and 600 respectively. The chance of success is estimated to be 50 per cent for both the HC-500 and HC-600 developments, so that the expected payoffs, if each is developed alone, are 150 and 250 respectively. The expected payoff for developing both, however, is more than half the estimated payoff if both developments are successful. With the assumed probabilities there is one chance in four that both will be successful (payoff 600), one in four that neither will succeed (payoff o), one in four that only the HC-500 (payoff 300), and one in four that only the HC-600 (payoff 500) will be successful. The average expectancy is 350. In the example the preferred alternative is to develop both, which promises an expected net return worth 200 50 more than if only the HC-600 is developed.

Two points must be stressed in connection with this example. First, there is a spurious air of precision about the figures in the table. All are the roughest kind of estimates. The uncertainties clouding the estimated payoffs have been discussed in Chapters 8, 10, and 11. There are similar uncertainties regarding development costs, which frequently exceed estimates by factors of two, three, or more. And the 50 per cent estimate of chance of success is obviously a shot in the dark; clearly there are degrees of success, and also clearly the chance of success is a function of the cost of development of how much we are willing to pay to insure success. Most developments can be made successful if we are willing to spend enough time and money on them. Moreover, entries in the table will usually be more uncertain, not less, when we are concerned with weapon systems rather than cargo transports. The HC-500 and HC-600 are apparently fairly straightforward advances on earlier transports. Their payoffs are essentially of the cost-saving variety. If the physical and performance characteristics of the transports are about as predicted, there is little doubt that these economies (payoffs) will in fact be realized. The weapon system, however, may well represent a considerably greater advance in the state of the art, which will make the outcome as well as time and cost highly unpredictable. Moreover, there is likely to be great uncertainty regarding the military worth of the performance characteristics even if these turn out as predicted-for reasons elaborated in Chapter 10. We cannot really know in 1960 how much it will be worth in a bombing campaign in 1970 to have bombers that will fly at Mach 4 rather than at Mach 2. The worth will depend upon the character of, say, Soviet air defenses in 1970, which will depend in part upon the success of Soviet developments not yet undertaken. Mach 4 might make the difference between being able to penetrate and not being able to penetrate; or it might have trivial or even negative20 value.

20 Infra-red devices are more effective in detecting the higher speed power plants and in directing defense missiles into them.

Nevertheless, development decisions regarding bombers to be operational in 1970 have to be made in 1960 — or earlier. Calculations of the kind reflected in Table 22 are worth making as an aid in the decision process provided the uncertainties and biases in the data are recognized. In many realistic complex cases the problem will be more closely analogous to choosing a strategy that leaves no soft spots than it will be to a simple optimizing calculation. We want something in development to cover the contingency that the Russians will be strikingly successful in developing infra-red, and something else to take advantage of opportunities if they are not. What is a "good" way of providing both, and at the same time of taking care of other "important" contingencies?

21

The same kind of economic calculus can sometimes be helpful in estimating the utility of developing components, or improved materials, fuels, and so on. One assumes successful development, and then compares weapon systems using the new component or material with weapon systems not using it. What, for example, is the worth of a new higher energy fuel for jet aircraft? As a first approximation, it is the difference between the cost of achieving objectives without the high energy fuel, and the cost of achieving the same objectives with it. If the fuel can be used in existing engines, the calculations involved are, of course, simple — although greater savings may be achievable later in engines specially designed to take advantage of the new fuel. If the new fuel can be used only in specially designed engines, and the engines only in specially designed aircraft, the benefits can only be realized in the more distant future, which means that the calculations may be difficult and the uncertainties large, but no new principle is involved.

