European Defence Technology in Transition 9781134405466, 1134405464, 9789057021497, 9057021498

Table of contents :
Content: Cover
Title
Copyright
Contents
Preface
Notes on Contributors
Introduction
1 Belgium
2 France
3 Germany
4 Greece
5 Italy
6 The Netherlands
7 Spain
8 Sweden
9 United Kingdom
Index.

Citation preview

European Defence Technology in Transition

Edited by

Philip Gum m ett and Josephine Anne Stein

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

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European Defence Technology in Transition Edited by Philip G ummett and Josephine Anne Stein

I J R outledge Taylor & Francis Group LO N D O N A N D NEW YORK

Copyright © 1997 OPA (Overseas Publishers Association) Amsterdam B.V. Published in The Netherlands by Harwood Academic Publishers. All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or m echanical, including photocopying and recording, or by any information storage or retrieval system, without permission in writing from the publisher. First published 1997 by H arw ood Academic Publishers This edition published 2013 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon 0 X 14 4RN 711 Third Avenue, New York, NY 10017 R outledge is an im p rin t o f the Taylor & Francis Group, an inform a business

British Library Cataloguing in Publication Data European defence technology in transition 1. Defensive (Military science) 2. Military research — Europe 3. Europe — Defenses I. Gummett, Philip II. Stein, Josephine Anne 338.4'7'35507'094 ISBN 90-5702-149-8

Contents vii

Preface

xi

Notes on Contributors Introduction Philip Gummett and Josephine Anne Stein

1

1

Belgium Pierre de Vestel

25

2

France Claude Serfati

51

3

Germany Peter Lock and Werner Voss

85

4

Greece Anthony Bartzokas

117

5

Italy Giancarlo Graziola, Sergio Parazzini and Giulio Perani

137

6

The Netherlands Ton van Oosterhout and Wim Smit

167

7

Spain Jordi Molas-Gallart

197

8

Sweden Bjorn Hagelin

219

9

United Kingdom Philip Gummett

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Index

289

V

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Preface Serious E uropean academ ic research into issues concerning defence science, technology and industrial policy is o f relatively recent origin. A m ajor im petus was given by the UK Econom ic and Social Research Council (ESRC) which, in the late 1980s and early 1990s, funded a program m e o f w ork on the subject, with contributory funding from the British M inistry o f Defence. The program m e was originated and managed by the Science Policy Support G roup (SPSG ) in London, led first by John Zim an, and then by Peter Healey As that w ork proceeded, two things happened. First, the im plications o f the end o f the Cold War began to become clearer. Far from having the effect, as som e at first thought, o f rendering this subject irrelevant, in fact the opposite proved to be the case. A djusting defence science and technology to the postC old War w orld has been a com plex business. It entailed reducing and re ­ orienting national efforts on the one hand, while considering, on the other, how best to use the resources released by this process. It raised im portant issues o f com parison between East and West. It has generated fresh concerns about the problem s o f controlling the international flow o f m ilitarily-relevant technology, as defence users have increasingly begun to draw upon civil sources for new technology. It has also posed questions about the ability o f defence technological and industrial capabilities on the European scale to survive, especially under the conditions of intensified com petition with the USA that have occured in recent years. All this has expanded, rather than reduced, the research agenda. The second developm ent emerged naturally from the first. It concerned the realisation that an isolated program m e o f British research on this subject made little sense, for two reasons. First, it became evident that there was much to be gained from com parative study o f policy and practice in the countries o f Europe. Second, the subject under exam ination itself increasingly dem anded in any case to be studied on a European scale, as governm ents and firms began to search for Europe-w ide solutions to the dilem m as that faced them. Accordingly, tow ards the end o f the ESRC-funded research program m e, a decision was made to try to build a European netw ork o f researchers active in this field, and formal contact was established with experienced researchers in all the main European countries w ith defence interests. Hence, in 1991, the C RED IT network was set up. CRED IT — Capacity fo r Research on European D efence and Industrial Technology — becam e an SPSG International Study G roup, w ith initial funding from the ESRC for a study o f European D efence

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PREFACE

Technology in Transition, w ith special reference to lessons for the UK. From that beginning, the current 10-country netw ork was established, the 10 countries being the nine represented in this book plus Denmark. The book itself has em erged gradually from the continuing w ork o f the C RED IT netw ork, with successive versions o f chapters being developed and presented at meetings in London, M ilan and Rome, in the latter cases being pre­ sented to parliam entarians, governm ent officials and industrialists, as well as academ ics. In addition, DG XII o f the Com m ission o f the European C om m unities, with its particular interest in research and technology developm ent policy, and in dual-use technologies, offered further valuable support for a sem inar in Brussels in January 1995. This seminar, on D efence-Related Research and Technology in Transition: Issues fo r Europe, attracted the participation o f over 100 industrial­ ists, officials and academ ics from all over Europe, and from the USA, as well as from the Com m ission itself. It provided an im portant platform for the authors to test their ideas against a know ledgeable and inform ed audience, to receive con­ structive criticism , and generally to benefit from a stim ulating exchange of ideas. Some o f the m aterial presented by others at that m eeting has been incor­ porated into this volume. This book is the result, therefore, o f a lengthy gestation, and one, to mix the metaphor, which has been beset by particular problem s o f chasing a moving tar­ get, such has been the rate o f change in its field. Its authors owe considerable debts to num erous organisations and individuals, am ong whom the follow ing, at least, should be gratefully acknowledged: • • •

• •

• •

the UK Econom ic and Social Research Council; the UK M inistry o f Defence; M essrs G iancarlo C hevallard, Jean-Pierre C ontzen, Richard Escritt, Robert M agnaval, Isi Saragossi, and their colleagues, at DG XII o f the European Com m ission; secretarial support staff in PREST, and the D epartm ent o f G overnm ent, University o f M anchester, especially Christine Brown and Jane Harden; Shahnaz H older, D epartm ent o f G overnm ent, and staff o f the C om puter Support Unit, Faculty o f E conom ic and Social Studies, U niversity of M anchester, and Edward G ummett, for overcom ing problem s o f incom pati­ bility am ong the many software system s used by our authors; Tiffany Tyler, PREST, U niversity o f M anchester, for the English translation o f the chapter on France; John Zim an, Peter Healey, Carlye H onig, and secretarial support staff, at SPSG;

PREFACE

•

ix

other m em bers o f the C RED IT network, w ho have contributed indirectly to this volum e through their participation at various meetings.

To all these, our w arm thanks. The authors and editors, o f course, remain responsible for the final product.

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Notes on Contributors D r A nthony B artzokas wrote his PhD on the G reek defence industry at the Science Policy R esearch U nit, U niversity o f Sussex, UK. He has since held posts at the U nited N ations U niversity in The N etherlands and the University of A thens, G reece, and has held a NATO Fellowship. G iancarlo G raziola is professor o f E conom ics at the U niversita Cattolica, M ilan, Italy, w here he directs the C entre for Studies o f A rm am ent and D is­ arm ament. He has written widely on Italian defence industrial affairs. Philip G um m ett is professor o f G overnm ent and Technology Policy at the University o f Manchester, UK, where he is head o f the Department o f Government and a director o f the Programme of Policy Research in Engineering, Science and Technology (PREST). He is academic co-ordinator o f the CREDIT network, and is an adviser to the Foreign Affairs Comm issioner in the European Commission. His research interests lie in defence technology policy and in British science policy. Dr B jorn Hagelin, PhLic, was bom in 1947, and received a BA in political sci­ ence and international politics from Stockholm University, Sweden, in 1970. A fter m ore than 10 years as a defence and security analyst with the national D efence Research Establishm ent in Stockholm , he becam e a research fellow at the D epartm ent o f Peace and C onflict Research, U niversity o f Upsalla, in 1987. T here he received S w eden’s first academ ic degree in peace and conflict research, in 1989. D r Peter Lock is a researcher associated w ith the European A ssociation for R esearch on Transform ation, and is co-ordinator o f its ‘Perm anent (Economic) W orkshop’ in Moscow. He is an advisor to the UN D epartm ent for C rim e Prevention and Crim inal lustice on the international gun control study, and is formerly editor-in-chief o f M ilitdrpolitik Dakumentation, and assistant professor (international relations) at the U niversity o f H am burg. His research interests include defence econom ics, arms transfers, civil-m ilitary relations and changing characteristics o f warfare. Dr Jordi M olas-G allart is a research fellow at the Science Policy Research U nit, U niversity o f Sussex, UK. He is author o f M ilitary Production and Innovation in Spain, published by Harwood A cademic Publishers, and o f more xi

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NOTES ON CON TRIBU TORS

than 20 articles and book chapters on topics including Spanish defence industrial policy, the relationship betw een m ilitary and civilian technologies, conversion and diversification strategies, technology policy, and electronic com m erce. Ton van O osterhout is a PhD student at the U niversity o f Twente, The N etherlands. He is w riting his thesis on technology developm ent in the Dutch Navy. Dr Sergio Parazzini is an econom ist at the U niversita C attolica, M ilan, Italy, where he works in the C entre for Studies o f A rm am ent and D isarm am ent. He has also held a post at the C entre for D efence Econom ics, U niversity o f York, UK. Giulio Perani is director o f the M ilitary Spending and Arms Production Project at the Archivio D isarmo in Rome, Italy. He is currently a NATO research fellow, studying military technology policies in NATO countries. He has recently car­ ried out a research report for the Italian M inistry o f D efence on Competitivity o f the defence industry an d the dual-use problem. Dr C laude Serfati is a M aitre de conferences and m em ber o f the C3ED at the University o f V ersailles-Saint-Q uentin, France. He has w ritten extensively on the arm s industry, with particular reference to industrial perform ance, and sci­ ence and technological policy. Dr W im Sm it is associate professor o f Science, Technology and Society at the U niversity o f Twente, The N etherlands. He has published on such issues as nuclear proliferation, assessm ent and dynam ics o f military technological devel­ opm ents, assessm ent o f nuclear technology, and risk assessm ent. His current interest is in socio-technical netw orks o f military and dual-use technology. Dr Joseph ine A nne Stein is a senior research fellow in Policy R esearch in Engineering, Science and Technology (PREST), University o f M anchester, UK, and m anager o f P R E S T ’s London O ffice. Her main research interests are in international research collaboration and managem ent, human resources for sci­ ence and technology, technology assessm ent, and military research and technol­ ogy policy. Pierre de Vestel is a political scientist who is currently a research associate at the Institute for European Studies o f the Free U niversity o f Brussels — ULB — Belgium. His chapter was written when he was researcher at G RIP-B russels and

NOTES ON CON TRIBU TORS

xiii

he has since w ritten num erous articles on defence econom ic and industrial affairs. W erner Voss is a project director at ISA C onsult G m bH , Germany, a consul­ tancy specialising in advice on the introduction o f new technologies and labour m arket policies. He graduated from the Econom ics Departm ent o f the University o f B rem en and he has published w idely on arm s production and conversion questions.

