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Editor’s Note: This article is the result of extensive research at the Business for National Security into the industrial system that supports US defense as presented in Creating the Industrial Network the Nation Needs.

$56 trillion is almost three times the size of the US economy. This concentration of capital in the US capital markets – $46 trillion in public funds and another $10 trillion in private funds – dwarfs that of China. The New York stock market alone is four times the size of China’s Shanghai stock market. America’s largest markets represent an important, yet underutilized, strategic advantage to the Defense Department’s ability to innovate. Focusing on America’s equity and credit markets will allow the Department of Defense to address current capability gaps, fund technology development from leading private innovators, invest in next-generation transformation efforts in into military operations, and developing the world’s aging infrastructure to sustain the US military. The Department of Defense should build on its involvement in the capital’s ecosystem by deepening partnerships with more commercial companies. It calls for reforming research and development support to provide more opportunities for small, medium, and large companies pursuing national security applications. Importantly, the Pentagon should adopt projects and implement programs that attract capital at scale to invest in defense, unlike those used by the Department of Commerce or Energy. Finally, there should be an effective architecture of education, training, and exchange programs that develop skills and competencies among Defense Department professionals in real finance, capital markets, and financial engineering. The US has no choice – US capital markets should be brought in to support essential security needs at scale and quickly.

Conventional wisdom holds that the legal, regulatory, and logistical problems in the Pentagon’s strict annual budgets, stretched budgets, and complex procurement processes make it nearly impossible for the Pentagon to enter the public market. in the past there were no private individuals. The first problems though are not legal or technical. The Department of Defense has already demonstrated the ability to be proactive in responding to national emergencies. For example, when the COVID-19 pandemic broke out, it used its remaining transactional powers to work quickly outside the traditional contract system to buy vaccines and medicines.

But when it comes to budget legislation and agencies, the Department of Defense tries to take a more conservative approach, taking into account programs or programs authorized by Congress in the Act No. and annual National Security clearance. Changing this risk-averse culture will take a lot of effort from leaders in the Pentagon and on Capitol Hill, but it can be done. Here too, there are things in the past. The Federal Shipbuilding Financing Program provides full faith and credit guarantees by the United States government to promote the development and modernization of the U.S. shipping industry and the U.S. fleet. Recently, the Pentagon has successfully dipped its toe into leveraging private capital and corporate funding to support early stage research and technology companies. These limited capital-related efforts are important but not sufficient to enable the United States to retain or, in some cases, regain victory on tomorrow’s battlefield.

In his recently published national security strategy, Secretary Lloyd Austin noted “our primary mission is to develop, integrate, and align our forces to maximum effect… to develop lasting advantages in the defense system.” As the United States confronts its adversaries, it risks losing the advantage it has gained since World War II in its traditional industrial defense system and its ability to integrate modern technologies into that base. China is rapidly closing capacity, capability, and technology gaps with the U.S. military, particularly in the areas of artificial intelligence, automated systems, digital computing, and advanced equipment. Its military-civilian strategy is a complex cocktail of state-owned security companies, commercial companies, and stolen technology, both from the Chinese Communist Party and China’s powerful capital markets. , sometimes even controlled by the government. China’s translational engineering skills have enabled the People’s Liberation Army to scale sophisticated ideas into a system that can be deployed at lower cost and with five times the speed of the United States. Seven Chinese companies currently rank among the top 20 defense manufacturers in the Defense News Global 100, second only to the United States with eight, closing the gap from just four years ago. when there is none.

On the contrary, Congress’s annual budget cycle is disruptive in a world where the private sector is constantly developing new technologies. In the two years since the government has taken the necessary funds, the business sector has already created three to four product models. Unfortunately, this often pushes companies into the “valley of death.” Companies that successfully develop and transform technology into products and services must wait a long time to secure the security contracts needed to generate the revenue needed to survive. Financial inefficiency, combined with a rejection of the Department of Defense’s management system and a culture that was optimized for the 20th century industrial age, are developing a system that simply cannot withstand the modern age of business technology advancements.

The Department of Defense and Congress should immediately adopt a series of specific actions to harness America’s capital markets and creative forces.

Build on the current strong and successful ministry in the capitalist system by deepening the cooperation with the main business companies, providing the best opportunities for customers and needs, and facilitating the connection technology in security programs.

The Ministry of Defense has developed a number of successful methods in which it has emerged as a significant influencer and player in the development of early technology. Programs include cyber efforts such as the Defense Innovation Division and several “innovation-hub” service efforts: AFWERX, SOFWERX, NavalX, the Army Futures Command, and the General Digital and Artificial Intelligence Office. Many of these efforts contribute to the creation of business value creation partnerships, other transactional agencies, official announcements, and other processes and, as a result, they are useful for attracting private sector investment. themselves at an increase of about 18-to-1 in the case of In-Q-Tel, a nonprofit organization bought by the intelligence community.

