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A farewell to arms exports

The arms industry has changed dramatically since the end of the cold war. But British government policy, including subsidies and promotion of arms exports, hasn't. Nicholas Gilby looks at the changes and the state of the arms industry today, and considers the implications for campaigners

November 7, 2009
11 min read

Times have changed. In the late 1970s, the British government controlled a nationalised company called British Aerospace. These days, its modern incarnation, BAE Systems, appears to control the government.

BAE famously – and successfully – campaigned to get a corruption investigation into its biggest contract, for the Saudi royal family, dropped. And now, with politicians scrambling to propose deep cuts to public services, it seems BAE’s big contracts are invulnerable. Former Tory Quentin Davies MP, now a Labour minister for defence procurement, said in August: ‘The defence review is the servant, not the master, of defence procurement … Under no circumstances will we be holding up any long-term programmes for the strategic defence review.’ In other words, regardless of the country’s needs or wants, we will keep shovelling billions of pounds of taxpayers’ money at BAE.

So how else has the arms industry changed in recent decades? During the cold war, military spending grew rapidly. The major Nato and Warsaw Pact countries had their own arms industries, producing weapons for themselves. In some countries the arms companies were state owned; in others they were privately owned but subject to government direction. So in Britain, the government picked Rolls Royce as the ‘winner’ to make military jet engines in the 1960s and backed its takeover of Bristol Siddeley. In 1977, several companies were merged into the nationalised British Aerospace.

At the end of the cold war, global military spending fell by about a third. This heavily influenced the shape of the industry we see today, prompting a wave of rationalisation. The US had more than 50 major arms companies in the early 1980s, but only five two decades later. In Britain, British Aerospace slowly took over other British arms companies. Its mergers and takeovers of GEC/Marconi, VSEL, Alvis and others means BAE Systems is now the only company in Britain making major weapons systems.

Rationalisation

The rationalisation of the past 20 years has produced a clear hierarchy of arms production in the world. At the top are enormous companies, mostly American, which produce the world’s modern major weapons systems and survive mostly off the massive Pentagon budget. Beneath them is a long chain of specialist suppliers that produce the electronics, nuts, bolts and other parts that the major companies ‘integrate’ into the finished products. Other companies produce lower-tech weapons that can be bought cheaply by governments in the global South.

The emergence of this hierarchy has meant that the major companies source what they need from wherever the cheapest and best components are to be found. Hence the arms industry has become more globalised, with many more countries than previously hosting companies integrated into the international arms market.

Many governments buying weapons systems from the major companies now want access to the technology for companies in their own countries. So technology transfer and/or local production is now often a condition of major arms deals. For example, 42 of the 66 BAE Hawk aircraft being bought by the Indian government are being built under licence in India. Similarly the Saudi government wants some of its new Eurofighter aircraft to be made in Saudi Arabia rather than at BAE’s factory in Warton, Lancashire.

Pressure on military budgets has driven this process of globalisation. In an effort to keep costs down, many governments have opened up their procurement so that companies from all over the world can compete for arms contracts. This has enabled a more globalised supplier base, as companies are no longer necessarily dependent on their home governments for business. BAE, for example, earns more money from the Pentagon than it does from the Ministry of Defence.

Modern warfare involves high-tech weapons controlled by sophisticated communications and sensor systems, so increasingly the arms industry uses commercially-available systems, such as digital signal processors and microwave chip technology, in its hardware. Many mainstream technologies have become ‘dual use’ and many traditionally ‘civil’ companies have become suppliers to the arms industry.

The arms industry thus in many respects resembles other major manufacturing industries in our globalised world. Intense competition, the rapid pace of technological change, long supply chains and outsourcing are as much part of the arms business as they are any other.

Governments, knowing there is little real public appetite for high military spending, have tried to encourage and manage the rationalisation of the industry. In Europe the EU has been trying to create a European arms market to rationalise production. For instance, in 2005 there were 23 national programmes for armoured fighting vehicles in the EU. The European Defence Agency was created in 2004 to promote the rationalisation of Europe’s arms industries and create a counterweight to the big US arms companies. So far it has been unsuccessful.

During the cold war, in order to save money, countries often collaborated to produce weapons systems. For example, Britain’s Jaguar and Tornado aircraft were manufactured with other European countries. This sort of collaboration continues today. Britain’s latest jets, the Eurofighter and the Joint Strike Fighter, are made by consortia of countries, while the European agency OCCAR (the Organisation for Joint Armament Cooperation) manages some procurement on behalf of Belgium, Britain, France, Italy, Germany and Spain.

Keeping it British

The UK government’s traditional policy has been to maintain a British arms industry to give itself ‘military freedom’. If Britain relied on arms imports, so the argument goes, then supplier countries could get increased influence over Britain’s foreign policies. Promoting arms exports through subsidies and a dedicated government sales organisation enables longer production runs, bringing cost savings to the Ministry of Defence budget.

The government remains committed to guiding the development of arms production in Britain, and produced a defence industrial strategy as recently as 2005. But now the emphasis is on capabilities – in other words the know-how for certain ‘critical’ military technologies, such as submarine manufacturing.

The nature of modern arms production is such that British arms companies source many components from abroad to make weapons systems. Forty per cent of the value of Britain’s arms exports has actually been imported to produce the final exported product. In that sense Britain’s weapons are no longer all ‘made in Britain’. This makes it much more difficult to justify business-as-usual.

