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The Realignment
598 | Madeline Hart: How to Mobilize the American Industrial Base, Embrace Heretics, and Deter WWIII
00:55:58
Madeline Hart, Co-Founder of Palantir First Breakfast publication and co-author (with Shyam Sankar) of Mobilization: How to Reboot the American Industrial Base and Stop World War III, joins The Realignment. Marshall and Madeline discuss the need for embracing “heretics” in government, the case for “mobilization” as a means of deterring great power conflict and World War III, the roots of defense industry dysfunction in post-Cold War consolidation, and how the American people could materially benefit from investment in national defense.
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- [00:01]
A
Marshall here. Welcome back to the Realignment. Today's guest is Palantir's Madeline Hart, co author with Palantir's CTO and previous realignment guest Shyam Shankar of the newly released how to Reboot the American Industrial Base and stop World War 3. In this episode we cover the case for embracing heretics in government and how many of our past successes and present failures are driven by our ability to tolerate those who struggle to operate in traditional hierarchies. We then go on to cover the roots of the defense budget Pentagon's woes not in the fact that we spend too much or too little, but that we've built a consolidated private sector defense industry that can't turn resources into results. And then we go on to the case for mobilization as a strategy of deterrence against the great power conflicts that could lead to World War 3, something I like to imagine we'd all like to avoid. We then also discuss the origins of the status quo defense industry giants that absolutely no one is happy with, and decisions after the Cold War to consolidate the industry, which led to financialization, cost overruns and a startling lack of competition. Something we also spend some time on that I'd like to explore in future episodes is the question of what exactly is in this for the American people. Obviously Palantir has a financial stake in mobilization, but that's always been true, especially during the 1940s through 1960s heyday of the defense industry and the American military. We spent more than plenty on the military at the time, but that was also a period where the American people saw concrete investment at home. I don't expect industry folks to solve that equation, but in our past the leaders that inspire me, like FDR understood this dynamic. I recently read a book on FDR's for freedom speech and two of the four freedoms are relevant to this conversation. The freedom from fear and the freedom from want. A proper defense strategy can and must deliver on the freedom from fear side of things. But if we don't also offer a freedom from want, which different ideologies can take in a bunch of different directions and operationalize it differently, Americans won't be down for any type of mobilization that seemingly promises decades of potential conflict and the benefit of a few wealthy players. The New Deal era and the subsequent decades of post war prosperity and government led investment got that balance right. Unfortunately, today I don't see anything comparable on offering. All that said, I really enjoyed the book, especially the focus on case studies and historical figures and heretics from the past who we could draw from today. And I hope you all enjoy Mobilize and this conversation with Madeline. Madeline Hart. Welcome to the realignment.
- [02:43]
B
Hi Marshall. Thank you for having me.
- [02:46]
A
Very excited to chat with you about Mobilize how to Reboot the American Industrial base and stop World War 3 that you have co authored with Shyam Sankar, CTO of Palantir and previous guest on a couple of my shows. So I want to start Broad Picture before we get into sort of business and policy and talk about the ideas in the book that really resonated with me. So your work often focuses on, quote, heretics, and you feature plenty of them in the book. What is a heretic?
- [03:19]
B
Yes. So a lot of the book is told through the stories of individuals. And although we have data to back up these anecdotes, the anecdotes resonate because they show what individuals had to overcome to actually bring about technological change within the Department of Defense from both the private sector and the public sector. And so we think about heretics, we're really thinking of the founder figure. And so today the word founder is very much linked with Silicon Valley and the private sector. But we think of it as going as far back to our founding fathers as kind of the original heretics and also the founder figure really being present in government as well. So one of the book's purposes is to show that this isn't just about having, you know, even though Shyam and I both come from Palantir, from a private sector company, it's not about only the private sector has these talented individuals who are, you know, more contrarian and can buck trends. It's that that sort of counterpart is actually essential in the public sector as well. That's like the best manifestation of state capacity, we think, is in these individuals and not necessarily in a given piece of legislation which depending on the culture can actually be kind of ignored and not really that effective. And so who are the individuals that are driving forward the change, at times costing them their career, their likability? And hopefully individuals don't have to give up those things, but sometimes they do, and it's for the purpose of they have a vision and they want to create a product that is going to make our nation safer and more effective and more lethal in a war, and so they push through despite the social consequences. So I can give a specific example, but see if you have any thoughts around.
- [05:01]
A
Yeah, just a couple follow ups and then we'll get to the sort of present day example. I think what I so appreciate about your answer is that there's this at this point it's just a cliche to say we need to bring business people into government because business people know how to run a budget and unlike all those lazy public servants, bloody body, blah blah. And there's just sort of serious limitations to that metaphor. But also the metaphor is a little tired. But we're actually discussing a mentality and an approach and a style of leadership that I think is not naturally clear in government. And that's why there's like a value to talking about the idea. Because if you think about it this way, if you are raising a series, a series B, if you're trying to become a unicorn billion dollar plus valued startup, if you're like Palantir, unprofitable for almost two decades because of your actual strategy and approach, you are just always in an environment where the heretics with their various off putting characteristics that is just needed because you're essentially always in wartime conditions. But in D.C. you are often quite literally not in wartime, even though the stakes could be high in whatever your different category is. So I would love to hear you sort of explain to the D.C. side of the audience how and why they should become more tolerant of the heretical figure. Because even in wartime conditions we could find examples during the war on terror, during the war in Iraq, Afghanistan, et cetera, where even in those wartime conditions like the heretical sort of approach still is just not very welcomed. How should people think about why that really just needs to be part of their structure and thought process?
