procedural, information systems, counterintelligence and industrial security specialists.

treaty compliance.

But I will also add that we need to be more reasonable than previously in the scope of our protection. Sometimes in the past we have simply marked a large geographical area as “off limits," thus avoiding expending survey costs of our own and avoiding the attendant problems of unwanted foreign visitors. But the new initiatives like open skies and the treaty protocols for CFE (conventional forces in Europe) and START limit such broad-brush countermeasures. We have to prove damage if programs are compromised and craft protective strategies that are in line with the activities needing that protection.

Our military strategy revolves around the concept of mobility, quality and flexibility. Consequently, with a much smaller force structure and vastly reduced spending, the core capabilities around which we encircle our protection become ever more critical to the welfare of the country. Rather than attempt to heighten the rhetoric about the threat of specific nations, we must define the essential elements of need and protect them against a range of assailants. But because we have moved from a more specific to a more general threat environment, we understand that we can no longer afford to isolate or "stovepipe" the Ci from security countermeasures and intelligence disciplines. We need to be interactive.

For example, we've already established a counterintelligence element in the unified and specified commands, many working for the J2s (intelligence). We've just established another such element, comprised of a uniformed CI representative teamed with a DIA (Defense Intelligence Agency) analyst, with the 1-2 here in Washington. And we have some CI representatives in CIA's counterintelligence center as well. In addition, each JIC (joint intelligence center) will have a Cl element. The bottom line is that both decisionmakers and military commanders need to be presented with a complete picture. And effective security can only happen through the free flow of information from the personnel, physical,

Integrated Theme

The management of our programs in DoD has reflected a similar integrated theme. In the secretary's reorganization plan this year, we placed CI, security programs and information protection activities together in C?! (command, control, communications and intelligence) so as to achieve greater interaction with defense information and with intelligence. We also hope to achieve efficiency by continuing to redirect resources, upping the program review and cutting down redundancy. To help with this, the newly established intelligence program support group was set up to assist in crossprogram analysis and program and budgeting review. And we are looking at options to consolidate the Cl and security and investigative activities into a single budget account. We are scheduled to report to Congress next summer on our findings.

In the past few months, we have heard a lot about the need to develop a stronger capability among human intelligence collectors: The Congress mentioned it, the president spoke of it in (CIA director) Bob Gates' swearing-in ceremony, and we learned it as a lesson of Desert Storm. My concern is that as we move out in this area, we build a concomitant CI capability — working with positive intelligence collectors — to verify our efforts. Otherwise, it's just so

much sand in the hour glass. We are working on other improvements in the Cl/intelligence interface as well, such as crosstraining and assignments.

Another genuine concern has been the quality of Cl and countermeasures support that we provide to major defense acquisition programs. The good news is, this is an area where we see measurable progress. Last January, the USD(A) (undersecretary of defense for acquisition) created the Acquisition Protection Office to coordinate the heretofore disparate security activities afforded major weapon systems. At the same time, defense acquisition procedures were changed to make security issues a management issue in the acquisition process. The idea was to protect a system through its life cycle.

Some excellent staff work involving a number of offices has led to a draft acquisition systems protection master plan, which was circulated for comment last week. This package brings together an integrated countermeasures approach to the product, while still being sensitive to the needs of the customer and cost. It represents a cultural change in the acquisition community, and I believe that it serves as a model for other security endeavors.

Another model of partnership has been the National Industrial Security Program. You all are probably well-acquainted with the NISP; it seeks the standardization of investigations, security forms, adjudicative standards and the like.

Cheney. ... I think it's important for everybody to remember that what we're sending to Congress technically at this point is the second half of the two-year budget that went up last year, that we're supposedly on a two-year cycle with Congress, and so normally this would be a modest adjustment to last year's package. I think you'll see, though, that it's far from a modest adjustment in light of the developments that have occurred in the world.

