Coercive Capital: Department of Defense Supply Chain Economics - Wes Spurlock and David Rader

In this episode of Coercive Capital, Elaine Dezenski hosts David Rader, Senior Advisor at the Office of the Secretary of Defense and Adjunct Fellow at the Foundation for Defense of Democracies along with Wes Spurlock, Senior Advisor and Co-Founder of the Office of Strategic Capital at the Department of Defense and a former U.S. Air Force Military Officer. They discuss the supply chain economics of the Department of Defense, adversarial capital, and much more.

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Episode Transcript

Speaker 1 (00:00):
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Speaker 2 (00:51):
The US Department of Defense is a market participant of
unrivaled scale sourcing critical supplies from a defense industrial base
or DIB that spans the globe, but geopolitical competition with
China is forcing DoD to rethink the vulnerabilities in that
supply chain that supports the world's most powerful military ours. Today,

(01:12):
we will hear two perspectives on how DoD is thinking
about critical dynamics and economic security, from novel ways to
incentivize secure investment in the DIB to constraining the inflow
of adversarial capital into the defense sector. Speaking with West
Burlock and David Raider, we explore how the Defense Department
is working to improve the resilience and security of America's

(01:33):
military supply chains, and why the DoD has a major
due diligence in Kyic challenge. We discuss the need to
attract and scale private capital, move from spending to investing,
identify future strategic investment, work with allies and partners, and
stop the risk of technology transfer supporting China's military. David

(01:54):
Rader is a Senior Advisor in the Office of the
Secretary of Defense, where he serves across the Defense Innovation Unit,
the Office of Strategic Capital, and the Defense Advanced Research
Projects Agency DARPA. Previously, he was Deputy Director of Global
Investment in Economic Security at DoD, where he focused on
foreign direct investment, trade and industrial policy and matters under

(02:16):
the purview of the Committee on Foreign Investment in the
US known as SIPHIUS. Before serving in government, he held
positions at Ernst and Young, JP, Morgan and Ran Corporation,
and he also served as an infantryman in the U.
S Army. David is also an adjunct Fellow at the
Foundation for Defensive Democracies. Wes Spurlock is co founder and

(02:37):
former Senior Advisor at the Office of Strategic Capital at
DOOD and former Chief Risk Officer at Afworks, the innovation
arm of the Department of Air Force, where he was
responsible for all due diligence and KYC processes across the
a F Forork's billion dollar investment portfolio. Prior to his
retirement earlier this year, Wess has held other key roles

(02:58):
at DoD, including serving as a military aid to President
Obama and President Trump, responsible for the Presidential Emergency SATCHEL
or Nuclear Football. He also served as a White House
Military Operations Officer. In twenty twenty, West served as a
White House Fellow at the US International Development Finance Corporation.

(03:19):
Take a listen to our latest conversation on coercive capital
on the Illicit Edge network. So today we'll be discussing
the evolving role of the Department of Defense and Economic
Security from two primary angles. One is strategic investment in
the defense industrial base and the other is protecting that
base from adversarial capital. David, I want to start with you.

(03:41):
Can you set the stage over the past several years
and how DoD has broadened its lens on this convergence
of economic and national security. What's driving that convergence from
the DoD perspective.

Speaker 3 (03:56):
Yeah, it's an interesting question. I mean, historically, the DoD,
probably until middle of the Global War and terrorism, was
focused strictly on counter threat finance, money laundering, terrorism related
things that mostly came from the Special Operations community. And
that's a very narrow but meaningful mission. And so the

(04:16):
liaisons there were supported by Treasury and the Apartment of
Justice and the FBI. About ten years ago, SIPHIUS, the
Committee on Foreign Investment in the United States under FIRMA,
now the most recent legislation, really started taking shape and
kind of grabbing the leadership's eyes in the Department, and
so what used to be Office of Foreign Investment Review,
which had about eight people, quickly staffed up to about

(04:39):
eighty or ninety. And so they had that core mission ASCIPHIUS,
which is about investment screening and trying to detect and
mitigate the risk arising from adversarial capital into the defense
industrial base. But it started expanding beyond that, where we
started thinking about the relationship between capital and national security,
and so the military services Army, Navy, Air Force, rine courts,

(05:00):
space wars, et cetera. The Fourth Estate, Mitile Defense Agency,
Space Development Agency. All those kind of apparatus came together
under then the Office of Secretary of Defense to really
start piecing together the whole picture where capital and trade
flows are occurring within the world and how the Department
Defense should think about them and try to respond. This
isn't a core mission of the department in that sense,

(05:22):
you know, it's really about man training and equip a
war fighting force to tearing and aggressor and if worst
case scenario a war is to occur, we win then
prevail in the combat. But started thinking about all those
other things cyber space, energy and economics and information and
really about how the Department should should purpose resources and

(05:42):
try to solve that problem as a complementary function to
the other core war fighting domains air, land, sea, in space.
So legislation that was meant for something like a treasury
or a state department like SIPHIUS really kind of opened
the aperture. And then as we started investing more money
and West's talk about that here very soon, you know,
through small business, vation research and the Office of Strategic Capital,

(06:06):
we really started thinking, hey, we cannot let our dollars
and cents be going to our adversaries. And not only that,
we need to make sure we're protecting the defense industrial
base and the innovation ecosystem by keeping adversarial capital away
and imposing technology controls of protections. And so you really
start seeing this caduret of professionals come in. So it
said the core military just officer, this is a pejorative.

(06:28):
We started getting bankers and lawyers and technologists and people
who really understood this. And that's gone from again a
very small tucked away office within an under secretariat, but
really one of the main stays within the department, and
every service secretary and every senior executive leader and undersecretary
and the secretary are talking about it. They're talking about
it through the lens of the interagency. We're talking about

(06:49):
through the lens of international and most importantly talking about
through the lens of commercial partnership, so public private partnership,
because at the end of the day, the private sector
course is the one really moving the money around the world,
and the Department, as a market participant, it needs to
be thoughtful of its place and its authorities to help
shape that landscape. So again it's gone from boy, you know,
somemall backwater of a few folks, try to solve the

(07:10):
very narrow problem. So a real staple of what the
Department's meant to solve now on behalf of America.

Speaker 2 (07:17):
And help us understand a little bit more about what
to be behind that. I mean, how much of this
focus on investment in the defense industrial base and protecting
against adversarial capital is really an outgrowth of the strategic
competition with China?

Speaker 1 (07:36):
Tell us what.

Speaker 2 (07:36):
You you know kind of how you see that that connectivity.

