The Tech Industry is the New Defense Industrial Base

Bonte Monroe

Establishing early relationships between the government and the tech sector will help the latter understand how to engage the government as a customer and incentivize dual-use technology development.

Developments in nascent technology areas, such as quantum computing, biotechnology, and Artificial Intelligence (AI), predominantly occur in the private sector, where there is a higher concentration of talent, capital, and competition to drive commercialization. The United States and its allies must better engage technology companies to consider dual-use applications from a commercial opportunity perspective and a national security imperative.

China has recognized the role of civilian research and commercial sectors in boosting military and defense capabilities. Through its strategy of military-civil fusion, China aims to ensure that it will have the most technologically advanced military in the world. The execution of this strategy includes China’s acquisition of, and heavy subsidies for, its own tech sector for state purposes. Critically for the United States, it also involves China attempting to harness global commercial capabilities through intellectual property (IP) theft and strategic adversarial investment in its private sector. This threatens the United States and allied leadership in bleeding-edge technologies.

The United States’ tech sector is feeling the effects of this. Discussion between industry and government at events held by the Australian Strategic Policy Institute at SXSW emphasized that national security-minded investors are unable to compete with the scale and speed of Chinese capital being thrown at early-stage dual-use start-ups in areas such as quantum computing, microelectronics, biotech, and AI.

The natural advantage the United States and its allies have over China’s military-civil fusion strategy is the private sector’s agility, innovation, and market viability compared to Chinese competitors. Silicon Valley’s success and the historically high fraction of global tech leadership in the United States are testaments to this. The United States must help nurture this advantage to accelerate commercial technology adoption to meet national security needs at speed and scale.

The United States government has implemented efforts to actively harness the tech sector for national security and meet the challenges posed by China. As early as January 2021, the Trusted Capital Digital Marketplace (TCDM) was created to help establish “trusted funding sources” for small and medium-sized businesses that offer alternatives to adversarial investment in innovative defence-critical capabilities. While this initiative has stalled in recent years, the potential to revamp the program at scale and partner with allies under the auspices of security agreements, such as AUKUS, Australia, and the United Kingdom, should be prioritized. The TCMP would complement other initiatives, such as establishing the Office of Strategic Capital (OSC), which helps attract and scale private capital to support national security through public-private partnerships and underwrite high-risk investments in emerging technologies.

More broadly, security agreements with allies, notably Australia and the United Kingdom, through AUKUS, speak to the United States government’s increased prioritization of partnerships with industry. Under AUKUS Pillar Two, which focuses on advanced capability sharing, the AUKUS Defense Investor Network has been endorsed, and an industry forum has been established. These efforts have aligned with the United States’ reduction of barriers to entry start-ups and SMEs entering the defense market, such as the proposed amendments to the International Traffic in Arms Regulations (ITAR) for AUKUS partners under the National Defense Authorisation Act (NDAA) passed in December 2023.

However, ASPI discussions at SXSW highlighted that the United States and its allied governments need to go further upstream to where innovation in emerging technologies is happening and bolster public-private collaboration early in the process. This places the United States and its allied governments in a better position to identify and support national security-relevant tech start-ups early on, ensure their journey to commercialization is free of adversarial capital, and meet defense needs. Increased innovation and rapid scaling will ensure the United States and its allies are leaders in critical technology areas.

The wheel need not be reinvented to achieve this. Instead, the United States and its allies should collaborate to identify existing hubs of public-private innovation and build on these activities. Capital Factory, a technology incubator in Austin, Texas, is one such example that could be emulated and scaled. Capital Factory partners include the Army’s Future Command, which was established to ensure that the Army remained at the forefront of technological innovation and warfighting ability, and AFWEX, the Air Force’s equivalent innovation arm. These relationships ensure that dual-use technology innovators, investors, and end-government users are brought together in one hub to collaborate. This means that national security considerations are brought into the commercialization journey early. Hence, these companies become commercially viable independent of the government, as it is no longer its only customer. However, from the get-go, they are built to make it as easy as possible for the government to work with them, including being security compliant and free of adversarial capital.

The United States should also look beyond domestic activities and broaden innovation partnerships with allies and the tech sector. In Europe, NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA) exists to find and accelerate dual-use innovation capacity across the alliance. Under the model, DIANA ensures companies have the resources, networks, and strategic advice to develop and scale technologies critical to defense and security challenges. With over twenty affiliated accelerator sites across Europe, the United States could emulate and engage with this model and coordinate with existing innovation activities, such as Capital Factory, or develop collaborative partnerships, such as AUKUS, strengthening the global network of allied public-private innovation.

The key to the success of these recommendations is ensuring that there are sufficient sources of clean capital, free from adversarial influence, that can support commercialization, particularly in partnership with allies. United States initiatives such as the TCDM and OSC must be supported by allied efforts to leverage their financial strengths creatively. Notably, as increased innovation collaboration occurs under AUKUS, more pressure should be placed on Australia to engage its’ private sector and mobilize the significant pools of capital sitting in retirement funds.

Australia’s pension system is the fifth-largest pool of savings in the world, and it is significantly under-invested and managed by traditionally risk-averse superfunds. Finding a way to incentivize investing this capital in dual-use technology that supports allied national security interests is necessary to outcompete China’s civil-military fusion strategy. For the Australian government, this means driving discussion that frames the commercial opportunities and imperatives of investment in national security more broadly. Focusing beyond defense applications and on the dual-use importance of technology areas such as advanced manufacturing, critical minerals, and biotech can help assuage the concerns of more risk-averse investors.

More broadly, the tech industry and the private sector’s agility, innovation, and market viability are the greatest strengths the United States and its allies have in the strategic competition against China.

Governments must be bold and innovative in partnering at scale with the private sector. This means collaborating early in the innovation process to ensure that national security needs are met and sufficient funding is available to support commercialization in emerging technology areas such as quantum, AI, and biotech. Failure to lead in these technology areas places the United States and its allies in a position where the economic advantages of being first to market are lost. However, from a security perspective, there is less autonomy over critical technology supply line chains and influence over standards-setting that align with liberal democratic values and protect users.

Establishing these relationships early on will also help the private sector understand how to engage the government as a customer better and incentivize dual-use technology development. Mobilizing the tech sector as the new defense industrial base is an exercise in public-private collaboration and allied partnership. The fact that these public conversations are occurring at traditionally non-national security-focused forums such as SXSW speaks to the shared recognition from government and industry of the importance of collaboration for shared national security interests.