POWER, INFLUENCE, AND HIERARCHY: DEFENSE INDUSTRIES IN A UNIPOLAR WORLD

Abstract

The global defense‐industrial sector reflects the hierarchy of power in the post‐Cold War world. As in the larger international system, the United States plays the dominant role in the defense sector as well. It is a comparative advantage often used by US policymakers to influence the foreign policy behavior of other states. Curiously, the radical concentration of the world’s defense industrial sector, as described here, has received relatively little scrutiny from either academia or the media, even though it not only reflects the international order but provides the United States with considerable leverage in it.

Keywords:

• International Relations
• Defense industries
• Arms industries
• Power
• Influence
• Unipolar
• Globalization
• Arms transfers
• Arms exports

Notes

¹ Nye (1990:25)

² On this point, see Dunning (2004); Levitsky and Way (2005: 21–22). Discussing the prospects of democratization in Africa in the post‐Cold War world, and the credibility of threats to withdraw foreign aid for non‐compliance, Dunning (2004: 422) observes ‘… the disappearance of the geostrategic threat from the Soviet Union may have made threats from Western donors to withdraw aid much more credible.’

³ The term ‘globalization’ is defined by scholars and analysts in many ways. In this discussion, globalization refers to the increasing integration of the defense sector through trade, financial flows, transnational mergers and acquisitions, and the movement of knowledge and technology across international borders. For other definitions see: International Monetary Fund Staff (2002); Croucher (2004); Bhagwati (2004).

⁴ During the Cold War, the terms ‘developing’, ‘less developed’, ‘underdeveloped’, ‘less industrialized’, ‘industrializing’, countries or ‘Third World’ generally referred to Africa, the Middle East, Latin America and Asia (minus Australia and New Zealand) – regions of the world considered economically underdeveloped. Since the disintegration of the Soviet Union these terms have come to mean different things to different people. Academics argue over the appropriateness of each term, and each has its detractors. Since there is little, if no, consensus on terminology, this chapter uses the term ‘Third World’ to refer to the above regions of the world and the countries in them (minus Australia and New Zealand), plus the former Soviet Union.

⁵ Kirkpatrick (2004: 271).

⁶ Sköns, Bauer and Surry (2004: 403).

⁷ US DoD (2008: 11). Business groups in the US have challenged this figure. One spokesman argues that the Department of Defense ‘does not put much effort into tracking [US] foreign dependency or the consequences of industrial integration.’ He points out that the Government Accounting Office (GAO) found that the ‘“DoD does not consider purchases from a company that is incorporated in the United States but owned by a foreign parent company to be foreign.” Yet such companies are very likely to source foreign components through their parent firm’ (Testimony of William R. Hawkins, 2007).

⁸ Guay (2007: 9).

⁹ Thornton (2007: 297).

¹⁰ US–UK defense trade reflects the preferential treatment the US has given its ‘loyal ally’ (see discussion of ‘loyal ally’: 38–40, below). According to the US Government Accountability Office, of the 1,960 US International Traffic in Arms Regulations (ITAR) exemption certificates issued between 2004 and 2006, 900 were to the UK (U.S. Government Accountability Office, 2007: 12).

¹¹ Wayne (2008); Zakheim and Kadish (2008).

¹² Guay (2007: 13).

¹³ Sköns, Bauer and Surry (2004: 405–410); Murphy (2005). See also, Hartley (2008: 304ff).

¹⁴ The European Defense Agency was created to develop defense capabilities, promote defense research and technology (R&T) and armaments cooperation; strengthen the European industrial base and create a competitive European defense equipment market. As of 2009 there were 26 members (European Defense Agency, New Defence Data, http://www.eda.europa.eu).

¹⁵ Cowan (2009).

¹⁶ Hale (2008).

¹⁷ Perlo‐Freeman and Sköns (2008: 271–275); Commentary: West Europe ever closer union? The future (2008).

¹⁸ The Indian government, for example, limits foreign direct investment (FDI) in India’s defense industries to 26% (Grevatt, 2 May 2008).

¹⁹ Between 1980 and 2000 NATO countries reduced the size of their armies about 30% on average. See, Manigart (2003: 331–332). Downsizing has become a world‐wide trend, as governments seek the economic benefits and military advantages of a smaller, more flexible ‘leaner and meaner’ armed forces.

²⁰ Litovkin (2008). See also, Blank (2007: 35, 64); Moscow Defense Brief (2008); International Institute for Strategic Studies (2007).

