The Pentagon’s Third Offset May Be Dead, But No One Knows What Comes Next

Experts say the U.S. advantage over China and Russia is eroding.

Secretary of Defense Jim Mattis talks with U.S. Army Lt. Gen. Stephen Townsend, then-commander of U.S troops in Iraq and Syria, during a flight in Iraq on Aug. 22.
Secretary of Defense Jim Mattis talks with U.S. Army Lt. Gen. Stephen Townsend, then-commander of U.S troops in Iraq and Syria, during a flight in Iraq on Aug. 22.

In 2012, the Pentagon’s senior leadership secretly established a new office to work on state-of-the-art weapons. For the next four years, officials there labored away quietly on projects ranging from swarming microdrones to hypervelocity projectiles, until the Pentagon finally revealed the organization’s existence.

This shadowy division, called the Strategic Capabilities Office, or SCO, formed part of a larger military strategy to advance technology, known as the Third Offset.

The strategy, first publicly announced in 2014 by then-Secretary of Defense Chuck Hagel, was an ambitious plan to do less with more, and “to identify and invest in innovative ways to sustain and advance America’s military dominance for the 21st century.” Hagel promised to “put new resources behind innovation, but also account for today’s fiscal realities — by focusing on investments that will sharpen our military edge even as we contend with fewer resources.”

The Third Offset quickly became the new military buzzword used to justify a variety of new programs and offices, including the SCO and the Defense Innovation Unit Experimental (DIUx), which put a Pentagon office in the heart of Silicon Valley with a mandate to experiment with new technologies.

Both the SCO and DIUx were the brainchild of former President Barack Obama’s final defense secretary, Ash Carter, and operated under the idea that when it comes to developing things like artificial intelligence, space systems, and encrypted communications, the United States was falling behind adversaries like China and Russia in key areas.

But now, the future of the two technology offices is unclear, and even the phrase “Third Offset,” so ubiquitous in the previous administration, has scarcely been mentioned since Donald Trump assumed office. And with the president scheduled on Monday to unveil the new National Security Strategy, his administration’s blueprint for the future, the Obama-era phrase is likely to recede even further into the background.

The explanation for the shift is simple, said one military officer who works on modernization programs. “When you get married, you don’t hang a picture of your old girlfriend on the wall,” he said.

Two defense officials told Foreign Policy that the language change comes with the change in priorities under the new administration. Defense Secretary James Mattis, a former Marine who commanded troops in combat in both Iraq and Afghanistan, places his focus on battling the Islamic State in the Middle East and Africa, and has spent less time than Carter on modernization and budget issues.

The overall thrust of the Third Offset was “absolutely right, these are things that need to be done but it’s not clear they they’re going to be the same level of priority under Mattis,” said Todd Harrison, an analyst at the Center for Strategic and International Studies.

Yet the disappearance of the Third Offset comes amid a major transformation in how the Pentagon develops cutting-edge weapons technology, raising questions about whether there is any strategic vision inside the Defense Department when it comes to technology.

In August, Defense Department leadership delivered an outline to Congress for splitting the Pentagon office responsible for buying weapons into two separate positions: the undersecretary of defense for research and engineering and the undersecretary of defense for acquisition and sustainment. The redesign, required by congressional legislation, is supposed to speed up the lumbering process of developing weapons while opening competition to commercial tech companies.

But the proposed changes will represent a major downgrade for the two innovation offices, SCO and DIUx, designed to do just that.

Under the new plan, the two offices will be sucked into the Pentagon bureaucracy, falling well down the food chain under the soon-to-be-formed undersecretary of defense for research and engineering. Under that office will be three other leadership layers, with SCO and DIUx sitting at the bottom of the organization chart.

“I haven’t seen or heard anything” about the coming split since the Pentagon sent Congress its original outline for the change in August, said one person close to the DIUx office, who spoke on the condition of anonymity. “There’s still some machinations as to how this is going to hash out.”

For now, DIUx is working as intended, albeit with an uncertain future.

“The plan is still subject to refinement,” said Pentagon spokesman Cmdr. Patrick Evans. How the new offices are structured has “not yet been decided nor have the details for the enabling functions/offices been finalized.”

Mattis visited DIUx in August, promising support. “There is no doubt in my mind that DIUx will not only continue to exist, it will actually grow in its influence and its impact on the Department of Defense,” he said.

Yet the offices, once key parts of the Third Offset, are now remnants of a larger strategy that may no longer exist.

Bob Work, who championed the Third Offset while serving as Carter’s deputy defense secretary, told FP that he’s hopeful the two offices will remain in place. “I think they have staying power, but you never know.”

He’s concerned, however, that the changes in the Pentagon leadership and bureaucracy could sideline their work, and since it remains unclear who will manage the programs, “will that person believe that SCO and DIUx can be absorbed within the new structure? Until you see the split, you don’t know whether all of these smaller offices will remain.”

It’s not uncommon for new Pentagon leadership to chart a new strategic course, but the problem for some observers is that there is now no clear direction.

Under Mattis and the new Pentagon leadership, “there’s been no vision for modernization,” said technologist Peter Singer. “All of the offices are chugging along, but there’s not a clear defining defense vision the way there was previously.”

While DIUx and SCO await the future, the Trump administration and Congress have pushed for growing the Navy by more than 70 ships in the coming years, adding more fighter planes, and undertaking a trillion-dollar upgrade of the country’s nuclear weapons enterprise. They’re also adding more troops.

That strategy doesn’t sit well with Work, who stepped down in July after three years at the Pentagon. “Buying the same forces we had in the past does not appreciably change the calculus” of winning wars, he said.

“Rather than build to a 540,000-person active-duty army, [as Trump has proposed] or a 355-ship Navy or a 60-tactical fighter squadron Air Force,” Work said. “How do we hone the force we have before we start a major force buildup?”

The argument is one between capacity — the size of the force — and capability, the ability of the American military to fight and win against an enemy, or deter a potential adversary from challenging American strength.

Defense hawks in Congress say they want both. Last month, Congress kicked the defense budget back to the White House, with about $24 billion added for more ships, warplanes, missile defense systems, and a boost in the size of the Army and Marine Corps.

The budget request was delivered before the White House ever defined a strategic direction for the Pentagon, however. But some worry that continuing to spend without a strategy could simply widen the gap with U.S. adversaries.

Several costly major programs, like a $6 billion battlefield network for the Army, have been shown to be vulnerable against new electronic warfare and and air defense systems fielded by the Russians and Chinese. And during a congressional hearing earlier this month, Rand Corp. researcher and Pentagon war gamer David Ochmanek told senators that “when we run war games against China and Russia, U.S. forces lack the capabilities they need to win … and the gap is widening.”

Whether the Third Offset will be replaced by something new or simply fade into obscurity is yet to be seen. Whatever policy is pursued, the Pentagon faces hard choices when it comes to future spending.

“I think there’s widespread agreement in the building that our conventional overmatch is eroding,” Work said. “The only debate is how long we have.”

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