing of the next carrier, the Navy has offered some arguments which I think are points well taken.  One is that the previous carrier, the 77, benefited from something like half a billion dollars in free propulsion equipment because it was essentially a spare set of Nimitz Class propulsion equipment that was lying on the shelf waiting to be a spare, and when it was decided that there wouldn't be any more Nimitzes and that they didn't really a spare set, it was rolled into the 77 and you didn't have to pay for it.  The 77 will also benefit from some free radar equipment I guess that was stripped off some other ships. So that brought the cost of the 77 down lower than what it would have been if you had actually paid for the whole thing as new equipment at the time you procured it. So the Navy says if you take that adjusted procurement cost and then escalate it using the kinds of inflation rates that have been experienced in shipbuilding over the last several years, you will get to a figure in the $8 billion range which is quite comparable to the hands-on construction costs of the CVN-21. The 21 as a new ship also has something like $2-1/2 billion in detail design nonrecurring costs and then $3.2 billion in research and development costs.  I do agree with the points that have been made here today that we do not spend very much in R&D for ships compared to what we typically do for airplanes, and I gave a speech about that years and years ago. I don't know who it was that decided to put people in two different rooms where it was okay to spend $1 to $5 billion on a ship and $20 to $25 billion on an airplane, but that was a tremendous cultural difference which has led to certain constraints and limitations in the ship acquisition area. So in terms of that cost, the $13.7 billion cost for the 21, you cannot look at it and not raise an eyebrow, but the Navy does in fact have some arguments they can apply to that issue in terms of how to compare it with the previous carrier. Very quickly on your second point on the manpower savings, I would look to see whether we are achieving the promised manpower savings on other Navy ship platforms like if we were to go ahead with DDX whether we are achieving it there, whether we're achieving the earlier advertised crew sizes on the LCS and on LPD and on other new designs.  And if it turns out that the crew sizes on those ships are creeping up above what was earlier promised, then that might be a leading indicator that the Navy might encounter some difficulties attaining some of the promises for crew reduction on the CVN-21. MR.         :  Thanks.  I hope this is a question and not a statement and I'm not violating my own prime directive here. I am struck to the degree wherein the shipbuilding industry has become as much a blessing, or a curse or a blessing I guess is the way to put it, in this sense, Ron offered a whole host of a menu of alternatives, the goal as far as I could tell was to get a variety of ship classes, up to two per year as opposed to one per year which is an important metric, but perhaps not the most important metric.  There were also some statistics bandied about about excess capacity both in the number of yards totally speaking and at individual yards. It does raise the fundamental question, what's the purpose of the industry?  Is it the purpose of the industry to support the Navy or is it the purpose of the Navy to support the industry?  And might we get those two things in alignment before we start either tossing things off, ship designs or doing the other what seem to be pretty draconian choices that Ron suggested? MR.          :  I don't really think that my options were draconian. [Laughter.] MR.          :  Well, they sounded pretty severe to me. MR.          :  I think if you go back through what I said, what I was allowing I think people to be aware of would be options for getting to two submarines per year and two larger surface combatants per year.  I do think two per year for the submarines is a critical metric because we have spent so many years not building submarines that we cannot maintain even a force of 40 submarines years from now unless we get to two per year.  That is the situation we have gotten ourselves into. We have built an average over the last 15 years of less than one attack submarine per year, so those numbers have now caught up with us.  And don't even talk to me about 55 anymore because that's 2-1/2 or 2-2/3 submarines per year.  So in the case of submarines, two per year in my view is a critical metric in the sense that that's what you need to avoid dropping below 40 and it's the Navy that's saying that they want to maintain 40 or about 40. In the case of surface combatants, two per year may or may not be that critical a metric, although at one per year, different parties for different reasons may view one per year as inadequate either for getting the new technologies into the fleet in sufficient numbers, keeping down your average acquisition costs or consequences for the industrial base which is not necessarily just a jobs issue because that's an industrial base you rely on for competition and innovation in design for any future ships you might want to develop.  So I don't know exactly how critical two per year is in relation to the surface combatants.  It certainly is for submarines. But I don't consider the alternatives I mentioned to be draconian because I don't think moving to cruiser or destroyer, if you were to decide to do it, that's the same size as today's Aegis cruisers and destroyers, isn't necessarily a draconian option and nobody is running around saying those ships are dinky little ships that can't do anything. MR.          :  At my peril, I think you've got to start with getting the most value for the taxpayer's dollar and so then the next step you could say is what might we have to do for the President and the taxpayer to protect the nation, and the Navy is working pretty hard at that.  So if the Navy stands up and says we think we can get the job done with 40 submarines, we ought to listen to that. I keep hearing this discussion that says we got to go to 2 per year submarines.  Who says?  The industry says.  But does the war-fighting analysis and the capability submarines bring to the table and the context of a significant part of the submarine force is dictated by, for example, intelligence missions as opposed to war-fighting pieces of the mission.  We have an explosion in that area right now between UAVs and other collection tools.  In fact, we struggle to make sure we don't let data fall on the floor out of that process. So you got to start from a much more informed analysis and then say what I require and then, as Secretary England I think has said, and that's my marching orders, industry needs to shape itself to deliver that capability. So I don't start any of these discussions assuming it has to be X or Y.  In fact, I start with the Navy's 260 to 325 and that tells me what we need to build in destroyers and surface combatants and from there I try to craft the whole acquisition team the best strategy through that. It may or may not be perfect for industry.  I have some concerns where industry has negotiated with states agreements for investment that guarantee a certain number of jobs.  I made the comment earlier in my talk and I'll make it again, if jobs are going to drive the acquisition program then we're not going to be able to control costs and we're not necessarily going to deliver what the war fighter needs. MR.          :  Just very quickly, I also start with the Navy's force structure requirements as the beginning of my analysis for what you need, and it's the number of submarines in the Navy's 260 to 325 ship plan that drives that two per year number. MR.          :  I would just add one comment.  The industry is more than shipyards, and it's a huge team I talked about in the 35 years that I've been involved in this that has created this Navy we have today just on the surface combatant side, I know the same exists on the carrier side and the submarine side. So what we're talking about is a very highly integrated industry that comes to the shipyard to produce these great warships that we're providing to the fleet. MR. KAGAN:  I'm afraid that's all the time that we have for today.  I have myself found this to be an enormously valuable program and I would like to thank our panelists and all of the participants and ask you all to mark your calendars.  On August 18th we will have the next in our series, Conference on the Marine Corps, which should interest I think many people in this room right now as well.  So thank you very much for coming. [Applause.]</body></html>