²¹ Hayward (2005: 127); Sadeh (2004); Opall‐Rome (2008); Tran (2006).

²² Wesensten, Belenky and Balkin (2005: 94); Freedman (1998: 110).

²³ For example, a number of traditional defense companies are offering missile protection suites for military and civil airlines. See Mulholland (2004).

²⁴ Willett (1997); Bitzinger (2008).

²⁵ David Kirkpatrick, cited in Hellman (2003) ‘Controlling Costs in Tactical Aircraft Programs: CDI Congressional Testimony on the FA‐22,’ p. 6.

²⁶ Kirkpatrick (2004: 263) suggests that the cost ‘increased by about three orders of magnitude between the general purpose “dumb” bomb and the stand‐off air‐to‐ground guided missile.’

²⁷ The fighter aircraft industry is but one example. The US F‐35 and F‐22 are stealth fighter aircraft designed to operate in a network‐centric environment. Packed with the latest multifunctional radars, sensors, and avionics, the overall integration of these technologies is claimed to provide these fifth‐generation fighters with a ‘first‐look, first‐shot, first‐kill capability’. For most governments, however, the development costs are beyond reach. The estimated total cost of the engineering, manufacturing and development phase of the F/A‐22 program is $69.7 billion. Total estimated development costs for the F‐35 are estimated at about $45 billion. One analyst observed: ‘If you look today, there are seven fighter‐jet manufacturers in the world. My view is that in the next three to five years, there is probably only going to be five’ (Capaccio, 2008; F‐22 Raptor cost, 2008; Chuter, 2009).

²⁸ Kirkpatrick (2004: 268).

²⁹ According to SIPRI, the overwhelming share of defense industrial production (dollar value) takes place in China, Europe, Russia, and the US (see Sköns, Bauer and Surry, 2004: 389).

³⁰ The Dual‐Use S&T Program provides incentives to encourage commercial contractors to cooperate with the military services and integrate their requirements into a commercial product. Each project is funded by the Pentagon (25%), the services (25%), and the commercial participants 50%. See DoD Press Release (2000).

³¹ Hayward (2005: 138).

³² Perlo‐Freeman and Sköns (2008: 263).

³³ IBM and Boeing, for example, formed a partnership that won a $300 million contract to develop military satellite communication technologies. See Ratnam (2004).

³⁴ Estimates vary on the number of contractors in Iraq. According to a Los Angeles Times survey, civilian contractors in Iraq numbered 180,000 in 2007 – 21,000 Americans, 43,000 foreign contractors and about 118,000 Iraqis (Miller, 2007). See also Hodge (2008).

³⁵ Chuter (2004); Mulholland (2005); Norton‐Taylor (2006).

³⁶ Defense Industry Country Overview, India: India Defense Industry, Jane’s World Defense Industry, 24 July 2009; Indian Defense and Security‐Industry‐Forces and Future Trends, Jane’s Special Report, 14 July 2000; Grevatt (2009).

³⁷ Sköns and Surry (2005: 401); Facts and information on the defense industry of Russia’, (2008).

³⁸ Opall‐Rome (2005a); Ben‐David (2008).

³⁹ Sadeh (2004).

⁴⁰ Singer (2004); Private military firms, Encarta Online Encyclopedia 2008 .

⁴¹ The US is struggling with these questions. The stringent implementing arrangements contained in the UK and Australian trade treaties that was designed to eliminate most licensing requirements for arms exports to an ‘approved community’ of government and private companies sharply demonstrate the security concerns of American policy‐makers. For example, one of the provisions in the Australian–US treaty requires Australian companies and individuals to have classified clearances to be eligible for the treaty’s licensing exemptions. Australians will also have to undergo background checks for ‘indicators of significant ties’ to people from countries listed as undesirable in the US International Traffic in Arms Regulations. The Australian defense trade treaty is similar to the one signed by the US and Britain (Matthews, 2008). Although both treaties were signed in 2007, to date neither has been ratified by the US Senate. The Senate Committee on Foreign Relations in September 2008 deferred approval of the treaties because of ‘too many unresolved questions’. The fate of the treaties, however, remains unclear. The former Foreign Relations Committee chairman, Joseph Biden (now US Vice President) and the ranking Committee minority member, Senator Richard Lugar, continue to support the treaties, and so American commentators have expressed optimism about their chances for approval in 2009 (Editorial: ITAR treaties keep moving, 2008). Greater concern has been expressed in the UK. A spokesman for the Society of British Aerospace Companies (SBAC) referring to the Obama administration’s ‘Buy America’ policy said: ‘The concern is that if there is a trend is [sic] towards protectionism … would this affect negotiations on the treaty?’ (Wagstaff‐Smith, 2009).

