In 2014 Fiat-Chrysler America made the decision to divest its high-end luxury car brand Ferrari so that it could maximize its value as an independent business. By all accounts the “spin off,” which was effectuated in 2016, has been a resounding success for both FCA and Ferrari. The move raised substantial capital for FCA, simplified its brand management and span of control, and allowed Ferrari to reestablish itself as something unique and distinct from its parent company. Most importantly, it allowed Ferrari to reclaim it historical roots and to grow more profitably than it had under FCA management where its inclusion in the conglomerate clearly sub-optimized the business and inhibited shareholder value creation. The Ferrari spin off is just one of many examples of companies recognizing and acting on the counterintuitive recognition that the “whole” may be worth less than the “sum of its parts.” As we look to an uncertain future with an ever-increasing range of threats and vulnerabilities, perhaps it is time to allocate the same level of introspection to the value of keeping the Department of the Navy (DoN) inside the bureaucratic monstrosity that until recently we called the Department of Defense (DoD).
Created by the National Security Act of 1947 the DoD was tasked with unifying and consolidating the management of the large armed forces establishment that emerged at the end of World War II. The act principally combined the Department of War (Army) with the Department of the Navy (Navy and Marine Corps) – two separate entities that had been constitutionally established and operated separately with different missions since the inception of our nation. The act also created a new military department, the Air Force, in recognition of the evolution and impact of air power over the previous decade. The Air Force itself was in fact a “spinoff” of sorts from the Army where it had begun as the Army Air Corps. Over the past 80 years the Department of Defense has effectively, but arguably not very efficiently, created the most lethal and advanced military in the world. However, over the past decade or so it has also been showing signs that its current structure is not producing a force that can sustain those characteristics in the face of adversaries with greater agility and deeper industrial capacity.
An alarming case in point is the DoN. Having been absorbed into the vast DoD structure, and subject to resource trade-offs of the overall defense enterprise, the DoN has lost its independence, and with it, its character and performance over the last several decades. This decline was not sudden, and it did not occur without noble efforts to resist the ill-effects of the Pentagon bureaucracy and the ever-growing attempts to centralize power in the office of the Secretary of Defense (OSD). Admiral Hyman Rickover, for example, demonstrated that through sheer will, brilliance, and obstinance that a nuclear submarine program could be built without high-level corporate meddling from DoD. In the 1980s Secretary of the Navy John Lehman performed a similar feat, overcoming resistance from Secretary of Defense Caspar Weinberger, along with all the other DoD entities conspiring for a piece of the Navy’s financial pie, in his quest to construct a 600 ship navy. That navy, as is often the case with changing administration priorities, was quickly dismantled in the years following Lehman’s departure. The decline accelerated when the Cold War ended and naïve leaders believed that end of the Soviet Union would produce something aspirational, yet elusive, for ourselves and our allies called a “peace dividend.” Our adversaries, both large and small, had different ideas and they have seized upon our retreat from maritime dominance to assert their own. Unfortunately, those tasked with funding and prioritizing our navy ignored the signs or misunderstood the role the navy must persistently play in “peacetime.” That role is far more closely integrated to other elements of national power such as commerce, international trade, finance, industrial power, and diplomacy than the Army and Air Force ever will be. This is more true today than it was when the Berlin Wall fell in 1989, and as global trade and transoceanic commerce on and below the seas has accelerated in the decades that have followed.
Just as Ferrari had been sub-optimized under Fiat-Chrysler, today it is reasonable to argue that the DoN as an institution has suffered the same fate in the DoD. During the 20 year so-called “War on Terror” and years of continuing resolutions, the Navy suffered from a loss of resources and stability of funding from year to year. It also did little to reinforce the critical relationship with the Navy and Marine Corps as integral security partners. The lack of stability forced trade-offs that favored readiness in lieu of longer term investments in expanded ocean-going defense capabilities. The current anemic state of shipbuilding, poor ship repair and maintenance performance, and general lack of strategy are vivid examples of the sub-optimization that followed as a result. The Secretary of the Navy’s recent cancellation of the new frigate program is a case in point. Originally conceived as a program that could yield a new ship class quickly and economically through the utilization of a proven foreign ship design, the frigate program was woefully, and perhaps intentionally, mismanaged by the Navy to the point where the final acceptable design exceeded the contracted cost estimate by three times and would miss its original delivery schedule by several years. The Navy somehow managed to take the original program concept and turn it into exactly the opposite of what it was intended to be.
