This article was originally published as part of the IEDC Centennial Thought Leader Series on May 26, 2026: Economic Development in a Dangerous World – International Economic Development Council
A new global economic order is emerging, powered by profound geopolitical shifts, remilitarization and technological acceleration. These and other disruptive dynamics, complex, chaotic and still in formation, are already shaping the economic fortunes of cities, metropolitan areas, and states.
The world has, once again, become a dangerous, polarized place. As Ed Luce has written in the Financial Times, “The world is moving into a new type of great power rivalry.”[i] Russia’s invasion of Ukraine, rising tensions with China and the current US/Israeli conflict with Iran have meant that defense spending in the United States (and among its allies across the world) is on the rise.
The numbers speak for themselves. In FY 2023, annual Department of Defense Appropriations totaled $797 billion; in FY 2026, Department of Defense Appropriations had risen to $960 billion. President Trump has requested $1.5 trillion for fiscal year 2027.
Defense spending has always had outsized metro effects. The Second World War helped shape the modern economies of metros like Los Angeles, Norfolk, St. Louis, and San Diego. The Cold War that followed, and the close relationship spawned between the Department of Defense, major research universities and large industrial companies, created the global tech phenomenon that is Silicon Valley and continues to power metros as diverse as Atlanta, Boston, Dallas, Philadelphia and Pittsburgh.
Defense spending also has profound implications for the practice of economic development. While defense investments are the exclusive domain of the federal government, states and localities play fundamental roles in making the defense industrial base function by aligning strategies around land assembly, energy generation, workforce development, entrepreneurial innovation, applied research & development and even housing.
The surge in defense spending is likely to reshuffle the economic prospects of metropolitan areas in the short term and overtime. Unlike the last defense expansion in the 1980s, this period is accompanied by an exceptional period of technological innovation. Innovations in dozens of technologies (e.g., artificial intelligence and autonomy, robotics, quantum computing, additive manufacturing, advanced materials, digital engineering, cyber security, sensors and small modular reactors) are altering the kinds of weapons we build and the way we build them.
But this is not just about defense. The technologies transforming defense production are likely to permeate every sector of the economy and fuse the defense and civilian economies in unprecedented ways. Metropolitan areas that align defense production and innovation capabilities are likely to set platforms for dual-use applications of technological advances. That means defense-driven growth today and civilian-driven growth tomorrow.
It is fundamental, therefore, that cities, metropolitan areas and states incorporate defense and national security into their economic development strategies. That means three things.
First, places need to understand their position in the rapidly growing defense economy using new metrics and methodologies. To that end, New Localism Associates (the firm I founded) and Punto Data have collaborated to create new diagnostic tools that can assess a metro’s starting point with respect to federal and defense procurement; next generation technologies; and key elements of the energy transition. One part of our diagnostic: a unique database of more than 70,000 separate assets to give us precise information on the comparative role of different metro areas in the growth of the defense economy.
This is not an academic exercise. The smart reading of an economy enables a city and metro to create a customized roadmap that aligns (a) the market demand for technologies that support advanced production; (b) the locally based supply of innovation firms and research institutions that can be leveraged to respond to market signals and provide the necessary technologies; (c) the state, national or global supply of critical firms and institutions that can be recruited to a particular place; and (d) and the spatial location of innovation districts and corridors that can efficiently co-locate manufacturing companies, technology firms, applied researchers and others.
Second, places need concrete strategies and projects to take full advantage of their distinctive production and technological capabilities. This follows the oft-quoted Dolly Parton guidance “Figure out who you are and do it on purpose.”
Doug Smith, the leader of the Hampton Roads Alliance, recognized early that rising geo-political tensions and expanding defense budgets could greatly benefit his region. Home to Newport News Shipbuilding and Naval Station Norfolk, Hampton Roads’ metropolis is a critical component of the submarine industrial base and is home to distinctive (and related) assets around energy security, aerospace and logistics. Working in close collaboration with state and local governments, workforce organizations, research universities, as well as other business entities, Smith has been able to drive the creation and implementation of a “Hampton Roads Playbook” that leverages the authentic strengths of the metro. And he has been doing this with an eye towards global partnerships, cementing relationships between Hampton Roads and key defense-driven metros in Australia and the UK in recent years.
Other metros have followed suit with strategies and projects that align with their own distinctive advantages. St. Louis, Missouri, for example, is not just securing large contracts from the Air Force; it is establishing an Advanced Manufacturing Innovation Center to give Boeing and its suppliers in the defense aerospace sector the applied research and skilled workforce they need. Pittsburgh, for its part, is building an AI Innovation Corridor near Carnegie Mellon University around mature tech companies like Google and Duolingo, rapidly growing Physical AI and defense tech firms and the U.S. Army Artificial Intelligence Integration Center.
Finally, places need capital to move strategies and projects from concept to fruition. A substantial portion of that capital will, no doubt, come from the Department of Defense for military production as well as technological innovation, workforce development and a broad array of other supportive activities. But states, localities, corporations, financial institutions and private investors will play a critical role. State, local and corporate funds, for example, contributed the lion’s share of the Advanced Manufacturing Innovation Center in St. Louis. Private investors are not only fueling a venture capital surge around defense tech but also Opportunity Zone investments around production facilities and military bases. JP Morgan Chase has even launched a 10-year, $1.5 trillion initiative to invest in industries deemed critical to American economic security and resilience.
Economic development has a fundamental role to play in national security. As defense spending has surged, the alignment of production and innovation has become increasingly important, both for the Department of Defense to advance national security objectives effectively and efficiently and for metropolitan areas to leverage their distinctive position and enhance growth in the short- and long-term. As smartly observed, “Militaries very rarely decide outcomes, they win battles. [In attritional conflicts such as Ukraine], it’s economies that win wars.”[ii]
[i] Ed Luce, “China and the revenge of geopolitics,” Financial Times, 7/18/2023
[ii] Christopher Miller and Ben Hall, “Lessons from the Summer Offensive,” Financial Times, 9/15/2023
Bruce Katz is the Founder of New Localism Associates