The package that we are sending has three major objectives: It makes further changes in line with our new national security strategy. It calls for a smaller but highly capable military that would allow us to respond to regional contingencies around the world. It does make major cuts in certain defense programs, and, of course, it does change the U.S. strategic nuclear program in certain ways.

I think the key word in all of these is the word "change," and I think it's useful to remember where we were a year ago, the last time we held one of these briefings on the DoD budget. On January 29th of 1991, allied pilots were engaged in one of the heaviest days of bombing in Operation Desert Storm, and Saddam Hussein's fighters were fleeing to Iran. Officials in the Soviet Union at that point were engaged in a crackdown in the Baltic states, in Lithuania and Latvia, hoping to prevent the Baltics from breaking away. The Soviets continued work on modernizing their strategic force, and the latest plans for economic reform had been dismissed at that point as too

radical.

The changes we've seen in the last year are truly phenomenal. The Warsaw Pact is gone. The hardliners in the Soviet Union failed in their coup attempt in August. And on Christmas day last year, the Soviet Union ceased to exist. The national security picture for the U.S. has changed substantially during that year, and the disintegration of the Soviet Union has reduced the threat to U.S. interests and eliminated the urgency for proceeding with some of our biggest and most advanced weapons programs. We now will be able to proceed with modernization at a more deliberate pace with respect to new equipment for our armed forces.

And the emergence of democratically elected governments and reformers in the republics of the former Soviet Union provides us with an historic opportunity to make further reductions in the world's strategic arsenals, as the president proposed in his State of the Union last night.

also to shape the future security environment. We built our regional defense strategy and the base force that implements it not by merely cutting down from Cold War levels but by judging what would be needed to further democracy and our national security interests in the post-Cold War world. Shaping our future security environment means more than simply accounting for changes in anticipated threats, as some have suggested. World events have repeatedly defied even near-term predictions. In early 1989, no one predicted Eastern Europe would escape Soviet domination by Thanksgiving; in early 1990, few predicted that America would be headed for war by Labor Day or that more than half a million men and women would be in Saudi Arabia by New Year's 1991.

In early '91, few predicted the Soviet Union would be gone by Christmas. In early times, we have failed to predict the Soviet development of atomic weapons, Sputnik, the North Korean invasion of South Korea or the Japanese attack on Pearl Harbor. These are significant failures of predictions of major events in very short time frames, and as time lengthens, as we have to deal with longer-time horizons, our capacities to predict grow even less precise.

The history of the 20th century is replete with instances of major unanticipated strategic shifts over five-, 10- or 20-year time frames.

Sophisticated modern military forces take many years to build and develop, and a proper appreciation for uncertainty is therefore a critical

Strategy-Building

This year's budget and the president's nuclear initiative build upon the military strategy that has been under development here in the building and within the administration since the Berlin Wall came down over two years ago. That new regional defense strategy was announced by President (George) Bush in Aspen (Colo.) August 1990, the same day that Saddam Hussein invaded Kuwait. And that strategy was designed not simply to react to reductions in the Soviet threat but

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maintaining U.S. presence around the world and maintaining the capacity to respond in a crisis will be absolutely crucial in heading off future crises and dissuading future aggressors from challenging our vital interests. That is the purpose of our regional defense strategy. That regional strategy has already shaped our future for the better. Our success in organizing an international coalition in the Persian Gulf against Saddam Hussein kept a critical region from the control of a ruthless dictator bent on developing nuclear, biological and chemical weapons and harming Western interests.

part of any realistic defense strategy that builds forces that are going to allow us to deal with crises five, 10 or 20 years hence.

We cannot base our future security on a shaky record of trying to predict threats or a prudent recognition of uncertainty. Sound defense planning seeks to help shape the future, to actually alter the future. And that's what the president's regional defense strategy seeks to do.

