threat to U.S. interests; and the U.S. military forces needed to counter this threat. 4. Is Our Defense Budget Wisely Spent? The answer to this question is, yes. Unfortunately, in recent years a number of myths about our spending have emerged, contributing to an erosion of our national consensus to rebuild America's military strength. One purpose of this Annual Report is to replace these myths with facts. One such myth is that we have not made substantial progress in rebuilding military strength. The reality is that we have had remarkable success in improving virtually every facet of our military forces. We have made major improvements in the quality and morale of our people, weapons modernization, readiness, training, and sustainability. Our progress is highlighted in Chapter I.E., and further described throughout the report. Various other myths can be addressed by asking whether we are spending efficiently, managing well, and minimizing fraud and waste. The answers to these questions are summarized below and discussed in detail in Chapter II.B. One of my top priorities as Secretary of Defense is to ensure that the defense budget is being efficiently and effectively managed. To accomplish this we have, since 1981, taken numerous initiatives with the goal of getting the maximum value from our defense dollars. When people read about some alleged "horror story" regarding defense purchases, many tend to assume that this is just the "tip of the iceberg." Almost all overlook the fact that we very likely found the problem and corrected it. ་་ To judge the quality of DoD's management, one must appreciate the size and complexity of our department's activities. Consider our people, over eight million in all: 2.2 million active duty military, another 1.9 million in the Reserve Components, and more than 1.0 million civilians. There are another 2.9 million people working on DoD contracts. Furthermore, DoD organizations and facilities span the globe. We manage over 5,400 properties and installations. The department operates over 400,000 housing units more than twice the number of public housing units in New York City. We deal with over 300,000 contractor establishments. We initiate 15 million contract actions each year, valued at about $160 billion. DoD currently supports over one-half of the ship construction and repair industry employment in U.S. private shipyards. We have both the largest school system, and the largest health and medical system in the world. - Still, even one real DoD management deficiency is one too many. That is why we continue our intense efforts to discover and correct every shortcoming. We welcome outside assistance in uncovering problems, although many such outside "discoveries" are termed "investigative reporting" and are based on findings we made and corrected. But, regardless of how discovered, the rooting out of problems has been a top priority of this Administration, as has the instituting of reforms to ensure that our various management systems reduce the likelihood of waste. Many of our initiatives have been directed toward improving the DoD acquisition system. We have introduced scores of changes to increase competition, improve cost estimating, streamline production, and more. These reforms have paid off. Cost growth in our major programs was reduced from about 14 percent annual growth in 1980 to less than 1 percent in 1983 and 1984. We actually achieved an estimated cost reduction of 0.8 percent in 1985, the last year for which information is available. This reduction came in spite of congressionally mandated procurement changes, changes that often resulted in higher per unit costs. As part of our reforms, we have vigorously attacked waste and fraud through aggressive management and through the work of our Inspector General (IG) and the Defense Contract Audit Agency (DCAA). Since the creation of the DoD IG in 1982, over 600 audit reports have identified nearly $5 billion in potential monetary benefits. Potential monetary benefits from all other DoD audits/reviews since 1982 totaled $11.1 billion. In addition, DCAA audits are responsible for a total reduction in procurement spending of over $9 billion since FY 1982. Recently, the Packard Commission made several recommendations to help improve DoD management further. We had already implemented many of these recommendations (see Chapter II.B.) and support others. We are making every effort to implement the remaining recommendations, which are built on the progress we have made since 1981. Many of them require congressional enactment. We are determined to achieve our management improvement goals. While we have accomplished much in this area, more needs to be done. For example, we need to eliminate unnecessary or duplicative reporting and oversight, both within the DoD a.d the Congress, if we are to reduce the cost of doing business. The stage has already been set for stabilizing the acquisition process. We have just submitted our first biennial budget with increased emphasis on multiyear procurement. As recommended by the Packard Commission, legislation to baseline selected major programs has been enacted. This will permit these programs to be authorized for up to five years and budgeted for two years. We look forward to carrying out our responsibilities in this regard. Now we hope that the Congress will fulfill its commitments as well. Furthermore, we will continue to establish annual management priorities in our DoD Management Improvement Plan and focus increased attention on those areas with the greatest potential savings. Over the past two years, severe constraints have been placed on essential defense spending. We are doing our part to ensure that our scarce defense resources are managed as efficiently as possible, and ask the Congress to continue working with us to reach this goal. B. THREATS, MILITARY BALANCES, AND NET ASSESSMENT Of the threats to our national security that our defense programs are designed to meet, that posed by the Soviet Union is by far the most serious and the most immediate. Of course, the United States has citizens, allies, friends, military forces, and interests abroad that can be threatened by nations and groups much less powerful than the Soviet Union, and our defense policies account for those threats as well. But the largest, and most expensive, part of our defense effort is driven by the power and policy of the Soviet Union. 