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Introduction P h ilip G u m m e tt a n d J o s e p h in e A n n e S tein

The Context The six-nation European Com m unity was conceived in the afterm ath o f World War II with the aim o f making future w ar in Europe inconceivable. But after the failure o f plans to establish a European D efence Community, the goal o f military security was to be achieved indirectly, through non-m ilitary forms o f coopera­ tion. Thus, the Com m on M arket, and the agreem ents to cooperate in the three industries o f coal, steel and atom ic energy, were seen not as ends in them selves but as the means o f binding the m em ber states into a form o f union within which war could have no part. As the C om m unity expanded to 12, and then 15 m em ber states, the sam e approach has been follow ed. The resulting taboo on direct involvem ent with defence issues has, however, inhibited a com m on European approach to defence, and hence also to our subject, defence technology policy. A rticle 223 o f the 1957 T reaty o f Rom e form alised the E uropean C om ­ m unity’s exclusion o f defence from its jo in t resp o n sib ilities.1 Only in cases w here trade in dual-use items distorted the operation o f the civil comm on market could the European C om m ission step in, and even then reluctantly because of the sensitivity attached by m em ber states to this area. The picture changed som ew hat with the M aastricht Treaty on European Union of 1992. The Treaty established a comm itment to move towards a common foreign and security policy (CFSP), raising the prospect o f ‘the eventual framing o f a comm on defence policy, which might in time lead to a comm on defence’. However, the same article o f the Treaty (article J.4) called not on the institutions o f the EU but on the W estern European Union (W EU), which had been resur­ rected in the 1990s to act as a bridge betw een the EU and NATO, ‘to elaborate and im plem ent decisions and actions o f the Union w hich shall have defence im plications’. M ilitary matters thus rem ained outside the area o f supranational activities, being kept firmly at the inter-governmental level. (Gumm ett, 1996). These (deliberate) constraints notw ithstanding, various forces and circum ­ stances are raising ever m ore prom inently the question o f the form ation of defence technology policy in Europe. First, the M aastricht Treaty stipulated that the C ouncil o f M inisters should report to the E uropean C ouncil in 1996 on progress with the CFSP, with a view to form ulating the next steps. The 1996 Inter-G overnm ental Conference offers, therefore, an occasion for further possi­ ble developm ent in this field, since movem ent tow ards a CFSP im plies closer defence, and therefore, defence equipm ent, harm onisation. M oreover, in 1998

1

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EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

the W EU aim s to com plete the planned revision o f its 1948 Brussels Treaty, w hich will present a further occasion to re-evaluate the EC-W EU relationship. To these developm ents m ust be added another, but on a different plane. As observed by J.P. Contzen, a senior European Com m ission official responsible for the Joint Research Centre, new technologies today are increasingly ‘the com bi­ nation o f several technologies’. They are, he suggests, ‘super-technologies’, and he goes on to conclude that future product or process innovation, be it civilian or military, will require the ‘sim ultaneous m astering o f several technological sec­ tors’ (Contzen, 1995). In addition, as the balance o f dem and for advanced tech­ nologies has shifted over the years more and more tow ards the civil sector, so leadership in technical change has also shifted increasingly to the civil sector. Hence, although relatively isolated from each other in the 1950s and 1960s, technologies o f civil and m ilitary origin have since gradually becom e more inter-dependent, as civil technologies have gained in strength and, in som e cases, outstripped their m ilitary counterparts. In certain key fields, such as m icro-electronics, firm s began to source globally, and to build international alliances that reinforced their access to necessary com ponents and markets. At the regional level, the establishm ent o f the Single European M arket rein­ forced this trend, and began to alter the context o f European governm ental and industrial behaviour in the field o f defence technology. C om panies with high technology civil interests have been internationalising their activities in response to the twin pressures o f the Single M arket and the greater liberalisation o f global trade. The increasingly blurred distinction between civil and military technology has m ade it harder for these processes not to spill over into the defence sector. A nother byproduct o f the Single M arket is the progressive reduction o f bor­ der controls. W hile the provisions governing the movem ent o f weapons and m il­ itary technologies continue to differ from those for civil goods and technologies, the logic o f the Single M arket drives towards free movem ent inside Europe, and tow ards a ‘com m on European fence’ regulating im ports and exports — that is, the sam e regulations, applied to equal standards, throughout Europe. The grow ­ ing salience o f dual use technologies intensifies this problem. Yet another strand o f argum ent em erges from the long-established practice o f European cooperation in defence technology. This has begun, albeit on a very sm all scale, to move upstream into the research field, with the EUCLID (European C ooperation for the Long-term In D efence) programme. At the devel­ opm ent and production levels, the four-nation Eurofighter 2000 program m e is but the most prom inent current exam ple o f the im peratives driving governm ents and firms to pool resources o f finance, expertise and markets, in order to achieve econom ies o f scale that offer som e prospect o f com peting on price and quality with the considerably larger US firms and US market.

IN TRODUCTION

3

Overcapacity in the defence sector, even before the arrival o f M r Gorbachev, has also raised questions about how best to capture the investm ent made by each country in m ilitary technology and in skilled researchers, designers and engi­ neers. In one sense, the decline o f the European defence industry can be seen as analogous to decline in other industrial sectors, such as those on which the early Comm unity was based, namely, coal and steel. Local, national and European pro­ gram mes can thus be envisaged to support retraining and regeneration o f areas affected by declining m ilitary production. KONVER, the E U ’s program m e to aid defence conversion, operates in this sense ju st like any other sectoral policy. In other respects, however, defence differs from other industrial sectors. Its scale and, often, geographical location, is the direct or indirect result o f past deci­ sions made by governm ents, who play a crucial role as the only custom er in the so-called defence ‘m arket’. This may be thought to confer on them a special responsibility in managing the effects o f declining defence demand. The nature o f its products, and the skills available within it, render it subject to special controls. In addition, the im portance o f its products to governm ents gives it a special polit­ ical status. It is this that tem pts governm ents to try to retain indigenous capability even when the technological and economic odds may be stacked against them. The end o f the Cold War brought all these questions into sharp and urgent focus. Global defence spending fell from $1.2 trillion in 1987 to $850 billion in 1994 (in 1994 dollars). O ver that same period, defence spending in the US fell to 76% o f its 1987 level, and in NATO Europe to 89%. Spending on procurem ent fell even faster, dropping by as early as 1992 to 73% of its 1987 value in the US, and to 72% in NATO Europe. Job losses in the US m ilitary aerospace and m is­ sile sector alone fell between 1990 and 1995 from 627,000 to 326,000; while in Western Europe over the sam e period total defence industrial em ploym ent fell from 1.6 million to 900,000. In Russia, em ploym ent on military production and research and developm ent (R&D) in 1993 was down to 40% o f its 1991 level, and falling. (IISS, 1996; SIPRI, 1995). From a West European perspective, the structure o f the industry, especially in terms o f the comparison between the US and Europe, continues to be unfavourable. The European defence industry as a whole remains oversized (although it has shrunk faster in some countries than others), and the number of prime contractors (and variety of products flowing from their factories), remains far in excess o f those found in the w orld’s largest defence market, the United States. With a m arket twice the size o f w estern Europe com bined, yet only one prim e contractor for main battle tanks (Europe has 4), one for subm arines (Europe has 5) and three for com bat aircraft (Europe has 4, including the Eurofighter consortium ), US firm s enjoy production runs two to five tim es larger than their European com petitors, with corresponding econom ies o f scale

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EUROPEAN D EFEN CE TEC H N O LO G Y IN TRA N SITION

and com m onality o f equipm ent for the arm ed forces. US firms have also been undergoing concentration faster and more decisively than European firms which, beyond a certain level o f national concentration, encounter the difficulties of international m ergers, acquisitions or jo in t ventures in a sector w hich is still treated as politically sensitive, and in which differences in state-industry rela­ tions and in production costs rem ain significant. (Figures from GIFAS, the French aerospace industry association, quoted in Aviation Week, 22 April 1996, p. 54, suggest that France, for exam ple, has average labour costs in the aero­ space sector that are 35% higher than in the US and 45% higher than in the UK. Even if only approxim ately accurate, such disparities are som ew hat inconve­ nient for negotiations over international restructuring). The w o rld’s largest defence firm in 1995, L ockheed-M artin, was the product o f ju s t such a US merger. Its annual turnover exceeded the defence procurem ent budget o f the UK or France, giving it enorm ous resources with which to com pete with European firms either in Europe itself or in the global export market. With the addition of Loral in 1996, the new com pany’s annual turnover will equal the sum o f annual procurem ent spending by France and the UK. N or are there easy escape routes into defence exports. First, the volum e of global arms exports fell from a high o f $60 billion in 1987 to $22 billion in 1993, and this despite most exporting countries altering their policies to facili­ tate exports (IISS, 1996). Second, from a European perspective, the character of com petition with US firm s has altered. W hereas E uropean firm s have long depended on exports for about a third o f their business, US firms, with their much larger home m arket, have been much less dependent, although still suffi­ ciently so to have held prim e place in the export league. Now, however, with the US dom estic m arket shrinking, and doing so faster than the European one, the pressure on US firm s to export, both to Europe and to E urope’s own export m ar­ kets, has grown. H ence, France, for exam ple, has seen its arms deliveries fall from FF39 billion in 1990 to FF17 billion in 1994. At the same time, the US share o f the reduced world m arket grew from 35% in 1990 to 55% in 1995. In a clear sign o f the changed times, in the years 1996-2000, US firms are expected to produce about four tim es as m any com bat aircraft for export as for domestic purchase (Forsberg, 1994, Appendix Table 2). If European states wish to retain a defence industrial capacity (rather than buy American), the choice appears to be between paying a high economic price for national independence, or finding some com m on European solution. At the same time, internationalisation o f developm ent, design and production o f defence equipm ent, together with changes in the technological basis of defence capabili­ ties, com plicates the task o f controlling the international flow o f m ilitarilyrelevant technologies. As we have indicated, however, there is already a good deal o f European level policym aking going on in this field, despite the historical

IN TRO DU CTION

5

inhibitions. In addition, the 1996 Inter-Governmental Conference, not to mention the issue o f enlargement o f the EU to the east, cannot avoid addressing funda­ mental questions about the security basis o f the overall European project. This book, focusing more narrowly on defence technological and industrial issues, aim s to provide information about current policy and practice in those countries of the EU which have the most significant defence industries, and to contribute to the evolving policy debate. The rem ainder o f this introduction is devoted to introducing various developm ents and issues which will recur, and receive more specific treatm ent, in the country chapters that follow.

Defence Industrial and Technology Policy Until the late 1980s, the size and shape o f European defence activities reflected the specific geopolitical circum stances o f the C old War. As these circum stances changed, the defence sector suffered not ju st a loss o f dem and, but a loss of coherence. The military strategies and force structures pertinent to defending against m assed attacks from the East lost their relevance. It becam e less clear how to organise military forces in response to the more diffuse set o f risks that have em erged. This is true in relation both to the possibilities o f threats from weapons o f mass destruction, and to the use o f national arm ed forces in multina­ tional coalitions, such as the burgeoning United Nations interventions. D efence planning has become extrem ely difficult. The difficulty that all countries face is that o f identifying requirem ents in a coherent fashion, and then o f finding the necessary funds at a tim e o f public pressure for cuts. W hen ‘the th reat’ cam e clearly from the Soviet Union, it was possible to plan fairly straightforw ardly. M oreover, because o f the scale of forces assem bled to deal w ith that threat, lesser defence problem s could be m anaged w ith som e configuration o f forces draw n from the large total. But the single large threat has now been replaced by m ultiple sm aller, but less clearcut, ‘risks’. Not only is it difficult to know w hat to plan for, but the forces available will be m uch sm aller than in the past, thus reducing the scope for w ithdraw ing elem ents o f the total to meet particular eventualities. If it could be safely assum ed by each country that it w ould m eet all conceivable eventual­ ities in the com pany o f the sam e fixed set o f allies, then a division o f labour m ight be agreed. But even this seem s im plausible at present. H ence the p ro ­ found uncertainty that has been gripping defence planners and, by extension, those responsible for planning defence R&D. D etails are given in the chapters that follow, w hile Table 1 gives an overview o f the relative scales o f expendi­ ture by w estern E uropean states on m ilitary and civil R & D , and m ilitary equipm ent expenditure.

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EUROPEAN D EFEN CE TEC H N O LO G Y IN TRA N SITIO N

Table 1: Data on Military R&D and Equipment Expenditure, 1994 Country

Belgium France Germany Greece Italy Netherlands Spain Sweden UK

Sources: Notes:

Government R&D Expenditure

Military R&D

millions 1994 ECU

millions 1994 ECU

1,213 13,690 16,510 176 5,378 2,194 1,884 980 7,150

2 4,433 1,393 3 478 76 214 172 3,182

Military R&D as percentage of Govt. exp.

Military Equipment Expenditure millions 1994 ECU

0.2 32.4 8.4 1.7 8.9 3.4 11.3 17.5 44.5

260 6,345 3,339 891 2,675 2,182 1,214 678 7,140

EUROSTAT, except for final column, which is NATO.

• Swedish figures are for 1992. • French equipment expenditure, which is not declared to NATO, is taken from the Projet de loi de finances pour 1994, Paris: Imprimerie nationale, 1993. • Table prepared by Pierre de Vestel.

