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Tech industry is the new defence industrial base

Posted By on April 24, 2024 @ 07:56

Developments in nascent technology areas such as quantum computing, biotechnology and artificial intelligence (AI), are predominately happening in the private sector, where there is a higher concentration of talent, capital and competition.  

The United States and allies must become better at encouraging tech companies to consider dual-use applications both as a commercial opportunity and as a matter of national security. 

China is ahead of the game. In its bid to have the most technologically advanced military in the world, Beijing applies a strategy of military-civil fusion to boost its military and defence capabilities, using civilian research and heavily subsidising domestic commercial sectors. China also tries to harness global commercial capabilities through intellectual property (IP) theft and strategic adversarial investment in the US private sector, threatening US and allied leadership in bleeding edge technologies.  

The effects of China's strategy are being felt by the US tech sector. According to discussions between industry and government at events held by the Australian Strategic Policy Institute at in March, investors are unable to compete with the Chinese capital being thrown at emerging dual-use start-ups in quantum computing, microelectronics, biotech and AI. 

To meet the challenges posed by China, the US must use its strengths—the agility of its private sectors, capacity for innovation and market viability. This is critical in adopting commercial technologies at a speed and scale that meets national security needs. 

So far, the US government has made some efforts to harness the tech sector. In 2021, the Trusted Capital Digital Marketplace (TCDM) was created to establish 'trusted sources of funding’ for small and medium-sized business, offering alternatives to adversarial investment in innovative defence-critical capabilities. This should complement other initiatives such as the Office of Strategic Capital, which helps to attract private capital in support of national security through public-private partnerships and to underwrite high risk investments in emerging technologies. However, TCDM has stalled in recent years, and needs to be revamped at scale in partnership with allies as part of security agreements such as AUKUS.  

Under AUKUS, the US, Australia and the Britain have begun to prioritise partnership with industry. Under AUKUS Pillar 2 which focuses on advanced capability sharing, the three countries have endorsed a defence investor network and established an industry forum. The US has also reduced barriers to start-ups and SMEs entering the defence market, as evidenced by the proposed amendments to the International Traffic in Arms Regulations for AUKUS partners, under the National Defense Authorisation Act (NDAA) passed in December 2023.  

But the US and allied governments need to do more to support innovation in emerging technologies, and bolster public-private collaboration early in the process. They should identify tech start-ups relevant to national security, and ensure that they continue to meet defence needs as they grow and stay free of adversarial capital. This will contribute towards increased innovation and more rapid scaling and help US and its allies becomeI leaders in critical technologies. 

Specifically, the US and allies should identify existing hubs of public-private innovation and build on their activities. One example is Capital Factory, a technology incubator in Austin, Texas. Its partners include the US Army Future Command, which leads the army's modernisation efforts, and AFWEX, the innovation arm of the US Air Force. These relationships enable dual-use technology innovators, investors and end-government users to collaborate, and bring national security considerations into the commercialisation journey at an early stage.  

The US should also broaden innovation partnerships beyond its borders and strengthen its global network of public-private innovation. For inspiration, it should turn to NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA), which promotes dual-use innovation capacity across the alliance, and ensures that companies have the resources, networks and strategic advice to develop and scale technologies critical to defence and security challenges. DIANA has over 200 affiliated accelerator sites across Europe. The US could emulate this model in its coordination with innovation hubs such as Capital Factory, and in its innovation partnerships such as AUKUS. 

In partnering with the private sector, the US and its allies must ensure there are sufficient sources of clean capital, free from adversarial influence, that can support commercialisation. In particular, as collaboration on innovation increases under AUKUS, Australia must do more to engage its private sector and mobilise the significant pools of capital sitting in retirement funds. 

Australia’s pension system has the fifth-largest retirement savings pool in the world, managed by traditionally risk adverse superfunds. To outcompete China's civil military fusion strategy, the Australian government must incentivise the investment of this capital in dual-use technologies that support allied national security interests. It must drive a discussion of the commercial opportunities and national security imperatives of investment in national security, focusing on the dual-use potential of areas such as advanced manufacturing, critical minerals and bio tech. This will help assuage ethical concerns of more risk adverse investors. 

In summary, governments need to be bold and innovative in how they partner at scale with the private sector. They need to collaborate with tech companies at an early stage to align them with national security needs, and ensure there is enough funding to support commercialisation in emerging areas such as quantum, AI and biotech. This is critical in maintaining autonomy over critical technology supply chains, and ensuring that the industry aligns with liberal democratic values and protects users. 

Mobilising the tech sector as the new defence industrial base is an exercise in public-private collaboration and allied partnership. The fact that such conversations were occurring at SXSW, an event not associated with national security, demonstrates that both governments and the tech industry recognise the importance of collaboration for shared national security interests. 

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[1] strategy: https://www.state.gov/wp-content/uploads/2020/05/What-is-MCF-One-Pager.pdf

[2] events: https://americanaustralian.org/australia-house-sxsw/#1683305520506-cf370e34-404d

[3] TCDM: https://www.defense.gov/News/Releases/Release/Article/2470485/department-of-defense-announces-establishment-of-the-trusted-capital-digital-ma/

[4] US Army Future Command: https://www.army.mil/futures

[5] AFWEX,: https://afwerx.com/about-us/

[6] DIANA: https://www.diana.nato.int/

[7] fifth-larges: https://www.bloomberg.com/news/articles/2023-11-17/how-australia-pension-funds-are-becoming-global-force