Speaker 3 (07:41):
Yeah, so you know, there's some interesting work that's been
done on this. But I'll quickly say to say, if
you were to Google search the F thirty five versus
you know, the J twenty out of China, you would
look at these two pictures and think, gosh, these things
look a lot alike. And you can do that with
almost all primary military systems, not all, but a lot
of them. You look and see wow. So the US
has been delivering this for forty years, the Chinese in

(08:02):
four years created something looks the exact same or really narrow,
really close to it. And so we started thinking a
lot of technology must be going out the door, and
we started realizing, sure, that's a piece of it. What
you're giving is a lot of foreign adversarial investment into companies.
The investors are really controlling the companies and saying, hey,
we want you to manufacture this in China, or we

(08:23):
want you to send this to our colleagues in China
who are going to do test and evaluation simulation of
the blueprints. And we started realizing through the boardroom is
where the Chinese were starting to get a lot of
their technology by pushing on companies, and the companies because
of the Department of Defenses on short company comings and
adequately funding companies. The so called value of death, which
is a term I dout love, but it's the term

(08:43):
we use to describe the gap between innovation and research
dollars all the way up until procurement and program or
record dollars where you get recurring revenue. And it's a
really healthy thing. All those little fissures in between where
companies can fall and say, hey, we're not funded for
nine months. We need capital, and they look around. In
the private sector, specifically venture capital in the US says

(09:04):
we see you have a pathway forward, but it's too
far out for us to invest and we can't take
that risk. And so the Chinese come calling, and the
Chinese would say, great, we'll give you money to keep
this company going. But in order to do that, we
need to really look in the books. We want to
look at the company wants you to manufacture in the
US and a whole bunch of different methods to start
stealing our technology. So we spend all this money in
labor to really build exquisite systems radar, GPS, guided missiles,

(09:28):
and then at the last, you know, kind of minute
here or later stage, the Chinese would come in through
the bardroom and through investors, and so that's where we
really start seeing it. The tippy and queuing we originally
thought was about intellectual property or technology transfer, but it
really became about capital and the level of control and
assertion that a meaningful investor in the right place or
the right board seats can you impose upon a company

(09:52):
to have them change their actions. The term is called
folk IY foreign ownership, control and influence, and that's a
very specific thing within Defense Counter Intelligence Security Agency DCSA,
but large it describes a framework of the ability to
have somebody influence your company. And the last thing I'll
say to that specifically is we originally thought, well it's
got to be you know, the board seat or the

(10:12):
chief technology officer who comes in and says, a Lane,
I want you to send your product to China or
I'm going to pull your funding. And what we realize
is more complex than that. There's a whole bunch of
unique debt instruments that can be involved in this. There's
a bunch of joint ventures, technology sharing agreements, royalties, and
even consumers or customer bases. There was a company that
came to us who said, we have no Chinese investment.

(10:32):
We said, well, that's good, and they said, well, we
have one client who's one hundred percent in a Chinese comper.
One client who's one hundred percent of our revenue is
a Chinese company. And I said, well, are you beholden
to them? They said, well of course. They said, if they,
you know, pull up tomorrow and don't want to do
business with us, we're out of business. So we have
to do what they want. And I said, well what
do they want from me? They said, well, they wants
to move to China for production. I thought, well, okay,
so we're starting to understand the site picture instead of

(10:55):
the oh it's you know, it's a spy with a
thumb drive sneaking it out under his shoe on a
flight to Beijing. It's normal traditional business behavior that's really
shaping this landscape. And so that's when we started. As
we started seeing these anecdotes in these stories, we started
looking at the methodology and the processes and what we
need to do to thwart that.

Speaker 2 (11:14):
Yeah, it's it's actually fascinating because what you've described feels
to me like a DoD's version of ky C, right,
but on steroids, to address a lot of potential risks
and gaps. And how is this process after building this
infrastructure to protect the investment, to ensure that the defense

(11:39):
industrial base is not exposed in ways that we don't want,
how is that reframing the relationship with private sector partners.

Speaker 3 (11:49):
Yeah, I mean, well, luckily Wes is here to talk
about the Office of Strategic Capital and his incredible work
in building that with some really sharp colleagues. I mean,
it used to be the this is not the government
it's job. This is a private sector problem. Gosh, you know,
we've got trillions of dollars in the capital markets. If
you want to go draw from the well, you know,
you go call JP Morgan and they'll give you a loan.
And we realize that that's not an efficient model, and

(12:12):
even even in a truly capital assistance section not it's
maybe too harsh for the market realities. So we started
thinking we need to give matching dollars. We need to
give loans and loan guarantees. We need to be better partners.
We need to share meaningful information. There's plenty of investors
out there who want to invest in American companies, who
want to invest in American tech. But if you go
to DD and you say, well, how many widgets are

(12:33):
you going to buy next year? We say, oh, we
can't tell you. And they say, well, I can't model
out then my return on revenue, and for that reason,
I'm going to pull back my capital. And then we go, well, gosh,
you need to invest in these companies. They go, well,
how much is it? How much is in it for me?
We go, well, we can't tell you. So we started
reframing this through we need to share information. We need
to share our market maps and our roadmaps and our pathways.
We need to offer financial tools and incentives, and we

(12:55):
need to actually be thinking about this from as a
business standpoint, not just a government standpoint, to be private
sector creates, government buys and government expends. And we've started
to realize, no, we have a much more hands on
role in this. And again we you know, we'll talk
about shortly about you know what, we went through the
Office of Strategic Capital framing this. But you know, on
the far right and the far left of the political spectrum,

(13:16):
we encountered far right you know, conservative saying hey, this
is government intervention at the marketplace, and far left liberals saying, hey,
this is corporate welfare. But we got in the center
and my office is Strategic Capital and the Defense Innovation
Unit and all these other things that have really started
to see the light of day is because we realized
we do need more of a market presence, and we
need it in the market business mindset to help address

(13:38):
these issues. We can no longer just sit back and
be a customer who walks into the store and says,
we'll buy a rocket, we'll buy a spaceship, we'll buy
a laser. If we do that, we will get We
just won't get it in time, we won't get the
right stuff, and the market will not keep innovating and creating.
You know, the real engine of America is a small business.
The innovator is the ingenuity, and so the DD is

(13:58):
now harnessing that and play in a meaningful role in
that at least trying to absolutely.

Speaker 2 (14:05):
Wes, let's dig into the Office of Strategic Capital. You're
a co founder of that office and former senior advisor
to OSC, which was stood up in December of twenty
twenty two to scale private capital towards national security. I'd
love to hear a little bit more about how OSC

(14:25):
was formed, what some of the early thinking was, and
where it is now and where you think it's going
as part of this infrastructure within DoD to secure the
defense industrial base.

Speaker 4 (14:38):
Yeah, thank you, Laine, And I want to.

Speaker 3 (14:41):
A bit there.