1. The Nature of the Soviet Union Scholars continue to debate the question of Soviet motives and objectives. There is controversy about whether the Soviet rulers are truly ideologically determined to spread communism; or pretend to be so to justify their own authority; or wish to extend their own power and that of the Russian state; or merely have an exaggerated sense of insecurity, so that the accumulation of military hardware and the projection of military power to neighboring and distant countries is intended as insurance (however unnecessary) against external threats. A prudent American defense policy cannot rest on theories of Soviet motivation, but must respond to the facts of Soviet policy and military capability. The most salient facts are these: The Soviets have built, and are continuing to build, an enormous military capability at great cost to their society. The Soviets have more than 200 ground force divisions, roughly 1,400 intercontinental ballistic missiles, over 50,000 tanks, approximately 260 operational attack submarines, and more than 8,400 tactical aircraft far more than any other nation on earth; far more than could possibly be needed for self-defense. They maintain elaborate plans and preparations for large-scale Soviet invasions far beyond their borders. They modernize constantly and never complete deployment of one system without beginning at once the development of a follow-on next generation system. If we knew nothing else about the Soviet Union, these facts alone would require that we take prudent measures to offset Soviet military capabilities. But we do know other facts about the USSR: The avowed Soviet policy is to promote communist revolution throughout the world. Lenin described the goal as a "single, worldwide Soviet Republic." Current Soviet pronouncements support so-called "national liberation" movements, i.e., efforts by armed minorities to achieve absolute power to remake their societies without the consent of the governed. In addition to promoting such movements, Soviet military assistance and advisors, and Soviet and Cuban troops have been deployed to preserve them in power. Some observers see in this activity something less ambitious than a methodical quest for world domination, as reflecting only a Soviet "opportunism" that seeks to expand Soviet power where opportunities present themselves. But that view means that Soviet expansionism is inhibited only when other nations' resolve denies them opportunities to practice it. The Soviets have shown their willingness to use military force to invade and coerce other countries. The same reasoning that justifies the intimidation of Poland and the invasion of Afghanistan can be applied elsewhere as well except when the balance of military forces makes such policies impractical. - Certain internal characteristics of the Soviet state These facts mandate that our military forces be sufficient to deter Soviet aggression and resist Soviet coercion against ourselves, our allies, and our friends. 2. Other Threats to U.S. National Interests Through the rest of this century, low-intensity conflict (LIC) will be the next most likely challenge to U.S. national interests. The dimensions of the threat are tragically apparent. Since the communist takeover in Cuba, 17 other totalitarian regimes have come to power through externally supported insurgency and subversion. Indeed, there are at least nine current active insurgencies in our own hemisphere. Terrorism and the flow of illegal drugs are also integral components of LIC. We have come to recognize that these threats are not merely isolated occurrences. Terrorism is increasingly transnational and state-supported. Drug trafficking is increasingly sophisticated and politically motivated. In both cases, there is an element of exploitation by the Soviets and their surrogates. Our opponents use terrorism primarily as a tool of political coercion. It is used by governments, groups, or individuals to impose their will on target populations. It has proven effective as a means to destabilize established governments or institutions. Soviet Union, Libya, Iran, and Syria use terrorism as a means to further their foreign policy objectives. The The growing threat that these forms of ambiguous aggression pose to the United States, our allies, and our friends mandates that we maintain sufficient military forces to deter such aggression, and to defeat it should deterrence fail. For a more extensive discussion of LIC, see Chapter I.D.2. 3. Military Balance Assessment Assessment of the military balance is not an exact science. It requires considering a very large number of factors that are difficult to measure. Comparing numbers of units, weapons, or soldiers is a start; but qualitative differences must also be taken into account, as well as their peacetime deployments, mobility, operational planning, and command, control, communications, and intelligence capabilities. The quality of leadership and training, the state of morale, and the ability to achieve surprise are also important factors. Indeed, in a number of historical cases they have proven decisive. Although great superiority in numbers is always a major factor, it is also vital to know whether the military balance is consistent with U.S. security objectives. The following sections briefly describe the strategic balance, the military balance in each major region of potential U.S./Soviet conflict, and the maritime balance and power-projection forces that bear upon all of those regions. 4. The Strategic Balance U.S. strategic nuclear forces are designed to deter nuclear attack and to help deter conventional attack on ourselves and our allies. Deterrence depends on the Soviet leadership's assessment of our forces and policies, not on our own assessment. The Soviet leadership must be convinced that our response to their aggression would inflict an unacceptable cost for any possible benefit. The sheer destructiveness of nuclear forces does not by itself guarantee deterrence. Our forces must be survivable (so that an enemy nuclear strike cannot disarm us of our ability to respond), capable (so as to attack the military and command assets we believe the Soviet leadership value most highly), flexible (so that they can deter aggression in a variety of contingencies), and discriminative (so we can respond in a manner appropriate to the particular attack). Soviet force development reflects a set of objectives for strategic and related forces that is far more ambitious than our own. The Soviets attempt not simply to deter any attack against themselves, but to erode the deterrent character of U.S. nuclear forces. By modernizing their offensive forces in ways that threaten our deterrent capabilities, and engaging in a variety of defensive preparations, the Soviets are attempting to make our strategic offensive forces less secure against attack and less effective in response. Soviet offensive forces modernization includes continued deployment of the road-mobile SS-25 ICBM and preparation for deployment of a rail-based multiple-warhead SS-X-24. In addition, three new Soviet ICBMs are being developed: a silo-based follow-on to the SS-18 heavy ICBM, a follow-on to the SS-X-24, and a new, possibly MIRVed, version of the SS-25. These land-based missiles, with their relatively high accuracy and short flight times, constitute the most destabilizing offensive systems. The Soviet ballistic missile submarine (SSBN) fleet is being enhanced by deployment of the long-range, more accurate SS-N-20 and SS-N-23 sea-launched ballistic missiles (SLBM), as well as the more advanced, quieter Delta IV and Typhoon-class submarines. The Soviets |