How the Pentagon seeds small companies

How the next wave of technology is upending the global economy and its power structures

Jul 31, 2023 View in browser   By Lawrence Ukenye   POLITICO’s new daily tech podcast launches on Wednesday — sign up here.   The Pentagon. Alex Wong | Getty Images The Pentagon’s future relationship with AI got a little clearer last week when the Senate — after managing to sidestep a minefield of social issues — passed its version of the National Defense Authorization Act, complete with some new mandates for the Pentagon’s effort to acquire and develop AI technology. With its huge budget and must-pass annual bill, the Pentagon has become a key vehicle for setting some federal rules and expectations around AI, especially with Congress making little progress on broader AI regulations. Some of the NDAA’s provisions were introduced as amendments by a bipartisan group of lawmakers, and require the military to monitor and safeguard against vulnerabilities in its AI systems, create a process for sharing data, and update its AI acquisition procedures. None of this is a done deal. Both chambers still need to debate their versions of the bill, a faceoff heightened this year due to the House’s flurry of culture war NDAA provisions. Other defense AI ideas are still in limbo, such as a law introduced last month to analyze how the U.S. fares against its adversaries on AI. One of the big questions for the Pentagon is how one of the largest federal agencies actually buys AI. As Mohar Chatterjee has reported for POLITICO, the military has struggled for years with emerging tech, and some legislators see this bill as a chance to add some key reforms that will make the process quicker and smoother for young companies that often struggle to deal with the Pentagon’s procurement rules. Sometimes, those ideas can work together with other government programs to encourage smaller companies to participate. Like other agencies, the Pentagon also awards R&D grants to small companies through the Small Business Innovation Research program. Today, a small California-based tech company that received SBIR funding, Qylur Intelligent Systems, is touting itself as one of the program’s success stories: It’s announcing it received a Phase I contract from AFWERX, the Air Force’s innovation arm, which was created in 2017 to foster innovation within the service, and now has a budget of more than $1 billion. Qylur’s experience with military contracting has been an indication of what frustrates small companies trying to work with the Pentagon: “It's just a nearly impossible thing to do,” Qylur founder and CEO Lisa Dolev said in an interview. “The processes are onerous for a small company. The timing can kill a small company.” She calls the AFWERX program a “complete game changer” that made it possible to navigate the process. It’s the kind of contract many in Washington hope the Pentagon can keep writing. The department’s biggest contractors have become large enough to worry military leaders, including Deputy Secretary of Defense Kathleen Hicks, who told lawmakers during her confirmation hearing in 2021: “Extreme consolidation does create challenges for innovation. We need to have a lot of different good ideas out there. That’s our competitive advantage over authoritarian states like China, and Russia.” “What you really don't want,” said Gregory Allen, with the Center for Strategic and International Studies, in an interview, “is companies who are winning because they can accommodate working within the limitations of the Department of Defense, or because they're familiar with using outdated technologies.”   YOUR TICKET INSIDE THE GOLDEN STATE POLITICAL ARENA: California Playbook delivers the latest intel, buzzy scoops and exclusive coverage from Sacramento and Los Angeles to Silicon Valley and across the state. Don't miss out on the daily must-read for political aficionados and professionals with an outsized interest in California politics, policy and power. Subscribe today.     A U.S. Space Force major’s very public crusade to get the Pentagon to start mining Bitcoin has suddenly gone dark. In March, DFD took a look at a book by Major Jason Lowery arguing that the U.S. military should make the original cryptocurrency a part of its cyber warfare strategy. “Softwar,” a self-published reproduction of an MIT master’s thesis, peaked earlier this year as the best-selling technology book on Amazon, but new copies are no longer for sale. On Thursday, Lowery tweeted, “I was ordered to take SOFTWAR down & asked to stop talking about the subject publicly. Doesn't appear on MIT's library either.” Lowery’s activism was remarkable for the outspokenness with which a uniformed military officer publicly criticized Bitcoin skeptics in the government, and the lengths he went to promote his unorthodox ideas about the technology. The major, who engaged in attention-grabbing feuds with critics on Twitter, has compared himself to former U.S. Army Brigadier General Billy Mitchell, who was court-martialed for insubordination in 1925 over his public crusade to force the U.S. to invest in air power. Also notable: The book thanks Air Force General C.Q. Brown for encouraging Lowery’s research. In May, three months after the book’s publication, President Joe Biden nominated Brown to serve as chairman of the Joint Chiefs of Staff. The Pentagon did not respond to questions about Lowery’s tweet or the alleged role Brown — whose nomination is pending before the Senate — played in his research. Lowery also did not respond to a request for comment. But the major’s Thursday tweet implies that his Bitcoin crusade continues in private: “Can't talk details,” he wrote, “but things are good & I'm working hard behind the scenes.” —Ben Schreckinger The perils of 'dumb AI' Amid all the concern about how smart AI is getting, here’s an interesting warning about “dumb AI.” In an interview with POLITICO’s Nahal Toosi, the Open Society Foundation’s Laleh Ispahani says that’s her bigger worry when it comes to the threat to democracy: "We can make strides [to protect democracy] already if we focus on two things. One is what I call dumb AI and another is basic privacy laws. Even as we track the debate and evidence on generative AI … we should and can do something about the kinds of tech tools that are already being used to deny opportunities, expand discrimination and really harm marginalized populations. "I’m talking about tenant-screening algorithms that deny housing, facial recognition tools that misidentify people of color at far higher rates, worker management tools that invade privacy and incentivize employers to ignore safety in the name of higher profit." Read the rest of the interview here.   HITTING YOUR INBOX AUGUST 14—CALIFORNIA CLIMATE: Climate change isn’t just about the weather. It's also about how we do business and create new policies, especially in California. So we have something cool for you: A brand-new California Climate newsletter. It's not just climate or science chat, it's your daily cheat sheet to understanding how the legislative landscape around climate change is shaking up industries across the Golden State. Cut through the jargon and get the latest developments in California as lawmakers and industry leaders adapt to the changing climate. Subscribe now to California Climate to keep up with the changes.     THE FUTURE IN 5 LINKS A PC-maker gets in on generative AI. Pen America has a new white paper out on the looming threat to writers from AI. More on the cryptographic solution to tagging AI-generated content, which we wrote about in April. Behind the scenes on building Threads. A $1.5 billion European space telescope works. Stay in touch with the whole team: Ben Schreckinger (bschreckinger@politico.com); Derek Robertson (drobertson@politico.com); Mohar Chatterjee (mchatterjee@politico.com); and Steve Heuser (sheuser@politico.com). Follow us @DigitalFuture on Twitter. If you’ve had this newsletter forwarded to you, you can sign up and read our mission statement at the links provided.   Follow us on Twitter Ben Schreckinger @SchreckReports Derek Robertson @afternoondelete Steve Heuser @sfheuser   Follow us

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