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This paper presents the text of the keynote address at the Electronic Industries Association Symposium on Balancing National Security with Realities of the 1990s: Ten-Year Forecast of Defense Needs, at Coronado, California, October 16, 1990. The author reviews the evolving geopolitical environment, the dynamics of the defense budget, and the condition of the defense industry. He derives four lessons for defense policymakers: (1) the conventional view that the defense industrial base consists of those private companies currently doing business with the Department of Defense (DoD) is outdated; (2) to satisfy its future needs, the Pentagon may have to turn to companies that are not currently doing business with it, and the barriers to entry and reentry into the defense sector should be minimal; (3) the DoD must make it a top priority to develop ways to detect erosion of defense industrial capability and estimate its magnitude; and (4) the government must find a way to maintain incentives for innovation even as procurement funding falls.

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