- [06:35]
B
You know, planning is essential, plans are useless. I think is that Eisenhower is saying, hopefully I didn't butcher that one. But there's too many variables, there's too much chaos and entropy in the universe to create a plan and then stick to it. And so when conditions change and new information arises, there need to be people that are able to react to that or who maybe have anticipated it and then see an opening and can go push forth change against resistance. And there is bureaucracy at even companies, even companies like Palantir. And so there are examples in the book of where we show that Even at a 4,000 person company there is some level of hierarchy and status and just humans are naturally territorial. And then those dynamics are really just exacerbated the larger the organization becomes. And particularly in cases where you have things like chain of command and so you don't have to have chain of command in the company. I mean loosely we have our C suite, but it's much easier to foster a sort of environment where people who are lower on the totem pole can speak up and push their ideas through. And so that's even harder in the military or in civil service, but it's just as important.
- [07:48]
A
Yeah, no, and it's the thing that really made this resonate with me this morning is that I spent sort of a three year sojourn in Silicon Valley and this is why the heretical sort of founder model mindset was just a resonant thing. I came from nadc, which is very, it's not military, but there is just as much sort of reverence for title. I've been in conversations where someone says this person is ranking higher than this person because they had this job in the last administration and whenever we come back into power they're going to have this other big title. So there's just this intensive hierarchical framework that doesn't leave room for. And once again there are certain people who are going to thrive in that environment, some people who aren't. And during sort of normal times, non wartime conditions, like non stakes conditions that could be fine and just good enough. But when the stakes are high, you have to have within your framework the idea that there's going to be a person who you may find off putting. But actually this POV is really, really, really. So I just want to really highlight and focus there. And to get to an actual example, there's a lot of historical figures that we could talk about, but who is like a recent person who you think really embodies this heretic founder mentality sort of approach that once again doesn't fit directly into a private sector sort of obvious comparison.
- [09:03]
B
Yeah, I think it's worth talking about a contemporary figure because the conditions in the Department of Defense have eroded over time. I think it's always been challenging for heretics, but particularly so now there's just fewer and fewer examples to where we associate like the nuclear Navy with Admiral Rickover or ICBMs with General Shriver. And as we go throughout history and you pick, you know, a given weapons platform today, you don't really think of an individual behind that. But an exception to that that I want to chat about is Colonel Drew Cukor, who is behind Maven. So Maven is the software intelligence operations platform that today, you know, you can look up the news articles about it, but is being used to, for, for targeting at scale for a variety of different military operations. But you know, most notably as of our conversation in mid March against Iran and being able to incorporate a variety of different data and AI and it's gotten a lot of attention because it's, you know, it's effective and anthropic has I think, become. That story really blew up because the software is working so well. And I think it's fair to say that it's viewed as one of the most essential pieces of technology, hardware or software, in this case a software system in the war. But it was not at all a consensus project. And I think like many of the technologies throughout military history, from stealth to AI, there was not a consensus that this was the thing that had to be built. And so we when now retired, but Colonel Cukor entered his, what would be his final uniform job in the Pentagon. This was in 2016. AI was still viewed as kind of a somewhat niche thing that hadn't really lived up to its promise. There had been various waves of hype over the years, but nobody had really seen the operational impact. Like LLMs hadn't come along at that point. Computer vision was kind of the most promising. So in a given image or video, being able to automatically identify something. And Kukor was a Marine. He had an intelligence background, and for him this was just a very natural place to accelerate intelligence. But he had this vision of fusing intelligence with operations, but the way he wanted to start. And this is again 2016, so war on terror. And I don't want to make it sound like this was peace time, like lives were still being lost, but we were more relatively at peace. So I think it was harder in that sense. There was a lack of urgency, but from his perspective, it was like, this is urgent. We need, we need to act like it's wartime, otherwise this is never going to get built. And so the initial use case was automatically detecting terrorists in video feed from drones from full motion video. And he had no budget to start with. And initially he wanted to go to the private sector. That was where he felt the AI talent was kind of the private sector and to some extent labs and like university labs. And so he's visiting Silicon Valley, he's visiting these labs, he's seeing that this is where the capability is and he wants to bring these companies on. And then the resistance, the part that is making this heretical is that AI is supposed to be a capability that the military's labs have been inculcating. And there's been various service efforts in darpa and he's not seeing their, their products is really up to par. And this is just consistent with the trend of huge amounts of private sector R and D, like vastly outspending the Department of Defense over, over the years. And so that's the trend that he's seeing. And he's. He's visiting the. The defense labs and he's seeing that their capabilities aren't there. So people are very annoyed with him right off the bat and that he's not using what should be, they believe, the military capabilities. And he's instead kind of betraying by going to the private sector. But he pushes through and he begins to bring these companies on again. He has initially no money, so he starts. And he has no team, so he starts creating all of the exhibits himself to go to Congress and create the exhibits and show this is what we want to build. This will be the impact if we're successful here. The initial case is just full motion video targeting. And keep in mind that the alternative to having AI assisted targets that humans are reviewing is you had humans that are just manually reviewing hundreds of thousands of hours. A pretty traumatizing video here. And so he's looking to automate that process and make those people's jobs better and easier. And eventually, over a period of about five years, Maven becomes extremely successful. Cukor's name is not really associated with it, and he's not a public figure kind of until we told a story in this book. And there's actually a book coming out from a Bloomberg reporter a week after ours that tells his story in extreme detail. So I'm glad that that is coming to light. But, okay, so what sort of consequences did he experience as a result of pushing through this heretical AI project? There were a slew of inspector general reports against him that were accusing him of money laundering. Because in the Pentagon, like, the easiest way to get someone fired is to accuse them of, you know, stealing money, basically. And they accused him of trying to angle for, you know, future, future jobs in unethical ways. They said that he was harboring a Iranian family in his basement and all sorts of crazy stuff. And then finally, at the very end of about five years, as he's basically being pushed out after having built something very successful, they try to take his rank and demote him from a colonel to a lieutenant colonel. And ultimately, if you look at the IG reports, they don't find any wrongdoing, but they say we can keep these investigations open for as long as we want. And so he never really even gets peace there. And Colonel Cukor lives in a very modest home in Virginia. He has several children and a couple of cars. And they accused him of having all these fancy cars. And it was just totally broken with reality. And ultimately, we're Telling a story. But that's a very good example of here's this technology that people did not really see the value of Fast forward now and this infrastructure and software is in place to be able to rapidly incorporate advances in AI and where would we be if we didn't have that? That's kind of the counterfactual that we don't really want to have to think about. And that's largely thanks to Colonel Cukor who maybe should have been a general but instead is pushed out and is almost demoted.