Speaker 4 (14:43):
It was founded to attract and scale private capital for
national scity, and I think that's important because to a
lot of David's point earlier, a lot of what we
have been doing to combat abbasaro capital in the DD
has really revolved around stick based approaches to the working

(15:04):
with the private sector, and where OSC and aftworks and
DIU and a lot of the folks that have been
trying to build new ways to incentivize private capital is
to attract that capital and then to scale it. The
stand up of that really started in the throes of
COVID when we were working with I was in the

(15:25):
Development Finance Corporation working with the Defense Production Act, and
we were trying to execute loans to help respond to
the COVID pandemic, especially on leveraging debt based tools in
the interagency to work on PPE diagnostics, all the things
that we were trying to figure out in those in
the days like of twenty twenty, twenty twenty one, and

(15:46):
when we looked at that lens, we wondered. We realized
that we were not using a tool that literally all
but three departments in the federal government were using, in
that being loans and loan guarantees, which are completely separate
from the acquisitions that we use in the DD but
very complementary and oftentimes a better tool for the job
than we were using at the time. We realized there

(16:08):
was one hundred and thirty one federal credit programs in
twenty twenty four before we came on to be and
none in the Department of Defense, Labor or Justice and
just didn't understand why. And as we did some digging,
we realized that there was a lot of opportunities for
us to use grants and contracts and still to this day,
DIAU is doing phenomenal work. Following my time at the

(16:30):
Development Finance Corporation, I became the chief risk officer at
at FORKS and they were doing a lot of early
stage contracts, grants based small business innovation research funds to
really seed technologies in the research to prototype phase of
their growth. But myself, doctor Jason ra Gratgi and JR.

(16:52):
Gibbons were sitting there wondering what happens when they get
to prototype because we can only use grants and contracts
so well, and we can only incentivized private capital by
actually partnering with them to get to the level we
needed to. When we looked at the value of death,
David talked about from prototype to product and then product

(17:12):
to scale, we saw that those types of tools were
not always We're the SBIR tools were not really the
best way to get there, and we found that if
we use tools like the federal credit programs that were
being used by the SPA and the Expert Import Bank
and Department of Energy, and had been used since before
there was a Department of Defense, but just not in

(17:33):
the Department of Defense. We may be able to bring
better tools to the conversation. And we likened it too
like we were hitting nails with screwdrivers because we didn't
have hammers in our toolbox. And so for coming out
of the apps, me and David saw there was a
report that came out in the Wall Street Journal article
that wrote that China was benefiting more from the Small

(17:54):
Business Innovation Research Fund than program then the US once
and that kind of that that's stuck in our crawl
a little bit, and we we we worked to get
the reauthorization of the Small Business Innovation Research Program, the
s b i R program through working with Congress and
and to kind of not to defend against that that

(18:14):
that claim, but to build a way to make it better.
And so we build out most of the government calls
it due diligence, but it you're correct in the parlance
of the k y C for the d O D.
And that's we built that program out to make sure
that we were that no one could really say that
that we were that China was benefiting more from that
program anymore. But after we got to that stage, you

(18:34):
realized that we could a we could give as much
money as we need, as we wanted. But when they
get to the end of that u the usefulness of
the sky our program, for instance, then what we They
have two options? They find private capital, they get to
be a program or record, or they go and they
they take ADVI serial capital that that is not in

(18:55):
our interests, or they go bankrupt. I guess there's four options.
And our real goal there was to provide them alternatives
to that. And so by standing up the offices Street
to Capital, we opened up new tools and we really
be tapped into other departments and agencies that we're already
doing that. A lot of the big movements in the

(19:17):
stand up of the office we're revolved around the partnership
the office has with the Small Business Associate Administration and
specifically the Small Business Investment Company SBIC program, which is
a debt levered fund model that's been around since nineteen
fifty eight and allows us to partner with private capital
allocators and allows them us to use the debt alongside

(19:43):
their equity investments to incentivize them to invest in the
technologies of the d D needs. And so while David,
we've talked a lot about the procurement of a lot
of how the DoD buys the things we buy. When
we talked about the economic instrument of power from the
Department of Defense, that's meant we buy things. And up
until now, because we've we've we've spent all of the

(20:03):
money from the d o D, but we've never really invested.
And I think that that that the nuance there is
is important because with the tools and the programs that
o SC is bringing to bear and the other departments
and agencies have been using for years, we actually can
see a return on investment. We can you know, my
mom can understand that if I give a grant or

(20:24):
I give a loan, if I can do if I
can achieve the same objective with with either of those tools,
and I can get the taxpayers money repaid back to
them to the use of a loan, we should probably
do that based off of the financial you know, situations
with the country is in and that's really what what
what the brilliance of the utilizing these tools in the

(20:46):
specific situations they're they're useful for with the UH working
with the incentivizing the private capital allocators that are incentivized
to do quick returns high ro o I SaaS space investment. Well,
that's great for the economy, and that's great for those
you know they're investors, But that's not great when eighty
percent of the R and D in the US now

(21:08):
is coming from the private sector. And if we don't
have access to those technologies, those microprocessors, those rare magnets,
those things that are in the things we buy, then
we don't have the best in class technologies for us
to procure. So the utilization of really right now loans,
loan guarantees, and debt based tools.

Speaker 1 (21:26):
That are.

Speaker 4 (21:29):
They are regulated under the Federal Credit Reformat, not the
Federal Acquisition Regulation is a very different kind of structure,
a very different framework and very different guardrails. But when
those tools are used for the specific jobs that they
can be best used for, it can be a multiplier
effect to the other tools of the department Defense is
already using.

Speaker 2 (21:49):
And how do you determine within this OC framework what
areas of investment should be prioritized?

Speaker 4 (21:58):
So the often capital first starts with the fourteenth critical
technology areas of the Department of Defense and really breaks
that down further into the technologies that are the components
inside the capabilities we work on. So really, really, where
is the commercial markets going to be a large majority

(22:19):
of that investment and how can we partner with them
to do that? And so really that's laid out. We
have the Office's statege Capital released and investment strategy and
I think March of twenty four and that kind of
lays out the first early research into where we think
that that marginal dollar coming from the Office to to

(22:43):
capital can have the maximum impact to incentivize, to attract
and scale private capital for national security.

Speaker 2 (22:50):
And how would you describe the response from the marketplace
around the approach, How has private capital come into this
space of they've and support of what else might need
to be done to get private capital sort of off
the sidelines in some cases and into some of these
more strategic investments.

