The Arms Industry

By Christopher Wrigley
© March 2001. ISBN: 0950692271

Executive Summary

To understand the trade in the instruments of death and destruction it is necessary to be familiar with the arrangements for their production, both in the United Kingdom and in the world at large. These have been undergoing profound changes, the implications of which this paper tries to explore.

In the first place the main organisations involved have become fewer and larger, partly because the global market shrank somewhat after the end of the Cold War, but even more because the escalating costs of research and development exclude all but companies with access to vast amounts of capital. This does not mean that small and medium arms producers have ceased to exist. On the contrary the big companies are tending to withdraw from manufacture in order to concentrate on the design and integration of electronic systems, so that there is increasing scope for suppliers of components and subsystems. But control of the industry, especially in the key domains of aircraft and military electronics, has passed into the hands of a very few organisations.

These are now overwhelmingly private. As in other spheres, governments have been withdrawing everywhere from the ownership and financing of industry. As a result, arms companies are no longer workshops for national armed forces but corporations driven by market imperatives. The market, moreover, is a global one, and the big companies seek to transcend their national origins and to manoeuvre for survival and supremacy in a global arena, seeking to make themselves still larger and reap the economies of scale by purchase or merger or, failing these, by joint ventures, alliances and partnerships. Few major weapons ‘systems’ are now produced on a purely national basis. Even the giant US companies, Boeing, Lockheed Martin and Raytheon involve other countries in production, partly for reasons of economy and partly to secure access to their markets.

And yet the industry remains inescapably a political one. Its only customers are governments, and no company can pull off a major international arms deal without the diplomatic support of its ‘own’ government. This is always forthcoming, because governments still regard flourishing arms industries as essential to national security and status. So the ambitions of profit-seeking companies are enmeshed with questions of high political strategy. Should allies be sought across the Channel or across the Atlantic? What is the object of European integration – to set up a rival to the United States or a partner in its global hegemony?

UK governments and arms companies have sought to avoid these choices and have steered a wavering course between them. In 1998, as part of its drive to be ‘at the heart of Europe’, the present government was pushing for the integration of European arms production. The two dominant UK companies, GEC and British Aerospace (BAe), were urged to seek European partners, GEC with the French company Thomson-CSF (now re-branded as ‘Thales’) and BAe (now BAE Systems) with the French Aérospatiale Matra and the German DASA. In the event, however, BAe chose to integrate the UK industry by buying the military branch of GEC, which virtually dropped out of arms production. The French and Germans retorted by forming a ‘European Aerospace and Defence Systems, Inc (EADS)’ which included the Spanish and eventually the Italian aircraft industry, but not the British. BAe, however, had acquired a 35 per cent stake in the important Swedish company SAAB and has many links with the component parts of EADS, such as the missile producer Matra BAe Dynamics, a joint venture with the French company Lagardère.

To BAE Systems, however, integration with Europe is desirable but integration with the US is the supreme objective. The US government is overwhelmingly the largest customer for arms, and its purchases are set to increase as it seeks to protect its military and economic supremacy. BAE Systems (as well as the engine-maker Rolls-Royce) therefore seeks access to this market, and beyond that it aspires to become a major US company. This is economically feasible because it has the cash resulting from the hugely lucrative deals with Saudi Arabia, while the US companies, especially Lockheed, are financially weak. It is politically feasible because the ‘special relationship’ gives it a privileged position denied to other foreigners. The Pentagon rules which protect technological secrecy have been relaxed in its favour, and it currently supplies more to US than UK armed forces. It has established close links with Boeing and has been allowed to buy a chunk of Lockheed, thus becoming the world’s largest producer of weaponry. And it has secured for the UK a 15 per cent share of the huge US Joint Strike Fighter project, although if this goes ahead – which is not certain – it will on the face of it be a blow to the prospects of the Eurofighter.

However, BAE Systems’ larger ambition, merger with Boeing or Lockheed, has been ruled out by the US government. And early in 2000 the UK government took several steps to encourage it to seek a European future. It lent it £500m to help it build wings for the projected European super-jumbo. It turned to the Airbus Company, not Boeing, for its new military air transports and to Matra BAe, not Raytheon, for the armament of its Eurofighters. The plan for a Rapid Reaction Force is a step towards European military integration, and a Framework Agreement signed in July 2000 was likewise a step towards the integration of the European arms industry at the political level. It was designed to reduce barriers to the movement of weapons, bits of weapons and technology between the leading European arms producers, and also to limit competition in external markets.

In spite of a great increase in transfers between NATO allies, export markets to other countries remain crucial to the prosperity of the arms industry. As things are, every major weapons project, whether national or collaborative, needs external sales to make it viable. Western arms companies will therefore continue to exploit tensions in the Middle East, in the Asia-Pacific region and wherever they can find them. (Although the companies compete fiercely against one another, they have an underlying common interest in the maintenance of conflict.) In addition, they increasingly target countries with struggling arms industries of their own, such as South Africa and the east European countries which have joined NATO or seek to join it. Purchases of Western arms are rewarded by apparently generous ‘offset’ payments that have the effect of bringing the local industries into the Western orbit, both through ‘counter-purchases’ of components and through ‘industrial participation’, which makes the vendor company their effective owner. The arms trade has thus become a way of enabling companies such as BAE Systems to control sources of cheaper labour. It can in fact be seen as a new form of colonial expansion.

In theory, the arms industry could be divorced from the arms trade. Production could be directed solely towards meeting the military requirements of the UK, or of Europe, or of the NATO alliance. It has always been argued that the unit cost of weapons, and so the cost to the taxpayer, would inevitably rise. However, this ignores export subsidies which are likely to more than balance the extra costs to the exchequer. In any case, people might think it worth paying some premium in order to opt out of a disreputable traffic.

The reasons why this particular activity receives state patronage are both economic and strategic. The industry is thought to be a valuable source of employment, and to be essential to national military security and prestige.

The costs and benefits to the British people of arms production and export need separate study. But it can be pointed out that jobs are worth while only if they provide socially useful goods; that if near-full employment is sustained, jobs lost in one sector can be recouped in others; and that in any case many arms-industry jobs are likely to be exported to less expensive countries. The strategic and political case for the industry is equally weak. The UK faces no military threat, and there are better reasons for national pride than the possession of a ‘globally competitive arms industry’.

Other questions need to be posed about the UK arms industry. Can BAE Systems become a global corporation and still claim to be British? If it is responsible only to its cosmopolitan shareholders, why should it expect, as it does, to receive privileged treatment from the UK government in the award of domestic contracts and political backing in its overseas dealings?

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