- [15:09]
A
Yeah, and I think there are two takeaways. One is encouraging but also discouraging and another one could be encouraging. So on the Colonel Cukar side of things, we need people who have such a sense of mission that they could push through all of that resistance. Because. And this is on a. And this is why it was like a personally inspiring story for me. My stakes are just much lower. But D.C. institutions and basically anything that's political and this could be true in a non profit as well and even like a major corporation is, it's very easy to be overly consensus focused and to play and to play along with that game specifically. And once again, sometimes like you should just have consensus, but other times someone just is right and they should have the courage interpersonally to push through and keep going in spite of the resistance. And I think a lot of people are listening to the show, are going to find an example in their own organization of where there is just clearly something wrong or they know something. And the easy path would just be sort of going along with the flow or going up the consensus instead of just pushing as he did. So I want people to note that. But then two, the more structural side of things is institutions need to read and hear that story and hear about the five years of pain that he went through and say to themselves, do we have a culture and an environment that would produce that same sort of action that would produce those sets of antibodies would push back on someone actually being proactive and operating that way because it's important to know that that's just like a reality, that actually the system is so perversely incentivized against the style of leadership that worked out that you just had to have this outcome. So like A, on a personal level you should push back against consensus and cultures of status quo when you're right. But B, the actual people who run those orgs need to do a better job of inculcating that. So that actually leads into one of the historical heretics that I want to bring up to you. Which is Colonel John Boyd of the Air Force. So Colonel Boyd has this quote to be or to do that also resonated with me. What does that quote mean to you and why did you all include it in the book? And who was Colonel John Boyd?
- [17:15]
B
Yeah, so John Boyd is definitely one of the most famous heretics, and we feature him in our book. But if you want to learn more about him, you should definitely read John Boyd, the Fighter Pilot who Changed the Art of War by Coram. So that's really one of the best biographies out there, period. But John Boyd, fighter pilot, largely responsible for designing both the F15 and the F16 in the 70s. And these are two mainstay fighters, two of the most successful fighters. They're still in operation now. We've exported them to all of our allies. He totally reconceived how we think about dog fighting. He had a energy maneuverability theory that he invented, and he also invented something called the OODA loop. Observe, orient, decide, act. The idea there being you need to have a faster OODA loop than your enemies. You want to get inside your enemy's OODA loop. And it's this idea of decision advantage. And it's since been taught in business schools. I don't know how he'd feel about his fighter pilot OODA loop being taught all throughout the private sector, but it's an idea that resonates with people. And during his time, he was extremely difficult to get along with. He was always spewing all sorts of profanity, but he was pushing the Air Force towards the lighter, more maneuverable aircraft at a time when they wanted to build bigger, heavier fighters. And so that was one of the breaks that he had. At one point, he actually stole computer time, which at that point, when he was around, it was very expensive to be simulating and doing calculations on a computer, and was almost kicked out of service for that. But his quote to be or to do is about, do you want to be someone or do you want to do something, do something, meaning build something, see something impactful in the world, and then be someone, have a specific title and achieve recognition, or put recognition above actually accomplishing something. So I think in an ideal organization, those two things are not intentioned, and the doers are the people who are elevated in the organization. But ultimately that is not what happens. And so do you find the fulfilling path of doing something, or are you more focused on status? And I think we all want to envision ourselves as the people that are focused on building, but it's a nice check in with yourself, I think, throughout your career to ask like, okay, when I make this decision, is this more about kind of a vanity metric, or is this pushing me in the direction of a fulfilling decision that's going to lead to greater impact in the world? And so that short phrase is so memorable and has resonated with so many people and serves as a very good checklist for those of us who style ourselves as heretics or want to at least inculcate that in the organizations that we run.
- [19:57]
A
Yeah. And once again, the quote just really resonated with me in the same way that the sort of reference to the founder mentality and then heretics did. Because I just see not only in the military, so not even in life or death sort of context. We just have this real, I think the way we're sort of dividing this episode as we're doing like the sort of broader based one where I think you should be interested in these ideas. You should, even if you have no interest in defense policy or mobilization or any of these things. And that's just like sort of the crescendo to that, which is, I think in all of our lives, especially the D.C. people and people who are in academia, we see just like a real incentive to. To be something, to focus on titles, to focus on the hierarchy, to focus on how do you operate in this environment so that you become the next title on the ladder. And then rarely, rarely, rarely do you see an incentive at a leadership level to push you to actually, you know, accomplish something and deliver. And once again, it's harder to do that because we don't have like those private sector metrics. Like there's no IPO opportunity, there's no incentive to take any risks in these spaces. This also affects philanthropy too.
