France and its allies: A comparative study of defence spending trends since 1985*

Within the EU France devotes to defence the largest financial and human resources although it is not the richest country, nor has it the largest population or labour force. The cost of nuclear weapons accounts for only a small fraction of this abnormally high French defence effort. If France had restructured its military capabilities at the same rate as its principal Allies during the 1985–1994 period, then French defence outlays would be about 20% less than at present. The fundamental reasons for France's excess defence outlay comprise virtual total dependence on French sources for equipment, produced in very small numbers; a military presence outside of Europe; and too many personnel. These deficiencies, and the consequent absence hitherto of a “peace dividend”, indicate a failure to identify the country's real strategic requirements, and a lack of will to reorganise efficiently French defence. The recently announced reform towards an all‐professional force is unlikely to achieve the potential and desirable improvement in cost‐effectiveness.     

Country survey XI: Defence and the Israeli economy

The literature on economic aspects of defence in Israel is critically reviewed by subject: measuring the defence burden, the determinants of defence spending, the effects of defence spending on the economy, and the military‐industrial complex. An overview of the Israeli economy is provided, and some new econometric findings on the determinants of defence spending are presented. The paper concludes by addressing policy issues in the context of Israel's jubilee.     

The future of the defence firm in small and medium countries

The Western European defence industry used to be characterized by numerous constraints, especially in the small countries, subject to uneconomic defence production policies. It faces, since the end of the Cold War, a succession of new challenges such as budget restrictions, armament reductions and geopolitical upheavals. The EU is pushing in the direction of a cohesive foreign policy, including security and defence. Today, the emergence of a more consolidated European defence industry and the presence of oligopolistic European companies imply the definition of new roles for the EU and for its European Security and Defence Policy (ESDP). The solution is not protectionism, but more co‐operation to ensure effective defence production at a socially acceptable cost. In the framework of this co‐operation, defence companies in small and medium countries have a role to play as part of the supply chain to major weapon system integrators.     

Country survey VIII: Federal republic of Yugoslavia

This survey article focuses on defence economics issues and provides data and analysis on the Federal Republic of Yugoslavia's (FRY) defence policy, defence spending, the size of its armed forces, its defence industries and the cost of the civil war. The main section is devoted to the period from 1990 to the present and deals with the following aspects: the situation after the break‐up of the former Yugoslavia, general economic data; the cost of the civil war, the defence budget; the armed forces; the manufacture of armaments and the structure of the defence industry.     

Home Defence and the Sandys Defence White Paper, 1957

Long understood as the key document in Britain's Cold War history, the Duncan Sandys Defence White Paper of 1957 nevertheless has a largely forgotten context: home defence. This article argues that understanding this context allows important new conclusions to be drawn concerning the drafting, presentation and the reception of the document and the deterrent strategy it expounded. It argues that the Paper failed to establish a new doctrine for civil defence which reconciled the policy with the wider deterrent strategy. In doing this, the Paper presented a muddled policy to the public: one which failed to justify the reductions in civil defence provision but which stressed the destructive power of thermonuclear weapons. This had the effect of encouraging the critics of the government's nuclear strategy to flag up the absence of adequate civil defence measures and highlight the ‘admission’ that there was no defence against the hydrogen bomb.     

The Serbian defence institution: the need for clear policy guidance to improve the Serbian defence planning,management, and command processes

ABSTRACT

The uncritical layering of western liberal defence governance norms and concepts on top of existing legacy concepts has impeded achieving coherent military capabilities and capacities when Serbia’s political and military leadership tried to reform the defence system using Western benchmarking principles and Western countries’ best practices. The process of this change has been more valuable than its actual output, as defined by increased capabilities. Such outcomes should be reflective of policy guidance, and can be thought of as closing the trinity loop of a defence planning system: plans, money and execution. This article addresses two key functional areas of the Serbian defence institution. First, it assesses the current state of defence planning to discern its strengths and weaknesses to ascertain if plans are tied to financial decision-making. Second, a full examination of current Serbian defence management is conducted to discern whether weaknesses exist that distract from producing operational capabilities. Both areas are analyzed thoroughly and some solutions for change are proposed. Also, the article analyzes the appearance of two negative phenomena in the planning process – economization and managerialism.     

Country survey XVI the defence sector in the economy of a declining superpower: Soviet Union and Russia, 1965-2001

The Soviet Union was able to develop a large military-industrial complex and become the world's second superpower despite deficiencies in its centrally planned economy because defence was given high priority status and special planning, rationing and administrative mechanisms were used to attain national security objectives. However, in the period 1976-85 the effectiveness of priority protection diminished and defence institutions experienced more of the problems typical of the shortage economic system. The heavy defence burden also created growing difficulties for the civilian economy. The attempts by the Gorbachev government to reform the defence sector and improve defence-economic relationships during perestroika (1985-91) uniformly failed. For most of the transition period, the Russian military-industrial complex has been adversely affected by its low priority status, cuts in defence spending, instability of the hybrid politico-economic system, and negative growth of the economy. The armed forces and defence industry have been reduced in size and their outputs of military services and equipment have fallen to low levels. Nevertheless, the Russian armed forces still have over one million troops, significant stocks of sophisticated conventional weapons, and a large nuclear arsenal. The government of President Putin has raised the priority of the defence sector, increased real defence spending, and adopted ambitious plans to revive Russian military power. It is likely, though, that tight resource constraints will hamper efforts to reform the armed forces and to upgrade weapons. By 2010 Russia will be an important, but not dominant, military power in Eurasia.     