Speaker 4 (23:11):
So I think it's like I said, we were stood
up in twenty twenty two. We were authorized in December
of twenty three for the twenty four NDA, and they
were the opposite. Chee Cabital was appropriated in April of
March or April of twenty four, so we're now six
months into that. In that we will see they just
released a funding a notice of funding an opportunity in

(23:32):
September and so expect to start to receive imbounce and
they're working through that process now again since I've since
left the office is Chiga Capital and retired from the DD,
but expecting that those organic programs to be receiving a
lot there is a lot of inbound on that specifically
for those programs. What I would point to in that

(23:54):
is the partnership with the SBA was really something that
the DD was able to leverage the authorities and the
appropriation of the Small Business Administration through the SPIC program,
and that allowed them to really kind of see where
is the pulse of people that are that would be
investing in those critical technologies for the dd IF But
for that the ROI didn't meet what they needed to

(24:18):
do to meet their fuducial responsibility. And so what I
would point to the numbers on that is that they're
from that program that's been around in nineteen fifty eight.
Since nineteen fifty eight and since that partnership and those
programs have come on to the inbounds. The interest and
licensed funds through that program has increased four hundred percent,
and the efficiency the timeline for that program has increased

(24:40):
four hundred percent based off the partnership there and also
the kind of desire to work towards that. So that's
a huge turnaround for a program that is like one
of the most efficient and effective programs in the entire
federal government. And how that even with a program that's
already upen running and doing very well, the ability to
really make the program put gas on the fire, if

(25:03):
you will, shows that there is a lot of interest
and I think there's more gaining there. You talk about
the constituencies, it's not really just the private capital constituencies
that we've had to focus on. We've had to focus
on figuring out how to convince the D O D
that it is worth the investment is a thing, and
it's not just buying things. You know, when you say
investment in the D and D in you know, four

(25:24):
years ago that just meant you buy the things. Now
it's starting to people are starting to understand how you
can leverage different tools to achieve objectives more efficiently. So
you have the constituencies within the D and D also matter.
We have to convince them to figure out how those
partnerships matter at the services at the d D, and
also Congress. It was very critical that we've got Congress

(25:45):
on board to make sure that they understood why we
were doing what we were doing, how this was not
a new thing. You know, we've talked a lot about
innovation in the D and D, and I think that,
you know, for me, innovation is kind of doing something
new with the tools you've already you already have. For us,
this is doing something new, but it's not new because,
like I said, there's been federal credit program since before

(26:06):
the DD was even a thing, and it's just that
we've never had the authorities to do it organically for
the Department Defense, and now we do, and we're excited
to kind of see that grow. I think we're watching
more and more excitement as people start to see how
they can apply those tools to their problem set and
more and more they're seeing how much more efficient it

(26:27):
is by using these types of programs, because it's much
more efficient for every appropriated dollar to make sure that
we're giving the taxpayers their return and investment while also
leveraging our competitive advantage. I think, frankly, when we think
about the great power competition that we're facing, we have
a communist country using a capitalist system better than we are,

(26:47):
and that is probably that this is our competitive advantage.
We have private capital allocators that are second to none
anywhere in the world and inside our borders, working that
care about this country and care about the future country,
and so our ability to tap into them, but also
understand their demands and understand what they need out of
the how how financial markets work, that is something that's

(27:10):
new to us. We've heard them, we've been working with
them over the last few years, and then we're excited
that we finally have tools that can understand and meet
them where they are and also tap into their comparative
advantage in this competition.

Speaker 3 (27:23):
So you're one of the shortcomings of OSC and it's
not a it's not a flaw of OSCs by design.
Is it is still super technology focused and there's a
whole bunch of different things within this investment ecosystem that
need to be de risked or underwritten or at least
supportive by D O D that we care about. And Elaine,
you and I have written about, you know, ports and
cranes and all these other things that DOOD wants resolved.

(27:46):
The US Navy needs to be able to land at
ports all around the world, and we don't have a
real tool for that. There's a Development Finance Corporation and
West know is way more about than I do, but
you know, they're not the perfect tool solve this problem.
And so one of the things we are seeing from
or one of the critiques we are seeing from industry
is OC is a great first step. It's done a
great job. There's more required, though, and so equity investments

(28:09):
or things outside of technology that are boring, like manufacturing.
And I don't mean that again pejoratively towards manufacturers, but
compared to you know, space lasers, I think that's probably
a little more exciting. Mustic manufacturing, critical and rare earth's processing, extraction,
et cetera. Ports, and infrastructure. Those are really important things
that OSC could either be expanded to include or a

(28:31):
different program could really focus on that. The investment community
has made very clear to us they want to be
part of but yet we still are not not there.
So we're hoping that Congress, with their authorizer appropriate or
repurpose or reconfigure some part of the government to go
after those other things that really do matter that we
seem to be falling short in a little bit.

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Speaker 2 (29:33):
Now to this concept of adversarial capital, which David, I
think you introduced very briefly a bit earlier. But can
you describe for our listeners the concept of adversarial capital
and how DoD and more broadly government investments might be
at risk.

Speaker 3 (29:52):
Yeah, I mean, you know, and I you know, it's
hard for me because I have some really fun and
exciting anecdotes. I always like telling somewhere between class and
government protected. It prohibits me from sharing them. But you know,
and West and I road left seat, right seat on
these for many years. So he's laughing because he knows
exactly what I'm going with this. But you know, what
we started seeing is is again you know, I'll pick

(30:14):
on China because they're the primary perpetrator of this, but
you know, you do get a little bit of Russia.
And even then you get allies and partners who wittingly
and unwittingly, you know, investing companies and they think, wosh,
this is some really cool tech, we really need this,
and they it makes their way back to them, and
then sometimes it's not well controlled. But we started to
see Chinese state owned enterprises spreading money across the country

(30:37):
and across the world, you know, and there's somewhere between
belt and the road, and then just made in China
twenty twenty five, and then just general military suffusion coming
out of Beijing. And we started looking at this and
realizing that you do have just general investments. They want
to get their money out, they want to you know,
enrich themselves. That's fine, but we started seeing is very
targeted investments into things that build into critical supply chains

(30:59):
like you said, or strategic components, and you know, let's
let's back up on this the airplane. There were a
bunch of single investments into airplane companies that when you
look at them in a small piece, they don't matter.
They try to buy a US company that makes landing
gears for airplanes. Is that a critical national security thread?
Or We're going to lose the Great War because of

(31:20):
landing gears? The answer is no. However, if you start
looking at an aggregate, they ended up basically everything they
couldn't steal that through intellect, you know, through industrial espionage
or actual legitimate traditional espionage. They started buying US companies
in this value chain, and all of a sudden we realized, oh, shoot,
they're going to build basically a competitor to the Boeing
seven forty seven or the Airbus A three twenty or

(31:40):
A three nineteen neo. And they did, and they made
the Comac C nine one nine nine nineteen, and that
is a direct competitor to Boeing and Airbus. So at
an economic level, you think, gosh, they're trying to your
rodor market share. They're trying to you know cut down
on our I mean, well, we feel that we have
a reduction in tax revenue and foreign sales. That's a
reduction the labor force. This is a degradation of the

(32:03):
US economic MND. But more so, China gets introduced a
competitor that can be used for heavy lift capabilities or
for a cargo or for delivery, both for its own
regional as well as global dominance if they need to,
or their pursuit of that, as well as m military
capabilities for heavy lift airplanes and West flu heavy lift airplanes.
So I won't know. I don't want to steal this