- [21:01]
B
Right.
- [21:01]
A
So I really just want folks who sort of work in those spaces to think about that hard because you cannot, after you hear this framework, not unsee that gap there. So I want to get to. And once again, this is all very much in the book, but I want to get to the sort of defense industrial based side of this book. So a couple definitions and concepts I want to spend some time on. So one, the title of the book is obviously Mobilize. What does mobilize mean to you? Both at a sort of what is mobilization? But also like, what are the sort of implications for that if we're looking at the world of defense?
- [21:35]
B
Yeah. Yep. So mobilize to me means being on a wartime footing in a peacetime environment that could quickly lead to War. So how do we have sufficient technological capacity and advantage to deter war? And the reason that the wartime footing is necessary in peacetime is if you don't demonstrate a credible deterrent threat to adversaries, then you will be on the receiving end of wartime actions whether you want or not. And so the last 30 years have really been a trend in degrading military capability and a loss of deterrence. A lot has happened in the last few months, and I think we've begun to take some. They're really some of the only instances of credible deterrence that we have shown kind of in recent memory with the Maduro extraction and Operation Midnight Hammer and now ongoing operations against Iran. But before that, we were seeing, I mean, we continue to see a lot of gray zone China operations, Russia annexing Crimea and then Russia's invasion of Ukraine. All being things that are impacting us, you know, Red Sea Houthis in the Red Sea disrupting commercial shipping. Are those. Maybe that's not. You know, we're at war before, you know, if we're looking at a few a couple years ago when there's Houthi commercial shipping. But it very much affects us. It affects our prosperity, it affects our economy. Like, those are very bad things we don't want happening. And why do we. Why did they happen? You know, arguably it's a loss of deterrence and it's this decadence that we have let kind of infect like a rot our industrial base.
- [23:19]
A
Yeah. And I think at a generational level, I'm pretty sure you and I are. Are similarly aged. Deterrence as a thing that's fundamental to peace has been something that's been lost because of the sort of post 1990s war national security story versus in the Cold War, where it was much, much more straightforward. So if you're in the Cold War and you understand that American NATO, Western power is what keeps Berlin free from East German Soviet control. If you understand that your goal is that you don't want to see the Soviet Union exp. And invading Western Europe. If you want to maintain peace in the Indo Pacific between Japan and South Korea and China, Taiwan, North Korea, all these different countries, it's easy to understand that if we have a deterrence capability, we are preventing a war from happening because someone's convinced that the war would not be to their ability to win. But what we see then, especially because the fights we fought in the 2000s and 2010s were not against great power states, they're against terrorist groups, they're asymmetric. They are not that we are invading Iraq, we're invading Afghanistan. They're not ones where the deterrence concept is relevant. Because let me put it this way. Osama bin Laden did not care that the US had Abrams tanks or had B52s or had the type of things that a great power would have to really care about. Because the whole point of Al Qaeda's strategy was using these asymmetric tactics of terror to get around all of that. That was the whole strategic genius of the approach. So now that we are in the environment, we're in, where obviously this too are asymmetric terror threats, but now the question is, hey, how do we Prevent World War 3, which we'll get into in a second in the Indo Pacific? How do we ensure that the South Koreans or the Japanese don't think that the only way to be safe is for them to have their own nuclear weapon or to rearm in a way that could provoke further tensions and cause actual conflict? Those are deterrence questions, right? The polls are starting to talk about nuclear weapons. The French are starting to increase their actual nuclear armament load. That's all happening because the deterrent capability is going away. So I just want people who are sort of on the lens of sort of like, why are you talking about war? We should talk about peace. I think something that you and I share a POV on is that a deterrent capability is fundamentally tied to peace. So I'd love to hear your broad thoughts on that, even at a generational level, because I'm sure maybe your friends who don't work in the spaces that we work in, this is probably one of the biggest sort of gaps in understanding.
- [26:03]
B
Yeah, absolutely. And I'll first just say that better technology, better weapons is just a component. Ultimately, the actions of our elected officials are critical. But from the perspective of what can companies do? That's where this book is relevant in terms of what role does our private sector play? But, yeah, I think the way that wartime footing in a peacetime environment can sound to a lot of people like, oh, so just jack up the defense budget and then what does that mean for the rest of us? Or that money could have been going towards XYZ thing, even though in reality that's not really how the budget process works. It's not like, oh, if these dollars weren't used towards missiles, then they would be going towards health care or something. But the reason I think it's important in the way that we make it palatable and in the interests of every American is to really remember that the defense budget is for freedom and prosperity. So freedom being we need to be safe first and foremost and protect our citizens, but prosperity being the ultimate goal is for everyone to be richer and more prosperous. And to the extent that the defense budget is not doing that and it's just pushing us towards a garrison state, that's a problem. And so in the 50s and 60s and 70s, most of the defense budget went to companies that supported the commercial economy as well. So they were not just, you know, today we have our five defense primes. Primes just being the Raytheons, the Lockheeds, like the names that you've probably heard of, that receive most of the Department of Defense dollars. And they have either no commercial business or very small commercial business. Maybe Boeing being the only exception is like the only prime that has like a true large commercial business.