COUNTRY SURVEY XX: DEFENCE SPENDING AND PEACEKEEPING IN URUGUAY

Uruguay is a country with a very unusual profile, since it has just 3.4 million inhabitants but is among the top ten troop contributors to the UN PKO (Peace Keeping Operations) and is the first contributor per capita. In 2002 and 2003 it was the seventh troop contributor to the UN, and by the end of 2005 it was eighth in the UN ranking. Uruguay has never had any imminent external threat to its security after its independence in 1828, and it has had no internal threat since the end of the urban guerrillas’ actions in the 1970s. The country has no defence industry, and has always had an all‐volunteer military service, which presently involves almost 1% of the total population, and about 2% of the labour force. The empirical evidence presented in this paper shows that, in the past decades, Uruguayan defence spending has been influenced mainly by internal factors, most of them of an economic nature. The high participation in PKO has not increased military expenditure and it has produced a positive impact on the country’s economy.     

Country survey X: Defence spending in Turkey

This paper provides a country survey of the Turkish defence economy. Turkey is a member of NATO alliance and is strategically located between Europe and Middle East. Moreover, Turkey has a high defence burden and high economic growth. The first part of the survey presents a brief economic background of Turkey, its armed forces, the defence industry, its modernisation and trends in Turkish defence expenditure. The rest of the paper focuses on the relationships between defence spending and economic growth. The effect of defence spending on economic growth is econometrically estimated using a supply side model. Both externality effects and the size effect of defence spending are estimated for Turkey. The study concludes that defence expenditure stimulates economic growth while externalities from the defence sector to the rest of economy are negative for Turkey.     

Country survey IV: Pakistan

This paper examines the role of the military in Pakistan, particularly in regard to civil‐military relations and defence industrialisation. Pakistan's military expenditure is relatively high, but apart from investment multipliers, little of this spending filters through to the civil sector. Pakistan's defence‐industrial strategy centres on rebuild and Chinese technological collaboration. However, while this ‘capital‐saving’ approach has merit, the strategy has thus far failed to stimulate broader civil development linkages. A conclusion of this paper is that Pakistan is failing to maximise the strategic dual‐use benefits of integrating civil‐military activity.     

Brazilian National Defence Policy: foreign policy,national security,economic growth,and technological innovation

ABSTRACT

With the world’s ninth largest economy and comprising nearly 60% of South America’s GDP, 47% of its territory, and 49% of its population, Brazil has become a regional power and an important actor in world affairs over recent decades. This scenario has led the government to re-evaluate its role in the world order, resulting in the enactment of the National Defence Policy, whose objective was to consolidate the country as a regional power while at the same time addressing national security issues, promoting economic development through a series of defence programmes, restructuring the defence industrial base, fostering innovation through technology and knowledge transfer to Brazil, and indigenous research and development. However, the policy’s implementation suffers from several challenges discussed in this article, which may test the capability and competence of Brazilian policymakers, military, industrialists, and other individuals and organisations involved in its implementation.     

ANALYSING DEFENCE DEPENDENCY: THE IMPACT OF THE ROYAL NAVY ON A SUB‐REGIONAL ECONOMY

This paper provides a methodology for estimating the economic impact of defence spending at a sub‐regional level. It does so by calculating the income and employment generated by Britain’s Royal Navy and associated defence activities in the City of Portsmouth and its surrounding area, during the financial year 2003–2004. In an era of military consolidation, the paper offers an insight into the multifaceted impact of defence‐related expenditure. Hence, it presents a generic framework that could prove useful to other researchers when seeking to measure the sub‐regional impact of naval, airforce and army facilities in other national contexts.     

‘I have seen the future and it works’: The US defence industry transformation – lessons for the UK defence industrial base

The US has embarked upon a major transformation of its approach to defence industrial base planning. Although bureaucratic and industrial inertia, as well as budgetary constraints, may delay transformation, its effects will lead to radical changes in the US defence industrial base with new entrants and new combinations of players. The UK, with more modest defence ambitions, capabilities and budget, will seek to keep in touch with the US. However, a commercially‐led drive to embed UK industry even more deeply in the US defence market could be the last step in creating a largely US–UK North Atlantic relationship, with much of Europe very much a subsidiary business concern. This contains a risk that the UK will become increasingly dependent on the US for design and integration of major systems and national defence industrial capability focused on a limited number of niche technologies.     