(32:23):
thunder here. But so we started realizing, okay, they're going
at this, and so we started pulling these apart and
going to the companies and saying, why did you sell
your product to China or why did you move your
supply chain. They said, well, they originally came in and
they bought fifteen percent of our company at an above
market rate. And me, as a CEO, this is a
great deal. I wanted access to the Chinese markets, and
I wanted a premium on my company. It increases the

(32:44):
value of my company. And I said, okay, that's a
very fair business decision. And then what happened, Well, then
they increased their position to thirty percent, which again the
partnership was going great. And then what happened, Oh, well,
then they started stealing our blueprints and okay, well that's
normally not what competitior or investors do. They would want
to invest in the company to help you grow the company, right,

(33:05):
And then they started selling our blueprint or giving our
blueprints to a factory literally across the street, the manufacturer
of the exact same components. And then they started selling
or stealing products from us, or they would influence a company,
or they would have the CTO send it over. So
a board member would write the CTO and ask for
an engineer to send a new demo of a product
over to this factory for us, and we couldn't understand why,

(33:27):
but gosh, the ium thirty percent of our company, so
we didn't really want to make too big of a
stink about it. And then we realized they were reverse
engineering the final piece of this. They made our widget,
and they sold it on the market for fifteen percent
of the cost that we make it, and within eighteen
months we were filing for bankruptcy. They then went bought
the Remainian assets out of bankruptcy, and because there's no
protections over bankruptcy, there is under a nuanced part of

(33:48):
Siphius firma rags. But I mean fundamentally, you know, they
were a parasite to us. They drained us of our
value and they killed us. And so we started looking
at this across the board. You think, oh, this is
what adversarial capital was. What comes in as an investment
as a capital infusion or a capital partner, strategic partner,
but really is meant just to finance you enough to
steal and then hopefully capture the value on the back

(34:09):
end for them either strategically or economically to carve out
of the market. And you can look at what Huawei
has done with Nokia and Erickson. I mean, Wahwe's a
completely vertically integrated communication system from towers down to handsets
and originally came from them stealing modems and replicated them
and selling form paints on dollar. And now you talk
to Nokia and they say, we can't even sell to

(34:30):
African or South American markets because we can only sell
a small piece of the value chain. And China can
deliver the Huawei specifically can deliver the entire value chain
integrated for much cheaper than we can even a component
of it. And for that reason, we're losing market shore
and we're losing revenue, and that's money out of R
and D, that's money out research and development for our company,
that's money out of tax revenue, that's less employees in

(34:50):
my country, et cetera. So that's kind of like the
model for adversarial capital. And so again, you know, we
started seeing this where we thought, okay, we can't just
say investment from China's bad. But if you look at
these anecdotes and you look at towards a strategic picture,
like China wants a heavy lift aircraft that the US
that they can indigenous indigenously produce so that if the
Great War breaks out and we say we're not selling

(35:11):
you bowing airplanes anymore, they say, no problem, we have
our own. Well, we have our own comac version. They think, shoot,
that was a choke point we had on them, and
they have inverted that with us again around critical minerals,
you saw they ban the sale of antimony to the
United States. Antimony goes into a lot of things, including
almost all of our munitions. This is really important, and
so we're trying to think about ways we can pursue

(35:33):
our positive capital markets of the free flow of capital
and trade and all the good things that have come
from that, especially from US dominance since the nineteen fifties,
And how do we not completely just just collapse that
system under the fear of frustration what China's done, while
also trying to constrain China. We cannot contain them, You
cannot contain the flow of capital. And so we assess

(35:54):
that the best thing to do is try to constrain
Chinese economic activity and really really carve out mitigator block
adversarial capital rather than what is sometimes called dumb capital,
which is just you know, five percent investment, no board seats,
no control, We just want our money back over time,
kind of like how your four oh one k or
your roth Ira structure, which is where we've come to

(36:14):
terms with this pretty acceptable, but rather than target and
specific investments that either meant to really pull apart a company,
extract a technology, or help China get leverage and a
competitive advantage into a market market vertical that is state
directed or state incentivized activity. So that's how we frame
adversarial capital and and I'll wrap it up here just

(36:35):
to say, you know, you can imagine when you look
at something as complex and unique as the defense industrial base,
which goes all the way from stealth fighters down to
band aids and you know, running shoes for soldiers, everything
is kind of on the table. Now, not all of
that matters the same, but once you start looking at
the stories and how the Chinese have done this specifically,
you start realizing that they're kind of going after everything.

(36:58):
And so that's what we're trying to build tools to
protect that without really just saying, hey, we're going to
make the state owned, you know, economy of the United States,
which we we could and should not ever do well.

Speaker 4 (37:07):
I was going to add to that because I think
one of the things that we really we found that
the working on the the KYD we'll call it KYC
for this program at the SBA are is that when
we talk about investment, we talk about our you know,
our private capital markets, and we talk about trying to
tap into that and leverage that from the Department of
Defense through through really as the government. We see we

(37:31):
try to drive objective measures of subjective things that are
and then we set out the playbook, so we say, okay,
ten percent foreign ownership is the maximum will allow. And
there's no real reason why eleven percent or nine percent
are good or bad. But that bifurcation there gives, you know,
gives the playbook away. So like the idea that that

(37:52):
and and what is ten percent ten percent and no
board seed is not as impactful as just having a
board seat and being able to access the IP and
tap into that. But also we are not you know,
the folks that are making the policy decisions are not
incentivized to take that risk because investment is about risk
and reward, and so you take more risk the possibility

(38:14):
of more reward is you know, you're into your bonus
or whatever. But that's not what happens when we're looking
at from a government investment perspective, and so looking at
it through the lens of our private capital allocators and
the folks that know that and live that day to day,
but also being able to inform and enlightened the you know,
early stage tech companies are very great, exquisite technology. They

(38:36):
don't understand why they shouldn't take an outsize return from
an investor because it seems like the right thing to do,
that's the business one oh one. But when we can
show them, you know, time and time again, how we've
seen this this technique be used to take down a
company just like theirs, or then lose all their IP
them lose all their life savings, and no matter how

(38:57):
great the technology is, they no longer have the ability
to influence it and we don't have the ability to
access it as the VOD That is extremely problematic. So
over the last few years, the ability to tap in
and work with private capital allocators but also be able
to build these systems that allow for a subjective measure,
subjective realization, and also integration across the federal government, across

(39:20):
the really the private capital markets as well to understand
what people are seeing and find trends and try to
address those so we know when they're If we see
multiple data points that tell us we're going after this
technology sector, then we can work to defend that or
to help those companies that are being attacked in that.
I think that that has been something that's come we've

