It is with the greatest interest that I read the article “The Underfunded Equipment Programme – Where Now?” by the RUSI Acquisition Focus group in the most recent RUSI Defence Systems publication, Winter/Spring 2006/07 Vol 9 No3. I would very much like to share with your readers a few personal considerations on this hugely important subject.

It is indeed a fact worth reminding the (defence) community that the United-Kingdom Defence Budget has decreased dramatically in the last two decades, contrary to what has been said generally in governmental circles, particularly in the last year or so. The many changes in public accounting methods have, of course, served well the purpose of hiding this fact and lead many observers to accept the affirmation that the trend has been reversed. It has not, and the various conflicts in which the UK is currently engaged certainly do not help to improve the situation. I personally estimate that these operations are costing at least £2 Billion a year, a figure significantly different from those generally acknowledged by the Authorities. Armed forces and peripheral industries worldwide will of course claim that their defence budget is too small and that the level of expenditures should increase if the forces are to fulfil their missions. It is part of a strategic game of powers and strengths at home; it is fair enough.

However, within the context of a realpolitik which, we all agree, must prevail to keep the UK sanctuary, as much as its interests, safe world wide, there must be a rationale between the means and an end. Claiming, Urbi et Orbi, that the UK is a great power and that to keep its role it needs to maintain ‘soft and hard power’ “because they are driven by the same principle” is not enough. It is an all time truth that one must have the means to support one’s policy. That is certainly not the case today. There is a clear lack of funding and of the right vision in resource allocation. It is a logical deduction that either the budget has to increase significantly (up to 3% of GDP?), which in the current context is extremely unlikely; or the cheaper factor of the Best Value for Money equation in the acquisition process has to be improved through more competition, which is not going to happen if and when the DIS is implemented; or indeed, as you point out, the SDR has to be revisited based on a newly defined Foreign, Security and Defence Policy. None of these options is currently the basis of HMG’s policy.

The acquisition process has endured far too many reforms in the last 25 years and far too often has not been able to deliver the right kit, on time and within budget. That is mainly because there is a lack of coherence and a confusion of the roles. The defence equipment market is not a simple one and can not, in reality, be compared with a civilian one, as has been the case for many years by many people. Politically speaking, Defence is the ‘regal’ duty of any government and should be treated as such. As for the economics of defence, it is a market for a combined public good i.e. it serves several purposes, not just defence, and with very particular characteristics. On the supply side it is nowadays at prime contractor level certainly not atomistic anymore but only just merely oligopolistic i.e. subject to the market being opened to international competition. Once entry is made too difficult a monopolistic environment is created for the great benefit of the shareholders but not necessarily for the country’s good. And, on the demand side, it is oligopsonic and only just profitable i.e. subject to more exports and a tacit agreement on a minimal rate of profits between the home market Government and industry. This of course does not really help in increasing competition and thus reducing costs. Nor does the moral aspect of defence activity emerge with any more public appeal. But that perhaps is another subject although when a Nation State is pretending to use its armed forces primarily to build a better and safer world, the question should be raised!

It is also true that despite the great popular support for the British troops intervention in Iraq at the beginning of the engagement and the success of the British economy’s in the last decade, the people of this country today question the legitimacy of the Iraqi war and the opportunity cost of such an engagement when many other sectors could benefit from alternative uses of the defence investment,, not least in public services. Will this Gordian knot be cut by an industrial policy implemented by the Defence Industrial Strategy as it is? Probably not and that is for at least three reasons.

First the DIS succeeded in identifying almost all sectors as strategic. This by definition is a mistake, as either only a few sectors/technology are strategic or making everything a priority leads one to having no real priority at all. Generally, this sort of ‘melting pot thinking’ only achieves one aim and that is to confuse the implementers of the so called industrial policy as well as the players in the market.

More importantly, perhaps, it appears to be a well orchestrated policy served on a golden plate for the very few, if not the only global supplier remaining in the market today. In the XXIst century, defining armoured vehicle design and manufacture as a strategic industry when between the USA and the European Union one can buy the best vehicles one can think of, off the shelf, makes the objectivity of the policy very doubtful. En passant, it is worth mentioning that the French have done the same sort of clever judgement at an unthinkable cost to the community.

Defining an Industrial Policy is perfectly legitimate and probably most desirable if it helps keep a legitimate, well thought through and chosen technical edge on the identified threats e.g. unfriendly Nation States, religious or mafia groups and on your coopetitors/competitors on the export markets. It is also a good thing that, at long last, the UK officially declares that it now has an Industrial Policy as opposed to letting companies (particularly foreign companies) believe that the competition was fair when most of the final acquisition decisions made by the UKMoD were clearly not reflecting the competitions’ results but largely only satisfying backbenchers’ political motives. At least now players in the market know where they stand, don’t they?

Subsequently, in an environment where the resources are scarce, the threat spectrum steadily growing (from a suicide bomber to multipolar) the civilian market offers readily available technology, and the medium voter is more and more demanding on justifications for resources allocation etc., it is indeed a moral obligation to make choices which optimize the resources. The Industrial Strategy as presented so far is short in doing that, not only because, as mentioned above, when everything is strategic, nothing really is, but moreover because it requires so much funding. And the fact of the matter is, there is no funding for the right quantity nor for the desirable quality. Everybody knows in industry that most programmes are desperately shifting to the right (e.g. FRES which after FFLAV, FLAV, LAV, MBAV, MRAV, TRACER, ABSV is supposedly the last occurrence of a twenty five years saga of procrastination for a new armoured platform!).

Once the few remaining platforms have been built, what will be left? Arguably, nobody can seriously suggest that maintenance, operational support, logistics, training and design will suffice to keep a defence industrial base? No serious industrialist would keep an engineering/design bureau in being knowing that the next actual order is not due for at least thirty years! This is not to mention the factories themselves.

The good quality of the DIS and the DTS documents have lead most in industry to think that HMG had, at long last, come up with a coherent, well matured policy if not with a cunning plan achieving the almost perfect goal congruence.

Alas! It is only an illusion. As your RUSI Acquisition Focus rightly points out there is now an urgent need for another SDR within the context of revisiting the United Kingdom role and status in the world. In this context it would perhaps be interesting also to ask if, between open competition, mostly with US firms as a poor palliative to the lack of resources in R&D/T, and protectionism, there is not a third way with the European Union, or at least with a handful of its members who are facing a similar dilemma.

Did I hear you say International Specialization?

Bruno L.G Carré va publier “Pouvoir et Sécurité : regard d’un économiste sur la puissance britannique” aux Editions L’Harmattan.