Silicon Valley firms like Palantir and Anduril are threatening the foundations of US industrial policy even as they call for reenergizing it. What made their current bid for power possible?
Last October, on a Martin Luther–inspired website called www.18theses.com,
a software executive named Shyam Sankar published a four-thousand-word
polemic with the title “The Defense Reformation.” “As a nation, we are
in an undeclared state of emergency,” it begins. There follows a litany
of provocations: Chinese escalation in the South China Sea, Iranian
attacks on US military bases, the October 7 attacks in Israel, “an
estimated 1 million casualties in brutal combat in Ukraine.” All this,
Sankar writes, amounts to “a hot Cold War II.”
It is a war, he
argues, for which the US is catastrophically underprepared: “In the
current environment, American industries can’t produce a minimum line of
ships, subs, munitions, aircraft, and more.” The problem lies with
American capitalism in its present form, which—as Sankar lamented last year on a military podcast called The Merge—has
left legacy defense firms like Lockheed Martin dominated by
“fifth-generation MBA cadre[s]” who care more “about cash flow and
buybacks and dividends than…about the honest hard work of engineering
innovation.” Under these conditions the defense department’s subsidies
for private business, he writes in “The Defense Reformation,” have
neither “the supposed advantages of a planned economy nor the (far
superior) advantages of a free market.”
Sankar is the CTO and executive vice-president of Palantir, the start-up cofounded in 2003 by Peter Thiel that specializes in a peculiar hybrid
of big-data manipulation and McKinsey-style consulting work. Many of
Sankar’s Palantir colleagues and peers at other Thielworld
start-ups—notably Anduril, which bills itself as a pioneering disruptor
in software-heavy military hardware—have advanced a similar criticism of
the neoliberal state, bemoaning its declining interventions in
manufacturing and research and lambasting the legacy defense firms,
often nicknamed “primes,” for their sclerosis, inefficiency, and alleged
monopolistic behavior. The innovative, capitalist spirit and manly
vitalism that defined the defense department through the cold war is,
for this group, long gone. The task of the hour, as Sankar writes in
“The Defense Reformation,” is therefore nothing less than “to resurrect
the American Industrial Base.”
You might think this would mean
something like what, under the previous administration, went by the name
Bidenomics: initiatives such as the CHIPS Act or the Inflation
Reduction Act, which paled in comparison to total federal defense
spending—the combined estimated cost of those two bills, which would be
spread over a number of years, was about half the annual defense
bill—but nonetheless aimed to bring high-tech manufacturing back to US
shores. You would be wrong. “The most important and malleable weapons
system,” Sankar writes, is not missiles or other military hardware but
software, by which he presumably means technologies like large-scale
data manipulation, narrow forms of computerized optimization applied to
“smart” weapons systems and robotics, sensors, autonomous weapons
systems, and artificial intelligence.
Investing lavishly in such
technology and teaching “our warriors…to wield the software industrial
base to maximize lethality” will catalyze what Sankar has elsewhere
called a “software-driven reindustrialization” akin to previous
industrial revolutions based around water, steam, coal, or oil. For a
range of figures in the emergent defense-tech sector to which Palantir
and Anduril belong, this will require wrenching guaranteed contracts
from the bloated primes and promoting competition by having branches of
the armed services bid against one another, not to mention allowing even
more sales elsewhere. It will also require binding the state closer to a
range of tech giants—especially firms like Meta, Amazon, and
Microsoft—that have thus far, on this view, neglected their patriotic
duty to engage in defense work and profited from feminized “ad-tech”
instead.
These arguments have found a broad and receptive
audience. In recent years a range of politicians have aligned themselves
with the priorities of defense-tech firms, especially as successive
White Houses worry about a belligerent Russia, a rising China, and the
vulnerabilities exposed by Covid-induced supply shocks—all of which have
reenergized a longstanding criticism of Reagan-era political-economic
shifts that hobbled productive industries. The Obama and Biden
administrations both empowered tech companies at the expense of the
primes; Biden, skeptical of free trade and hawkish on China, courted
Silicon Valley firms that promised to bring back domestic manufacturing
and reindustrialize the rust belt and former defense hubs. But in recent
years talk about “software-driven reindustrialization” has become
especially widespread on a faction of the new right. That the Trump
adviser and conspiracy theorist Laura Loomer could rail on X against
Lockheed Martin, with its “woke agenda,” for “delivering F-35 fighter
jets that are simply not ready for combat”—and that Elon Musk could
respond to her that, in any case, “crewed aircraft will be destroyed
instantly by cheap drone swarms”—owes much to the rhetoric of Sankar and
his peers.
This new Silicon Valley defense-tech and finance
group—their grievances, ideology, and policy visions—has become central
to Trump’s second term. Several defense-tech boosters have assumed
powerful positions in the administration, most notably one of Anduril’s
former senior directors, Michael Obadal, who was just confirmed as Army under secretary, the second-highest ranking civilian official in the Army. Since January Palantir and Anduril have received many billions in contracts, with more on the way. ICE has contracted Palantir since 2011 for software it uses to enforce sanctions and make arrests, and in April signed a new $30 million contract with the company to, in The New York Times’s
words, “build a platform to track migrant movements in real time.”