If several alternative developments are capable of achieving the same military objective as lighter-weight structural materials, higher-energy fuels, and boundary layer control can extend the range of bomber aircraft economic calculations of a similar type can indicate how great an improvement in each case is necessary to save the extra billion dollars that would have to be spent to extend the range by simply building larger, heavier, more expensive bombers. Expert technical opinion might consider some of these improvements much cheaper or easier or more certain of development than others. Despite the unreliability of this kind of expert opinion, hard choices among development alternatives sometimes have to be made, and a rational choice has a better chance of being right than a blind one. The important thing is to avoid the naive assumption that the problem is to choose the one best alternative. The simultaneous development of two or more of the possible choices is frequently preferable to developing only one- no matter how superior it appears to the experts.

21 See Chapter 10, pp. 198-199.

The CHAIRMAN. While you were ill and away from your office, your office concurred in the directive of Secretary McNamara on March 6th.

Now, since then you have gotten well and have had a chance to look that over. Have you disagreed with your office in its action, concurring, or what is your present view on that?

Secretary HITCH. It would be an exaggeration to say that I have had an opportunity to look the matter over since I got back. I and my office have been engaged 12 hours a day and more on the revisions of the fiscal year 1962 budget which is our current major assignment and I really have not had any time nor opportunity to go into this order and into its background.

I have stated my general views about it in a statement that I have made. I don't think I have anything to add. I do not feel that I am in any way against this order. I think how it operates depends upon how we make it operate and I think it is perfectly possible with this order to make it operate right.

The CHAIRMAN. It would seem to me it might be a little difficult for you as Comptroller to handle the affairs of your office if you don't know the general directives of the Defense Department covering such vital matters as this.

I am just observing that. It is not necessary, if you don't want to, to answer it.

Secretary HITCH. Oh, no, sir. I certainly keep in touch with all of the directives of the Defense Department, but we do have a lot of very special responsibilities in the Comptroller's Office. They are enough to keep us very busy. The Comptroller of course, is interested in everything because everything involves money, but I don't think it is good management for us to be taking positions and throwing our weight around in matters that are the primary concern of the other parts of the Office of the Secretary of Defense.

The CHAIRMAN. Now, Mr. Miller has an article he wants to read into the record at this point.

Mr. MILLER. Mr. Secretary, I just wanted to quote from page 258 of your book, "The Economics of Defense in the Nuclear Age," because I think this is the one that precedes the statement that you made

w. At a higher level, how can we make good use of inter-Service and interagency competition while curbing its undesirable features? There is, in our view, no question that inter-Service competition serves a valuable roleparticularly with respect to research and development. Like other competition, it provides a powerful stimulus to thought and action, and a safeguard against bureaucratic rigidities. It provides a number of alternative sources of support for scientists, inventors, and firms with new and unpopular ideas to be tested (and almost all great ideas were unpopular when new). If inter-Service rivalry did not exist, we would be forced to invent something very like it.

Is that a correct quotation?

Secretary HITCH. That is a correct quotation and I do not disagree with anything in it.

Mr. MILLER. Thank you. I did not think you did.

Some compliments were paid to Admiral Rickover a minute ago. I would like to pay the same compliment to you. I think you will have courage enough to stand up.

If Admiral Rickover hadn't been a stout-hearted guy and a dedicated man, he would have been pushed aside long ago and we would still be floundering for the Polaris.

The CHAIRMAN. And the nuclear submarine.

Mr. MILLER. The nuclear submarine and the things that go with it. And in all this same period the Air Force hasn't given us one-is just emerging while this thing is on the books and is tried out. And I hope we never lose sight of the fact that inter-Service rivalry is good. Now, you heard the question that I asked the previous gentleman on the stand, Mr. Gilpatric. We are concerned primarily with research and development in this committee. Do you believe that this order, as far as research and development is concerned, is not going to have a dampening effect upon the scientists and the young officers, the young men that we have to look to for the next generation in the Army and the Navy?

Secretary HITCH. I certainly hope it will not, and I think it can be operated in a way in which it will not.

Mr. MILLER. When you say you hope it will not, you imply it may do that.

Secretary HITCH. Yes, sir, there is a danger in almost any course that you take.

