Jacques Fontanel

The Economics of Exporting Arms

The international trade in arms has an important economic dimension which this paper attempts to examine. After reviewing the evolution of demand and supply, the implications of the current market structure for price and revenue are examined. This suggests that, in purely commercial terms, the promotion of arms exports by a country is not a profitable proposition. Given this, we consider why governments in supplier countries have nonetheless heavily promoted arms exports. It appears that the initial momentum was provided by strategic and political objectives but that the growing dependence of particular interests on arms exports created a powerful economic lobby, despite the lack of commercial logic. In fact these economic pressures tend to undermine the political and strategic objectives. This contradictory relationship is examined by regression analysis of time-series for five countries. Although the estimates suffer severe limitations, a dynamic model suggests that a countrys military expenditure has conflicting positive and negative effects on its arms exports.

A European Defence Union

A European Defence Union? Jacques Fontanel and Ron Smith The end of the Cold War, the unification of Germany and the removal of US troops has rekindled interest in European defence cooperation. The EC has common security policies on its agenda, the military role of the WEU is being enhanced, and the new NATO strategy emphasizes multilateral European forces. A European Defence Union offers large potential efficiency gains. Power, like any natural monopoly, is generated more effectively and more cheaply by joint forces than by the sum of fragmented individual forces. There are also large economies of scale in weapons production. Trends in budgets, costs and threats are making national provision problematic and national arms industries non-viable. An EDU may appear more attractive than either spending vast sums to attain minimum efficient scale or relying on forces that are so small and ill-equipped as to require either dependence on the US or acceptance of effective neutrality. However, an EDU reduces national sovereignty; poses problems of command, control and organization; risks free-riding and adverse reactions by the US and USSR; and is vulnerable to exploitation and rent-seeking by military industrial interests. This paper examines the economics of these issues and suggests a route towards effective cooperation.

The Economic Effects of Military Expenditure in Third World Countries

Three recent books by three experts on defence economics analyse the economic impact of military expenditure on economic growth and development in Less Developed Countries (LDCs). Saadet Degers theoretical economic analysis betrays a strong bias against militarism and militarization in contemporary society. Nicole Ball presents a more general analysis, studying a large number of concrete cases, and taking their political and sociological characteristics into account. Both Deger and Ball see armament as a cause of underdevelopment. Robert Looney engages mainly in econometric analysis. He provides a comprehensive analysis of data from 77 LDCs, distinguishing between producers and non-producers of armaments. Looneys empirical results indicate that domestic political-bureaucratic influences are more important than international rivalries, and that the economic environment of arms producers differs significantly from that of non-producers. To us, however, these results seem unconvincing: data are incomplete, the econometric methods employed are very simple, and the theoretical background is weak. As regards economic analysis, Degers study seems more rigorous, but its assumptions are heavily slanted in favour of the ideas of the peace research movement. Nicole Balls analysis is the most interdisciplinary of the three, and also more empirical, historical and descriptive than the others. These three important books should be read by every specialist on defence problems. Their various approaches, their different perceptions of the economic impact of military expenditure and their different philosophical backgrounds provide a broader view of the economics of defence.

The economics of disarmament

The economics of disarmament is a new discipline. It involves analyses on the economic causes of the arms race, the definitions of disarmament and the economic determinants and military expenditure. Simultaneously, disarmament is considered as an obstacle to economic development, a peace dividend or an investment. The construction of economic models of disarmament produces some controversial results. Questions arise concerning the economic effects of a reduction in military expenditure on growth, employment, inflation, budget deficits, the costs of conversion or the dual use of military products, capital capacity and R&D. Long term disarmament needs a development process and an adequate public policy.

The economics of disarmament: A survey

This survey reviews the literature on the economic determinants of military expenditure and the economic foundations of armament and disarmament. It considers the main economic effects of military expediture and disarmament in developed and developing countries, including impacts on consumption, investment, growth, employment, inflation and the balance of payments.

The impact of strategy and measurement on models of French military expenditure

There is now a considerable literature devoted to estimating models which explain military expenditure. In this paper, we present some estimates for France, that are used to examine two important general issues. The first issue is that quite different empirical results can be obtained depending on which measure of military expenditure is used in the analysis. Here a consistent dynamic system is used to provide a framework to analyse the differences between the relationships explaining four measures of military :expenditure. The second issue is that we would expect the relationships to change with major changes in strategy. In the case of France, there are three obvious changes in strategic posture: withdrawal from the colonies after a series of expensive colonial wars; the decision to acquire an independent nuclear capability; and de Gaulles withdrawal from NATOs integrated military command in 1966. We examine the impact of each on the different measures.

Military Expenditure Comparisons

One problem in the negotiation and verification of any possible international agreement on the reduction of military expenditure is the difficulty of determining common definitions and methods of evaluation and comparison. Various alternative methods of comparison are discussed and the work of a United Nations group dealing with these matters, including particularly the purchasing power parity method, is reviewed. It is concluded that, given political will and reasonable availability of adequate and relevant information, the construction of useful instruments for international and intertemporal comparison of military expenditure is feasible.

The determinants of military expenditures

The increase in the military expenditure of the United States was committed since 2000, after several years of reduction. As well as the tax cuts, the military expenditure contributes largely to the current rise of the American public deficit. Considerable appropriations were granted to armament industries, such as for example the launching of the programme of fighters F-35, for an amount of 220 billion dollars (for 3,000 apparatuses). The American rearmament since 2000 again reversed the tendency, digging the technological “gap” between the American industry and rest of the world. With the Afghanistan and Iraq wars included, the USA military expenditures represent 50% of the world expenditures.

The principles of arms conversion in the case of Russia

Disarmament is often judged to be very favourable for economic development, but it brings with it a destruction of the old economic as well as social equilibrium. For an economy that is in transition as well as in recession, disarmament constitutes a political decision of considerable importance for the international community. Because economic development is certainly a condition for peace, it is important for the world community to realise that it is necessary to actually “purchase” disarmament, independent of economic conditions based on competition.

Military expenditures, armament, and disarmament 1 2

We examine some putative effects of disarmament and strategic realignment in the 1990s. We argue that the political and strategic contexts which resulted in the cold war and the militarization of economies have changed in important ways. Yet, unless specific attempts are made to realign various economies to these new contexts, the short term economic benefits of disarmament are likely to be limited and the long term prospects for political, economic, and strategic restructuring will be constrained. We argue further that the costs of “peace” in the short‐run may be significant, if that peace is to include disarmament that includes both reductions of military expenditures and physical limitations of armaments. However, we caution against judging the benefits of disarmament in solely economic terms.