The Political Economy of Defence Industrialisation in Singapore: The Costs, Trade‐Offs and Synergies

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Notes

1 The author works in the area of defence economics, e‐mail: [email protected].

2 A minimalist definition of defence economics is ‘[the application of] the tools of economics to the study of defence, disarmament, conversion and peace’ which is offered in T. Sandler and K. Hartley, The Economics of Defence (Cambridge, UK: Cambridge UP 1995) p.1. A more comprehensive description of the field is provided in M. Intriligator, ‘On the Nature and Scope of Defence Economics’, Defence Economics 1/1 (1990) pp.3–11, which defines the field as ‘concerned with that part of the overall economy involving defence‐related issues, including the level of defence spending, both in total and as a fraction of the overall economy; the impacts of defence expenditure, both domestically for output and employment and internationally for impacts on other nations; the reasons for the existence and size of the defence sector; the relation of defence spending to technical change; and the implications of defence spending and the defence sector for international stability or instability’.

The above definition is generally accepted as a fair and reasonable representation; however, Judith Reppy exemplifies the alternative ‘political economy’ approach that can be adopted in which there is greater emphasis on the unique institutional features of the defence system being analysed. J. Reppy, ‘On the Nature and Scope of Defence Economics: A Comment’, Defence Economics 2/3 (1991) pp. 269–71.

3 E.B. Kapstein, The Political Economy of National Security: A Global Perspective (University of South Carolina Press 1992) pp.1–2, additional comments mine.

4 This is a quote from the ‘Report on Manufactures’ presented to the US Congress in 1791 by the Treasury Secretary Alexander Hamilton, cited in Kapstein, The Political Economy of National Security (note 3) p.2. Although dated, it remains one of the most succinct expressions of, and justifications for, mercantilist economic policies. The argument today could be modified to refer to defence industries, rather than manufactures in general.

5 Kapstein (note 3) p.10.

6 Defence economics, and the broader field of public sector economics, defines public goods in terms of two main characteristics: non‐excludability and non‐rivalry of the good’s benefits. As defined by Sandler and Hartley, The Economics of Defence (note 2), ‘benefits of a good are non‐excludable if they are available to all once the good is provided’. A good is non‐rival when ‘the good is consumed by one individual (agent) without detracting, in the slightest, from the consumption opportunities still available for others from that same unit’. Because of these two characteristics, market failure occurs because no private actor could be relied upon to provide an inherently public good simply because they could not charge others for it, and there was no incentive for them to supply it.

7 Minimalist definitions of the defence industrial base, like the one used by J.P. Dunne, ‘The Defence Industrial Base’ in K. Hartley and T. Sandler (eds.), Handbook of Defense Economics (Amsterdam: Elsevier 1995) pp.400–30, allows for the identification of the larger and more obvious defence companies, such as producers of weapons systems and munitions. However, difficulties arise when considering companies straddling both the civilian and defence sectors. Such companies include producers of non‐lethal but strategic products such as vehicles and fuel, as well as other products consumed by the defence establishment such as food and clothing. If such an expanded definition is used, then one concludes that all countries, to varying degrees, have a defence industrial base.

8 Center for Strategic and International Studies, Deterrence in Decay: The Future of the US Defense Industrial Base (Washington DC: CSIS 1989).

9 See, for example, S. Chan, ‘The Political Economy of Military Spending and Economic Performance: Directions for Future Research’ in A.L. Ross (ed.), The Political Economy of Defense (Westport, CT: Greenwood Press 1991) pp.203–22.

10 N. Ball, ‘The Political Economy of Defence Industrialisation in the Third World’ in Ross, The Political Economy of Defense (note 9) pp.175–201. See L. Bitencourt, ‘The Problems of Defence Industrialisation for Developing States’ in S. Lodgaard and R.L. Pfaltzgraff, Jr (eds.), Arms and Technology Transfers: Security and Economic Considerations among Importing and Exporting States (New York and Geneva: United Nations 1995) pp.167–76.

11 E. Benoit, Defense and Economic Growth in Developing Countries (Lexington, MA: Lexington Books 1973). See also E. Benoit, ‘Growth and Defense in Developing Countries’, Economic Development and Cultural Change 26 (1978) pp.271–80. Benoit’s findings spawned a series of subsequent studies which had varying results. However, as the literature developed, a consensus emerged that an important distinction had to be drawn between the case of defence spending in the developing country, as with Benoit’s two studies, and the case of defence spending in the developed world. This article confines itself to assessing the impact of defence spending on developing countries.