The containment strategy that we pursued for the last four decades successfully shaped the world that we see today. It's important for all of us to remember why we have enjoyed the favorable changes in the world in the last three years. There are a lot of causes we can point to, including the fundamental flaws of communism. But a necessary foundation for the liberation of Eastern Europe, for the phenomenal changes now under way in the former Soviet Union was the policy of containment the United States pursued through 40 years of Cold War.

Our refusal to be intimidated by enormous Soviet military power during the Cold War, our willingness to match that buildup, the fact that we deployed forces forward in Europe and the Pacific allowed democracy to develop and flourish in many parts of the world. And all of these contributed to the substantial peaceful changes that we are seeing today.

We can reduce the overall size of our forces and our defense budget in light of those changes. But it's important for us to remember that future peace and stability in the world will continue to depend in large measure upon the willingness of the United States to deploy forces overseas in Europe, the Pacific and the Middle East and to retain high-quality forces here at home.

These forces are critical to deter an attack upon the United States, to allow us to come to the aid of our friends should they again be threatened. The future may also come to depend upon others' perception of our will and our capability to reconstitute forces and to deter or defend against strategic attack, should that prove necessary.

Maintaining that posture,

Shaping the Future

We can help shape our future environment and hedge against both anticipated threats and uncertainty. We can do it safely and we can do it relatively cheaply compared to what we've spent in the past. The budget that we're sending to Congress this year seeks $267.6 billion in budget authority for the coming year. That's $10 billion below what Congress approved at fiscal year '92, a decline of 7 percent in real terms, adjusted for inflation.

This year's overall budget submission during the six-year plan from ... '92 through '97 reflects a reduction of $63.8 billion. That's $50.4 billion in program cuts and another $13.4 billion that was required as a result of adjustments in the baseline for inflation.

... I won't dwell on them. The reduction in outlays over the course of the future-year defense program is some $27.4 billion. These are indeed steep cuts in the defense budget. This budget goes significantly beyond last year's budget in terms of calling for additional reductions. Over the period 1985 to 1997, the reductions in defense spending in real terms, taking into account inflation, will be more than a third.

The budget for fiscal year '97, adjusted for inflation, will produce about the same buying power as the budget that we had in 1960, over 30 years ago, and will be close to what we had in the '74-'76 time frame after Vietnam.

... Peak year back in the Korean time frame — 57 percent of all

federal spending went for defense. Peak Reagan year, 27 percent. By the time we get down to enacting this year's program, we'll be at 18 percent of federal spending. And given the recommendations we're making to the Congress, by 1997 we'll be spending a little over 16 percent of the federal budget on defense, the lowest level since before Pearl Harbor.

... By '97 we'll be down to spending less than 3 1/2 percent of our GNP (gross national product) on defense. That compares with 6.3 percent in the mid-'80s, more than 9 percent at the height of the Vietnam War.

By any standard, the reductions in terms of the share of our total wealth that are going for defense are substantial; the portion of the nation's wealth and economic activity driven by defense spending clearly is continuing to shrink fairly dramatically.

... What happened was in the early '50s, we spent ... nearly 60 percent on defense, somewhere around less than 20 on payments to individuals. The lines crossed in the early '70s when they roughly were equal. And you can clearly see that the decade of the '70s and the '80s and now on into the '90s provides for continued significant real increases in payments to individuals by the federal government. It will be up to 61 percent by '97. Defense spending will be down to about 16 percent by 1997, just the reverse of what it was back in the early '50s.

... In a moment I'll ask Don Atwood to talk about our new acquisition strategy, because it accounts for some of the biggest changes in this year's budget. But I want to run through briefly some of the key items for you, if I can.