Mr. MILLER. When I spoke of some ivory towers in the Pentagon a few moments ago, I should have said most of these ivory towers are found in the Air Force.

The CHAIRMAN. Mr. Fulton, have you any questions?

Mr. FULTON. We are glad to have you here. With your having been absent, of course it brings up the question, what consideration did your office give to this proposed directive, because it has such far-reaching implications in the Department of Defense?

Was full discussion and agreement reached so that you are prepared to say that this from a budgetary point of view is good?

Secretary HITCH. No, I would say, sir, that we had no objections to it from a budgetary point of view. The budgetary implications are implications that are going to cause us no trouble. We can handle these within the framework of the budgetary and accounting system. Mr. FULTON. You don't think ARPA as now set up is really a duplicating agency with the Air Force because they by statute have been given a broad responsibility for research and development overall in the Department of Defense? Had you considered that?

Secretary HITCH. They under present directives have responsibility for basic research in this area. But as soon as a project is ready for systems development as I understand it-in the past, it has been assigned to one of the Services.

Under this directive it will, except in unusual circumstances, be assigned to the Air Force. That is the change this directive makes.

Mr. FULTON. From your point of view on this statement, the effect of the directive is simply to have everything channeled to the Air Force where previously the Secretary of Defense was assigning to various departments and Services as the particular situation came up, was he not?

Secretary HITCH. Yes, sir. As far as the assignment of systems responsibility is concerned, that, as I understand it, is the effect of this directive.

Mr. FULTON. What budgetary circumstance would cause these unusual circumstances where it would not be assigned—a project would not be assigned to the Air Force?

Secretary HITCH. Well, sir, my own understanding would be that these unusual circumstances

Mr. FULTON. I would rather have the official understanding, not your own.

Secretary HITCH. Yes, sir.

My understanding would be that these unusual circumstances would be connected with roles and missions and not with any budgetary consideration.

Mr. FULTON. So actually on this particular directive, then, you felt it did not apply to the Comptroller's Office or the budget, and you just took no position really one way or another. Isn't that just about it?

Secretary HITCH. No, sir, that is not quite it. I didn't say that it did not apply.

Mr. FULTON. Then will you tell us how it does apply? I am trying to determine how your office is connected.

Secretary HITCH. I felt that the primary responsibility here lay with the General Counsel who has been assigned responsibility by the Secretary for organizational changes.

This is clearly an organizational change. Among the offices of the Secretary of Defense it is the primary responsibility of the Director of Defense Research and Engineering. The interests of the Comptroller in this particular order were quite secondary.

Mr. FULTON. In order to know what the background was which your office was working with at the time it made its approval of this directive, did your office or any member of it know that General Lemnitzer, as the Chairman of the Joint Chiefs of Staff on March 2nd, 1961, just prior to this directive, had submitted a statement, and it was in opposition to the draft directive on the assignment of space development?

Secretary HITCH. No, sir; we did not know that, and our own concurrence was sent in on that same day, on March 2nd.

Mr. FULTON. What time did your office have to make the concurrence from the time you were first submitted the form of draft director?

Secretary HITCH. I can't give you that answer offhand, sir. I would be happy to provide the answer.

(The information reported is as follows:)

A preliminary version of a proposed DOD Directive pertaining to "space" referred for review under date of February 23, 1961, was received by the Office of the Assistant Secretary of Defense (Comptroller) on February 24, 1961, and the ASD (Comptroller) comments and recommendations thereon were submitted to the General Counsel by memorandum dated March 2, 1961 and delivered to the Office of the General Counsel on the evening of March 2, 1961.

Mr. FULTON. Was it important enough to check with you in the hospital to give you the opportunity to say "Hold it until I get back”? Secretary HITCH. No, sir. Many things were checked with me, but this particular one was not.

Mr. FULTON. Do you think this is of high importance in the Department of Defense because it does change the structure of operation