(39:41):
seen across the federal government. But there's a huge there's
been an awakening and if you look at the sibber
Reauthorization Bill in twenty twenty three. We were able to
kind of frame that into three main lines of effort
that are very general, but one being the obviously the
foreign ownership but not out like the more the foreign

(40:01):
ownership control and influence part of that, like what that,
what does that actually mean? But also protected against cybersecurity
as well as the information protection that go into that.
What that What would a KYC program look like? Across
from the government, But really we wanted to make sure
we wrote it this way to it couch that all
under an umbrella of education, making sure that we're letting

(40:22):
people see the data points and see the vignettes that
they that are similar to their problem set where other
companies tried this and it didn't work, and why it
didn't work because I think those are more powerful where
people can learn from those examples on their own, and
that then that limits the amount of technologies, companies, people
that we have to interact with. Then they're making that

(40:42):
decision for a financial decision, they're knowing what the risk
is and then that you know, then it's a free market.
They're going to make that decision and they have to
deal with that accordingly. But we find time and time
again that just the ability to educate the technology companies
specifically for the DD has been a game changer and
change behavior, so that that that kind of takes care
of itself. Just making sure that we shed light on

(41:04):
what the problems that they might be facing if they
go down that road.

Speaker 2 (41:07):
Yeah, and do we have enough visibility across the critical
supply chains within this space to be able to make
a proper assessment and how how I mean how deep
do we need to go? And where where's that line
between what the government should understand in terms of that

(41:27):
risk versus some of the private sector capital providers or
tech tech providers and their role. I mean, do we
need a different kind of conversation around that? Do we
need more cooperation on.

Speaker 3 (41:41):
The I mean fundamentally, you know, yes, you asked a
lot of questions. I'll just answer something yes. But if
you go to the average person and you say, you know,
go to my mom, a smart lady, I say, hey,
does cobalt or lithium is out a national security issue?
She's gonna say no, And I say, okay, is lithium extraction,

(42:01):
refining and processing into batteries a national security issue, She's
gonna say, d D should not be doing that, and
I say, okay. It goes into batteries. Batteries go into
reaper drones, predator drones, all sorts of our space assets
and our military vehicles, our undersea stuff. And she goes, oh, yeah,
le's national security. So you have to build. You have
to walk through that chain. So if you go the
average person say, does a cobalt mine in Congo? Is

(42:23):
that a national security concern? To say no. If you say,
but if that gets choked off from us, like we
talked about the antimony from US being able to field,
you know, platforms for national security, they'd say yes. And
so that's what we're kind of going through and we
have to find a way to quantify it. So I mean,
I'm given a you know, a story here, but I'm
but really, once you start doing the math on it
and you start seeing the challenges that would occur to

(42:46):
multi year procurement sustainment of defense platforms, you realize instantly
these are huge issues that we are not investing in properly.
And so we have good clarity and a lot of
the supply change soft points, but we do not have
entirety and proper clarity, and then what should the investors
be aware of and the companies themselves. So I'll give
an anecdote. Actually it's open. So A one two three

(43:08):
was a battery company spun out of mit Link and
Labs high density lithium ion battery cells. They had multiple
rounds from US Department of Energy and then private capital. Ultimately,
the Chinese came in and offered an extreme market premium
back to the way. All the US investors they thought,
there's no way we're going to jump in on this.
It's too expensive for us. But good for A one
two three eight one two three was cash short. They

(43:30):
were in the red. The Chinese kept pushing the yeah, yeah, yeah,
the investment's coming. And then right before the bankruptcy cliff,
A one two three back the way and said we're
not going to invest. A one two three went into bankruptcy.
The foreign buyer spot all the assets, all the ip
out of bankruptcy. And this is before Sophia's was really
a thing, you know, or at least was in its infancy.
They moved all that battery power to China. That battery

(43:52):
power later or you know, technology capability et cetera. Of
the structure of the cells is exactly what fed into
the entire build out of c ATL cattle batteries, which
is fueling the entire entergy EV marketplace in China. So
you're looking at the thinking gosh, and now you're seeing,
you know, Ford is partnering the Ford lightning truck is
like partnered with c at L in Michigan. So you're

(44:13):
thinking a US technology built out of MI T Lincoln Labs,
sponsored and paid for by tax payers through the Department
of Energy, basically got got strangled by adversarial capital sent
to China and is now crushing our energy marketplace as
an outsized, you know, proportionate control of the EV value chain.
And because that they're also absorbing so much cobalt and

(44:35):
lithium and all these things and nickel and copper that
go into batteries that they have almost you know, hegemonic
control over a lot of those value changed and a
lot of those off take agreements to where we actually
can't even penetrate. And you're thinking, if you if you
went to somebody and said this MIT Lincoln Lab company
going into bankruptcy is going to be why China is
producing electric vehicles at a scale which is abnormally unhealthy

(44:57):
and synthetic, uh, and unhealthy for the marketplace. You know,
nobody could frame that in that right context until you
go through that story and then you say is this
and that security risk and everybody goes yes, absolutely. So
you have to tell investors this story, you have to
tell entrepreneurs the story. You have to tell policy makers
and lawmakers the story. And then you have to come
up with a solution to this problem. And again, if

(45:17):
I go to my mom and I say, but Mom,
I want the DD to buy a cobalt mine in Congo,
she goes, no, it's not your job, But I don't
know how else where to break apart that problem set
to show where we need invest in. So that's a
long answer to say, we do know a lot of
choke points, we know a lot of places to go apple,
we know a lot of things to do, but we're
not there yet with our own comfort to solve these problems.

(45:38):
And hopefully it's on the way.

Speaker 2 (45:39):
Yeah, yeah, thanks David. It's a great example. We've got
a report coming out in the next couple of months
looking specifically at lithium and the EV battery supply chain,
and it's exactly to your point. You know, we need
to be able to quantify where there's a potential for
geopolitical disruption break apart these critical supply chains to understand

(46:02):
where the real choke points are. But in the EV
battery space, it's fascinating because it's really a vertically integrated
supply chain from the mind to final assembly of an
EV and you know, we may get to a point
where it's just difficult to compete, you know, more generally.
I mean we're already feeling that to some extent with

(46:24):
cheap exports of Chinese evs. But if we really look
at the subcomponent level, the mid stream battery production, I mean,
that's where a lot of the risk is and it
is tech driven. And your example of a one two
three is spot on. And that story goes back even
earlier to technology that was developed at the University of

(46:46):
Texas at Austin on lithium ion batteries. This goes back
to the early two thousands, and so, you know, we're
really good at creating innovative solutions, not so good in
the US at scaling, right, And that's something that we're
going to have to figure out how to do more

(47:06):
effectively across some of these critical supply chains if we
want to keep that risk, you know, out of an
adversarial capital, out of out of the US and out
of our industrial base. So it's really interesting to see
how all of this is going to converge H and
D O D I think has an outsized role in
terms of helping us understand these economic security risks and

(47:31):
applying some of these tools UH to be able to
reduce reduce that risk. I want to pivot to a
question that you both may be interested in answering, but
it has to do with how some of these challenges
connect to our alliances with with countries like Mexico, some

(47:52):
of our European allies, uh, maybe even some of the
fence sitters out there Brazil comes to mind, where you know,
we do have the potential to create new opportunities for
supply chains and trade engagement, but we also you know,
need to be thinking carefully about how we do that.
Do you think that there's a common understanding, particularly with

(48:14):
our core allies, around the concern of adversarial capital. You know,
we can address that on our own, but we might
be better off to do that with a more common approach.
So any thoughts on that, Yeah.