Soviet Breakup

This is based upon, in no small part, what's happening inside the Soviet Union. And I won't dwell on that today; I'm sure we'll have the opportunity to talk about it in the future, and we'll be happy to respond to questions as well. But the breakup of the old Soviet Union clearly has major ramifications for the military capability that that former superpower possessed. And what we're seeing now is not only

way in the department to figure out how we do that. At present we have some 13 or 14 (SSN)-688 submarines, attack submarines, in various stages of development, as well as six Trident submarines being completed. We will want to continue with the development of the next-generation submarine, the Centurion, which the Navy is currently working on, but the Seawolf itself would be terminated. The Comanche, of course, was the new helicopter for the Army. This is being shifted into a development program.

significant erosion of their military capability, a loss of the ability to project power outside their borders, but increasingly we see the kind of economic collapse as well as the kinds of policy changes now being enunciated by (Russian) President (Boris) Yeltsin that lead us to have a high degree of confidence that we are not likely to face the kind of acceleration in the quality and the technical capability of Soviet military forces in the future that we had planned on.

For years, an awful lot of our planning in the department has been based upon the proposition that we would project down the road 10 years from now what kind of Soviet air defense capability they might have or how quiet their submarines might be. And that in turn would be the framework against which we would build our own forces and our own capabilities.

The slowdown in Soviet modernization efforts, their ability to develop and field new systems with the forces, is dramatic enough so that we feel confident recommending these kinds of changes to the president, as he indicated last night in his speech.

Quickly to go down the list ... on some of the more important items: On the B-2, we are recommending to the Congress that we complete the program with a total buy of 20 aircraft. That's the 16 previously approved, and we're asking Congress to approve four more in fiscal year '93. The reason for the number four in part is based upon the fact that we've already committed long lead money for those four additional aircraft with the approval of the Congress, and this would allow us to wrap up the program. We'd continue to have to spend some money in the outyears, though, to wrap up the development and testing of the program the B-2 - and we also need to continue to spend money that's provided for in this year's budget and in the numbers you see here to give the B-2 the kind of precisionguided capability to employ precision-guided munitions that proved to be so impressive and important in the gulf.

Clearly this represents a significant shift. The president cited his

decision on the B-2 last night in connection with his efforts to persuade (the Russians) to forego development and modernization of their own strategic systems. Frankly, another factor that entered into my thinking in making this recommendation was that last year, after we went through the legislative cycle, we ended up with the worst of all possible worlds on the B-2, spending some $4 billion and not being allowed to buy any aircraft. Somebody suggested that's sort of a classic liberal approach to defense; it's a defense system that costs a lot of money and it won't kill anybody.

But the fact of the matter is we cannot afford $4 billion if we aren't allowed to do final assembly on the aircraft and actually add capability to the force.

So I would hope that Congress this year will accept our recommendation, that the critics of the program will recognize that this does involve ending the program after fiscal year 1993. We think those 20 aircraft will give us a significant capability, not only in the potential use as originally intended, for delivery of strategic nuclear weapons, but also in a conventional role. And we think that will play a very significant role. The SSN-21 Seawolf submarine we are proposing to terminate after we complete the first submarine that's now in production.

This again goes back to the question of changing developments inside the Soviet Union. We think it increasingly unlikely that the Soviets are going to be able to field in this decade ever more sophisticated submarine capabilities, and we want to continue to work on submarine technology, we want to make certain we maintain our industrial base. We've got major work under

Slowing Modernization

We will concentrate more on developing prototypes of the new helicopter and fielding those in small numbers to develop the technology and the capability, but we won't automatically move on to full-scale production as had been planned in the past. The small ICBM is being canceled, the socalled Midgetman. That again is part of the president's strategic initiative he announced last night with respect to the Soviets in the hopes that the Russians, the former Soviet Union, will in fact agree, as they apparently are prepared to do, that we can in fact significantly slow down or halt the modernization of strategic programs.

Doing this to the small ICBM, to the Midgetman, will require us to take steps to maintain the Minuteman III force. Eventually those missiles will have to be refueled; they'll need new guidance systems. But we're confident that we can in fact maintain the Minuteman 111 force and do so in a way that avoids the expenditure of a billion dollars that would have otherwise gone into the small ICBMs through '97.