There is a significant amount of venture capital funding now focused on developing capabilities and developing products, developed with both civilian and military applications. Efforts to expand the potential capital base through the Pentagon’s Secure Capital Program are another important step. However, there is a need to get more involved in these communities with the program managers of the Department of Defense and the targeted support from the Pentagon to select a group of emerging companies that have professional entrepreneurs and investors and have ability to develop strength products. Also, the Department of Defense needs to learn how to engage emerging technology companies at scale, with system integrators and contractors bringing expertise to the table. Professionals and convince them that there is a return on investment in this national security channel.

Redistribute current research and development support to provide more opportunities for small, medium, and large companies pursuing national security applications. Create savings to improve productivity and integration of development, business or security.

Most of the Pentagon’s science budget (section 6.1 and part 6.2) goes to government-sponsored organizations including genetic research, development, and engineering institutions, including federal research organizations and university-affiliated labs . These efforts develop, but rarely integrate, advanced technology for defense purposes, and the Pentagon sometimes prioritizes them over better, more profitable commercial technology. Instead of praising itself for its research and development budget record, the Department of Defense should consider piggybacking on the vast amount of private sector research and development, representing more than 70 percent of total research and development. before the United States, while identifying and supporting businesses. technology that can be used to meet the needs of the Pentagon. Then there will be more defense funding to support either critical translation and/or private sector innovation efforts in defense programs where the United States is often less effective than its peers.

Take action and implement programs to attract capital at scale to invest in security such as those found in infrastructure, energy, and other sectors.

The country’s capital markets have shown the ability to use equity and credit at the lowest expected rates, while government commitments have been made through special programs and created in infrastructure. These programs effectively reduce the cost of capital – which is especially important in today’s high interest rate environment. The Pentagon’s Defense Equipment Act Title III program already allows the Department of Defense to address areas where critical industrial capabilities need to be developed through grants, purchase commitments, loans, or loans. Recently, Congress authorized nearly $53 billion under the CHIPS and SCIENCE Act to grow the U.S. chip industry and another $65 billion in expansion into underserved areas as part of the new Investment Law and Employment Law. All told, these investments managed by taxpayers through the Department of Commerce will unlock more in private capital, translating into greater leverage and flexibility relative to the funding provided through the annual dividend system. -year.

There is a great opportunity to expand the existing ways and improve the ways in which the Ministry of Defense can directly access the capital markets and reduce the risk of companies through investments, debt guarantees, and other different ways. For example, the Small Business Investment Company program licensed by the Securities and Exchange Commission, allows qualified business investment companies with expertise in certain sectors, such as defense and aerospace, to allocate up to 30 percent. of their system investment (their overall capital) in a professional small business deal. At the fund level, private equity is matched by Small Business Administration funding on a 1-to-2 basis (up to $175 million from the Small Business Administration per fund) so these funds can be very strong. It is interesting that these small business investment companies can collaborate in groups to invest 50 million dollars or more in a given deal, bringing a higher level of investment than as allowed in business innovation research methods. Extending this system could allow private capital to invest more quickly into small and large companies, if allowed.

Further, the Department of Energy has implemented a variety of grants, loans, tax credits, and guarantee programs, such as $161 billion in tax credits to deploy low-carbon energy sources and $116 billion in subsidies for clean energy research and development. included in the Cost Reduction Act, which attracts the private sector by reducing the risk and cost of developing technology and converting it into productive capacity. Finally, the housing market has developed official support systems, such as mortgage-backed programs that support government support programs at Fannie Mae or Freddie Mac, which regulate risk information and facilitate the operation of the capital market. . The Department of Defense can coordinate these and other methods to improve risk-adjusted return behavior to improve security technology and obtain new follow-up opportunities.

Access to such private capital also reduces risk and cost because these funds may be available in sufficient amounts to support the program’s needs with intensity. As a result, multi-year purchasing benefits can be achieved and the holding period on capital can be effectively reduced, with estimated returns of 5 to 10 percent or more in savings, while reducing schedule risk. . It could also provide the funds needed to quickly address programmatic problems, such as the Navy’s major ship repair challenges due to the inefficient, dry season of World War II. Finally, the Department of Defense program offices and private companies can use private capital at short notice to accelerate the development of lines of effort, whether on critical research and development or to increase production to address mission needs.

Develop an infrastructure of education, training, and exchange programs at the Pentagon that develops skills and competencies among defense professionals in real finance, capital markets, and financial engineering.