W hat is striking about the various responses to the post-Cold War uncer­ tainty, how ever, is how little difference they are m aking to the shape o f the inventory o f new equipm ent requirem ents. There are im portant exceptions, such as the new em phasis on C 3I, space surveillance and com m unications, and defences against w eapons o f m ass destruction, offset by som e reductions in nuclear weapons programmes, more so in France than in Britain. But most major program m es are being kept in place, albeit stretched out in time and often with a reduced num ber o f units. At the level o f R&D, and especially ‘R ’, European governm ents responded initially to the post-Cold War conditions by asserting the im portance o f m ain­ taining high levels o f technological com petence, if not necessarily pushing this through into finished products. The position was sim ilar in the USA where the ratio in 1985 o f $1 spent on R&D for every $3 on procurem ent was expected to change by 1995 to a ratio o f less than one to two (Van Atta, 1994). T he overall turbulence o f defence policy has been m aking it difficult for clear lines o f R&D policy to emerge. In addition, various indequacies o f statis­ tics, such as the very lim ited projections which most countries are prepared to

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publish, uncertainty in various countries over the extent to which published fig­ ures correspond to the Frascati definitions o f R&D, lack o f information about industrial spending, and difficulties o f accounting for dual-use projects, also com plicate the task o f analysis. N evertheless, it does seem that European gov­ ernm ents have been protecting their defence research, at least relative to the rate o f reduction o f defence budgets in general (GRIP, 1993). International C ollaboration in D efence Research W hile continuing w ith these levels o f national defence research activity, the various European countries are also pursuing international collaboration w hen­ ever it fits their national priorities. As well as various bilateral and trilateral program m es, a pan-E uropean initiative was launched in 1990 by the then Independent European Program m e G roup (IEPG). This com prises the European m em bers o f NATO, including France but minus Iceland, and has since been put under the aegis o f the W estern E uropean U nion and renam ed the W estern European A rm am ents G roup (W EAG). The 1990 initiative was to establish a jo in t research program m e called E U C L ID (E uropean C ooperation for the Long-term in D efence) (C hauvot de B eauchene, 1991). A m em orandum o f understanding was signed by the 13 nations in N ovem ber 1990, and 11 areas for research, rising later to 15, were agreed.2 C ountries may elect to join a la carte. EUCLID, however, got off to a rather slow start, and the sum s o f money com m itted so far are small. By the sum m er o f 1993, the contracts signed am ounted to only about 30 million ecus, or about one-twentieth o f British defence research spending alone. W hether, in what clearly rem ains a highly nationalistic arena, the EUCLID budget could rise to even 10% o f expenditure on European military research seem s doubtful at present. One developm ent that could in tim e change the position arises from the French proposal, launched at the M aastricht sum mit in D ecem ber 1991, for an Arm am ents Agency under the aegis o f the W estern European Union. (Sillard, 1991; Teisseire, 1991; Borderas, 1994). The functions o f this Agency, it was sug­ gested, could evolve over time from simply housing the project offices o f collab­ orative projects, to managing R&D and equipm ent projects on behalf o f mem ber states, and even to becom ing the procurem ent arm o f the W EU as a whole. One clear early task could be to assum e the responsibility for EUCLID. Having made little progress, this plan was relaunched in D ecem ber 1993 as a specifically Franco-Germ an agency, to be concerned initially with the m anage­ m ent o f joint French/Germ an defence equipm ent projects. A fter objections by other states that this idea appeared to cut across that for a W EU A rm am ents

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EURO PEA N D EFEN CE T EC H N O LO G Y IN TRA N SITION

Agency, France and Germ any quickly offered to put their agency under the aegis o f the W EU, and to represent it as the em bryo o f a W EU Agency, arguing at the same time that they had particular reasons for wanting to get started and not wait for agreem ent by the other m em ber states. Subsequently, the N ovem ber 1994 N oordwijk meeting o f the W EU Council o f M inisters, ‘took note’ o f further work on the idea o f an Arm am ents Agency, and agreed that further discussions would continue, while also ‘recognising that conditions do not currently exist for the creation o f an agency conducting the full range o f procurem ent activities on b eh alf o f m em ber n ations’. (W EU N oordw ijk D eclaration, 14 N ovem ber 1994). The more am bitious plans for the Agency having thus been laid to rest, Britain then began actively to consider participation, even raising the possibility that m anagem ent of such major pro­ jects as E urofighter 2000, the Horizon frigate program m e, and a new European arm oured car could pass to the A gency (F inancial Tim es, 28 M arch 1995). H ow ever, in raising this prospect, the then D efence Procurem ent M inister, Mr Roger Freem an, spoke o f the Agency as starting ‘as a buying agency with delegated pow ers o f management. In due course, it might move on to discuss long-term operational needs, research and developm ent’. Clearly, a num ber of different, though not necessarily incom patible, visions exist o f how the Agency might develop. At the tim e o f w riting, the status o f the A gency rem ained unclear: France and G erm any had expressed a firm intention to proceed, and the UK had expressed enthusiasm to join, but the scope and modus operandi o f the Agency rem ained to be settled.3

Industrial Developm ents The future European capability in defence technology depends not only on the policies o f governm ents but also on the decisions o f companies. This is not because o f industry’s role as a sponsor of defence technology, where it plays a minor part compared to governments, but rather because in every country it is in industry rather than government that most o f the physical capability is to be found. Industry responds to different pressures than those operating on govern­ ments. Accordingly, while European governm ents have been gradually revising their defence policies over the past several years, defence industrial com panies have been moving ahead more rapidly in order to try to maintain their own via­ bility. These developm ents are im portant to the future o f European foreign and security policy, at both national and EU levels: •

they influence the defence capability o f Europe as a whole, as well as that o f individual states;

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•

•

9

they affect the econom ic security o f states, both in terms o f direct effects (such as jobs) and by altering the general attractiveness o f a country, or o f regions o f a country, for high technology investm ents, according to the ‘cluster’ theory o f Porter (1990), and the argum ents o f Reich (1990) over the im portance o f m aintaining a skilled w orkforce as a m agnet fo r such investm ents; for both political and econom ic reasons, therefore, the protection o f national defence industries is a natural concern o f most governm ents, but this con­ cern runs against those currents in E uropean politics that are flow ing tow ards greater integration; they influence the scope for shifting the balance o f European technological capabilities more in the direction o f dual-use technologies, as discussed fur­ ther below.

As already m entioned, E u ro p e’s defence com panies are engaged in m ajor restructuring, within and across borders, which is likely to accelerate still further (W ulf, 1993; Sandstrom and W ilen, 1993; Brzoska and Lock, 1992; H ebert, 1991). Skilled people are being displaced from their jobs, and there is a consid­ erable risk that they will find little com parable work to go to. W hile there would clearly be little point in m aintaining capabilities for which there is no dem and, the abruptness and (often) geographical concentration o f defence cuts can mean that there is little chance o f any alternative dem and m anifesting itself within a short tim e period. It deserves em phasis that international restructuring has com e to the defence sector later than to the rest o f industry, with defence still today being regarded as a sector o f unusual strategic significance by governm ents, who therefore actively scrutinise foreign interventions. International restructuring has, nevertheless, been particularly evident in the electronics and aerospace sec­ tors, with the w arship and land equipm ent industries lagging behind. Two main patterns o f activity can be observed. One pattern has been o f major defence contractors taking over second tier firms in other countries. O f greater significance, however, have been the moves to establish international joint ventures between the major players on the European scene, particularly between British and French, and French and German, firms. These present the prospect of radical reshaping o f the industry, which might result in the formation o f a few large multinational ‘clusters’ of fixed composition (Steinberg, 1992), but more probably perhaps will take the form o f fluid coalitions o f opportunity between divisions o f the main defence firms (Walker and G ummett, 1989 and 1993). These developm ents will affect not only the size and distribution o f E urope’s defence industrial capabilities, but also the balance o f technological

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EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

power within Europe and its com petitiveness vis-a-vis the USA and Japan. Hence, they are of broad significance for the future o f European foreign and security policy. Defence Technology Policy The scale o f national capacities in defence technology varies considerably across Europe, with France and the UK, followed by Germany, at one extreme, and Belgium and Greece at the other. The capacity of these countries to formulate more or less comprehensive policies for the acquisition of defence technologies has to reflect these realities. And even among the larger ones, significant differ­ ences in practice can be observed. For example, in France only about 30% of defence research (as distinct from development) is done in establishments under the whole or partial control of the Ministry of Defence (MoD), compared with more than double that figure in the UK. The proportions done in industry vary correspondingly. On the other hand, the concentration of technical expertise within the French MoD in the hands of the Delegation Generale pour 1’Armement (DGA), whose key staff come from a specialist, permanent corps of armaments engineers, gives these specialists a greater say in determining the content of the defence research (and development and production) programme than do technical specialists in, say, the British MoD. All countries, however, have been facing the challenge o f having to do more with less. Their specific responses are described in the following chapters. Here we focus on the key general problem of how they are trying to maintain ade­ quate technological dynamism within Europe under the twin pressures o f dim in­ ishing budgets and increasing American competition. One response seen in some countries has been to think in terms o f the estab­ lishment of lists o f ‘critical technologies’ as a key instrument o f defence technol­ ogy policy. Such an approach can be seen in France, Italy and Sweden, for example, as well as in the United States. Branscomb (1994), however, warns that the concept o f critical technologies, especially when used as the basis for policy towards supposedly commercially important technologies, is a slippery one. His main point is that the sense in which something is critical is highly context dependent, that is, that much is in the eye o f the beholder. This has been the traditional position in the UK, where there has been resistance to the publica­ tion of lists of defence critical technologies, partly on grounds o f the difficulty of defining them in any meaningful way, and partly because they give a hostage to fortune because they implicitly encourage companies to lobby for support for their contribution to an item on the list. Others, however, have felt that there is value in trying, as in the exercise by the French Groupe de strategic industrielle

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(C om m issariat general du plan, 1993; and see chapter on France) to identify which technologies must be retained under national control, which can be devel­ oped in a pool with allies, and which can be bought on the open market. And even in the UK, the discussions o f research plans in various official statem ents in 1994 (M inistry o f Defence, 1994b; C abinet Office, 1994) showed that the UK M oD clearly did have a sense o f future requirem ents, and this has been con­ firmed by subsequent moves to define a defence technology strategy, and make it known to industry. M ore fundam ental, however, has been the challenge of responding to the im portant changes that have occurred on the technological plane. The postsecond world war presum ption that military technology sets the pace for techno­ logical change, leading from tim e to tim e to spin-off to the civil sector, has increasingly been called into question. This has been most evident in the elec­ tronics and com puting fields, w here the balance o f dem and betw een military and com m ercial custom ers has altered dram atically in recent decades, placing the main driver o f technical advance today firmly in the civil sector. In addition, innovations in production processes, such as the concept o f lean engineering, together with increasingly globalised sourcing o f components, have given rise to what can be called a new technological paradigm. Im provem ents in the quality o f technologies produced for civil purposes, coupled with reduced funding for defence research, developm ent and procurement, have also caused defence agen­ cies to look with greater interest to the civil sector as a supplier (G um m ett and Reppy (eds) 1988; Smit 1992). This is the framework within which interest has grown in recent years in the concepts o f dual-use technology, and o f civil-m ilitary integration, the latter, follow ing the O ffice o f Technology A ssessm ent (1994), being divisible into issues concerning the technology itself, production processes, and supplier-user networks. There has already been extensive discussion o f the dual-use concept in the USA (see Alic et al., 1992). With the election o f President Clinton, the concept moved from the level o f analysis to becom e a central pillar o f defence techno­ logy policy (Van Atta 1995; G ansler 1993). The 1995 D epartm ent o f D efense budget contained over $2 billion for work o f this type, much o f it under the Technology R einvestm ent Program (TRP). The other im portant context for this debate is Japan, which is now the para­ digm case for the application o f the dual-use concept. In his detailed account of what he terms Japan’s ‘technonationalism ’, Sam uels (1994) show s how Japan has em bedded a defence production capability within a civilian economy. When, by the 1970s, the relations betw een technologies o f civil and m ilitary origin began to change, Japan found itself in an exceptionally strong position. As the