⁴² Grimmett (2007, Figure 2: 40). Note that this report does not include US commercially licensed arms export delivery values so that the dollar value of US exports is significantly higher than reflected here.

⁴³ Lipton (2008).

⁴⁴ Because China’s defense spending is not transparent, it is difficult to compare it to that of other countries. Estimates of the real dollar value of China’s defense spending have generated much controversy each year. Figures for 2006 range from $35 billion in the official Chinese White Paper, China’s National Defense in 2006, issued by the Information Office of the State Council of the People’s Republic of China, December 2006, to the International Institute of Strategic Studies figure of $122 billion (see Table II). In 2007, the debate over China’s military expenditures continued. The US DoD stated that, rather than China’s published 2007 figures of $46.21 billion, the People’s Liberation Army (PLA) actually enjoyed between $97 billion and $139 billion in funding that year. These figures include activities which China does not declare as military expenditures, such as foreign acquisitions, China’s nuclear program, defense industry subsidies and other provincial contributions to the PLA (Power to the people: China’s military modernization, part one, 2008).

⁴⁵ Reflecting Change: 2007 Annual Defense Report, Jane’s Defense Weekly, 26 December 2007; U.S. Department of Defense (2008); Smith (2007).

⁴⁶ Lewis (2003; Table 11A.2); Baumann (2003: 405), Expenditures on military equipment and military R&D in Western Europe and the USA, 1991–2002; European Defense Agency (2006); Anderson (5 March 2008).

⁴⁷ For a discussion of the current state of Russia’s defense industries see, pp. 24–27, below.

⁴⁸ Even the economic downturn in 2008, which buffeted the defense economies of other countries, left the US defense industrial sector comparatively unscathed (Boessenkool, 2008).

⁴⁹ Interview by Andrew Chuter with Ian Godden, CEO Society of British Aerospace Companies (2008).

⁵⁰ Minister (Defence Procurement) Lord Willy Bach Speech (2003); see also, UK Ministry of Defense, Network Enabled Capability, JSP 777 Edn 1 (at http://www.mod.uk/NR/rdonlyres/E1403E7F-96FA-4550-AE14-4C7FF610FE3E/0/nec_jsp777.pdf.); and Chuter (2003).

⁵¹ James (2005).

⁵² James (2005: 11).

⁵³ Sköns and Weidacher (1999: 407).

⁵⁴ Brauer (1998: 4).

⁵⁵ Sköns and Weidacher (1999: 411).

⁵⁶ For an analysis of the effects of inflation on Russia’s defense industrial base, See Industry Briefing. Analysis: Russia’s defense spending and defense industrial base (2008); Industry Briefing. Analysis: Russian budget suffers corrosive effects of inflation (2008).

⁵⁷ Petrov (2009); Petrov (2008); Industry Briefing. Analysis: Russian budget suffers corrosive effects of inflation (2008). The problem is exacerbated by a significant ‘brain drain’ from Russia. In total, Pravda estimates that half the Russian population of scientists and industrial specialists have either moved abroad or into other types of employment (Industry Briefing. Analysis: Russia’s defense spending and defense industrial base, 2008; Litovkin, 2008).

⁵⁸ International Institute of Strategic Studies (2007); Cowan (2008c).

⁵⁹ Felgengauer (2008).

⁶⁰ Koh and Matthews (2008); Sudakov (2008).

⁶¹ Abdullaev (2008).

⁶² Novichkov (2008).

⁶³ Cowan (2008b).

⁶⁴ See Bitzinger (2000: 1).

⁶⁵ Bitzinger (2000: 3).

⁶⁶ This is generally the military’s favored procurement option. Most military organizations prefer to purchase the most advanced systems they can operate and afford, which in most cases means foreign imports rather than domestic products. South Korea’s military, for example, argues that, given its vulnerable security situation, it requires the most sophisticated weapons systems that incorporate the latest technology. It views foreign purchases as more reliable and up to date than locally produced systems (see China and Northeast Asia: defense production and R&D, Korea, South, 2005). The Israeli armed forces, too, have always preferred to buy off the shelf foreign equipment and have objected to the costly investment in domestic weapons programs funded by the defense budget which, in their view, are dated by the time they arrive in‐service.

