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 industry’s 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 on developing exclusively 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.

We’re clear on which option is strategic for our country.

First, a very brief historical recap for the skeptics. In the 1950s and 60s, large investments in defense and the aerospace industry generated technologies that power today’s economy: GPS, the internet, and semiconductors, among others. It’s the well-known story from Mariana Mazzucato’s Entrepreneurial State. The state set the horizon 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 the defense sector and its civilian spillovers lost traction.

This lack of innovation has been at the center of the debate in the United States for some time, although in recent years the situation has changed, and new players like SpaceX and Anduril—alongside many medium-sized and small companies—have managed to break into a market that seemed closed. The geopolitical context has created a sense of urgency for the country to stay at the cutting edge of technology. And 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 access to space to data analytics. The primes have also become more innovative and now collaborate with new firms by providing sector knowledge, systems-integration capacity, and the scale without which mass production is impossible.

Spain should take note. Do we concentrate resources on a single large military technology company capable of competing on an international scale, or do we bet on a broad ecosystem of actors that, in a distributed way, drives not only military innovation?

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, the country’s competitiveness.

At this point someone will rightly say 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 examples to replicate. Perhaps we can’t 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.

We are going to spend—so let’s do 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 life-cycle 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 example with excellent results: contracts in an average of 51 days and 88% of awards going to non-traditional vendors in 2024. Why not a “Tradewinds for Dual-Use Technologies” under Spain’s Public Sector Contracts Law?

We’re not starting from scratch—Spain already has successes. In 2023, PLD Space launched the first European private rocket; SATLANTIS leads in high-resolution optical payloads for Earth observation; XRF is our Anduril. What these companies need isn’t so much another subsidy but contracts aimed at solving clear operational problems, open requirements, and in-context trials with subsequent adoption.

The opportunity is also civilian: low-orbit communications, monitoring and response systems for emergencies, sensors, cybersecurity, data infrastructure, the drone industry… All of it has applications in energy, emergency management, agriculture, ports, and cities. Brussels is calling for scale and interoperability at the European level, so if Spain also aligns its national agenda with EU instruments, it will multiply every euro and generate highly skilled jobs.

The worst mistake would be to go with inertia and spend it all on a few contractors through closed contracts and lax metrics. That suffocates new supply 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—accompanied by measurement of the percentage of awards to non-primes and the conversion rate from prototypes to scaled acquisitions. If we do this, in three years Spain will have more capabilities, more exports, and greater resilience.

The window 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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