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w orld leader in the introduction o f advanced electronics into a huge variety of products, and in the developm ent o f advanced m anufacturing capabilities, Japan assem bled an im pressive com m ercial technology base w hich could be applied to military purposes, while continuing to reinforce it w ith w ork arising from m ili­ tary funding. To give but one exam ple: the Japanese claim that their air-tosurface missile perform s better than the US missile on which it is based because it has better gyrocom pass technology. The reason, they say, is that the Japanese bearings have sm oother surfaces than their US counterpart, because they were first produced for the dem anding purchasers o f videotape recorders. For Sam uels, the fundam ental lesson from the Japanese experience is that a full-spectrum com m ercial capability helps defence production as much as do focused defense industrial policies. But the relationship is reciprocal. Each of the pieces, up and dow nstream , m eshes together, resulting in a diverse com m er­ cial econom y that is a huge ‘know ledge generator’ for society as a whole. Such thinking has now taken root in Europe. T hus, B ritain, after earlier reluctance to discuss together the developm ent o f civil and military technologies (Council for Science and Society, 1986), is becom ing increasingly active on this subject. Industry is pressing strongly for a greater national effort in the develop­ ment o f dual-use technologies, notably through the program m e operating under this title, sponsored by the C onfederation o f British Industry on the initiative of British Aerospace, and through the governm ent’s Technology Foresight exercise (Coghlan, 1994; Cabinet Office, 1995). The MoD, through its research arm, the D efence Evaluation and Research A gency (D ERA ), is acting to develop new Dual Use Technology Centres, and related initiatives which will align the pro­ gram m es o f the DERA more closely with those o f industry (H ouse o f Lords, 1994; M inistry o f Defence, 1995). A sim ilar debate has also been underway for som e time in France, but, at least initially, in a more positive tone than in the UK. For several years there have existed large annual meetings to draw together defence and civil scientists (so-called ‘Fntretiens science et defense’). Civil agencies, such as the national space agency (C N ES) are m uch more closely involved with defence pro­ gram m es than would be the case in, say, the UK. The tone o f the French outlook was well shown in an editorial in the house journal o f the French DGA, in intro­ ducing in 1991 a special issue on Les Technologies D uales, which argued that the time is past when one could think o f defence research in isolation from civil, adding that today ’s econom ic and technological conditions require constant attention to the issue o f duality in research and developm ent (L ’A rm em en t, 1991). The willingness to place defence interests firmly in the forefront o f w ider national technological developm ent is a them e that was continued, and much developed, in the highly detailed 1993 report o f the G roupe de strategic indus-

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trielle o f the French Planning C om m ission (C om m issariat general du plan, 1993), w hile also being criticised by som e in term s o f its overall effect on French technological and econom ic developm ent (Chesnais, 1993; and chapter on France). D ifferent again, at least in modality, is the Germ an case. The most powerful econom y in Europe is also one o f the m ost heavily constrained politically in terms o f defence equipm ent spending, relative to its size. Hence, it has already been policy since 1985 to draw on civilian-developed technology as far as possi­ ble (see chapter on G erm any). M oreover, in contrast to the USA and UK, G ermany has not maintained large state-ow ned defence research establishm ents. Instead, it m akes heavy use o f other research institutions with prim arily civil interests (such as the D eutsche Forschunganstalt fur Luft-und Raumfahrt, and the Fraunhofer G esellschaft), and o f private com panies. These are on the whole less militarily dependent than their British or French counterparts, and in that sense much more like Japanese defence producers. Sm aller countries, such as B elgium , have also sought for som e tim e to encourage com panies to operate across the defence-civil interface, through sup­ port o f A irbus and the European Space Agency, and through encouraging civil electronics firms to tender for defence electronics equipm ent by specifying air­ craft display units, for exam ple, that were ‘m il-tailored’ rather than ‘m il-spec’. In the N etherlands, likewise, about one-third o f the defence R&D budget is actu­ ally spent in what are prim arily civil organisations. It rem ains to be seen how these initiatives will evolve, and w hether the interest in ‘duality’ will am ount in the end to any more than an attempt to sup­ port defence activity from the civil base, rather than to seek a more genuine inte­ gration o f the two. It is evident that a certain political opportunism has som etim es attended the use o f the concept. Thus, in the US, the rush to attach the label ‘dual-use’ to defence projects in order to qualify under T R P backfired when the Congress elected in N ovem ber 1994 turned against the TRP — with the outcom e that a new Dual Use A pplications Program (D U A P) has been announced, but which will consider only technologies that can be used by the military, unlike TRP which also sought to transfer technologies o f defence origin to the civil sector. Sim ilarly, in France, Serfati has pointed to the rhetorical freight carried by the term, observing that in practice it tends to be applied only to technologies that can be used in the military sector (Serfati 1995, p. 94; and chapter on France). D espite these rhetorical uses, however, there can be little doubt that a real changc has occurred in the technological base o f defencc production. This has im plications, as yet indistinct in detail, for the ways in which the developm ent, design and production o f defcnce equipm ent will be conducted, and for the

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control o f the international flow o f defence-related technology. As Contzen has observed, the requirem ents for civil and m ilitary technologies will rem ain in m any cases different, and the m arkets they create for future technologies will never be fully unified. The question is: W ill the resu ltin g separate ‘m a rk et p u ll’ co m p o n en ts induce sep arate te ch n o lo g ical d ev e lo p m en ts o r w ill the tech n o lo g ical base resulting from the com b in atio n o f ‘science p u sh ’ and ‘m ark et p u ll’ b e su f­ ficien tly broad to m eet both d e m a n d s? (C o n tz en , 1995)

Despite these uncertainties, Contzen rem ains confident that the developm ent of m odem technology requires a broadening o f its own technological base, and the form ation o f strategic alliances in order to access technology held by other organisations; and that these trends apply to both the civil and military fields. He further argues that ‘m ost o f the dem ands o f the military m arket could be met by using civilian driven technological developm ents provided the pull from the civilian m arket is sufficiently am bitious and dem anding’. Hence, as a m atter of policy, Europe should be moving tow ards a com m on m ilitary-civil science base, and should seek more cross-dem and between the two sectors.

Policies Towards Exports of Arms and Dual-Use Technologies A problem faced by all states, but one which can only be managed at the interna­ tional level, is how to control the international diffusion o f w eapons technolo­ gies, and to do so in a way that is coherent and equitable. This problem is made harder by the new em phasis upon dual-use technologies. Attem pts to im prove control regimes, notably for dual-use technologies but also for arm s transfers, within the fram ew ork o f the European Union and the Single European M arket (the need, in other words, for a ‘Com m on European Fence’) have moved slowly, the problem s lying more in the detail o f lists and criteria than in any lack of agreem ent about the im portance o f the goal. We must recognise, moreover, that the very attempt to harm onise European procedures on this subject carries the risk o f arousing suspicion by im porting countries that defence reasons are being used to disguise the m aintenance of com m ercial advantage by supplier countries. We may also note that, at the level o f com m on foreign and security policy, it may be at least as im portant to explore ways o f reducing dem and for these technologies at source, as to attem pt to plug holes in control regim es. Nor, o f course, are all the sources o f supply under the control o f w estern states. The states in our study are formal m em bers of, or behave in conform ity with, all the more im portant arms export control agreem ents and fora, including the A ustralia G roup, COCO M (until its demise at the end o f M arch 1994), the

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C hem ical W eapons C onvention, the M issile Technology Control Regim e, the N uclear N on-Proliferation Treaty, and the N uclear Suppliers G roup. Those within the G-7 also participate in that G roup’s informal w orking group on the harm onisation o f export controls on dual-use goods. D espite this apparent unanim ity o f purpose, im portant rivalries rem ain. N ational governm ents face a dilem m a over balancing support for exporters against restricting the proliferation o f weapons system s and technology. These conflicting economic and security objectives are often reflected in governm ental arrangem ents for export prom otion and control, and hence in the difficulties over reaching agreem ent on E uropean-level regulations. Several countries (including Belgium, France, Italy, Sw eden and the UK) have recently experi­ enced controversy over the export o f military and m ilitary-related equipm ent to Iraq as their governm ents were caught up in the conflicting objectives o f export prom otion and nonproliferation. In Britain, the Scott Report (1996) into the sale o f arm s to Iraq provided ample evidence o f the room for m anoeuvre that can exist even within well-codified ‘guidelines’, and in the face o f a supposedly rea­ sonably efficient im plem entation machinery. D iffering interests affect the detailed policies o f countries. For France and Britain, arms exports are an indispensable means to create econom ies o f scale and are also seen as legitimate instrum ents o f foreign policy. In Italy and Spain, also, the econom ic im portance o f arms exports is emphasised. Germ any and the N etherlands, however, have distanced them selves from using arms exports as instrum ents o f foreign policy, and operate m ore restrictive export policies. G reece is more concerned about im ports than exports, but has a particular inter­ est in m onitoring arm s sales to the B alkans. M oreover, although all the EU countries adhere in principle to the N uclear Suppliers G roup guidelines and the form er COCOM list, in practice the only EU country whose own national list of restricted item s contains all 72 items required by these tw o international lists is Ireland: Germany, the N etherlands and the UK lack one item each; Italy seven; France 14; Belgium 20; and Spain 24 (Saferworld, 1994, p. 5). D espite the renew ed em phasis that was given to arms export controls after the G u lf crisis, relatively little progress has actually been made at the interna­ tional level. The only notable initiative has been the establishm ent o f the UN Arms Register (Chalm ers and Greene, 1995), but even this is a confidence build­ ing m easure rather than an export control mechanism. At the regional level, efforts have been made by the European Commission to establish common export controls on both arms and dual-use goods and technolo­ gies (M uller et al„ 1994). Progress has, however, been slow. The European Council has taken the first step towards a com m on approach on arms exports by adopting, in 1991 and 1992, eight criteria which the m em ber states should apply when deciding on issuing a licence for a specific export, but this remains far from

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EUROPEAN D EFEN CE TECH N O LO G Y IN TRA N SITION

being uniformly implemented. On dual-use goods and technologies, agreement was reached in 1994 to introduce, from 1995, effective controls, based on com ­ mon standards, by all mem ber states. The key features o f the system are a com ­ mon list o f dual-use goods and technologies subject to export control, a list of destination countries deem ed to be unproblem atic, and comm on criteria to be applied by all member states when determining whether or not to authorise exports from the Community. Here too, however, progress is expected only in stages, with a transition period to strengthen, where necessary, national control systems, to reinforce adm inistrative cooperation betw een the relevant authorities, and to reduce, and ultimately eliminate, policy differences between member states. An interesting paradox of the present em phasis upon national control m ech­ anism s is that most countries (and especially their firms) perceive them selves as having a more restrictive arm s export control policy than their neighbours, and so harbour suspicions that com petitors are gaining market advantage by prom ot­ ing exports and adopting lax controls. International agreem ents may need to focus as much on how to build confidence am ong allies as on how to prevent proliferation. Certainly, w ithout that confidence they will not succeed, partly because countries will not allow their own industry to labour under a disadvan­ tage, and partly because governm ents will be reluctant to place sensitive infor­ m ation at the disposal o f a control regim e if they believe that action by them selves alone would be more effective than action by the regime.

Policies Towards Defence Conversion As for the prospects for policy towards conversion, the European experience offers only limited encouragement. In fact, it is exceptional to find unambiguous exam ­ ples o f pure conversion. Those that can be identified are in most cases commercial failures, often attributable to the inexperience o f military manufacturers in operat­ ing in a commercial market environment. Knowing this, companies more often adopt other means to capitalise on their investm ent in facilities, equipment and skilled labour as the declining defence market leaves them with surplus capacity. It is not unusual for firms to recruit new m anagem ent from the com m ercial world (there are exam ples in G erm any, G reece and Spain). O ther com panies spin off divisions to m anufacture civil products under new com pany and new brand names. Still others acquire smaller, civil com panies as a nucleus for devel­ oping com m ercial business. A lthough civil investm ent, skills and technology contribute to this process, to som e extent it represents the redeploym ent o f m ili­ tary m anufacturing capacity and could be considered a form o f conversion. In countries such as France, Greece and Spain, in which the defence indus­ try is mostly state-ow ned, it is also difficult to decouple business decisions from

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national or regional policies. N ational or regional subsidies for diversification or conversion can be obscured quite easily. In addition, privately-ow ned military m anufacturers may in practice have such close ties to national governm ents that, in effect, governm ents de fa c to subsidise diversification or conversion. One such exam ple is Belgium , w here support for civil aerospace has com e to the rescue of vulnerable predom inantly m ilitary aerospace firms. In another exam ple, the G erm an Land o f Schlesw ig-H olstein supported the creation o f two new civil technological foundations in the vicinity o f defence industries in difficulty. Initiatives by Public A uthorities There are few national or European program m es specifically aim ed at conver­ sion. To a first approxim ation, most governm ents in Europe have considered conversion a com m ercial m atter that should be left to the firms them selves. For exam ple, the Germ an federal governm ent stated in 1985 that it did not wish to assum e responsibility for the defence industry, and that while it tried to keep indispensable defence capacities continuously occupied, it was unable to give any guarantees on em ploym ent and m ilitary equipm ent orders. M ore recently, in 1991, although the federal governm ent had not changed its policy, the individual Lander most affected by defence cuts argued for sectoral support. Both sides were able to claim a victory in the form o f a tax regim e w hich, although not explicitly directed at the declining defence industries, happened to benefit those Lander most affected. In Britain likewise, where com pany-initiated defence cuts began on a significant scale earlier than in most other European countries, the governm ent’s position has been alm ost entirely one o f non­ intervention, save for som e advisory services. The N etherlands considers any sectoral industrial policy econom ically counterproductive, as well as being counter to the objective o f European free trade. Nevertheless, the M inisters o f D efence and o f Economic Affairs have said that preferential treatm ent will be given to com panies applying to the M inistry o f Economic Affairs for conversion assistance. The situation in Sw eden is similar. National policy has been to sustain a high level o f military equipm ent developm ent. Support was given to Saab and Volvo Flygm otor in 1980 for participation in civil aviation projects with the USA. H owever, this was intended to m aintain the industry during a lull in military orders rather than as conversion assistance. M ost recently, Sweden has decided to support dual-use technology, but again in order to preserve ‘rem obili­ sation capacity’ rather than to prom ote conversion. Italy’s BPD Difesa e Spazio, like its Belgian counterparts in the aerospace industry, has increased its focus on government-supported civil space activities. Other Italian programmes in the early 1980s supported specific civil technological