- [27:47]
A
And I won't say people are particularly happy with their commercial business. That's not the ideal example, but literal level. But I just had. I was like 737 max is no, yeah, right.
- [27:58]
B
Well, it's interesting because. Well, yeah, I'll get to that in a second. So we had, you know, mostly we had companies that were supporting both the military and commercial government. So Chrysler made missiles and cars, and Goodyear, the tire company, actually invented synthetic aperture radar, which is a sensor type that allows you to see, you know, more information. And then kind of over time you had companies exited the defense industry because the Department of Defense became an even more challenging customer. And so companies had to totally change their business models, just be able to sell to the Department of Defense. They had to have specific accounting systems, and the contract types looked very unlike anything else in the commercial economy. And so for the most part, it just wasn't really possible to sustain a normal commercial business that was responsive to kind of classic market dynamics that you go to business school to learn with the kind of quasi socialist, centrally planned dynamics that we see now in our defense industrial base. And so why does it matter?
- [29:04]
A
Sorry, could you explain? Because that will sound like you're making like a partisan political point, but like, it's actually quite true. You're actually like being literally descriptive when you describe it as socialist. Can you explain that to people?
- [29:17]
B
Yeah. So the main contract that dominates the defense weapons system is called a cost plus contract. So the government pays for all of the costs of development and then they add a fixed profit percent on top, usually around somewhere like 5 to 8%, which is not particularly high. It's kind of like what you would have like margins running, you know, a pizza parlor or something. So they're not kind of great businesses from that perspective. This is what we've as a country have decided is like the socially acceptable profit we're willing to assign, given that the government is covering all the costs. And you don't see that type of contract in the rest of the market. Maybe with like, home remodels is kind of the only other example. And that's why no one's happy with their home remodel, because all of a sudden it's like, oh, this pipe is actually more complicated than we thought. And so we need to just add another $5,000 to your remodel. And it's like only ever ratcheting, increasing cost. So those are some of the incentives that these companies face. And why, although there's kind of a criticism towards the defense companies, they're ultimately responding to these very bizarre, not market incentives that the Department of Deface has presented to them, which is your cost base will grow, and that's kind of how you're going to get more profit. So that's just not very healthy from, I think, like a democracy perspective, as we're looking at where these dollars are going to. But as you know, over as these companies exited commercial markets in like, 50s, 60s, 70s, 80s, we ended up with pretty much these five defense companies. And they live, for the most part, in the Department of Defense budget. So the reason I think it's important that we bring back companies that are supporting both the commercial market and the defense market is that the Department of Defense budget just is not big enough to sustain tons of companies that are only selling to the Department of Defense. We kind of know how many companies it can sustain, and it's about five. And so that's where I think there's this concept of the Beltway bandits. If there were companies that also had their commercial business. Now it's more palatable to see an increased defense budget because we know that those dollars are going to companies that are stimulating the broader market. They're ultimately valued at higher multiples than what the defense companies are valued at, which are not really growth companies because their growth is really only ever as much as the Department of Defense budget is going to grow. And that literally goes back into, like, the 401k of Americans. When we have defense dollars going to companies that are valued higher and supporting other missions. And when we think about something kind of like a buzzword now re industrialization and bringing back manufacturing, how does that happen? There's just not enough missiles that the United States can build that will really re industrialize America. The market's not big enough. It must come from revitalizing that in the commercial sector, too. And I can talk about where I think the Department of Defense has a critical role to play in that reindustrialization story, but it can't be the only part. And so remembering that those two things are really intertwined helps us get to a point where maybe we're spending a little more money, we have better defense capabilities, but the benefit to the average American is very clear from the prosperity side of the equation, not just, oh, there's now, you know, a bigger bomber to protect me and my, like, literal safety needs.
- [32:36]
A
Yeah. And what I like about the way you're describing the commercial dynamic is it's not just the sort of stereotype of, well, you know, how I build the F35. They build, like, one part of it in every single congressional district. And that's the way we kind of think about, like, defense spending is spreading prosperity. It's very, like, arbitrary and very, like, directly political. But you're really talking about a feedback loop where, like, there's an actual, like, concrete model for economic success and development and research and all these different things. And I think that's the key thing that I want to get into for a second before we go back to the overall point here, which is I'm just curious about this broadly so. And this is, to be fair, like, a frustration I do have with the way we tell this story where we really focus on the 1930s and 1940s and 1950s and 1960s. And we talk about, well, hey, we are going to try to accomplish the same scientific feats that we accomplished during that period. We are going to develop these weapon systems and these programs. We're going to provide defense for freedom and prosperity and all these things. But I think what made that period so I think resonant with me was that it's not just that we spent money. And the other thing to note, too, is that people who focus on the defense budget talk about this when they point out that, yes, We've got a $1.5 trillion defense budget, but during 40s and 50s, as an overall percentage of GDP, the defense budget was much, much, much higher than it is today. So, like, we are still spending less in a technical sense than we did then, but at the same time, when we were spending so much, we were also built the interstate highway system. You know, Raytheon is developing the microwave. We Social Security, Medicare, Medicaid. We just clearly were sort of Covering both ends of the aisle here. So it was a little more than just, you know, Raytheon. And my favorite example from the book is that General Mills, the cereal company, they were also producing things within a defense capability. So you did have that commercial web, but there was so much of that. This is not your day job, so I'm not expecting you to have like a game changing answer here. But like at a societal level because this gets political very quickly. Like how should we think about
- [34:53]
B
the
- [34:54]
A
broad like picture we're offering the American people? Do you know what I mean? In terms of like we're not just saying we're mobilization mobilizing and putting money into these companies because we have this economic theory it's going to spur commercial production. But we Also, in the 1950s there's this great book called Concrete Economics and it talks about how successful economic programs just have a concrete example. I could say in the 1950s if I was a politician, which would be weird at a couple different levels in that sense I could just say, hey, we're spending money on the defense budget. But look at this highway system that lets you get across the entire country. Now look at how we are in a cold war with the Soviet Union. But you marshall can now go to school to be a teacher because we're investing in science and research. How do you just like think about like that broad picture that we had then and how it doesn't feel like we have the same. I just think we've like needled a little too deep into the actual thing without thinking about that broader picture.