Speaker 3 (48:30):
I mean I'll start, you know what, West is going
to have very you know, many, maybe a full comments
to allow this. I mean the short answer is yes.
I mean, I think all of our allies and partners
are starting to see this through the same lens.

Speaker 4 (48:42):
Uh.

Speaker 3 (48:42):
You know, the joy of globalization. One of the upsides
of it, you know, there's downsides. We're feeling strain enough too,
is that the supply chains, production chains, all these things
are diversified around the world, and so we cannot be
silly to say, well, we're just gonna do all of the America,
and you know, like that's just not even an option,
maybe for a very narrow thing, but even if you
look at the pinch felt by the drone industry, the

(49:04):
small group one, group two drone industry in the United States,
they alone are saying no, no, no, this has to
be spread across multiple countries. So by the time you
get to complex ecosystems like vehicles, it's going to be
through somewhere between five and fifty countries per vehicle. So
we absolutely need alls apartments in this. We need to
find the right way to incentivize this. You know, the
Australians and the Japanese are with us all the way

(49:25):
on this critical minerals where, however you want to categorize
it approach. We have made huge leaps and bounds of them,
both through the Trump first Trump adminstration, through the Biden administration,
I'm sure through the second Trump administration, but there are
still many soft spots in the marketplace where we are
not adequately engaging or incentivizing, and the private sector wants
to jump in, but the US government is not sending

(49:47):
adequate signals. We are not having ambassadors and foreign service
officers as well as business leaders, you know, meaningfully corral
this in. And it kind of goes back to my
earlier comment about government intervention versus corporate welfare. Once we
realize that we need to stop assessing capitalism through the
lens of like the private sector will solve this and
the government needs to playing me full role will be

(50:07):
much more effective than this. Because the Chinese are, to
West's point, communist country using capitalism very effectively. We need
to take a little more credence with our interest in
structuring and incentivizing and rewarding good capital behavior to really
incentivize global supply chains and then that hopefully we'll build
more cohesion and unity with allies and partners. The one thing,

(50:30):
of course, is the world changes constantly. I mean, we
are fighting the Japanese, you know, at seventy years ago,
eighty years ago, and now they're you know, maybe our
best ally in the world. And I only say that
to say we cannot also just index on allies based
off today. We can't say, well, the USN country X
have a great relationship, so therefore we're just going to
divvy up the supply chain. We have to think, no,

(50:52):
this has to go through four or five countries really,
or at least we have to have it set up
so we can have contingency plans in case things offense
in our country specifically, do realign in a different direction
that we're comfortable with, or just you know, the physics
of economics change your market in a way that we
have to be more responsive to. Because we can't have
a great financial crisis occur in whatever world just say

(51:14):
Mexico or Japan, and then we say, well, you know, shoot,
we're out of batteries again. We have to be thoughtful
about how that world actually looks so, but I do
know that we have capital partners out there who are
looking all over the world for investments, and the government
is either not in front of them as much as
we should, alongside them as much as we should, or
behind them as much as we should. And so that's

(51:35):
something for us to think about and fix. But I
am with you that ultimately the best way for us
to solve a lot of these problems is to remain
extremely focused on near shoring, ally shoring and friends shoring.
But we do need to build in a bit of
redundancy for pure domestic production. That doesn't mean it has
to be in everyday thing. Sometimes we're above a market costs,
you know, the market clearing prices maybe too great here

(51:55):
in the US. But we can also not be in
that point where we say, oh, geez, we need a
stand up this entire industry because you know, some cataclysmic
financial or geopolitical event. And now we're going to look
at Ohio and we're just gonna start building a bunch
of factories there and hopefully they catch up to the market,
because that will never occur. So Wes, I mean, I
would be interested in your thoughts from your time all
around the world too.

Speaker 4 (52:15):
No, I think that's a lot you got.

Speaker 3 (52:16):
You hit a lot of the things.

Speaker 4 (52:17):
I think globalization has kind of turned into friends and analyization.
It's coming out of COVID. I think when people everywhere
from microprocessors to toilet paper, most most most people in
the country now and really around the world know what
supply chains mean and how it can affect them and
how can really bring the world to a whole. I
think that we've seen that we probably were behind the

(52:38):
power curve, and we've seen say adversaries taken advantage of
that and then have a head start, But we also
have the competitive advantage if we if we focus what.

Speaker 3 (52:47):
We need to focus on.

Speaker 4 (52:48):
I would I agree with the tapping into you know,
friends and allies and making sure that we continue to
provide you know, one optionality and two aligned and I
think that's really the key to looking at the big
picture there. And I would bring that even down from
an international to an interagency model as well. Across the

(53:11):
federal government, we have a lot of folks that are
solving things in silos and the ability to tap into
those tools and make sure that we're as efficient as
possible for the taxpayers to make sure that we're using
the right tool for the right job, because there is
a lot of rice balling in silos where people know
that's my job. I'm going to take care of that.
Even though it's not really a priority and it's not
really something that they're actually going to get to, they

(53:34):
still want to claim fiefdom and prevent that from being effective.
If people want to take things on and solve them,
solve the problems, but if they don't, just I think
that we need to start to really be eyes white
open enough to say, hey, we're though we could do this,
we're probably not the best person to doing so, and
we love your help. That is not incentivized through our
kind form of government, through our budget process otherwise, and

(53:57):
so I think ways to break that down to where
we have people sitting around the table saying, hey, we
got to solve these five problems. David, your best suity
to solve this alone, your best suit to solve that,
Let's go do it. I don't care whose job it is.
As soon as we get to that across the government,
as soon as we incentivized both the organizations and the individuals.

Speaker 3 (54:16):
To leverage that level of focus.

Speaker 4 (54:21):
We really will be able to make inroads. I think
that's the kind of that's the next step, and I
think we're progressing in that direction based off what we've
seen over the.

Speaker 3 (54:30):
Last four years.