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EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

projects based on military technology. In both Italy and Sweden, a number of par­ liamentary initiatives to support conversion have been introduced and debated, w ithout being adopted. But in 1993 Italy did pass a law that both financed indus­ trial activities in the defence sector and created a 5-year, £200 million conversion fund. The conversion fund provides grants and loans to military firms expanding their civil business, and also provides co-finance for regional assistance to areas affected by declining defence industrial activity. In France, w here the governm ent rem ains com m itted to high levels of defence spending, conversion planning thus far has been confined to small and m edium sized enterprises (SM Es), for which the M inistry o f Defence created a D elegation fo r Restructuring in 1991, to m anage a fund o f about 160 million FF (about £20 m illion) per year. W hether the scope o f this activity will expand as a result o f the deep defence cuts announced in 1995 and 1996 rem ains to be seen. In the 1980s, the G reek governm ent cam e to the assistance o f an ailing dom estic industry with a massive program m e o f subsidies and m ilitary orders, resulting in considerable overcapacity in the defence sector. More recently, how ­ ever, the governm ent decided against either an enhanced procurem ent pro­ gram m e or additional investm ent to m aintain the defence industry. Instead, G reece has opted for privatisation o f some firm s in areas o f dual use technologi­ cal capabilities, such as trucks and heavy vehicles, shipbuilding, and electronics, to give com panies the m aximum flexibility to im plem ent conversion or diversi­ fication strategies, without an explicit com m itm ent to either. The responsibility for meeting the social and econom ic costs o f declining defence industry em ploym ent usually falls to more general structural measures applied by states and the European Union. One exception is the E U ’s KONVER program m e, which is specifically targeted at com panies vulnerable to downturns in m ilitary production, and offers support for the developm ent o f alternative, civil products. Like other structural assistance program m es o f the European Union, the European Comm ission assesses the extent to which a country is eligi­ ble for support according to standard, purely econom ic criteria. The KONVER funding must be matched by som e com bination of local, regional and national support, plus private investm ent, and the program m e is m eant to be adm inis­ tered on a regional basis. In practice, KONVER funds usually go to those com ­ panies or regions which actively seek the support. It is up to each country to formulate a national programme for administering the aid in accordance with the stated EU objectives. This is easier said than done. M any countries have different objectives to those o f the EU. Italy’s first proposal for KONVER funding was rejected on the basis that the com panies slated to receive the aid were large military m anufacturers with adequate capital to undertake their ow n conversion projects. A m odified proposal, tied more

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closely to regional developm ent projects and aid for newly established com pa­ nies, was approved in D ecem ber 1993. Spain prom otes dual-use technology developm ent in order to encourage firms to have the greatest possible flexibility. Rather than encouraging conver­ sion, this has had the effect o f draw ing civil firm s into the m ilitary sphere. Spanish military manufacturing com panies did not take an interest in KONVER, and the governm ent neglected even to subm it a proposal. M ore typically, countries conform to KONVER requirem ents by com bining European Union funding with regional and/or national support. F or example, France is using K ONVER funding in the Bourges region. In this region, heavily dependent on arms manufacturing, there has been a 20% cut in the num ber of jobs in large military com panies since 1986. T he L and o f B rem en in G erm any approved a conversion program m e in 1992 as part o f a com prehensive econom ic policy for the region. In 1993, B rem en appointed a state C om m issioner for C onversion and an A dvisory C om m ittee to oversee the state conversion programme. Bremen intends to make use o f K O N V ER and other E uropean Union Structural Fund program m es to support new technological projects such as sewage treatm ent, and for vocational training. Nord R hine-W estphalia, though less dependent on m ilitary industry, also uses K ONVER support, for retraining programmes.

C om pany Initiatives The lack o f strong governm ent policies on conversion and diversification leaves the responsibility for action with com panies and, in some countries, research institutes. This seem s to be equally true w hether the com panies are state-owned or private, although obviously the precise nature o f the relations betw een a firm and its governm ent influences the scope for action by the firm. Faced with the sam e broad problem right across w estern Europe, individual firm s and research institutes are, how ever, responding in a variety o f ways. Som e are seeking to tighten their grip on the dim inished defence sector. Others are simply cutting back surplus staff. But others have attempted to alter the basis o f their activities. These, however, have found that the difficulties in shifting em phasis are com pounded by the econom ic recession and lack o f demand for civil products and services. D utch com panies have been partially successful at diversifying or convert­ ing their military capacity. Delft Instrum ents, for exam ple, which m anufactures night vision equipm ent and laser range finders, has greatly reduced its depen­ dence on the military market. Eurometaal, an amm unitions m anufacturer, was able to com pensate for lost military orders by increasing its civilian turnover

20

E U R O PEA N D EFEN CE TECH NO LOG Y IN TRA N SITION

from Dfl 2 million to Dfl 37 million. In order to do so, it acquired existing civil com panies, and also had to lay o ff hundreds o f em ployees. De K ruithoorn, another am m unitions m anufacturer specialising in arm our piercing penetrators, has used its expertise in m etallurgy to develop a new civil m etal injection m oulding system. Even TNO -D O, the state-ow ned research institute where most D utch military R&D is done, has increased its proportion o f civil work from 6% in 1986 to 14% in 1992. Some sm all-scale successes have been achieved by military m anufacturers developing new civil products in areas closely derived from military products. The Italian aerospace firm BPD D ifesa e Spazio has used military technology to develop civil products for forest fire-fighting and rapidly-inflatable autom obile air bags. On the other hand, FN, a B elgian arm s manufacturer, tried unsuccess­ fully to diversify into civilian engines and sports equipm ent as a way to cushion the com pany from the cyclical nature o f military equipm ent orders. Some o f the civil business was sold or spun off, but the only clearly successful civil products have been hunting w eapons and fishing equipm ent. In the light o f cutbacks in both m ilitary orders and civil aerospace pro­ gram m es, Deutsche Aerospace (DASA) has im plem ented an ‘intrapreneurship’ program m e to foster the redeploym ent o f in-house facilities, skills, and resources. If successful, as in the case o f an agricultural machinery business in Flensburg, DASA spins off the division to form a separate company. DASA also has undertaken a search for new, civil products in-house. Even though DASA has had som e instances o f success, the com pany has been forced to close down facilities and make thousands o f workers redundant. A nother approach has been that o f the Krauss-M affei tank manufacturing com pany in M unich, which recog­ nised the declining tank m arket early enough to com pletely restructure and reorient the company. The com pany was sold to new ow ners, reconstituted in legal terms more favourable to com m ercial enterprise, and new lines o f business were opened. However, although the com pany was able to m aintain its aggre­ gate level o f em ploym ent, only 30% o f the defence w orkers could be retained; the rem ainder o f the workforce had to be recruited from outside the company.

Afterword At the heart o f the debate about construction, conversion and control o f European defence technological capabilities lies the question o f what defence policy countries, singly and collectively, wish to pursue, and what resources they are prepared or able to devote to this purpose. This question raises, therefore, the issue o f what the countries o f Europe see as their role in the w orld, and with

IN TRO DU CTION

21

whom they expect to play that role. Only if these issues were resolved (or at least clarified, for they could never be ultim ately settled) would it be possible to settle on a rational basis the questions o f how much to spend, what developm ent and production capabilities to retain, w hat to maintain in association with part­ ners, and so on. So fundam ental a question exceeds the scope o f this study. But it is at least worth noting that while European states continue to debate the relative merits of a strong trans-A tlantic orientation, coupled with a determ ination to be as inde­ pendent as possible in the supply and managem ent o f defence resources, versus closer E uropean integration, events are m oving on. Not only is the defence industry internationalising, but developm ents at governm ental level also threaten to create a tw o-tier defence com m unity in Europe. The governm ental and indus­ trial structures within which choices are made about European defence techno­ logical capabilities could look quite different within a further five to ten years. We should not exaggerate the prospects for such change. Neither, however, against the backdrop o f the extraordinary developm ents in international relations since about 1988, should we under-estim ate the possible rate of change. The aim o f this book is to make a contribution to inform ed debate about the choices that lie ahead.

References Alic, J. el al. 1992, B eyond Spinoff: m ilitary and com m ercial technologies in a changing world, Boston, Mass.: Harvard Business School Press. Borderas, Mr., 1994, rapporteur, Assem bly o f the Western European Union, The European arm aments agency — reply to the thirty-ninth annual report o f the Council, Paris: W EU, docum ent 1219. Branscom b, L., 1994, ‘Targeting C ritical T echnologies’, in OECD, 577 Review, No. 14, pp. 33-57, Paris: OECD. Brzoska, M., Lock, P. (eds), 1992, Restructuring o f Arm s Production in Western Europe, Oxford: Oxford U niversity Press for SIPRI. C abinet O ffice, UK, 1994, Forw ard Look o f G overnm ent-funded Science, Engineering and Technology 1994, London: HM SO, April Cabinet Office, UK, 1995, Report o f the Technology Foresight Panel on Defence and Aerospace, London: HMSO, ISBN 0-11-430126-3. C halm ers, M. and Greene, O., 1995, Taking Stock: The UN R egister A fter Two Years, Bradford Arms Register Studies No. 5. W estview Press. C hauvot de Beauchene, 1991, ‘EUCLID: une initiative europeene de coopera­ tion en m atiere de recherche et de technologie interessant la D efense’,

22

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

L ’Armement: Revue de la Delegation Generate p our I ’Arm ement, Paris, No. 30, December, 40-54. Chesnais, F., 1993, ‘Commissariat general du Plan: un rapport critique ... cri­ tique’, Damocles, No. 49, pp. 30-31. Coghlan, A., 1994, ‘Stony ground for B ritain’s ploughshares’, New Scientist, 22 January, pp. 12-13. Commissariat general du plan, France, 1993, L'avenir des industries liees a la defense, produced by the Groupe de strategic industrielle, Paris: La Documentation Francaise. Contzen, J.P., 1995, ‘How to ensure in the future a broader common base for civilian and military technologies?’, paper given to CREDIT Seminar, Brussels, 24 January. Council for Science and Society, 1986, UK M ilitary R&D, Oxford: Oxford University Press. Forsberg, R., (ed.), 1994, The Arms Production Dilemma: Contraction and Restraint in the World Combat Aircraft Industry, Cambridge, Mass.: MIT Press, CSIA Studies in International Security. Gansler, J., 1993, ‘Transforming the US Defence Industrial B ase’, Survival, vol. 35, No. 4, pp. 130-146. GRIP, 1993, European Armaments Industry: Research, Technological Develop­ ment and Conversion, Final Report for European Parliament/ STOA, Luxembourg: European Parliament, Directorate General for Research. Gummett, P., 1996, ‘Foreign, Defence and Security Policy’, in P. Heywood, M. Rhodes and V. W right (eds), Developm ents in West European Politics, London: Macmillan. Gummett, P. and Reppy, J., (eds), 1988, The Relations Between Defence and Civil Technologies, Dordrecht: Kluwer. Hebert, J-P , 1991, Strategie Francaise et Industrie d ’Armement, Paris: Fondation pour les etudes de defense nationale. House o f Lords, UK, 1994, Select Comm ittee on Science and Technology, Defence Research Agency, London: HMSO, HL Paper 24, session 1993-94. International Institute for Strategic Studies (IISS), 1996, Strategic Survey 1995/96, Oxford: Oxford University Press. L ’Armement: Revue de la Delegation Generate pour VArmement, 1991, Paris, no. 29. Ministry of Defence, UK, 1994a, Memorandum of evidence submitted to House o f Lords Select Committee on Science and Technology, Report on the Defence Research Agency, London: HMSO, HL Paper 24-i, session 1993-94. M inistry o f Defence, UK, 1994b, Statement on the D efence Estimates 1994, London: HMSO, April.

