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Twice in the twentieth century—during World War II and the Cold War—the United States developed highly impactful industrial policies to support the scale-up of an innovative defense industrial base. The United States now faces a situation in which comprehensive and consequential industrial policy is once again needed to support its national security requirements. The 2022 Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act provides a recent model for the kind of industrial policy that the U.S. government can implement when it adopts a no-holds-barred approach to improving national competitiveness in a critical industry. However, the majority of the significant military capabilities used by the U.S. Department of Defense today—and for the foreseeable future—are supplied by a few large defense contractors. These contractors have demonstrated a mastery of large-scale systems integration and manufacturing, an activity that is beyond the scope of smaller firms that excel in the development of innovative technologies. Both the major defense contractors and newer, technology-oriented firms such as Anduril Industries, Leidos, and Palantir Technologies currently lack the available markets or funding that would permit the kind of aggressive approach to improving competitiveness that the United States has applied to semiconductors. Supporting these firms in a more substantial way would require the United States to selectively broaden and deepen its industrial policy efforts and become more organizationally skilled in implementing support of its most critical capability suppliers.
Dew et al. (Mon,) studied this question.