7.4.6.3  The Economic Benefits of Defence Manufacturing

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There are advantages in making defence equipment, rather than buying it:

·      The industry creates jobs, which are economically beneficial (3.2.5) and politically popular.

·      The country is less dependent upon other countries to support its defence capability, though this advantage is diminishing with globalisation and increasing economic interdependence.[1]

A defence manufacturing industry also creates the opportunity to export equipment and services to other countries.  This has advantages:

·      The exports are helpful to the economy (3.3.8.4).

·      The exports increase the total volume of manufacturing, giving it economies of scale and thereby reducing the cost per item (3.3.2), so it becomes cheaper for the exporting governments to equip their own armed forces.

The economic attractions of making, rather than buying, defence equipment have led to one of the remaining elements of protectionism within the EU – as when BAE Systems was prevented from merging with EADS in October 2012.[2]

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[1] T.J. Rowntree’s paper in July 2008, entitled Is globalisation undermining the military capability of the nation state – and does it matter?, explores the impact of globalisation on a country’s military independence: no country can now avoid the need to buy some materials and components from other countries (section 34 ff.).  It was available in May 2014 at http://www.da.mod.uk/colleges/rcds/publications/.../shp08rowntree.pdf.

[2] The Economist leader on Angela Merkel’s prevention of the proposed merger between EADS and BAE Systems, entitled A European mega-merger? Nein, danke, was published on 13 October 2012 and was available in February 2014 at http://www.economist.com/node/21564558.