IN TRO DU CTION

23

M inistry o f D efence, UK, 1995, Statem ent on the D efence E stim ates 1995, London: HMSO. M uller, H„ et al. 1994, Peace R esearch Institute Frankfurt, From Black Sheep to White A ngel? The N ew G erm an E xport C ontrol P olicy, Frankfurt: PRIF R eports No. 32. O ffice o f Technology A ssessm ent, U.S. Congress, 1994, Assessing the Potential fo r Civil-M ilitary Integration: Technologies, Processes and Practices, OTAISS-611, W ashington, D.C.: U.S. G overnm ent Printing Office. Porter, M ., 1990, The Com petitive A dvantage o f Nations, London: M acm illan. Reich, R., 1990, ‘W ho is U S ?’, H arvard Business Review, January. Saferw orld, 1994, Briefing: Arm s & D ual-U se Export Controls: Priorities fo r the European Union, Bristol: Saferworld. Sam uels, R., 1994, 'Rich N ation Strong A rm y ’: N ational Security and the Technological Transform ation o f Japan, Ithaca, NY: C ornell U niversity Press. Sandstrom , M. and W ilen, C., 1993, A changing European defence industry: the trend towards internationalisation in the defence industry o f western Europe, Stockholm: National Defence Research Establishment, FOA Report A 10054-1.3. Scott Report, 1996, R eport o f the Inquiry into the Export o f D efence Equipm ent a nd D ual-U se G oods to Iraq and Related Prosecutions, London, HMSO. Serfali, C., 1995, Production d ’armes, croissance et innovation, Paris: Economica. Sillard, Y., 1991, ‘Vers 1’Europe de la defen se’, L ’A rm em ent: Revue de la D elegation Generale p o u r VArmem ent, no. 30, December, pp. 4 -5 . SIPR I, 1995, SIP R I Yearbook 1995: Arm am ents, D isarm am ent and International Security, O xford: O xford U niversity Press. Smit, W. et al. (eds), 1992, M ilitary Technological Innovation and Stability in a C hanging World, A msterdam: VU Press. Steinberg, J., 1992, The Transform ation o f the European D efense Industry: Emerging Trends and Prospects fo r Future US-European Competition and Collaboration, Santa M onica: The RAND Corporation. Teisseire, L., 1991, ‘Q uelles institutions pour l’Europe de l’arm em ent?’, L ’Arm ement: Revue de la D elegation Generale pour I ’Arm ement, no. 30, December, pp. 32-38. Van A tta, R., 1994, ‘US D ual Use T echnology P olicy’, presentation by the Special A ssistant for Dual Use Technology Policy, Office o f the Assistant Secretary o f D efense, USA, to the Foundation for Science and Technology, London, 16 February. Van A tta, R., 1995, ‘The US D epartm ent o f D efense Dual U se Technology P olicy’, presentation to the International Sem inar on the R elationship

24

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

between Civilian and M ilitary R&D: General Trends and Regional Patterns, ISPE/CNR, Rome, 26 May. Walker, W. and G um m ett, P., 1989, ‘B ritain and the European Arm am ents M arket’, International Affairs, vol. 65, pp. 419^442. Walker, W. and Gum m ett, P., 1993, N ationalism , Internationalism and the European Defence M arket, Paris: W EU Institute for Security Studies, Chaillot Papers, No. 9. Wulf, H. (ed.), 1993, Arm s Industry Lim ited, Oxford: Oxford University Press for SIPRI.

E n d n o tes 1

This reads: ‘Any Member State may take such measures as it considers necessary for the protec­ tion of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes.’

2

The i5 areas arc: modern radar technology; silicon microelectronics; composite structures; modular avionics; electromagnetic gun; artificial intelligence; signature manipulation; optoelec­ tronic devices; satellite surveillance technology; underwater detection and related technologies; human factors, including simulation for training purposes; acrothermodynamics; NBC defence; energetic materials; and guided weapon technology.

3

While this hook was in production, the position moved on, with the formation in mid-November 1996 of the Joint Armaments Cooperation Organisation (JACO — known in France as OCCAR — Organisation conjointe de cooperation en matiere d ’armement). Its founding members are France, Germany, Italy and the UK. Other members may join in due course. It will be located in Bonn, with a French director and German deputy, and an initial staff of 15. It will be responsible for the management of existing Franco-German programmes such as the Milan and Hot anti-tank missiles, the Roland air defence missile and the Tiger attack helicopter. It will take over responsi­ bility for a range of multilateral collaborative programmes, including the new family of wheeled infantry combat vehicles (known as VBCI in France, MRAV in UK, and GTK in Germany). The members have agreed to implement several basic principles in defence procurement: obtaining greater cost-cffectivcncss by rationalising procurement procedures and programme management; improving industrial competitiveness by lowering costs; and replacing the principle of ‘juste retour’ by a more flexible, multi-year and multi-programme approach to ensuring reciprocal industrial benefits. The founding document is reported to have avoided language which would tie the partners to a ‘Buy-European’ policy, while committing them instead to ‘preferring, when meeting the requirements of their armed forces, products in whose development they have par­ ticipated’. This new agency is not to be confused with the establishment, a few days later, of the Western European Armaments Organisation (WEAO), whose initial remit will be confined to cooperative research projects. The WEAO has been established under the auspices o f the WEU. Hence, discussions to set up a European Armaments Agency have, at the end of 19%, resulted in the establishment of two organisations. JACO/OCCAR, being an agency with four members, set up to manage major collaborative equipment programmes, and WEAO, being an organisation open to all WEU members, with a remit that initially is confined to management of collaborative research projects. (Sources: Defense News, 18.11.96, pp. 4, 24, 32, Financial Times, 12.11.96, Le Figaro, 13.11.96; La Tribune de I ’Expansion, 13.11.96).

C hapter 1

Belgium P ie rre D e Vestel

Introduction The Belgian defence industry represents only 2% o f Europe’s total m ilitary pro­ duction. Yet m ost o f the equipm ent purchased by the M inistry o f N ational D efence (M ND ) is produced in Belgium, either under license, through interna­ tional collaboration, or entirely by the national defence firms them selves. M ost Belgian defence firms fall into one o f two categories. Some are rela­ tively low -technology m anufacturers which are alm ost exclusively dependent upon military production. At the high-technology end o f the spectrum , military equipm ent producers are typically civilian enterprises em ploying dual-use tech­ nology in specific niches within the military market. The structure o f B elgian defence industry is closely linked to two distinct m arkets. The first is dom estic, and consists o f equipm ent purchases by the MND. The second, prim arily export market, is for low -technology small arms and munitions. These two very different markets account for the bi-modal devel­ opm ent o f the Belgian defence industry. The design, production and sale o f military materiel in Belgium system ati­ cally com bines military, econom ic and technological dim ensions. In effect, the Federal M inistry o f Econom ic A ffairs, in association with the corresponding regional m inistries, has a hand in all contracts placed by the MND. This situa­ tion arises from the vital im portance for the Belgian defence firms o f a system of economic and technological assistance schem es tied to m ilitary sales. Investm ents in m ilitary R&D are largely geared to m eet the im m ediate needs o f the MND. Strictly speaking, there is no defence technology policy; no long-term strategy has been m aintained for the past 40 years. M ost m ilitary R&D in Belgium is carried out by the m anufacturing companies. Only a few sm all-scale research laboratories in universities or at the Royal M ilitary Academy perform military research. A certain am ount o f research is also carried out internationally, for exam ple through NATO, EUCLID or under specific mul­ tilateral agreem ents. Belgian military finance is quite complex due to the country’s federal struc­ ture, in place since the 1980s1. Estim ates o f military R&D spending are also made difficult by the lack o f available statistics. Officially, 0.2% o f total public

25

26

EURO PEA N D EFENCE TEC H N O LO G Y IN TRA N SITION

Belgian Defence Budget

Figure 1: Belgian Dcfcnce Budget 1970-1997. Source: A. Dumoulin, ‘La rcstructuration dcs forces armccs’, Courrier hebdomadaire, No. 1383-84, Brussels: CRISP, 1992, p. 40.

spending on R&D was devoted to defence purposes in 1993. A more detailed analysis o f m ilitary program m es, how ever, reveals that the actual figure was betw een 3 and 6%.

An Industry Completing Its Restructuring W hile the 1970s saw a clear increase in M N D equipm ent purchases as part of several m ajor re-equipm ent program m es (including the F-16, Armoured Infantry Fighting Vehicle, and artillery), the 1980s saw a steady reduction. Total MND expenditure on equipm ent and related services, (including spare parts, m ainte­ nance and am m unition), fell by 48% in real term s betw een 1980 (B F 43.8 bil­ lion) and 1992 (BF 22.6 billion)2. The M inistry o f National D efence’s equipm ent purchases in 1992 accounted for 60% o f Belgian defence enterprises’ total turnover. H owever, in July o f that year, the D efence M inister, L. D elcroix, announced further long-term cuts in defence spending (see Figure 1, w hich show s substantial grow th until 1979, fol­ lowed by decreases arising m ainly from a public sector financial crisis in the 1980s), and reductions in the size and equipm ent base o f the arm ed forces by 1997 (Table 1).

BELGIUM

27

T able 1: C hanges in the Belgian A rmed Forces 1991-1997

Military Service Military personnel - conscripts - professionals Total Budget (billions FB constant 1991) Brigades Battalions: active Battalions: reserve Troops in Germany Combat aircraft Transport aircraft Helicopters Ships Battle tanks

Source:

1991

After the Delcroix plan

Date of implementation

10/12 months

abandoned

1994

30,000 50,000 80,000 102

0 40,000 40,000 84

1996 1997

6 23 18 22,000 144 14 22 334

4 +/-13 ?

1996 1996 ?

3,500 72 14 46 15 132

1996 1993 1997 1993 1993 1993

Based on ‘Note de politique generate’, MDN, Brussels, 3 July 1992.

The 1992 restructuring plan accelerated this trend. In addition to substantial troop cuts, the plan provides for large-scale reductions in arm aments. This will inevitably have an im pact on m aintenance and purchases o f spare parts as well as on modernisation. The upgrading o f 60 M irage V aircrafts was cancelled (the M ND aim s to sell them second-hand) and only one-third o f the Leopard I tanks and 48 F-16 fighters (out o f 116) are to be modernised. B udget cuts and additional costs associated with the professionalisation of the arm y will not offer m any opportunities for equipm ent purchases until at least 1997. Taking into account budget forecasts, equipm ent purchases are expected to be reduced by 3% to 4% a year over this period. These cuts can be expected to affect the electronics and telecom m unications industries less than aerospace com panies and m echanical engineering firm s (m anufacturing arm oured vehicles). The ‘ 1993-97 m edium -term investm ent p lan’ places prior­ ity on telecom m unications equipm ent, w here the greatest need is now felt, fo l­ low ing a period from 1970 to 1990, when purchases o f com bat equipm ent dom inated the budget.

28

EUROPEAN D EFEN CE TECH NO LOG Y IN TRA N SITION

Belgian Military Equipment Exports Exports of Belgian arm am ents were fairly steady at the beginning o f the 1970s, but then increased to BF 26 billion in 1970 and reached an historic peak o f BF 31 billion in 1983. A fter that, arm s exports decreased by 20% a year and effec­ tively collapsed in 1990. The sharp drop in exports can be explained by a com bi­ nation o f a fall in dem and from the third world and com petition from new small w eapons and m unitions producers. Belgian arm s exports entered into a deep crisis in 1985 marked by the bank­ ruptcy o f the main artillery m unitions producer, ‘les P oudreries R eunies de B elgique’ as well as by m ajor restructuring in m ost o f the oth er exporting firms. Like other m anufacturing sectors with low levels o f technological added value, and with a w orkforce dom inated by low -skilled labour, the Belgian arms exporters faced challenges from new producers, mostly from the newly industri­ alised countries (such as Singapore, Taiwan, South Korea, Brazil) and also from Israel and South Africa. Arms exports rose again sharply in 1991 and once more in 1992, as shown in Table 2, follow ing orders consequent to the G ulf War. The export recovery since 1991 is m ostly due to a few sizeable contracts with Saudi Arabia. O verall, Belgian arms exports are still strongly dependent on Third World markets, which accounted for 89% o f all arms exports in 1981. Although the proportion fell to 70% in 1987, it has recovered to betw een 75 and 80%. T he three main exporting com panies (FN N H , M ECAR and Forges de Zeebrugge) are banking on their past restructuring efforts (both modernisation and m ajor em ploym ent cuts, entailing the loss o f 80% (11,000) direct jobs in the small arms and am m unition sector alone betw een 1983 and 1992) as well as on their key position in certain fields (small arms, m unitions and rockets) to ensure their survival in the years to come.