Presumably the deal will help ICE’s director, Todd Lyons, realize a
vision he laid out that same month at the Border Security Expo in
Phoenix, where he said that he wants his agency to run like Amazon Prime, “but with human beings.”
These
trends show no signs of stopping. Defense Secretary Pete Hegseth has
directed the Department of Defense—now calling itself the Department of
War—to increase its spending
on software, which, he stresses, is “at the core of every weapon and
supporting system we field to remain the strongest, most lethal fighting
force in the world.” Trump has signed executive orders designed to ease restrictions on defense exports and speed up and reduce oversight of the DoD’s acquisition process. In September the army announced
a new venture-capital-style model for procurement called “Fuze.” Firms
like Palantir and their new constellation of Silicon Valley funders
stand to benefit handsomely from these developments. “We’re moving to a
software-driven, autonomous…battlefield,” the managing director for a
prominent private equity firm said at a defense summit earlier this year. “Well, if you want daily software upgrades, you gotta pay software margins.”
Few would contest that the political economy of American
defense is troubled. Defense monopolies have stifled competition;
companies have slowed their investment in production and concentrated
instead on payouts to themselves and shareholders; costs and schedules
have spun out of control. By now, as the scholar William Hartung has written,
the federal government’s ballooning defense budget goes increasingly to
“costly, dysfunctional weapons systems that are ill-suited to
addressing current challenges.” Yet venture-funded defense-tech firms
like Palantir and Anduril have positioned themselves as the solution to
these ills without any clear evidence that they can deliver on that
promise. The problem, put simply, is that they don’t have expertise in
building things. Because they are above all instruments of
financialization, designed to bring future values into the present, they
tend to be better at generating short-term profits and juicing
shareholder value than at creating durable, high-performing software or
hardware systems.
Anduril and other companies that offer
“autonomous,” AI-enhanced hardware, for instance, have by now attracted
criticism from a range of commentators: the evidence indicates that,
despite their claims to the contrary, Silicon Valley drones and
counterdrones have underperformed in Ukraine,
where fighters have tended to prefer cheaper, hardier Chinese and
homegrown drones instead. Adopting Palantir’s signature data-organizing
software, too, could have significant problems for companies and
government agencies in the long term. The software’s code is
closed-source and privately hosted by Palantir, which retains the
power—subject to the terms of its contracts and to the extent they prove
enforceable—to change, update, or terminate it. Using it as the “data backbone” for a vast and complicated system makes it distinctly costly and burdensome to switch software in the future, not to mention to train and retrain its users.
Meanwhile,
as several critics have argued, the user loses a significant measure of
control over the system itself. “The single fundamental problem with
the Palantir contract is that the government is outsourcing all of the
work to one company in one go,” a data expert told the New Statesman
earlier this year, “and what you get is vendor lock-in. The state
doesn’t understand the work, they can’t see the work…. You develop no
knowledge, no understanding of it.” On the podcast Second Breakfast, the lawyer and former Army officer Eric Robinson related
that, when he used Palantir’s software in the 2010s, “they would recode
your data ingest so you couldn’t export it again,” with the result that
“you had to pay for their tech to effectively be part of your order of
battle…. It often seems like a form of long-term rent seeking.”
In
the telling of companies like Palantir and Anduril, their innovation,
efficiency, and software expertise qualify them to jump-start a new era
of American industrial policy. But not only do they seem ill-suited for
such a task, they have publicly backed the Trump administration as it
destroys the foundations of what industrial policy the country has. Alex
Karp, the CEO of Palantir, has, for instance, denounced “wokeness” for
“corrupting and corroding our institutions,” echoing the rhetoric that
Trump and other Republicans have used to attack measures like the CHIPS
Act for including some redistributive initiatives and giving workers
benefits like child care. We are now in a situation, in other words,
where an array of right-wing firms and think tanks perversely extol the
virtues of industrial policy and American renewal even as they support
politicians and financial institutions that are currently dismantling
the infrastructure to actually do industrial policy.
How
did we get here? The answer lies, in part, in the fact that
defense-related industries like the semiconductor sector have themselves
long obscured their real relationship to industrial policy. It is a
central tragedy of the long US century that military Keynesianism—the
use of military spending to spur economic growth and enable spending on
welfare and other public goods—has been the organizing principle for the
country’s economy and social life since World War II. The defense
budget—last year’s allocation was close to $900 billion—goes not just to
weapons construction but also to a welfare state within a state:
housing, health care, and social services. It funds a great deal of
civilian industry, from wooden pallets to satellites and smartphones,
not to mention research fundamental to the US economy
and some degree of economic redistribution. Because of its sheer scale
and reach, defense spending is unique in its ability to facilitate
regional coalitions across party lines by directing funding to specific
geographical targets: state-specific projects, bases, consortia, and so
on....