⁶⁷ Cavas (2005); Bitzinger (2000); Day (2005); Brazil Military Industry (2009) and Argentine defense industry (2005).

⁶⁸ Southeast Asia: defense production and R&D (2005); PT Dirgantara reports buoyant sales (2006); Embassy of Indonesia (2006); Indonesia – defense industry (2008); Nugroho (2008).

⁶⁹ Hughes and Ostfeld (2003).

⁷⁰ Mulholland (2003); Lok (2005); O’Dwyer (2008).

⁷¹ The Code of Conduct on Defense Procurement of the EU Member States Participating in the European Defense Agency (2005). See also Tigner (2005). Quote in Tran (2005); Executive Overview (2007); Interview by Pierre Tran with Denis Ranque, chairman and CEO, Thales (2007).

⁷² Lok (2005); Wagstaff‐Smith (2008).

⁷³ Anderson (1 March 2008).

⁷⁴ Perlo‐Freeman and Sköns (2008: 266–267).

⁷⁵ Blamont (2008).

⁷⁶ Karp and Pastor (2005); Matthews (2005); Hawkins (2003); Kucera (6 July 2005); Swibel (2005); Grossman (2005).

⁷⁷ Hawkins (2006); Gow (2008); Cowan (2008a, 2008e); Anderson (1 March 2008).

⁷⁸ Olson (2007); BAE Systems Inc. Overview; Anderson (2009).

⁷⁹ See Grossman (2005); Anderson Smith (2008).

⁸⁰ Cowan (2008d).

⁸¹ Maintaining a critical mass for UK defense (2005).

⁸² Cowan and Smith (2008). Academic analysts, such as Keith Hartley (2008: 308), observe that the US model of international collaboration typically involves sharing production work only. The US retains leadership ‘of design work with production sharing of U.S. designs through licensed production, co‐production and offsets.

⁸³ Scully, Cavas and Ratnam (2004); Matthews (2005).

⁸⁴ Grevatt (30 May 2008).

⁸⁵ U.S. Department of Commerce’s Bureau of Industry and Security Office of Strategic Industries and Economic Security (2007).

⁸⁶ Kington and Ratnam (2004).

⁸⁷ Skinner (2005). The Defense Trade Cooperation Treaty, designed to deal with Britain’s complaints, is now before the US Congress. It has met with considerable opposition from US Senators on security grounds. See Hearing of the Senate Foreign Relations Committee: Treaty Doc. 110‐10, Treaty Between the Governments of the United States of America and the United Kingdom Concerning Defense Trade Cooperation (2008).

⁸⁸ McCaslin (2007); Whitlock (2008); Johnson (2008); US, Poland sign strategic cooperation declaration (2008).

⁸⁹ Tigner (2005).

⁹⁰ See Von Zastrow (1985).

⁹¹ As of 2008, 14 countries have been granted MNNA status: Argentina (1998), Australia (1989), Bahrain (2002), Egypt (1989), Israel (1989), Japan (1989), Jordan (1996), Kuwait (2004), Morocco (2004), New Zealand (1997), Pakistan (2004), Philippines (2003), Thailand (2003), Republic of Korea (1989). Major non‐NATO ally, Wikipedia, http://en.wikipedia.org/wiki/Major_non-NATO_ally (last modified 19 August 2008). See also, Major non‐NATO ally (MNNA) status (2003); U.S. Department of State (2003); and Kucera (13 April 2005).

⁹² Meller and Decker (2005); Sirak (2005).

⁹³ Schiff (2005).

⁹⁴ Opall‐Rome (2005b); Weinberger (2005).

⁹⁵ The average annual $3 billion in US foreign assistance to Israel will now be only military aid. US economic aid to Israel ends in 2008. Erlanger (2007); Opall‐Rome (2005a, 2005c); Ben‐David (2005a); Ben‐David (2005b); Israel, external affairs (2005).

⁹⁶ Mulholland (2005).

⁹⁷ Ratnam (2005).

⁹⁸ Lauder (2005).

⁹⁹ EU should maintain arms embargo on China, say Euro‐MPs (2008).

¹⁰⁰ Amies (2009).

¹⁰¹ Escudé (1998).