A Dual Industry The Belgian defence industry can be divided into two distinct groups. One group depends almost entirely on exports o f small arms and munitions; the other on eco­ nomic assistance agreem ents tied to sales o f equipm ent to the MND. Table 3, which shows the ten largest Belgian defence firms by military turnover, displays this dichotomy well. On the one hand, we see a group of small arms and munitions firms, who are highly defence dependent and export oriented; on the other, aero­ nautical and telecommunications firms, who are less defence dependent (with one exception) and who also depend on the Belgian market rather than on exports.!

Table 2: Trends and Distribution of Belgian Arms Exports (Billions of BF) Arm s Exports

Sources:

(current prices)

(constant prices 1986)

3.934 2.916 2.946 2.808 5.411 9.036 12.520 15.877 14.073 13.071 12.985 17.361 15.961 27.686 24.537 19.420 13.495 13.500 12.000 10.000 7.500 11.200 13.900

11.339 8.079 7.714 6.875 11.756 17.409 22.096 26.163 22.187 19.748 18.374 22.825 19.300 31.094 26.048 19.660 13.495 13.340 11.681 9.441 6.844 9.880 12.270

22% 19% 13 % 11 % 14% 14% 21 % 16% 25% 30% n.a. n.a. n.a. 20-25% 20-25%

To the Third World

78% 81 % 87% 89% 86% 86% 79% 84% 75 % 70% n.a. n.a. n.a. 75-80% 75-80%

Arms exports as % total Belgian exports

0.68% 0.47% 0.42% 0.32% 0.49% 0.85% 0.49% 1.18% 0.99% 0.79% 0.69% 0.84% 0.66% 1.04% 0.82% 0.62% 0.44% 0.37% 0.30% 0.22% 0.16% 0.23% n.a.

1970 to 1985: official statistics. 1986 to 1992: author’s estim ates, based on data supplied by arms exporting companies.

BELGIUM

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

To Europe and North Am erica

to vo

o

Company

Turnover 1992 (1)

Employment

% turnover in defence

Type of dependence

Type of production

EUROPEAN

Table 3: The Ten Leading Belgian Defence Firms in 1992 (turnover in BF millions, Employment in Absolute Numbers)

(3) 8,824

1,328

100

Exp.

Light arms and ammunitions Ammunitions, ordnance

4,152

352

100

Exp.

5,800

1,846

65

IM

Aerospace (airframe)

TECHSPACE AERO

6,100

1,168

33

IM

Engines

SONACA

3,469

1,399

40

IM

Aerospace (airframe)

FORGES DEZEEBRUGGE

1,125

204

100

Exp.

724

199

100

IM

CMI

8,363

1,539

ALCATEL BELL-SDT

2,523

672

10,100

1,933

THOMSON-CSF ELECTRONIC BELGIUM

SAIT-RADIO HOLLAND

Source:

10® 20 5®

Rockets Telecommunication

Exp.

Armoured vehicles

IM

Telecommunication

IM

Telecommunication-radar

company balance sheets and reports. (1) In BF millions; (2) Estimates; (3) Oriented mainly towards exports (Exp.) or the internal market (IM).

IN TRANSITION

MECAR SABCA

DEFENCE TECHNOLOGY

FNNH

BELGIUM

31

The industry has been dom inated by several long-established enterprises, such as FN, a private com pany set up in 1889 in Liege under the nam e of Fabrique Nationale d ’arm es de guerre. This company, B elgium ’s leading arm a­ m ents firm , built its reputation on light w eapons production — assault and m achine guns and m unitions — w hich w ere exported all over the w orld. In 1970, more than sixty countries w ere using FN assault guns. New enterprises were established one by one; les Poudreries Reunies de Belgique (PRB) and a few aeronautical enterprises were founded as far back as the 1920s and 1930s. However, the real boom in arm am ents production occurred at the end o f the 1960s and especially in the 1970s. Before the 1960s, there were alm ost no arm a­ m ents enterprises apart from FN, PRB and a few aircraft com panies, mostly working for export. The Belgian Army had been supplied with most of its equip­ ment by the United States for free after the Second World War as part o f the rebuilding o f western armies. It was only at the end o f the 1960s, and especially between 1972 and 1980, that a long series o f contracts was signed between the M ND and Belgian or for­ eign enterprises in order to proceed with the m odernisation o f heavy military equipm ent that had becom e obsolete (aircraft, arm oured vehicles, w arships). This was how enterprises w hich had hitherto been exclusively involved with civilian activities branched out into arm am ents production. Som e com panies were created specifically for that purpose, such as BMF, whose entire production consisted o f assem bling one thousand arm oured vehicles. The enterprise was left dorm ant when production ended in 1988. The crisis in the Belgian defence industry preceded that affecting most other European arm s-producing countries by several years. The collapse of the export market, beginning in 1984, and the dow nturn in M ND equipm ent purchases three years later affected both categories o f Belgian companies: low -tech small arms exporters and high-tech m anufacturers. Table 4 show s the evolution o f the defence industrial sector as a whole and the pattern o f decline. For exam ple, in 1983, 44,000 people were em ployed in the industry, but by 1992, only 16,000 rem ained, a fall o f 65% in ju s t one decade. As far as aerospace, electronics and telecom m unications enterprises are concerned, B elgian participation in the E uropean Space Program m e (dating from 1974) and in the Airbus consortium (since 1979) will som ewhat offset the decline in military business. For the traditional defence firms, on the other hand, the governm ent has taken no particular action to assist their adaptation to the new circum stances, other than som e steps to am eliorate the social consequences o f the m ajor restructuring o f the 1980s. The m edium -term prospects for the industry are also gloomy. The national defence budget has been frozen at its

U) Table 4: The Belgian Defence Industry: Turnover, Employment, Exports, 1980-1992 (in billions o f constant 1990 BF or ECU, employment in absolute numbers)

2.99 3.01 2.87 2.73 2.64 2.65 2.68 2.63 2.59 2.46 2.39 2.33 2.21

43.8 42.0 39.7 39.0 37.4 37.9 38.1 35.9 34.9 31.7 30.6 27.8 22.6

Exports (BBF)

Imports (BBF)

(b)

(c)

20.3 25.1 21.3 34.3 28.5 21.5 14.8 14.6 12.8 10.3 7.5 10.8 13.0

7.8 6.5 7.3 8.5 7.9 7.0 6.4 6.6 5.7 4.8 4.5 3.9 2.8

Turnover

(a + b - c) BECU

56.3 60.5 53.7 64.7 58.0 52.4 46.6 43.9 42.0 37.2 33.6 34.7 32.9

1.33 1.43 1.27 1.53 1.37 1.23 1.10 1.04 0.99 0.88 0.79 0.82 0.77

Employment

total

direct

45,000 45,235 36,921 44,267 39,127 33,263 28,204 25,780 22,869 19,657 17,200 17,286 15,903

30,000 30,738 25,102 30,048 27,988 22,376 20,054 17,913 17,092 14,538 10,320 10,371 9,542

percent of industrial workforce* 5.5% 5.5% 4.7% 5.7% 5.1% 4.4% 3.8% 3.6% 3.2% 2.7% 2.4% 2.4% 2.2%

Various defence budgets. Exports, for 1980-87 official dates and after estimations using the information given by the enterprises. Imports, 1980-87. AGDA informations, after estimations. Employment calculated using an input-output method. * direct employment as percentage of total Belgian industrial employment.

IN TRANSITION

Sources:

126.8 127.7 121.7 115.6 112.2 112.4 113.7 111.8 110.0 104.2 101.2 99.0 93.6

Defence Equipment budget procurement (BBF) (BECU) (a)

DEFENCE TECHNOLOGY

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

Defence Budget (BBF)

EUROPEAN

Year

B ELG IU M

33

Table 5: M ajor S hareholders o f B elgian D efence E nterprises Company

Percentage

Owner

Country

FNNH MECAR SABCA

90% 100% 53% 43% 51% 30% 19% 90% 100% 100%

GIAT Allied Research Association Dassault Fokker SNECM A Region Wallonne Pratt & W hitney Region Wallonne Thomson Brandt Armement Thomson-CSF

France USA France Holland France Belgium USA Belgium France France

100% 55% 100%

Region Wallonne Alcatel Bell T616phone Various Banks

Belgium France Belgium

Techspace Aero

SONACA Forges de Zeebruges Thomson-CSF Electron. Belgium CMI Alcatel Bell-SDT SAIT-Radio Holland Sources:

1992 annual reports o f the companies.

1994 level until 1997, w hich m eant a cut o f 8 to 10% overall, w ith a larger cut still in equipm ent purchases. A s for arm s exports, w e can note an increase in 1991, 1992 and probably 1993 flow ing from orders from the M iddle E ast after the G u lf War.4 But this situation is unlikely to continue beyond 1 9 9 6-97, and a further reduction could hit the exporting firms. O ne other significant feature o f the Belgian defence industry is the extent o f foreign ow nership o f com panies, the m ajority o f w hich belong to foreign entities o r groups. Indeed, the restructurings o f the 1980s w ere often accom panied by takeovers by foreign, m ainly French, interests (see Table 5). At present, about 70% o f m ilitary equipm ent production is controlled by for­ eign industrial groups. T his m akes the B elgian defence industry one o f the m ost internationalised in the world. T here are tw o principal explanations for this. In the 1960s, several firm s were taken over by foreign groups in o rder to get privi­ leged access to the fast-grow ing Belgian m ilitary m arket. A t that tim e, for exam ­ ple, D assault took over the m ain Belgian aerospace com pany (SA B CA ). A second w ave o f foreign takeovers occurred at the beginning o f the 1990s, w hen la Societe G enerale de B elgique sold its arm am ents com panies (FN , PRB and F orges de Z eeb ru g g e being v irtually bankrupt). GIAT, S N E C M A and T ho m son B randt A rm em en t seized the o p p o rtu n ity to take o v er en terp rises depleted o f their excess staff and offered at a low p rice5.

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Defence R&D in Belgium A ccording to data provided by the M inistry o f Scientific Research and its suc­ cessor (since 1988)6, public expenditure on defence R&D in Belgium is low. The proportion o f the R&D budget devoted to defence, according to official sources, reached a m axim um o f 1.5% in 1985, declined to 0.4% in 1990 and declined still further, to 0.2% , in 19937. The sharp drop in military R&D expen­ diture since 1986 is partly a consequence o f the overall public financial crisis facing the federal State (in 1993 interest paym ents on the public debt accounted for one third o f total federal expenses). The decline in military R&D spending at the national level also reflects the ‘federalisation’ o f the Belgian State and the progressive transfer o f a series o f com petences and associated budgets to the Regions and linguistic Com m unities. Political responsibility for scientific research has been divided betw een six different authorities: the federal State, the Flem ish Region and Comm unity, the French C om m unity, the W alloon Region and the R egion o f B russels and its environs. If one considers that three federal m inistries can also intervene in defence R& D policy (N ational D efence, Econom ic A ffairs and Scientific Policy), one can see the difficulties in coordinating and com m unicating a coher­ ent scientific and technological policy8. Since the 1988 constitutional reforms, the regional authorities have not offset the cuts in federal spending on military R&D. Thus, in the Walloon Region, where about 60% o f Belgian military production is performed, the regional authorities have expressed an intent to participate in the EUCLID programme. However, the extent o f W alloon’s direct financial com m itm ent either to EUCLID or to other military R&D is not known at this time. The Walloon Region also provides indi­ rect support to defence enterprises via capital-sharing, refundable-in-advance payments and other grants, though the total is thought not to exceed several tens o f m illions BF a year. In Flanders, in contrast, the authorities decided not to finance military research. D efence R& D spending reported by the M inistry o f Scientific Research through 1988, and thereafter by the Com m ission o f Federal Cooperation, only covers expenditure by two federal M inistries: Econom ic Affairs and Scientific Research. These finance two types o f projects: prototype R&D (for exam ple a 15 mm machine gun in the 1980s, a failed project to develop an electricallypow ered arm oured infantry fighting vehicle, a m inesw eeper constructed of com posite m aterials, the RITA com m unications system, and part o f the Belgian participation in the international Trigat program m e); and research projects (for exam ple on a kinetic energy gun, night vision goggles and gas mask design).

