Government Budget Challenges

21 April 2026: In "The Hill," Isaac F. and I warn that "The Pentagon Could Be About to Make a $55 Billion Mistake." - We note that the huge financial commitment in the budget request to unmanned and autonomous systems with the Defense Autonomous Warfare Group is overdue and should be applauded, but the investment could be undermined by three shortcomings seen at times in the past when new hardware has been introduced. - First, no joint U.S. military concept or doctrine yet exists for the scaled employment of autonomous formations — units that can coordinate at machine speed and execute a commander’s intent when communications are degraded or severed. - Second, there are not yet plans for the considerable organizational changes and the fundamentally different form of command that will be required (we also don't yet see that with the introduction of greater numbers of unmanned systems). Substantial force structure changes will need to be made, and leaders will need extensive training and education on how the new capabilities will be employed. Commanders will, in particular, need to learn how to encode intent in advance — translating objectives, constraints, and priorities into parameters that machines can execute independently. But current training and education pipelines are not yet aligned to produce leaders capable of commanding the anticipated autonomous formations at scale. - Third, there is not yet a system for continuous iteration and rapid feedback that autonomous systems will require. Ukraine’s success with unmanned systems, for example, stems not from any single platform, but from the battle management system that enables it and the rapid feedback loop between operators, engineers, and commanders. The U.S. cannot replicate Ukraine’s model exactly, but it will need to build an equivalent system — one that translates operational experience into adaptation at speed. At present, the U.S. system is not remotely comparable to that established by the Ukrainian military. - In fact, Ukrainian forces — along with their Russian adversaries — are redefining the very nature of warfare on the ground, at sea, and in the air, both over the battlefield and deep within each country’s interior. They have already made sweeping changes in their operational concepts, force structure, training and development of leaders, and feedback loops that drive continuous adaptation. - The U.S. has not yet made similar changes to reflect the lessons already being learned in Ukraine with remotely piloted systems. The result is a widening gap — not in technology, but in the ability to employ new technology as part of a coherent and evolving way of war. - And the advent of truly autonomous systems and formations (and, eventually, systems of autonomous systems) will represent even greater changes to warfare than what we are seeing in Ukraine. #ukraine #DAWG #linkedintopvoices

The rapid rise of combat drones illustrates a classic pattern described by Clayton Christensen. Drones represent a 𝐥𝐨𝐰-𝐞𝐧𝐝 𝐝𝐢𝐬𝐫𝐮𝐩𝐭𝐢𝐯𝐞 𝐭𝐞𝐜𝐡𝐧𝐨𝐥𝐨𝐠𝐲: initially dismissed as inferior to established systems, yet capable of reshaping the entire competitive landscape. For decades, the Western defense industry focused on increasingly sophisticated missiles, precision bombs, and air-defense systems. These technologies became extremely advanced—and extremely expensive. In that environment, small and relatively crude drones seemed strategically irrelevant. Yet disruption often starts exactly there. Take the Iranian Shahed drones now widely used in conflicts. They are cheap, simple, and can be produced in large numbers. Their real power lies not in individual performance but in scale and swarm tactics. When launched in large waves, they overwhelm traditional air-defense systems designed to intercept a limited number of high-value missiles. Using million-dollar interceptors against drones costing a few tens of thousands of dollars is economically unsustainable. This is classic Christensen logic: incumbents optimize for high-end performance while the disruptive technology improves rapidly in a different dimension—in this case cost, scalability, and operational flexibility. But the real lesson is not only technological.Ukraine has shown that the decisive capability lies in how drones are used: agile combat strategies, distributed command structures, and operators who can adapt in real time. Human intelligence, battlefield learning, and tactical creativity matter as much as the hardware itself. It all has to go together. For Europe and the wider West, the implication is that defense strategies must shift from a narrow focus on expensive platforms toward learning systems that combine low-cost technology, rapid experimentation, and shared operational intelligence. And this knowledge already exists: Ukraine today is probably the world’s most advanced laboratory for drone warfare. Western militaries should accelerate collaboration and learning from that experience. The rise of low-cost drones and other low-end digitalized warfare technologies also forces a reconsideration of how military budgets are optimized. Rather than automatically increasing defense spending, the priority should be to reassess how military effectiveness can be maximized by reallocating resources—shifting a larger share of investment toward scalable, low-cost systems such as drones. #DisruptiveInnovation #Drones #MilitaryInnovation #DefenseStrategy #Ukraine #Security #ClayChristensen #DroneWarfare

