Defying Convergence: Globalisation and Varieties of Defence-Industrial Capitalism

Abstract

Globalisation is transforming the production of armaments in ways poorly understood, yet critical to states' security. Most analysts contend that this process forces states to converge upon laissez-faire policies that systematically disadvantage smaller states. However, broader research in comparative political economy suggests that domestic institutions drive states to adapt in distinct ways independently of their size. Indeed, the Varieties of Capitalism (VoC) approach argues that national institutions shape both how states develop adjustment strategies and their firms' comparative advantages. This article examines two small states – Israel and Sweden – to ascertain whether defence-industrial transformation drives them to converge upon common laissez-faire policies or, contrarily, whether distinct VoC shaped their adaptation strategies along different lines. To preview the conclusions, institutions impel states to respond to defence-industrial transformation in divergent ways. Liberal market states, such as Israel, respond by introducing greater competition for contracts and liberalising their import/export policies. In coordinated market states, such as Sweden, government cooperates with business groups to selectively open industries to foreign capital and position them to compete globally. Although they adapt differently to transformation's common challenge, these cases demonstrate that even small states can retain robust defence-industrial bases, albeit ones with increasingly distinct comparative advantages and disadvantages.

Keywords:

• varieties of capitalism
• defense industries
• armaments
• arms exports
• national security
• Sweden
• Israel

Acknowledgement

For valuable comments and suggestions, the author would like to thank Moritz Weiss, Eugene Gholz, Jacques Gansler, Mark Thatcher, James Davis, Magnus Christiansson and Kristen Harkness. The author would also like to thank the The Stiftung Deutsch-Amerikanische Wissenschaftsbeziehungen (SDAW/Foundation German–American Academic Relations) for the support they have provided for transatlantic research into defense-industrial globalization, which has stimulated the research behind this article. Finally, the author is grateful to the anonymous reviewers and editors at New Political Economy for their invaluable feedback. While all of the above individuals provided insightful advice, any errors in the article are the author's own.

Notes on contributor

Marc R. DeVore is a Lecturer at the University of St. Andrews' School of International Relations. Dr DeVore holds a Ph.D. in political science from the Massachusetts Institute of Technology (MIT), an MA specializing in European Integration from Strasbourg's Institut d'Etudes Politiques and a BA in International Relations/Economics from Claremont McKenna College. Previously, Dr DeVore was a Jean Monnet Post-Doctoral Fellow at the European University Institute, Lecturer/Senior Research Fellow at the University of St. Gallen, Switzerland, and National Security Advisor to the President of the Central African Republic. He has received Fulbright, Truman and Chateaubriand Scholarships, as well as grants from Harvard's Center of European Studies and MIT's Department of Political Science.

Notes

1 The 10 largest defence firms annually sell over $11 billion of armaments apiece and each employs over 60,000 employees. Considering that only five states have defence procurement budgets that exceed the annual turnover realised by these firms, most states cannot independently provide the volume of orders needed to sustain the most capable defence corporations. The SIPRI Top 100 arms-producing and military services companies in the world excluding China, 2011, can be accessed at http://www.sipri.org/research/armaments/production/Top100 (accessed November 2013).

2 Figure developed using data from SIPRI Military Expenditure Database 2013 (http://milexdata.sipri.org, accessed March 2014).

3 In 1991, Israel housed the world's 39th largest firm (IAI) and Sweden it's 41st (Celsius). In 2012, Sweden housed its 32nd firm (SAAB) and Israel its 34th (Elbit). See Stockholm Institute of Peace Research 1994; and the SIPRI Top 100 arms-producing and military services companies in the world excluding China, 2012 (http://www.sipri.org/research/armaments/production/Top100, accessed March 2014).

4 Interview with Pål Jonson, Foreign Policy Advisor to the Swedish Parliament (12 September 2010).

5 Interview with Gunnar Holmberg, SAAB Director of Business Development (14 September 2010).

6 Export products are listed in declining rank order in terms of their proportion of national defence exports. For Sweden, the respective average annual percentages of defence exports for 2003–12 are aircraft (43.5%), armoured vehicles (20%), radars (14%), ships/submarines (11.5%) and missiles (8.5%) (Bromley and Wezeman 2013, Swedish Government 2013). For Israel, data are reported less systematically and categories of exports are less transparent. Nevertheless, homeland security exports account for 43% of consolidated defence/security exports (Gordon 2009). Software and electronics comprise a large, yet unspecified proportion of both defence and homeland security sales. Missiles are the largest component of reported pure defence exports (25%) and UAVs the fastest-growing component (10% of direct exports, not counting the sizeable revenues from foreign production of Israeli UAVs) (Ben David 2012, Dobbing and Cole 2014).