Speaker 2 (54:31):
Yeah, thanks for mentioning that broader question about how we
organize ourselves in the US government to address some of
these issues. David and I have written a couple of
pieces on that topic, and it really is time for
a stronger realignment and as you said, breaking down some
of these silos to deal with these threats that really
take us into a new space and again, you know,

(54:55):
linking in this private sector engagement in a more meaningful way,
because we really can't do this, you know, just from
a government lens. So maybe one final question for both
of you, and I guess it's a little bit of forecasting,
but if you had one or two thoughts on what
the new administration should be doing to take some of

(55:17):
this work forward, to address some of the more critical
challenges when we're talking about protecting ourselves from adversarial capital,
but also really helping to push forward strategic investment where
it's needed most. What are your thoughts on that? David
will start with.

Speaker 3 (55:34):
You, Yeah, Yeah, I mean, I would argue that that
there should be well, I'll give both carrots and sticks here.
There should be greater sticks, bigger, more powerful sticks for
those who really misbehave. You're seeing some of the if
you look at the headlines of the type of export
control violations of companies, they're egregious. I mean it's like,

(55:56):
you know, I won't pick on companies, you know, but
I mean you can look it up where companies have
got to ask to cent over a blueprint of a
helicopter and they sent over also a blueprint of a
tank and the rocket system, and you know, an aircraft carrier.
You're thinking, what do you guys do? And there has
to be something going on there where the company says,
we know we're going to pay x amount of fine
and in exchange we're going to get an even bigger
reward from the Chinese for this, and same with Sithius.

(56:17):
I mean, we really need to be hammering companies seeing
you made an agreement, you knew the law, you violated
the law, and in exchange right now we're going to
you owe us one hundred thousand dollars in fines. The
company goes, no problem, what we need to do is
say you you know, a billion dollars in fines and
you guys are going to jail because there's a reason
if the war breaks out and again hopefully not, but

(56:38):
their their planes are going to look like ours and
be able to do what ours do, and we will
not have military superiority. It's because for twenty years we
gave them our best stuff, either wittingly or unwittingly, and
we need to penalize that behavior. It's unacceptable. On the
carrot side, we do need to be rewarding companies, and
we knew you need to be incentivizing investors playing to this.
And so I'm sure President Trump and staff, he's picked

(57:00):
some great folks in there already. I mean, John Ratcliffe
going the CIA thinks about this problem, said Mark or
Rubio if he becomes the Secretary of State, and I'm
just you know, you pouring off headlines that I see.
I haven't seen the official announcement. He is wholly aware
of the relationship between capital and national security. His Patriotic
Investment Act is meant to do this, to penalize as

(57:21):
well as reward. And so my thought is that the
Trump administration would build a new office within the Executive
Office of the President that is meant to solely coordinate
on this issue and address economic security and economic state
craft because it's too big of a problem set and
it spans too many things for the National Security Council
will really buy it onto because there's just too many
things that pop up. The war in Ukraine issorying a

(57:42):
lot of resources. Is that as important as China? I
don't know, or Taiwan? I don't know, but I do
know that all the resources are being redirected towards that,
and so they're not able to focus on these long
term things. So I'm hopeful that the existing authorities are
probably abundant enough across government. But to our point, there
needs to be a consolidation and a real directional focus
in this new administration. And I don't think there's enough

(58:04):
for people just to do it on the side. This
needs to be a core function and job. So this
is an executive office of the President or or you know,
e theory a department meant to do this would be
really useful and meaningful. And if I was, you know,
king for a day, if President Trump elect called me
and asked me to do I would advise those two things.

Speaker 4 (58:24):
Yeah, I mean, I think that's right. I think that
the hard part is not that we don't have the
folks working on this right now. The hard part is
we don't have someone that this is a top priority
for them to Dave. It's fun when you talk about investment,
you talk about supply chains, you talk about private appital markets,
and then you say the d d Uh. There's a
there's a percentage of folks that kind of turn off
and say that's not your job.

Speaker 3 (58:45):
There's a fear of.

Speaker 4 (58:46):
The d O D having more authorities and more power.
And I don't I don't really have a thought and
agree or disagree on it. But I do know that
they know national security is their economic security is national
security in a lot of ways, and more and more
so in the in the environment we find ourselves in today.
So understanding how the private capital markets interact with the
technologies we work on, as well as like other facets

(59:10):
of national security, especially internationally, Like with the DoD we
don't buy the things inside the things we buy, like
we buy F thirty fives, we don't buy microprocessors in
the F thirty fives.

Speaker 1 (59:20):
They just come with them.

Speaker 4 (59:21):
They're acquired in those supply chains, and so the incentives
for the folks who get them as cheap as possible,
and oftentimes that's not in the best centers of the
war fighter, and we're not putting them, we're not setting
them up with success with the best tools at their
disposal to go fight and win wars for our country.
That goes across the spectrum. One of the things that
I do Todavi's point, the Secretary of State is also

(59:46):
the chairman of the Development Finance Corporation, and so it
would be interesting to see if they are to leverage
the authorities laid out in the build Ack that drive
the FC towards the national security focus. But that's not
to tap into the folks that that we're at opic
that are focused on developmental and making them do national
security type stuff. Those are not necessarily in their view

(01:00:07):
of public service. So staff up and build a team
that can focus on that and leverage the authorities, whether
they're existing or to still be determined to execute on this.
To make sure that we're in we have a mission
that focuses on this in the federal government that is
eyes wide open as well as has at this disposal
all the tools in the toolbox. I don't think that

(01:00:28):
we would want to send you know, soldiers today to
war with World War One rifles. We want them to
have the best technology. That's the same thing we don't.
We don't send people to do our nation's bidding, whether
that's you know, national security or diplomacy. We don't send
them to do those without the best tools and the

(01:00:50):
tools they need for the job. But we are doing
that with respect to the economic kind of instrument of
power that is statecraft, whatever you want to call it,
because we we just we're uncomfortable and a lot of
times we're ignorant and having to solve the problems with
the wrong tools. So I think having a clear mission, mandate,
a clear focus, and having the properly trained and experienced

(01:01:14):
folks to solve that from both the public and the
private sector, to bring that together is critical. I wouldn't
really make a recommendation as to how to get there.
Obviously Congress has to say, the President had to say.

Speaker 1 (01:01:23):
But I do think that the.

Speaker 4 (01:01:24):
Ability to bring together all of the forces that are
already working towards this, that are trying to do this,
and they're running with parachutes on their back and running
into headwinds because of the lack of real clear mandate.
Bring that together and put that to work, I think
that you would see huge impact very quickly, and I
think it's in everyone's interest for that to happen.

Speaker 2 (01:01:47):
The Department of Defense commands unrivaled market power through its
investment in the DV. Leveraging that market power is a
growing part of our response to foreign adversaries. But along
with that is the very real threat of adversarial capital
and undue influence in the US industrial base, and the
need to further leverage public and private sector investment strategies

(01:02:09):
to secure our most critical defense supply chains. Thanks to
David Raider and West Burlock for being part of today's episode.
I'm Elaine Dozinski and this is coercive capital on the
Illicit Edge Network.