The frigate is not alone. Ships from the troubled LCS program are being decommissioned 20 years earlier than their expected lifetimes as their cost and illusory mission left them vulnerable to budget realities. The DDG-1000 program was cancelled after just three ships were constructed, and both the Virginia and Columbia-class submarine programs have far exceeded their initial cost and delivery estimates. The decision to cancel/early retire ships from some of these programs is entirely rational from a fiscal perspective, however, the strategic implications are both disastrous and emblematic of a military department that is not prepared for the rapid changes that we will face in the coming years. In the meantime, as our fleet shrinks and we continue to throw good money after bad, the Chinese navy is expanding at a rapid pace, driven by a clear national mandate and facilitated by a modern, vitalized shipbuilding capacity that dwarfs our own. It doesn’t take a naval expert to conclude we are on the wrong side of that story—the treacherous side.
Of course, the reasons for our current naval deficiencies are complex, but they are not entirely dissimilar to the Ferrari case. As just one brand within the FCA corporate structure, Ferrari had to compete for management attention and resource allocation against other corporate divisions with very different target markets and brand values. Under those conditions, Ferrari suffered, as did their parent company. The Navy has faced a similar fate, but in no way does this suggest that the Navy is simply a luxury brand. Rather, its distinction is not that it is “niche” but rather that it is “comprehensively vital” to sustaining most, if not all, elements of our national power. No other service or military department matches those responsibilities. Recent solutions to address the Navy’s problems being bandied around DC include the conventional fixes that resonate in sound bites but rarely produce the desired result. These solutions include “elevating” shipbuilding oversight as an OSD function, creating a national shipbuilding “czar,” starting new ship programs that promise not to repeat the same mistakes, providing greater oversight and rigor over the change order processes, using technology (AI) more creatively in design and construction processes, etc. All appear to default to a fundamental big government instinct which is to centralize and elevate authority to even higher levels within the existing agency, specifically OSD. One need only to look at how much of the defense budget goes to support the OSD structure already to realize that it is an entity that has successfully fed itself from the budgets of the military services. Its appetite is insatiable, as is its desire for control. Its value to the overall enterprise, however, is dubious. This instinct to centralize, and the proposed solutions it produces, do not address the fundamental question that companies like FCA asked themselves when dealing with an underperforming asset: can we unlock greater value from this entity if we spun it off? In the case of the Navy, we should ask is whether the institution reach higher levels of performance and contributions to national security if it reverted back to its roots as a stand-alone cabinet level agency?
Positing this question will most certainly drive those wed to the perceived benefits of the current structure to decry them as heresy. However, every decision of this nature will have its supporters and detractors. In this case there is little doubt the detractors will likely outnumber the supporters—and be substantially louder. Such is the case with most proposals for radical change. There is money and power at stake when challenging the status quo. Those who cling to it and are fearful of confronting the inertia that has produced this dysfunction will not likely allow themselves to consider alternatives. Nonetheless, results matter, and facts can ultimately overcome principled resistance. The facts of this matter are undeniable. Regardless of cause, the Navy is clearly an underperforming asset. It is a stagnant bureaucracy within an even larger bureaucracy with a mission quite different from its fellow military departments, the Army and the Air Force.
