The USS Warner under construction in Newport News, one of the last two shipyards in the US able to build a US.

The American military-industrial complex used to lead the world in high technology. Now it struggles to keep up with private-sector breakthroughs in computing and other commercial technologies, from iPhones to 3D printing, that any adversary can buy to use against us. Even in military-unique technologies like precision-guided missiles and electronic warfare, experts in and out of the Defense Department fear some adversaries are starting to catch up — at the very moment when America’s near-term budget crunch is forcing cuts in long-term R&D.

“We became… a little bit complacent,” Undersecretary of Defense Frank Kendall, the Pentagon’s top weapons buyer, said at last weekend’s Reagan National Defense Forum in California. “Technology doesn’t stand still. We did have a big advantage 20-plus years ago” — when the US military wowed the world in the first Gulf War — “but there a number of areas where I’m very concerned about what other people are doing….with an eye towards defeating our systems,” including pillars of our post-1991 superiority such as computer networks and stealth.

“Put on top of that sequestration and what we’re doing to our research and development accounts over the next few years,” Kendall said, which is especially damaging to “the smaller companies” that are often at the cutting edge of innovation. “[We’re] laying off tens of thousands of engineers.”

So what can government do about it? No less a figure than former Air Force Chief of Staff Norton Schwartz is willing to revive the idea of “industrial policy”: that is, the Pentagon should pay to prop up key parts of the defense industry that free market competition would kill off.

“There are some things [we need to do] which some might characterize as industrial policy, anathema as that might be,” said Gen. Schwartz, who recently became president of Business Executives for National Security (BENS). Speaking alongside Kendall to the mostly conservative audience at the Reagan Forum, Schwartz acknowledged that “there are those who will resist that as being government intervention — but to that I say B.S.”

“Right now we are in a crisis situation,” added a third Reagan Forum panelist, Greg Bloom, who runs a small and highly specialized firm called Seal Science. “Unless we do something from an industrial policy standpoint… we will not survive,” he said. “Engineers are not dumb: They’re not going to come work in our industry if they face this.”

The idea might even get some traction with Republicans, worshipful of free markets as they are. “We have to be aware of what’s happening with the industrial base with this country,” said Rep. Mac Thornberry, Vice-Chairman of the House Armed Services Committee, when I spoke to him after a talk he gave on acquisition reform on Monday. “Whether you need a separate program to fund R&D or other things to keep some suppliers alive, I think that’s another question but it’s worth asking.”

So I called Gen. Schwartz yesterday to learn more. “We need to be cautious about intervention in the quote, ‘market,’ unquote, but at the same time I don’t think we should be absolutist about it either,” he told me. “There are, you know, theorists” — his contempt was audible — “who are concerned about too much government intervention in any market, even if the market is not quite a classic commercial activity.”

That’s a polite way of saying that, with about half-a-dozen surviving top-tier contractors, only two competitors in many key areas from fighter jets to nuclear submarines, and a single all-powerful customer, namely the government, which controls exports to any alternative buyer abroad, the US defense sector would give Adam Smith (the economist, not the ranking member on the House Armed Services Committee)  a heart attack.

Particularly when it comes to stealth technologies, both for aircraft and submarines, Schwartz said, “there are some things that are clear American advantages that we need to sustain, and if that requires a little bit of government push, fine.”

So is the Pentagon willing to push? “Reliance on the free market” is the first principle of defense procurement, Kendall told me when I buttonholed him after his Reagan Forum remarks. But, he went on, “we will look at places where … there’s a very significant niche technology that’s unique, that nobody else has, [and] we really don’t want to let that capacity disappear. One way or another, we’ll try to find a way to keep that alive.”

But how? The Pentagon has few tools at its disposal here. “You can buy things a little ahead of need sometimes — so long as the Congress doesn’t get upset with that,” Kendall told me. “You can reprioritize to ensure they get some work, and we’ve done that in some cases too, even on a larger scale.”

While Kendall didn’t cite specific cases, probably the largest “large scale” example occurs in Navy shipbuilding. The nation is now down to just two shipyards that can build nuclear submarines, General Dynamic’s  Electric Boat in Connecticut and Huntington-Ingalls’ Newport News yard in Virginia. Rather than let either go out of business and leave the Navy facing a monopoly, the Pentagon has contracted carefully to ensure each build different parts of the Virginia-class submarine.

Kendall is also pushing “prototyping programs.” At the Reagan Forum, he specifically invoked the “X-plane” series and Lockheed Martin’s famous “Skunk Works,” where the Pentagon paid for a relatively few cutting-edge aircraft that expanded the boundaries of what was technologically possible. The F-117 stealth fighter was one of the biggest Skunk Works programs, and even then only 59 of them were built.

Otherwise, however, Kendall wants to keep propping-up programs at a minimum. “DoD recognizes only a small fraction of our enormous industrial base capabilities are truly at risk (fragile) and, therefore, in danger of disappearing without dedicated efforts to sustain them,” said Kendall’s October 18th report to Congress.

Schwartz, however, thinks government can do more to keep hope alive. “A good example of this is space launch,” he said. “The government sustained a space launch capability for decades until the commercial marketplace found there was perhaps a viable way to have a business in this area.”

“That’s a wonderful development,” Schwartz said of the rise of commercial launch firms like SpaceX and Virgin Galactic, but the foundation was laid by decades of federal spending, primarily defense spending, that “had some qualities of industrial policy.”

Schwartz’s top priorities overlap with Kendall’s in some areas — stealth technology for both airplanes and submarines in particular — but go beyond them. One focus for the former Air Force chief is systems integration, the art of making different technologies work together in a single weapons system. That skill is traditionally associated with big contractors on big programs, such as Lockheed Martin’s troubled F-35 Joint Strike Fighter, but it applies up and down the scale, Schwartz said, which means there are plenty of opportunities to keep in practice. “For example, on airplanes, if you want to install a new AESA radar,” he said, “there’s obviously a need to integrate that into the aircraft, avionics, cockpit, and so on.”

The last pillar of Schwartz’s approach is “trusted manufacturing,” the idea that some components of weapons systems are simply too sensitive and too crucial to trust to foreign manufacturers. That would include electronic warfare systems and certain kinds of microprocessors. Counterfeit computer chips from China are a growing concern of late, especially since they might be bugged or booby-trapped.

“We need some foundries in this country that we can rely on,” he told me.  (The most secure parts of the security establishment, of course, already do: The NSA works with IBM to provide the Trusted Access Program for just this reason.). Of all his recommendations, Schwartz added, that’s the “most amenable to [what] some would characterize as industrial policy.”

Or, to put in terms that might go over better with Congress, especially the Republican-controlled House of Representatives, you might call it Buy American.