Ukrainian instructors were shocked by the reckless use of air defense systems in the Gulf countries. According to Ukrainian military personnel, multiple missiles are often launched at a single target — up to eight Patriot interceptors costing around $3 million each — even when dealing with relatively simple threats. There have been cases where SM-6 missiles, costing about $6 million, were used to destroy inexpensive drones, even though the “Shahed” drones themselves cost roughly $70,000. In interviews, Ukrainian specialists emphasized that their approach is based on efficiency: using the minimum number of missiles per target whenever possible and avoiding the unnecessary use of expensive interceptors. “I have no idea what our allies were watching for four years while we were at war,” said Ukrainian military instructors currently in the Middle East. Notably, in the first 96 hours of operations against Iran, the U.S. and its allies used about 5,200 munitions of 35 types, including 168 Tomahawk missiles in 100 hours. Over 12 days, total costs reached $16.5 billion. According to President Volodymyr Zelenskyy, Middle Eastern countries launched more than 800 Patriot interceptors in just three days. Ukraine, over four years of war, has received just over 600 such interceptors. Rheinmetall CEO Armin Papperger noted that, at this pace, the U.S. could run out of air defense missiles within a month. It turns out that in the conflict with Iran, Washington’s main challenge is not finances but production capacity. The U.S. defense industry cannot rapidly scale output because: • missile production can take up to 36 months; • supply chains depend on critical components largely sourced from China; • there is outdated equipment and a shortage of skilled labor. The current ammunition shortage poses risks to other priorities, including support for Ukraine and the deterrence of China. Source: Anton Gerashchenko, The Times

€50 billion per year That is what it costs to close Europe’s ten most critical defence capability gaps over the course of the next decade. Roughly 10% of what European NATO members will already be spending on defence, or 0.25% of European GDP. And unlike most public spending, it pays back. Software, AI, satellite systems, autonomous platforms are not sunk costs. They generate industrial spillovers, build sovereign capability, and carry macroeconomic multipliers of up to 1.5x. The scale of the problem is hiding in plain sight. Europe runs 14 different tank types and 15 different fighter jet variants. It concentrates 70% of its defence spending on just ten contractors. In the United States, that share is less than 30%.The result: Europe achieves 30 to 40% fewer capabilities per euro invested than a consolidated state would. Putting more money into a fragmented system produces a more expensive fragmented system. This week, the United States announced the withdrawal of troops from Germany. And plans to station Tomahawk cruise missiles in Germany may not materialize after all. Is that a crisis already? It is another clarifying moment. One Europe has been postponing for decades. Today, together with Thomas Enders, Nico Lange, René Obermann and Moritz Schularick, I am publishing SPARTA 2.0: A blueprint that puts hard numbers and a clear implementation path behind what too many still treat as a political aspiration. Ten prioritized capability gaps, from command and control to satellite reconnaissance, military cloud to air defence, each with a cost, a timeline, and existing European technology ready to scale. The proof of concept already exists. Ukraine built its Delta battlefield management system from scratch in 18 months. It is now the most capable system of its kind outside the United States. Europe, with ten times the industrial base and twenty times the budget, has not come close. The gap is not technological. It is institutional. Europe has a generation of founders already building the capabilities we need. The bottleneck is the lack of political will and collaboration. We will not close our capability gaps by doing separately what only works together. Not with a European organisation, but via reliable coalitions of nation states for different security challenges. The goal is not less America, it is more Europe. A strong Europe is not a threat to the transatlantic partnership, but its future. You’ll find the link to the paper in the comments. #SPARTA2 #EuropeanDefence #StrategicAutonomy 

A significant shift from Estonia. The decision to cancel a €500M combat vehicle procurement and redirect those funds toward air defence, drones, and unmanned systems reflects a deeper recalibration of how modern warfare is understood and prioritised. This is not just a budget decision. It is a recognition that the character of warfare has changed. Lessons from Ukraine, combined with market realities and military advice, are driving a move away from platform-centric investments toward capabilities that improve situational awareness, adaptability, and response speed. At the same time, this shift comes with real challenges that cannot be overlooked. * Counter-drone capability is still developing, especially in peacetime conditions where legal and operational constraints limit response options  * The cost-exchange problem remains unresolved, where expensive systems are often used against low-cost threats * Rapid technological evolution means today’s solutions risk becoming outdated quickly, requiring flexibility in procurement and planning  * Situational awareness and “eyes and ears” capability must scale alongside decision-making and integration, not as standalone investments * Data usage and sharing must be enabled by policies * Changes in processes, delegation, doctrine and bottom-up integrations are key What becomes clear is that this is not about replacing one capability with another. It is about shifting toward systems, integration, and adaptability under real operational conditions. The direction is right. The execution will define the outcome. #Defence #Drones https://lnkd.in/dYSVW-PR