The government now recognises that with a globalised arms industry, the arguments for maintaining arms factories in Britain are weak. In the mid-1990s the Tory government decided to allow the sale of armoured vehicles to the vicious Indonesian army. The Ministry of Defence wanted the British Army to have more than one British armoured vehicle supplier and without the Indonesian deal the manufacturer, Alvis, would not have survived.

In June this year, the government announced its new armoured fighting vehicles sector strategy. It accepted ‘it is not necessary to retain industrial capabilities in the UK in order to achieve appropriate operational sovereignty. We plan to make greater use of the global market, particularly within the EU and Nato.’

This removes one of the major justifications for supporting arms exports. Previously it was argued that exports were needed because without them Britain could not afford to retain industrial capabilities in the UK. But if the government wants, for cost reasons, to buy weapons abroad, there is no need to maintain a domestic industry, nor promote arms exports. As so many parts of the weapons that are made in Britain are made from imported components anyway, it will make no difference to Britain’s military freedom of action.

The arms industry and jobs

Another major justification for arms exports is undermined by the fact that the arms industry is no longer such a significant provider of jobs. In the 1980s more than half a million people worked in the British arms industry, but only just over 200,000 do today. Only a minority of these workers work on export orders. In the mid-1990s 90,000 worked on arms exports, down to 55,000 today, making up around 0.2 per cent of the UK workforce and 2 per cent of manufacturing jobs.

Apart from the handful of places where there is still a high dependency on arms export jobs (Warton, Brough and Yeovil), the British economy would barely notice the loss of arms exports. The MoD’s own study on the subject in 2001 concluded that if arms exports were cut by half there would be no net loss of jobs.

Knowing this, industry likes to emphasise that arms industry jobs are highly skilled. BAE promotes this view. If we do not continue to subsidise and promote arms exports and arms production, the argument runs, these highly-skilled jobs will be lost forever. This is not inevitable, of course. It would be far better if the amounts currently spent on arms export promotion and subsidy were channelled into civilian high-tech sectors. What is required is the political will to effect the change.

However, while the government is slowly adapting to the reality of a globalised arms industry in its procurement policies, the structure of subsidies and arms export promotion set up decades ago is largely unchanged.

Promoting arms exports

The government has shut the Defence Export Services Organisation (DESO) and transferred most of it to UK Trade and Investment (UKTI). This was a positive development up to a point as it reduced the institutional power of the arms export lobby. But in other respects it is business as usual. Prior to DESO’s closure, UKTI’s industry specific trade promotion was undertaken by 129 staff. When the changes in UKTI are complete the arms industry will have 170 UKTI staff promoting its products – more than every other sector of the British economy put together.

UKTI now co-organises one of the world’s biggest arms fairs, Defence Systems & Equipment International (DSEi), with the event’s owner, Clarion Events. As usual, DSEi this year took place at the Excel centre in London’s Docklands. More than 1,000 companies and around one third of the world’s militaries (including Colombia, Angola, Saudi Arabia and both India and Pakistan) attended. This important selling opportunity for the global arms industry was organised and policed at the taxpayer’s expense. Government subsidies for arms exports also continue via export credits, substantial research and development spending, and the use of defence attachés and the armed forces to promote arms exports.

Implications for campaigners

So what are the implications of these changes for campaigners? Some may feel that the jobs arguments are harder to make in a severe recession with unemployment rising rapidly. Yet even in this context the arms industry will still make up only a tiny proportion of Britain’s jobs and exports.

The new era of austerity also makes it easier to chip away at the arms industry’s undeserved privileges. It makes no sense to waste large sums subsidising the arms industry when more constructive alternatives exist. Why should the arms industry benefit from the support of 170 civil servants promoting its wares, when the rest of the British economy has only 129?

The globalisation of the arms industry means the lines between civil and military production are much more blurred than they were. This makes it easier for the arms industry and government to make arms exports appear innocuous or even respectable. But it also means there are more companies in the supply chains, and this means more potential targets on which to put pressure.

Nor should we lose sight of the wider picture. After the USA, China and France, no country spends more on the military than Britain. Over the last decade the British government has decided to add a great deal to the nation’s armoury. If all goes to plan, Britain will in a few years field two large aircraft carriers, an upgraded nuclear deterrent, new fleets of jet fighters and much more besides.

The question of military procurement is tangled up with a wider question about what Britain’s proper role in world affairs should be. Should we carry on our recent tradition of being the junior partner in American military adventures (which is what all this new equipment is for) or do something more progressive? The right answer to this question would produce a more constructive approach to world affairs – and deal the arms industry a heavy and welcome blow at the same time.

Nicholas Gilby is the author of the new No-Nonsense Guide to the Arms Trade, published by New Internationalist

Top 10 arms companies by arms-related revenues, 2008

1 Lockheed Martin $39.550 billion

2 BAE Systems $32.667 billion

3 Boeing $31.082 billion

4 Northrop Grumman $26.579 billion

5 General Dynamics $22.854 billion

6 Raytheon $21.552 billion

7 EADS $16.207 billion

8 L-3 Communications $12.159 billion

9 Finmeccanica $10.219 billion

10 United Technologies $ 9.976 billion

Source: Defense News Top 100 for 2008

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