As with the Defense Digital Services, or the introduction of new industrial processes under Secretary of Defense Robert McNamara in the 1960s, the Department of Defense should build a rapid response team of financial analysts, businessmen, and managers file to the “public” capital, attached. capital for companies and innovators, negotiating with financial peers, and managing the risks (and conflicts of interest) to finance our major securities. In parallel, and unlike the Defense Science Board or the Defense Business Board, the Department of Defense should establish the Defense Business Board to provide senior leaders in the Pentagon with new ideas and recommendations on the use of the market American public and private sector to improve security. , building the right things, and scale purchasing and manufacturing. The Pentagon should also work with top business schools and graduate programs across the country to create mid-career financial programs for Defense Department professionals. Pentagon officials will also have the option to participate in the same Master of Business Administration program, but the idea here is that civilians and uniformed personnel will travel freely between the Department of Defense and civil finance department.

We applaud Austin’s recent announcement of the creation of a Senior Executive Office. This is an important step. The office should have a broad mission that looks at small, medium, and large companies and integrates the private and public markets to connect capital to opportunities. Its leaders should view the capital markets as a war zone where the Pentagon’s multi-trillion dollar balance sheet can be used. Its annual budget of more than 800 billion dollars can finance the construction of important technologies, create entirely new industries, and, beyond building weapons, can be invested against the enemy. on the battlefield, from technology to logistics.

Taking all of these steps can combine the extraordinary equity and credit capabilities of the US capital markets into a future-proof industrial network that no other country in the world can match. We did this in the past to a strong advantage during World War II. The development of skilled workers in other countries has left the United States with no choice. America’s capital markets should be brought together to help protect national security. Senior leaders in the Department of Defense and in America’s capital markets need to start a conversation to figure out how to be creative and bold in doing so.

General Joseph L. Votel, U.S. Army, (ret.) is the president and chief executive officer of the Commerce Department for National Security and is the former commander of the U.S. Central Command and U.S. Special Operations Command.

Frank Finelli is a managing director at the Carlyle Group focusing on investments in the defense and aerospace sectors where he has led multiple acquisitions and Carlyle’s cross-border value and risk reduction initiatives.

Samuel Cole is the principal and founder of Stonecutter Ventures, a private equity investment firm, with expertise in seed companies across fintech, security technology, manufacturing, and robotics.

The authors would like to thank Peter Crail, Marta Lazowska, Michaela Davis, and Giuliano DiRissio for their help in supporting the research required to write this article.

What is an example of a capital market?

Stock markets are financial markets that bring buyers and sellers together to trade stocks, bonds, currencies, and other financial assets. See the article : DOD Women’s Health Care Unchanged by Supreme Court Decision. Capital markets include the stock market and the financial market.

What are the 3 types of capital markets? The term capital market includes the stock market, the bond market, and related markets.

What are examples of capital market products?

Central Market

  • Accuracy checks.
  • Goods.
  • Guaranteed credit.
  • Foreign exchange.
  • Derivatives.

What is meant by capital market example?

A stock market is a place where buyers and sellers engage in trading (buying/selling) financial instruments such as bonds, stocks, etc. Transactions are made by participants such as individuals and institutions. See the article : “The search for talented professionals continues but wages will not continue to increase.”. The stock market trades mostly in long-term plans.

What are the major capital markets?

Capital markets are global markets where buyers and sellers come to trade assets, such as real estate and fixed income. Read also : Moqtada al-Sadr changes Iraq policy as summer protests loom. The main capital markets of the country are the foreign exchange market, followed by the financial market, then the international stock market, and the non-traded market.

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What is difference between capital market and money market?

What are the three main differences between finance and the stock market?

What is the difference between capital and money?

It’s a common idea but it’s not the same thing. A quick definition from an education website puts it this way: â Capital consists of tangible and intangible assets (such as knowledge and skills) that are used to produce goods and services. Money is primarily a means of exchanging one good thing for another.

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What is capital market in simple words?

Capital markets are where savings and investments are made between producers and consumers. Lenders are individuals or institutions that have capital to lend or invest and usually include banks and investors. Investors in this market are businesses, governments, and individuals.

What is an example of the stock market? Some examples of major markets are NASDAQ, BSE, New York Stock Exchange, London Stock Exchange.

Why is it called a capital market?

Capital markets refer to places where money is exchanged between producers and investors for their own benefit. Suppliers in capital markets are usually banks and investors while investors are businesses, governments, and individuals.

What is capital market in one word?

A stock market is a place where buyers and sellers engage in trading (buying/selling) financial instruments such as bonds, stocks, etc. Transactions are made by participants such as individuals and institutions.

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What is capital markets real estate?

⢠Stock markets are markets for buying and selling equity. and debt goods. ⢠Capital markets through saving and investing between. capital providers such as sales. investors and institutional investors, and investors.

What are the 4 types of capital markets? Other types of capital markets, such as primary, secondary, public, and private markets, operate within these two basic categories.

What does the capital markets team do in real estate?

Integrate investment marketing, advisory, financing and investment banking into an offering, a fully integrated global service for all asset classes.

What do you mean by capital markets?

A stock market is a place where buyers and sellers engage in trading (buying/selling) financial instruments such as bonds, stocks, etc. Transactions are made by participants such as individuals and institutions.

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