How Capital Markets Can Revive the Defense Industrial Base

By BENS Board Director Frank Finelli and Member David Bonfili, published in The National Interest. All rights reserved.

“The Department of Defense and Wall Street can work together by harnessing the strength of American financial markets to rebuild defense manufacturing.”

The United States faces a formidable financing hurdle as it races to reorganize and expand its defense industrial base while addressing new military demands and technological challenges. To keep pace with China, it needs to pursue new weapons systems and develop large-scale production capabilities. Supply chains and infrastructure must also be reinforced. However, Washington faces rising national debt, budget deficits, and political controversy over disbursing limited fiscal resources across a broad spectrum of priorities—not just defense. 

The United States cannot afford to rely solely on annual congressional appropriations for its defense needs. Fortunately, Washington possesses another unique funding source available for needed defense transformation. A source no other country in the world can match: our country’s deep and broad capital markets. 

When it comes to raw capital available for investment, the United States holds an overwhelming advantage over China. US public equity markets are over four times bigger than those of China. In fact, the United States accounts for more than 40 percent of the world’s combined equity and fixed income markets. By accelerating its efforts to take advantage of these markets, Washington can generate vast amounts of outside capital for critical defense investments to relieve pressure on congressional fiscal budgets and national debt. However, Washington must work with and understand the profit return expectations that drive the private financial sector.

Photo via The National Interest