Helsing is set to raise $1.2 billion at an $18 billion valuation, oversubscribed multiple times. Anduril Industries is targeting $60 billion. European defense startups pulled in $8.7 billion in 2025, four times the level five years ago. In three years, defense has become the hottest sector in venture capital. Two groups face an uncomfortable adaptation. European VCs spent a decade screening out defense on ESG grounds while US firms built positions in Anduril and Shield AI. EU defense budgets are heading toward $800 billion a year, but the VC model needs retooling for 7-year procurement cycles, single-buyer markets, and fund durations that stretch past the standard 10 years. Today, 40 to 50% of the capital flowing into European defense tech comes from American investors. European VCs who sit this out will watch US funds take the cap tables of their own continent's champions. Public buyers face a steeper challenge. European defense procurement runs through more than 25 national systems, each with its own specs and timelines. Ukraine proved that a $500 drone can neutralize a $5 million tank, but most European ministries still channel the bulk of their budgets into legacy platforms through programs that run decades late and billions over budget. The R&D numbers tell the same story: between 2020 and 2024, the EU spent $40 billion on defense R&D while the US spent $520 billion. Europe puts 4% of its public R&D into defense. The US puts 48%. Europe has the engineering talent, the threat at its border, and the budgets. Its institutions still move in procurement cycles while threats evolve in weeks. Urgency has never been Europe's strong suit, and the cost of that gap compounds every quarter. cc Javier Ospital Cédric O André Loesekrug-Pietri⚡️NATO Innovation Fund (NIF) Ricardo Mendes Dr. Gundbert Scherf #defensetech #venturecapital #europe #newfund

A single drone is a nuisance. A swarm of many is a strategic weapon. That distinction is not being priced into most defense budgets. Drone swarms are not a future threat. They are the present threat. They have taken out armored vehicles in Ukraine, overwhelmed air defense systems in the Middle East, and exposed gaps in base security that years of procurement programs never accounted for. The threat did not wait for the defense establishment to catch up. It arrived while the last generation of budgets was still being written. The problem is structural. Most defense procurement was designed for high-value, low-volume threats: missiles, fighter jets, and tanks. The economics made sense when the threat was expensive. It does not make sense when the threat costs next to nothing and arrives in numbers that can overwhelm conventional defenses. The answer is different. A fundamentally different approach to interception. Low-cost, autonomous, expendable systems that can respond at the speed and scale the threat demands. The problem is not just how much defense budgets allocate; it is what they are built for. Procurement cycles that are not structured for this threat cannot defend against it, regardless of how much is spent. The budgets and the thinking behind them both need to catch up to the reality that is already here. The companies building that reality now will be the ones present when it happens. #DefenseTech #DroneSwarm #CounterUAS #ZENA

Western governments are entering the largest defense rearmament cycle since the Cold War. NATO is moving toward 5% of GDP on defense. The U.S. defense budget is approaching $1.5 trillion. Europe is rebuilding industrial capacity. Since October 7, Israel has effectively doubled its defense spending and production capacity. Demand is no longer the question. Financing is. Defense is not a traditional asset class. Program timelines span years, sometimes decades. Revenue is concentrated in a single buyer. A company can secure a major contract and still face a liquidity crisis before production begins. The gap between innovation and scaled delivery is now the central constraint. Capital is one reason. Experience is another. Most founders entering defense have never navigated a procurement cycle, a program of record, export controls, or the operational realities of military deployment at scale. The financial gap and the knowledge gap compound each other. Venture capital plays an essential role in early innovation. It tolerates losses and backs unproven technology. But venture was never designed to finance factories, inventory, working capital, or long-cycle production infrastructure. That requires a different layer of capital. Private credit, structured finance, and institutional lending are beginning to enter the sector. A new financial architecture is slowly emerging around defense production and strategic industry. It is overdue. Ukraine exposed the fragility of Western stockpiles. The Middle East is reinforcing the lesson. The challenge is no longer technological superiority alone. It is the ability to manufacture, sustain, replenish, and finance at scale. Israel offers a concentrated example of this shift. The country’s defense sector combines rapid battlefield-driven innovation with growing industrial demand, accelerating the development of new financing structures, institutional partnerships, and allied production capacity. Wars are no longer constrained primarily by weapons design. Increasingly, they are constrained by industrial throughput and liquidity. The money exists. The demand exists. The geopolitical necessity is clear. The missing piece is the financial architecture connecting all three. We wrote more about this in the latest issue of The Corridor, including the financial architecture emerging around defense production and industrial scale-up. Link in comments.