Europe is going to spend a lot of money on defense. Whether we like it or not, it’s a reality that will be with us in the coming years. In this article, we propose a path for public administrations—especially Spain’s Autonomous Communities—not only to contribute to Europe’s security goals, but also to boost their industrial competitiveness and innovation.

In the rush to spend these funds, we could try to create a “national champion,” or at most a few regional players focused exclusively on developing military technologies. Or we could use this opportunity to foster an open innovation ecosystem, where public spending strengthens the dual-use (civilian and military) deep-tech sector.

For us, the strategic choice for our country is clear.

First, a very brief historical recap for the skeptics. In the 1950s and '60s, large investments in defense and aerospace generated technologies that power today’s economy: GPS, the internet, and semiconductors, among others. It’s the well-known story from Mariana Mazzucato’s The Entrepreneurial State. The state set the vision with clear objectives, committed resources, and developed internal capabilities. Industry responded, and the civilian economy benefited for decades. Over time, however, the sector lost its innovative edge due to procurement processes that were complex, slow, and opaque. The result: a market concentrated in a few companies with little incentive to innovate. The big prime contractors—the primes—lost their innovative drive, and both defense technology and its civilian spillovers lost momentum.

This lack of innovation has been at the center of debate in the United States for some time, although in recent years the situation has changed. New players like SpaceX and Anduril—alongside many small and medium-sized companies—have managed to break into a market that once seemed closed. The geopolitical context has created a sense of urgency for the country to stay at the cutting edge of technology. To achieve this, the U.S. government is promoting more agile and open investment and procurement processes.

The result isn’t only military: these companies are changing entire sectors, from space access to data analytics. Prime contractors have also become more innovative, collaborating with new firms by providing sector expertise, systems integration capacity, and the scale required for mass production.

Spain should take note. Do we concentrate resources on a single large military technology company attempting to compete globally, or do we bet on a broad ecosystem of actors that drives innovation beyond just the defense sector?

International experience—especially that of the United States—shows that the most fertile path is a hybrid model in which large integrators coexist with a diverse network of startups, SMEs, universities, and investment funds. From that interaction emerges not only defense capability, but also dual-use innovation that impacts civilian industries and, ultimately, national competitiveness.

At this point, someone will rightly object that Spain is not the United States—that we lack the track record, the budget, and the scale. True, but that doesn’t mean there aren’t useful models to replicate. We may not be able to create a DARPA or channel private funds at the scale of American Dynamism, but we can be smarter and more strategic at our own scale.

The money will be spent either way—so let’s spend it well.

What can we borrow from the best international playbook? First, open dual-use technology procurement by the Autonomous Communities and the State to tech SMEs; second, set incentives that reward outcomes (timelines, milestones, total lifecycle cost), not billable hours; third, adopt dynamic acquisition systems for AI, software, drones, and secure communications with short award cycles. The Tradewinds marketplace in the United States is a strong model with excellent results: contracts awarded in an average of 51 days, with 88% of awards going to non-traditional vendors in 2024. Why not establish a “Tradewinds for Dual-Use Technologies” under Spain’s Public Sector Contracts Law?

We are not starting from scratch—Spain already boasts success stories. In 2023, PLD Space launched Europe's first private rocket; SATLANTIS leads in high-resolution optical payloads for Earth observation; XRF is our version of Anduril. What these companies need isn’t another subsidy, but rather contracts aimed at solving clear operational problems, open requirements, and in-context testing with subsequent adoption.

The opportunity extends to the civilian sphere: low-Earth orbit (LEO) communications, emergency monitoring and response systems, sensors, cybersecurity, data infrastructure, and the drone industry. All of these have direct applications in energy, emergency management, agriculture, ports, and smart cities. Brussels is calling for scale and European interoperability. If Spain aligns its national agenda with EU instruments, it will maximize the impact of every euro spent and generate highly skilled jobs.

The worst mistake would be to succumb to inertia and spend it all on a few incumbent contractors through closed contracts and lax metrics. That suffocates new providers and leaves us with neither innovation nor security. The best path is a hybrid ecosystem with clear rules—an open system that incentivizes both competition and collaboration between large and small players—backed by metrics tracking the proportion of awards going to non-primes and the conversion rate from prototypes to scaled acquisitions.

If we do this, in three years Spain will have greater capabilities, stronger exports, and increased resilience.

The window of opportunity is open. Let’s make the most of it.

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*Guest author: Fernando Fernandez-Monge. Senior Associate at the Bloomberg-Harvard City Leadership Initiative.

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