12 Sandler and Hartley (note 2) p.201.

13 Ball, ‘The Political Economy of Defence Industrialisation in the Third World’ (note 10) p.182.

14 S. Chan, ‘Military Expenditures and Economic Performance’, World Military Expenditures and Arms (Washington DC: US Arms Control and Disarmament Agency 1986) pp.29–38, sums up the unsatisfactory state of the field in the following manner: ‘[…] even though we understand the processes through which military spending can affect economic performance much better now than [before], there remains much that we do not know or that we disagree about (p.35).’ Although written in 1986, these comments nevertheless still accurately sum up the current state of the field.

15 An example of a study that argues there is a trade‐off between defence and growth, even in the developing world, is R. Faini, P. Annez and L. Taylor, ‘Defense Spending, Economic Structure and Growth: Evidence Among Countries and Over Time’, Economic Development and Cultural Change 32 (1984) pp.487–98. On the last point of spin‐offs, see Bitencourt, ‘The Problems of Defence Industrialisation for Developing States’ (note 10) pp.171–2.

16 A.W.J. Kuah, ‘Globalisation and Singapore’s Defence Industrial Base’, IDSS Commentaries, (Singapore: Institute of Defence and Strategic Studies, Jan. 2004).

17 B. Singh, Singapore’s Defence Industries, Canberra Papers on Strategy and Defence No.70 (Canberra, Australia Nat. Univ. : Strategic and Defence Studies Centre 1990).

18 R.A. Bitzinger, Towards a Brave New Arms Industry?, Adelphi Paper 356 (London: The International Institute for Strategic Studies May 2003) p.11.

19 T. Huxley, Defending the Lion City: The Armed Forces of Singapore (Sydney: Allen & Unwin 2000) p.191.

20 For a succinct and excellent survey of the global defence industry, see The Economist, ‘The defence industry’s new look’, 4 Oct. 2001.

21 This paper adopts Bitzinger’s ‘tier’ classifications while recognising the definitional problems that are inherent in such categories. Bitzinger’s first‐tier countries are the US, the UK, France, Germany and Italy, which collectively account for 75 per cent of global arms production, and moreover dominate the R&D process. The third tier countries are defined as those possessing limited low‐technology production capabilities. Bitzinger himself concedes that second‐tier countries would simply be those along the spectrum between the most and the least advanced countries. Unfortunately, Bitzinger admits that second tier is something of a ‘catholic group’ being comprised of industrialised countries such as Australia, Canada, Norway, Japan and Sweden, as well as industrialising countries such as Argentina, Brazil, Israel, Singapore, South Africa and South Korea.

22 Bitzinger, Towards a Brave New Arms Industry? (note 18) p.25.

23 K. Lim, ‘Broadening its horizons’, Business Times, 30 April 2004 (online edition).

24 Singapore Technologies Engineering Limited, Annual Report (Singapore 2003) p.ix. This is just a recent example of commercialisation/civilianisation moves made by Singapore Technologies. As indicated earlier, this strategic shift can be traced back to the early 1990s (see Huxley, Defending the Lion City, note 19, pp.184–95).

25 See the annual reports of Singapore Technologies Engineering Limited, particularly the 2002 and 2003 reports .

26 For an excellent introduction to the subject of the RMA, especially its managerial and economic dimensions, refer to R. Matthews and J. Treddenick (eds.), Managing the Revolution in Military Affairs (New York: Palgrave 2001).

27 Singapore Technologies Engineering Limited, Annual Report (Singapore 2003) pp.95–6.

28 Ibid. p.19.

29 Bitzinger (note 18) p.75.

30 D. Boey, ‘S’porean high‐tech artillery gun is unveiled’, The Straits Times, 25 Nov. 2003 (online edition). In the article, a Singapore Ministry of Defence spokesman emphasised the importance of developing hardware to suit its ‘unique needs’. Clearly, designing a new piece of equipment was preferable to simply ‘satisfising’ with a ‘second‐best’ option of customising the best available hardware.

31 Kuah, ‘Globalisation and Singapore’s Defence Industrial Base’ (note 16).

32 Singh, Singapore’s Defence Industries (note 17) p.57.

33 Singapore’s economic success is well‐documented, either on its own, or as part of the so‐called ‘Four Asian Tigers’, i.e. South Korea, Taiwan, Hong Kong and Singapore. For a succinct overview of Singapore’s developmental experience, refer to S. Haggard, Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries (New York: Cornell UP 1990).

34 B. Singh, Arming the Singapore Armed Forces: Trends and Implications, Canberra Papers on Strategy and Defence 153 (Canberra, Australia Nat. Univ.: Strategic and Defence Studies Centre 2003) p.37.

35 Chan, ‘The Political Economy of Military Spending and Economic Performance’ (note 9) p.37.