- [35:49]
B
Yeah, well, I think it's thinking of the Department of Defense as a very important early customer for many technologies and as a, a good first market, even if it's not the ultimate end market. And so microchips is maybe one of the most famous examples with Fairchild and eventually intel selling to primarily the Air Force and NASA as the early customer for microchips. That was really 95% of their sales were from. And so initially those dollars are just going to defense programs. But then because there's that initial volume and Fairchild and Intel are able to continue to innovate on price performance, prices go down and we get super cheap consumer electronics for everyone. And so there's like a very tangible example of I can now buy this computer for way cheaper. And yes, eventually the chips industry private went abroad. But during that time I think the Department of Defense played its role very well. And most of the R and D spending was actually coming from on chips like Fairchild and Intel spent A lot on of their own money on these technologies. You know, what does that look like today where, you know, there's some different dynamics at play? I mean, you could look at something like autonomous, you know, underwater vehicles or drones or anything that you might hear about in the news around. We need more massive weapons. When those dollars are going just towards defense companies, we're not really incentivized to use more commercial production, commercial supply chains. There hasn't been as much of a focus on building in America and as a result we're like intertwined with China for many critical weapons. You can imagine just totally reimagining how we think about production for a given weapon and making the rate of production a key factor, not just kinetics explosion, but like, can I make this thing in a year? Can I make this thing in months or even weeks? And now we're incorporating more commercial manufacturing and that's directly leading to increased jobs and we're making more mass and we've involved more commercial parts of our economy. So I'm interested if that resonates with you. I mean, that's really what I see as the kind of success metric here is initial DoD dollars, maybe as an early buyer of product, ultimately helping to stimulate much broader commercial market. And that's really Palantir's story as well with starting selling just to the intelligence agency and then to the government for many years and then ultimately finding a much a larger commercial market. If you look at the history of our business, we're still growing in the government side, but our commercial business is actually growing faster. And I think that's very healthy because it shows that as a company we managed to remain competitive. We built something that wasn't just catered to the Defense Department, where there are these in many cases more like protectionists policies that don't foster the most competitive companies. We managed to not become drunk on those things and instead became a very competitive commercial software company.
- [38:49]
A
Yeah. So two things. One, and I think this is why even if someone just totally A, doesn't like Palantir or B, just thinks that this is all just Warhawk defense grifting conversation, which I have those listeners. I know you'll be writing in emails afterwards, but I think what, what I appreciate about the way ever since I first interviewed shyam about the 18 theses back at the Reagan Defense Forum is the idea that this gives language for critiquing the defense establishment. That's not just superficial because at the end of the day, even in your most AOC democratic socialist administration, there is going to be a defense industry because there is just this critical role that this plays in, like, our national defense. So you do just have these players. So you need to offer people afraid. Because it's kind of funny. People keep saying, why does every president, like, say that they're gonna fix the defense budget, but they don't fix the defense budget? And then why does every president promise that they're not gonna intervene, but then they intervene? My takeaway to that is that the reason why we keep falling into this cycle is that we're sort of focusing on. Not that those ideas aren't serious, but they're just like the ones that someone is least gonna be able to do something about. So if you're a president and you come in like George W. Bush in 2000 and you say, like, I didn't like how Bill Clinton was intervening in Yugoslavia during the 1990s, I'm not going to do that. Well, then 911 happens, and then he has to obviously abandon that project. So I want to redirect some of the energy towards the stuff that you're talking about. Right. So it's like, it's really focused on changing the structure in a way that, like, is actually really empirical and doesn't really have. Can't just be upended by events. So by saying, hey, Palantir isn't just sort of at a, you know, raising money level, saying, we're competing with the Department of Defense, and we're not. We're competing with the Department of Defense, but we're competing with these primes. Your company actually has a different structure that I think a lot of people even left be much, much more comfortable with, which is like, not this ideal of we have these companies. I think on a recent podcast, Sham said that a lot of the defense primes basically average like 86% of their business is defense related. That not a good outcome based on that metric, and that is not an outcome that Palantir has. So I think something that people could think about if they're reformers who are skeptical of the defense budget or even these defense primes, we now have language to basically say, what would it look like to not have a defense industry that is so reliant on these, like, overly reliant on defense as those sort of things. And then this takes us into another story that's like, very critical to here, to this, which is sort of the. The Last supper story. I'll give like a quick version. Then you could sort of add your, you know, you've written on this A lot, obviously. So, and this also show how, why I want people, even if they're critics of defense, to think hard about the sort of mechanics of what actually happens. So after the Cold War, during the Clinton administration, you literally had this last suffer where the Deputy Secretary of Defense, Bill Perry, brought together the 50 plus companies that were building in the defense space. And there are a lot of people I know who are in the defense reform space, especially in the sort of like antitrust side of things, who basically say, like, yeah, that's the system put aside, which wars we support. We would love there to be a system where there were more companies. Well, one of the reasons why there were so many companies is because there's so much money. And after the Cold War, we were going to spend less money. And everyone basically agreed to that point. So the point of the Last Supper was saying like, hey, this is the last supper because you all need to consolidate because there is not going to be enough business to support all of you. So once again, a lot of people are basically like, a lot of listeners who hear the idea that, like the, that we, that we force these companies to consolidate because we're spending less. They would nod their head to think that's a good outcome. But actually, the disaster that we have now resulted from that outcome. It made five companies who are less competitive became more reliant on the sort of defense side of things, less commercial. They became heavily financialized. That's where a lot of the stock buybacks like that just became their underlying dynamic. And the ones who are commercial, like Boeing, became even weaker. So, like, you could start with. I think my Last Supper takeaway is that if you don't think about this stuff deeply, you could start with purely good intentions, but then lead to an outcome that, based on your initial intentions, is worse. So I'd love to hear, like, what part of that story, like, it just resonates with me because, like, that's a story where so many of the critics, part of this podcast would hear that story and be like, that's what I want. That's great. But then you go to 30 years, they say, oh, wait, actually this led to something I don't like even more. So I'd love to hear, like, what part of that story resonates with your experience.