While credible seapower is reliant upon credible warfighting capabilities, it is not only about warfighting. It is also about global presence, naval diplomacy, protection of vital sea lanes and undersea communications channels, sustainment of large-scale national industrial capabilities, and nuclear deterrence, to name just a few. The Navy’s mission cannot be simply reduced to “killing people, breaking things, and holding territory.” Continuing to house it within the Department of War will likely continue to suppress its overall value to the nation. There is also no reason to assume that a separation of the DoN from DoD would undermine the benefits of joint warfighting capabilities. The joint force can still survive regardless of where the DoN sits organizationally in the executive branch, but perhaps it can actually be strengthened by a more capable navy than the current structure is capable of producing. Incremental change at this point is not likely to solve the problem.
In reality the DoN appears more akin to a unique luxury brand that has lost its way within the structure of a larger entity with different, albeit complimentary, priorities. It requires better alignment with its capital markets (Congress), a more dedicated focus from its executive management team (the President), and an elimination of layers between the organization and its ultimate mission (the defense of the sea for the American people). Perhaps the clearest example of the lack of alignment in the current structure was from 2017-2020 when both the Congress and the President declared it their goal to build a 355 Ship Navy. It was a clear mandate supported by the law and presidential priority, however the Department of Defense (OSD specifically) never appeared to get the memo. No funding was diverted to address this priority, no plan for a 355 Ship Navy was endorsed by the Secretary of Defense, and the entire naval force structure assessment effort was taken away from the DoN and given to the Deputy Secretary of Defense. In the end, no actionable plan or funding was delivered to realize the goal, and we are even farther away from achieving it now than we were in 2017. Why did this happen? Because it could. The bureaucratic hierarchy enabled it.
One of the more memorable episodes from the venerable sitcom series “Seinfeld” involved the loveable loser character George Constanza realizing that his initial instincts on everything were always wrong. George concluded that if he simply did the opposite of what his internal logic suggested he would experience greater success in life. This strategy proved itself to be comical, yet effective. Perhaps it is time for us to explore the merits of a similar revelation about ourselves and how we have been managing our maritime defense capabilities. Rather than ceding more control of the Navy to the DoD bureaucracy, perhaps we should do the opposite and liberate it from that control. Instead of insisting that foreign designs are not good enough for our Navy, perhaps we should do the opposite by assuming they are– and then build them. Instead of concentrating more firepower on a smaller and more expensive number of platforms, perhaps we should do the opposite by deconcentrating—and then construct a more distributed and attritable portfolio of assets that can be in more places at once. Instead of allowing our shipbuilding capacity to winnow itself down to just a few capable companies who are entirely reliant on the government, perhaps we should do the opposite by breaking them up–and then fund new startups to increase competition. And finally, instead of insisting that there is immutable logic to managing the DoN as part of the Department of War, perhaps we should consider the opposite by spinning it out—and then allow it to rebuild its long lost competence as a fleet builder.
If the primary justification for renaming the DoD to the “Department of War” was to change the culture of the organization through a semantic nod to a time when the name more aptly defined the warfighting mission of the organization, we should not forget that the last time we actually had a Department of War the Department of the Navy was not a part of it. This was intentional, as our founders recognized that the purposes of the Army and the Navy were quite different. They still are. The Constitution plainly states this difference in how it granted Congress its enumerated authorities over both entities in Article 1 Section 8. For the Army, Congress is empowered to “to raise and support Armies.” For the Navy, “to provide and maintain a Navy.” In 1789 the Department of War was created to satisfy the former, and the Department of the Navy the latter. They were not combined under common federal management until 1947. Has that combination been successful? That is debatable—and it should be debated. It is likely that an unbiased, rational analysis would conclude precisely what Fiat-Chrysler did about Ferrari. The Navy has been sub-optimized in this structure and should be extricated from it. If we truly want to restore and enhance the Navy’s value, and we must, we should resist the pervasive urge in government to centralize control over it in another massive, inefficient bureaucracy. We should do what George Constanza would have done: the opposite. Spin it off now or risk diminishing its value even further at our great peril.
Honorable Thomas B. Modly is the President and CEO of Bélarock Ventures, LLC, and the former Under and Acting Secretary of the Navy.