WASHINGTON, (CNN) — WASHINGTON (CNN) -- Defense Secretary Chuck Hagel quoted President Dwight D. Eisenhower Wednesday, telling rising military officers "the wise and prudent administration of the vast resources required by defense calls for extraordinary skill."
In his first major policy speech since taking over the Pentagon, Hagel focused on the budget problems facing the Defense Department and the rest of the government.
"A combination of fiscal pressures and a gridlocked political process has led to far more abrupt and deeper reductions than were planned for or expected. Now DoD is grappling with the serious and immediate challenge of sequester -- which is forcing us to take as much as a $41 billion cut in this current fiscal year," Hagel said at the National Defense University at Fort McNair.
He warned that much of the burden of that fiscal pressure will fall on defense employees.
"Fiscal realities demand another hard look at personnel -- how many people we have (military and civilian), how many we need; what these people do, and how we compensate them for their work, service, and loyalty with pay, benefits and health care," Hagel said.
The secretary warned that furloughs could have an impact in the Pentagon.
"Across-the-board reductions of the size we are looking at will demand that we furlough civilian personnel, which could affect morale and may impact productivity."
But Hagel said the answer is not, as is often proposed, running the Defense Department like a business. "The military is not, and should never be, run like a corporation. But that does not mean we don't have a good deal to learn from what the private sector has achieved over the past 20 to 30 years."
Hagel is concerned about the growing percentage of the department's budget that goes toward troop and employee pay and health care. "DoD could transform from 'an agency protecting the nation to an agency administering benefit programs.'"
Budgets weren't the only topics Hagel discussed.
The secretary told the audience he had a long conversation with China's new defense minister, Gen. Chang Wanquan.
"I think we can continue to build a strong relationship with China, with our differences. And there are significant differences. But there are too many common interests for both our countries. ... I think the Chinese have shown their leadership to be steady, wise, careful," Hagel said.
He also discussed threats posed by North Korea.
"They have nuclear capacity now. They have missile delivery capacity now. And so as they have ratcheted up her bellicose, dangerous rhetoric -- and some of the actions they've taken over the last few weeks present a real and clear danger and threat to the interests, certainly of our allies, starting with South Korea and Japan; and also the threats that the North Koreans have leveled directly at the United States regarding our base in Guam, threatened Hawaii, threatened to the West Coast of the United States," Hagel said.
"As secretary of defense, and I think beginning with the president of the United States, and all of our leaders, we take those threats seriously," said Hagel.
In spite of the concern about fiscal issues, Hagel reminded officers in the audience that the Defense Department's main goal remains protecting the country.
"The goal of the senior leadership of this department today is to learn from the miscalculations and mistakes of the past drawdowns, and make the right decisions that will sustain our military strength, advance our strategic interests and protect our nation well into the future."
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