The future of European defence policy: An economic perspective

European defence policy has been dominated by politics. This paper shows how economic principles can be used to derive guidelines for the formulation of European defence policy. The inefficiencies of the EU's existing defence arrangements are identified. It is shown that there is scope for efficiency improvements in the EU's Armed Forces and its defence industries.     

THE RELATIONSHIP BETWEEN EXTERNAL DEBT,DEFENCE EXPENDITURES AND GNP REVISITED: THE CASE OF TURKEY

This paper contributes to the continuing debate on the economic effects of military expenditure by undertaking a case study of Greece. Within Europe Greece provides a particularly interesting object of study. It has the highest military burden in Europe and NATO, is the only European Union country situated in the unstable environment of the Balkans, faces a military threat from Turkey, and has a very weak economy. After some background analysis of the economy and military expenditure, the paper investigates the determinants of Greek military expenditure as well as whether the high military burden has played an important role in Greece's poor economic performance over the period 1960–1996. It estimates a Keynesian simultaneous equation model with a supply side, which allows the indirect effects of military expenditure to be captured explicitly. It concludes that the major determinants of Greek defence spending are not economic but strategic (the threat of war) and that the direct effect of defence spending on economic growth as well as the indirect effects through savings and trade balance are all significantly negative. On the basis of such strong results, the paper concludes that defence spending is harmful for the Greek economy.     

Small countries and the consolidation of the European defence industry: Portugal as a case study

In this paper, we analyse the dilemma confronted by a small country in relation to the consolidation taking place in the European defence industry. Assuming that Portugal must maintain its armed forces, and must retain a minor defence industry, this industry must be competitive in small niches. Competitiveness must be based on, amongst other elements, technical efficiency and technological change. We investigate this issue, first characterizing the threats faced by the Portuguese defence industry, then investigating its present efficiency and finally, we discuss its role in the consolidation of the European Industry. We conclude that the Portuguese defence industry has no alternative but to opt for innovation and European partnership, which are complementary policies, but which require the active involvement of the stakeholder (i.e. the Government) in effecting these fundamental shifts in direction and emphasis. If this strategy does not succeed, the defence policy should be based on offsets.     

Country survey XVII: New zealand's defence policy

New Zealand's current defence strategy, first expressed in NZ Government (1991), is one of "self-reliance in partnership". We outline the country's defence policy in historical context, examine its current defence expenditure and capabilities, and document the genesis of recent major changes in security policy. We pay particular attention to the role of explicit economic analysis and advice in the formation of these policy changes.     

Country survey XII: South Africa

This article examines the relationship between defence expenditure and economic performance in South Africa, both prior to and after that country's first fully democratic election in 1994. Prior to 1994 defence expenditure decisions were largely dominated by non‐economic factors; since then defence spending has declined in reaction to, inter alia, the need to address a number of socio‐economic inequities.

After 1975 in particular, military industrialisation in South Africa placed a disproportionately high burden on the country's industrial resources and natural economic and technical capabilities. However, although this suggests that the opportunity cost of domestic arms production has been fairly high, the country's poor economic and development performance since the mid‐1970s is a function of underlying structural deficiencies and institutional constraints rather than the consequence of inordinately high defence spending levels.     

Turkey’s strategic choice: buy or make weapons?

Turkey has been investing in its national defence industrial base since the 1980s. As with other developing countries, Turkey’s motivations for investing in national defence industries can be boiled down to the pursuit of defence autarky, economic benefits and international prestige. However, after 40 years of investment, Turkey is unable to reach the primary goals of defence industrialisation. We argue that three factors are important to understanding Turkey’s persistence in these primary goals. First, Turkey believes that there is an overall improvement in its defence industrial capabilities and the goal of autarky is still reachable. Second, increased defence exports support the belief that Turkish defence industries have become sustainable and the trend will continue in the future. The third reason, perhaps most important of all, has to do with the domestic political gains of defence industrialisation: the AKP uses defence industry and indigenous weapon systems for prestige and, therefore, garners broader support.     

THE LONG‐RUN RELATIONSHIP BETWEEN DEFENCE EXPENDITURES AND GDP IN TAIWAN

Using the Solow–Swan growth model and the time‐trend included in the aggregate production function, this study applies the multivariate cointegration approach to re‐investigate the long‐run and causal relationships between defence expenditures and GDP while controlling for capital and labour input in Taiwan during the 1955–2002 period. It examines the long‐run causal relationship using the weak exogeneity test and utilizes general impulse response functions to determine whether a shock to defence expenditures affects economic growth or vice versa. Our findings provide substantive evidence in favour of the existence of a long‐run equilibrium cointegrated relationship between defence expenditures, GDP, labour and capital stock. The results of the weak exogeneity test indicate that a bi‐directional causal relationship exists in the long‐run between defence expenditures and GDP. Thus, the main policy implication that emerges from the long‐run results is that increasing defence expenditures in Taiwan is an effective means to boost overall economic performance and, with this improved economy, it should then be able to increase its defence expenditures further. Lastly, from our dynamic vector error correction model estimations, it is found that defence expenditures are a major means of adjusting for disequilibria that occur within the system.