- [43:29]
B
Yeah, well, so before, Even before the 1994 Last Supper, companies had started to exit the defense space. So around like the late 80s, you saw a significant trend of companies selling off their defense businesses. And that's because, again, it sounds like the US Spends A lot on defense. We certainly do relative to the rest of the world. But it's just still just not a big enough budget to really sustain, to be the only thing sustaining companies. And so as the Department of Defense became a very demanding customer with practices that just did not resemble the commercial economy, companies had to exit. And so then you look at someone like Boeing, and they've managed to keep a commercial business alive while still having to cater to some very warped dynamics in the Department of Defense. I mean, the consolidation, we don't have those competitive dynamics now. And so we can all think about competition leading to better prices. So that's one of the first things that people point to as a negative effect of this decrease in the number of. Of companies selling to defense. It actually made the existing companies more powerful. So to the extent that you don't think the Beltway bandits should be dictating policy, which, to be clear, I don't think that they are, but they do have more leverage over how these programs and technologies get developed, because there's so few of them. There's only one or two companies that can build fighters and bombers. And so we have this concept in the Department of Defense of price negotiations, which is not something we don't negotiate prices in our commercial market because we don't need to. There's forces that do that. And although there are quirks to the Department of Defense and that there is a single customer, so you can't have, even if you wanted the free market dynamic, you can't totally replicate that. We've gone so far in the other direction where most of the reforms for how do we get cheaper weapons and how do we limit fraud, waste, and abuse and. And serve the American taxpayer better? The only lever that they can pull in this environment is we need to shrink the profit margins. We need to manage this process more closely. We have 160,000 acquisitions professionals, uniformed and civilian, working in the Department of Defense. It's almost the size of active duty Marines. We have this true shadow service that operates, and people will say we actually need more people. That's how we can manage these contracts better. But we can't manage our way out of this problem. We have to grow our way out of it. That's where I feel like there's the biggest disconnect with. With new technology companies and the existing very large bureaucracy establishment that feels like putting the thumb on the existing defense prime contractors. Managing them more closely is the way that we get good outcomes, and we can really only decrease our downside minimally. But we're never going to get the growth we need. And that's where I think we need to reimagine how to get market dynamics back in to this process of buying weapons technology. And that means more firms have to be involved, which means they also need to have commercial businesses because the defense budget alone can't sustain them. And it means that we need fewer, just large monolith programs that persist forever and are very, very challenging to cancel and more optionality things that might look like duplication and waste but actually provide us with better information before we make the these consolidating decisions that prevent us from being able to cancel a given program when it's not working or have any sort of viable alternative and then killing duplication when it's clear that option C and D didn't work. But we needed them to help us realize that option A and B were really, really good.
- [47:07]
A
So for my last three questions I'm actually just really curious because obviously we're talking about re industrialization and mobilizing and, and what's interesting about the reindustrialization story is that this has been a real goal beyond just sort of defense. Just like total reindustrialization has been a real goal for the past 10 years. It's a way of like telling the sort of mission oriented sort of frame of both Trump 1 Biden and then Trump 2. How do you think, how did like writing this book and looking at this history help you think about? Because I don't think everyone basically the TLDR is that I don't think anyone thinks the reindustrialization project is going great. There's lots of hype, but I think in various ways because these different administrations have had different sort of theses and different perspectives on it. So they can't quite be evaluated in the same lens. But I don't think people are feeling particularly. Let me put it this way, the hype to outcome ratio doesn't feel good. So what learnings, takeaways, thoughts do you have moving forward both in this current administration, whatever administration comes next? What's the real lesson we should like take from all this when we apply these ideas to more than just like the category of defense.
- [48:21]
B
Right. I'm going to have to start with the category of defense because you know,
- [48:25]
A
a lot of that's your day job, that's okay.
- [48:27]
B
Well, you know, defense acquisition sounds niche. It sounds like DC policy wonk. And it's just an issue that affects so much of the broader economy, which is why it's an important point to focus on. But there is a law that the Department of Defense has to acquire commercial technology. They actually have to change the requirements for systems if they can modify them in a reasonable way, and there would then be commercial technology that meets that. So there's a very high bar for what's required of the Department of Defense when it comes to if they, you know, if they want to build something themselves, it needs to be for a really, really good reason. But we've just routinely seen that law from the 1994 violated. And again, what that means is that the rest of the economy is not involved in. In getting these defense dollars in the way that they should be and they're qualified for, and they've built something that exists. And this goes for, like, not just software, but also hardware. So that's a really important first step, and it goes back against the power of the Department of Defense as a customer. And to give a more concrete example, Saronic, they're building autonomous vessels. They opened a. And they're one of these newer defense companies. They've been around for a few years and raised a lot of venture capital, but they bought a Louisiana shipyard that was getting ready to close, and they employ a lot of workers there, and they're betting that the ships that they're building will be used for commercial purposes as well as for defense purposes. So there's a tangible example. And when we think about AI, how do we. How is it more than just a chatbot? Well, can we actually use AI to make American workers not just like 20% more productive, but 50 times more productive? And ultimately, I think that's the only way that certain manufacturing jobs, you know, we fill the skills gap as people retire, we make workers more productive, we make wages go up, and then these jobs become higher status. So I see that as a very legitimate lever that we should be leaning into, given America's leading position in AI.
- [50:27]
A
Yeah. So then second to last. And it just comes up because of, you know, talk about Palantir and like a. Of couple commercial sense. Like, obviously, because Palantir doesn't just operate in the defense space. There's narratives around surveillance and politics and everything. I would just ask. You don't even have to answer this purely in a. Palantir says, but just sort of. I think if we really sort of sum up all of the skepticism, not just of, once again, Palantir, but also defense and the budget, it's all about a lack of trust. Talk to our friends. Right. Who don't work in our spaces, and then just sort of the recurring objections are going to come down to like, lacking trust. And any institution is going to lack trust. And I've heard, you know, you and Sham talk about this in the sense of like, our work is actually supposed to like, enhance institutions. What's your theory, broadly, of how anyone could sort of maintain trust in a situation where default level people are just not going to believe you? Because the thing too, about the 1950s version, people just trusted everything more. So it's just like that. That is just like another way. But this is like a fundamentally different situation where. But this is what's also cool about this. And this speaks to the book and this is for a different conversation. But in the 1930s, there was also a huge trust problem too with DENY committee and the idea that the weapons manufacturers got us into World War I. So what lesson? So here's the way to ask the question coherently. How does what happened in the 1930s and how we overcame that lack of trust, how should that inform how we think about the trust challenge today?
- [51:58]
B
Yeah, well, I mean, we overcame the lack of trust because World War II broke out and then we had to spend a lot of money and the government was never going to be able to mass produce everything by themselves. And so industry had to become involved. Had to become involved. And oftentimes there was kicking and screaming from both sides to make it happen. We don't want to be in that situation where like a true hot war is going on and the American homeland is threatened. Like, that's just a very, very bad situation. So. So I think the. I guess I'll talk about from both sides, from the private sector side, it's realizing that the profit motive has been a boon for the history of America. And if we want productive companies, we need to have profitable companies. And hopefully Americans being happy that we're having productive, profitable companies, and that's creating jobs and increasing everyone's standard of living. So that's the private sector side. And on the public sector side, it's that there are individuals that are very talented who are hopefully able to build the things they want to build and be the founder figures that we need inside of government and that there's a respect for those people from the private sector side as well.
- [53:12]
A
Yeah, And I think my takeaway on it, and this is where me just being the political actor here versus you being the private sector actor is. I also think think, and I think this part of the story, it wasn't the focus of the book. So it's not that it was a mess up on your part for not telling the story. But I think the other. If people are reading about this period in a sort of beyond just your book sense, like, I think FDR as a public leader did the things that you needed to do to navigate in that environment, right? So like he. And it's funny, there's a line in the book where there's like a mild critique of how like fdr like required like public government ownership of like certain factories as like not being quite the efficient, like, ideal outcome. And the thing that I was just noting reading that as a public person was sort of like, that's the difference between like the market and politics. There are different, like metric. The metric is like, how often how efficient is this as a manufacturing process versus, like, okay, if you're trying to convince the American people this is something we need to do, there are certain things you need to do as a public leader that just like build trust. And building building trust in the idea that I'm not just rearming because I'm throwing money to my friends and the defense industry who you think got us into war, but actually I'm using the public government here, so they're less skeptical of that. So we just understanding this is sort of more for the political side of things. This isn't the job of like a defense company, but just sort of public leaders understanding that part of the role there. So yeah, this has been really great. Oh, this is good. So since, you know, you're at first breakfast, the substack y' all put out, you will seen so many different books. In many ways, this is a book show after everyone purchase purchases Mobile eyes. What is a book that you've come across in this space beyond just Boyd we offered that recommendation that folks should check out if anything comes to mind.
- [54:58]
B
Yeah, my true favorite. Having read, you know, I got to read a lot of great books for this, but there are frankly a lot of books that are not so good I had to read. But they in there. But ultimately, like, you know, I may have managed to get an interesting story out of there, but the book itself is just bad. So there it was quite a mixed bag. But. But the. The. My favorite defense acquisition story that's told also through just like a riveting book is a fiery piece in the Cold War by Neal Sheehan. And that's the history of intercontinental ballistic missile development in America. But it goes through, you know, the history of NSC 68 and Cold War. And it's much broader than just how we build ICBMs but it really highlights the heroes and heretics, and there are just so many heretical figures there. Bernard Shriver, it being kind of a biography of him, but also trickling down through all sorts of people you may or may not have heard of. And he's an amazing writer, so definitely
- [55:53]
A
recommend that one Great, excellent place to end. Thank you for joining me on the realignment.