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T able 6: Belgian Defence E xpenditure and M ilitary R&D, 1985-1993 (B F billion, constant 1990) Year

Defence budget

Defence equipment purchases (1)

public defence R/D spending (2)

1985 1986 1987 1988 1989 1990 1991 1992 1993

112.4 113.7 111.8 110.0 104.2 101.2 99.0 93.6 89.3

37.9 38.1 35.9 34.9 31.7 30.6 27.8 22.6 n/a

0.492 0.501 0.330 0.206 0.203 0.147 0.083 0.079 0.077

Total public Civil industrial R/D spending R/D spending (GBAORD) (3) (BERD) (4) 32.4 31.2 31.0 31.1 40.1 38.9 39.9 39.4 42.5

62.2 64.7 65.4 69.3 69.4 73.8 76.3 n/a n/a

Source:

Research and Development Expenditure, Basic Science and Technology Statistics, OECD, Paris, 1991, p. 56. After 1988, the R&D figures are extracted from the ‘Apercu des d^penses de R/D par les autorit^s beiges’. Commission Cooperation federale, SPPS, December 1993, p. 18. (1) Including equipment, spares, maintenance and ammunition. (2) Government Budget Appropriation for defence R&D, not outlays. (3) GBAORD Government Budget Appropriations (not outlays) for R/D. The sharp increase between 1988 and 1989 is due to a change of methodology. (4) BERD Business Enterprise Expenditure on R&D.

Official Data and Hidden Realities The officially reported expenditure on military R&D is, however, only a small part o f the money that is actually involved. Public spending on defence R&D is likely to be far higher, in part because M N D accountancy practice does not sys­ tem atically differentiate between expenditure on R&D and on production. Thus, in the three main Belgian military program m es (Future Large Aircraft (FLA), M id-Life Update (M LU) on the F-16 fighter, and M inesw eeper), R&D spending may account for up to 20% for the M LU and the FLA, and up to 40% for the M inesw eeper program m e in the near-term , but these costs are not disag­ gregated from the total cost o f the program m es in the official statistics. M ilitary R &D spending on these three projects is estim ated at many hundreds o f millions o f francs, most o f which would be spent in the contractor com panies.9 A rough estim ate10 suggests that in the 1980s, a total o f BF 1 to 2 billion was spent per year on m ilitary R&D (m ainly developm ent) associated with

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Table 7: The Ten Largest M ilitary Program m es, 1994-2005 Programme

Future Large Aircraft Minesweeper Mid-life update F-16 Trigat ATK Missile (2) Air to Air Missile (2) Light truck ECM F-16 (2) RITA Upgrating Mistral Missile (2) Command and Control Information System CCIS

Estimated cost (BF million, 1993)

Duration (1)

55,583 12,600 10,835 7,838 5,000 5,160 4,700 4,569 3,522 2,116

1993-2015 1993-2002 1993-2001 1996-2005 1996-2001 1994-2000 1994-? 1993-2001 1996-2001 1997-?

(1) (2)

Year of first order; the final year is only indicative and subject to change. Programmes subject to modifications or depending on defence budget opportunities. Source: ‘Plan a moyen terme du Ministere de la Defense Nationale 1993-1997’, Ministere de la Defense Nationale, 2 July 1993.

M ND equipm ent purchases. Thus, the extent o f publicly-funded m ilitary R&D in B elgium greatly exceeds what is claim ed in the official statistics." For exam ­ ple, in 1985, spending on military R&D probably com prised betw een 3 and 6% of total governm ent R&D spending, betw een 2 and 4 times the am ount given in official documents. T his position is likely to have continued to the present. M oreover, the Belgian defence R&D effort is expected to increase in the near future, as seven out o f the ten main arm am ents program m es o f the 1990s (shown in Table 7) will involve substantial R&D input. This situation differs from that o f the 1980s, when the m ajority o f equipm ent program m es involved production under license o f equipm ent already developed abroad (such as the F16, AIFV M 113, and the A ugusta helicopter A 109). In parallel with the national technological and industrial projects, often spe­ cialised within fields such as telecom m unications or minesw eeping technology, Belgium participates strongly in international programmes. This strategy allows for synergies, gives B elgium access to foreign capital and technology, and am plifies the im pact o f national R&D investment. B elgium ’s com m itm ent to the Europeanisation of defence cooperation and defence procurem ent is profound in terms both of politics and o f overall outlook.

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Belgium’s European Commitment During the Belgian chairm anship o f the Independent European Programme G roup (IEPG) between 1991 and 1992, Guy Coeme, then Defence Minister, restated Belgium ’s com m itm ent to European cooperation in defence. It was under the Belgian chairm anship that regular contacts between the IEPG, the European Community institutions and the general Secretary of the WEU were established.12 These contacts led to the incorporation o f the IEPG into the WEU under the new name of Western European Armaments Group in 1993. The Belgian IEPG chairmanship also gave impetus to the establishment of a number o f R&D projects in the EUCLID programme. Belgian enterprises take part in eight o f the 22 EUCLID R&D projects. In 1992, the Belgian federal authorities asked the Regions to take part in the EUCLID programme, but only the Walloon Region gave a positive, if still not fully clear, response. The MND also participates in certain common NATO R&D projects and in the cooperative effort to upgrade the F16 (radar, avionics). Belgian participation in these projects is usually minor, and confined to components development and production. The most recent major programme in which Belgium could play a significant part was the tripartite mine hunter. Together with France and the Netherlands, Belgium took part in the design and production of 28 mine hunters in the 1970s and the first half o f the 1980s. In addition to participating in inter-governmental programmes, Belgian enterprises have gone into partnerships, some o f which are quite close, with other European enterprises on R&D and production programmes. Among the most important is the RITA programme with Thomson-CSF in which Belgium has a 12.5% share. However, Belgian authorities have never sacrificed equip­ ment quality nor economic spin-off effects linked to contracts on the altar of a ‘European preference’. The purchase o f American F-16 fighter bombers in 1974 was mainly dictated by the technological superiority o f this aircraft in compari­ son with the Mirage F-l offered by Dassault. Belgium has an ambivalent attitude towards a possible abrogation of Article 223 o f the Treaty of Rome. Small arms and munitions producers, as well as dual-use equipm ent and technologies producers, accustomed to competitive markets, support opening up European defence equipment procurement (so long as ‘fair play’ is observed, avoiding the conferring of advantage to the largest suppliers). On the other hand, firms heavily dependent on MND orders disagree. A study carried out in 1992 by the Central Economic Council, the highest economic and social authority in Belgium, could not reach a conclusion on the question of Article 223 (CEC, 1992, pp. 29-30). Other public authorities seem to share the same ambivalence. The prospect of being marginalised by the big

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EURO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITIO N

European countries counter-balances the Com m unautaire im pulses natural to B elgium in m ost other areas. The ten m ajor arm am ents program m es o f the 1990s nevertheless show that Belgian authorities rely on a very progressive inte­ gration o f the defence m arkets in Europe through m ulti-national developm ent and production programmes.

A Defence Technology Policy? B elgium has never had an explicit defence technology policy, according to a report prepared by G hent U niversity as part o f the study for the C entral Econom ic C ouncil, m entioned above (D ebackere, 1992, p. 24). There has never been any debate on this m atter in Belgium , nor has any official docum ent ever been published on the subject. Rather, Belgian defence procurem ent policy has alw ays been m arked by pragm atism . The main selection criterion, alongside operational and cost considerations, has alw ays been the question o f industrial and technological benefits. Thus, the evolution of the defence technology base in B elgium is prim arily the result o f m arket pull rather than technology push (D ebackere, 1992, pp. 51-64). T he lack o f a defence technology policy explains why, in contrast to The N etherlands, Sweden or Sw itzerland, B elgium ’s defence industry has not spe­ cialised in technological niches other than those low-technology areas used to produce infantry w eapons and amm unition. The development o f the Belgian defence industry in aerospace and armoured vehicles, reflects those firm s’ high degree o f dependency on technological and economic benefits resulting from big arm am ents contracts with foreign firms. Belgium has been a specialist in offset agreements for more than 30 years, these agreements involving both production offsets and also inward technology transfers.

Economic Offset Mechanisms The system for economic offsets related to defence procurement is managed by the (federal) Ministry o f Economic Affairs with the aim o f stimulating the Belgian economy. A distinction is made between direct, sem i-direct and indirect offsets. Direct O ffsets Direct offsets consist o f paym ent to Belgian com panies for production, assem ­ bly, delivery, m aintenance and services linked to equipm ent orders for the Belgian Army. It includes orders for elem ents and subsystem s which are assem ­

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bled in Belgium, along with foreign com ponents. Usually, sectors are favoured in which small batches (linked to the small scale o f Belgian orders) can easily be incorporated in a standard process o f production, such as for aerospace, mechan­ ical, electrical or electronical applications. As a rule, this kind o f activity requires only lim ited involvem ent by Belgian firm s in R&D (most o f the devel­ opm ent having already been done abroad). M ost o f the time they have to be content sim ply w ith acquiring equipm ent and a certain am ount o f ‘know ­ how ’. However, Belgian com panies are then well placed to participate in the subsequent m odernisation program m es o f these weapons systems. Sem i-D irect O ffsets T his type o f support consists o f offsets directly linked to a m ilitary con­ tract. Belgian com panies produce arm s com ponents fo r export either to the country o f origin (the producer o f the full military system ) o r to other countries ordering the sam e equipm ent. The m ost significant exam ple is the production of certain F-16 com ponents exported to the U nited States, Israel, T urkey and Pakistan. O ffsets are usually considered as econom ically beneficial when they lead to ‘single source’ contracts in which B elgium becom es the only supplier o f a par­ ticular component. Indirect O ffsets Indirect offsets are orders aim ed at production, works and services, w hich arc a priori independent o f military contracts. Only som e such orders have a high technological content. Indirect offsets orders are only considered im portant when they lead to further com m ercial possibilities or expose a firm to new tech­ nologies; those involving technology transfer can benefit the national industrial base whether in the military or civil sector13. In D ecem ber 1993, the M inister o f D efence stated that national defence should be less dependent on a system o f econom ic com pensation,14 which according to som e, greatly increases the unit price o f military equipm ent15. This desire to cut costs is, however, viewed by others with circum spection. Thus, as long as Article 223 rem ains in force, military orders are one o f the last instru­ ments public authorities have to im plem ent a (limited) industrial and technologi­ cal policy. In the current gloom y econom ic clim ate, pressure from regional authorities, unions and enterprises dependent on m ilitary contracts leaves the M ND with little room to manoeuvre. In all probability, the industrial and technological offsets w hich foreign orders offer will rem ain the main selection criterion. A study o f the ten major

40

EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

arm am ents program m es for the years 1993-1997 by the M inister o f D efence suggests that the econom ic offsets system will rem ain im portant, if not decisive, in determ ining the extent o f B elgian involvem ent w ith foreign custom ers (M inistry o f N ational Defence, 1993).

One State, Two Regions W hile few changes in policy are foreseen at the federal level, diverging develop­ m ents have been taking place at the regional level since the Regions inherited part o f the federal State’s responsibilities for econom ic and technological affairs. In the Flanders Region, where PRB conducted tw o-thirds o f its m anufactur­ ing until the com pany closed in 1991, there have since been no com panies exclusively devoted to defence. Som e civil high technology firm s in Flanders accept military contracts on a selective basis. O ther civil enterprises (telecom ­ m unications, electronics) do contract work for the m ilitary on a regular basis and enjoy the ongoing support o f regional authorities in securing these contracts. The position is different in Wallonia. T his region is the cradle o f the tradi­ tional defence industry o f B elgium , as well as o f the main aerospace firms. Betw een 50 and 60% o f Belgian defence jo b s are located there, com pared with 10% in Brussels and 3 0 -40% in Flanders. A lthough defence accounted for only about 5,000 jobs in 1992 (where there had been 17,000 at the start o f the 1980s), nevertheless, in a region that is suffering severe industrial decline, these jobs assum ed particular im portance (Adam et al., 1991b). The regional authorities have adopted different policies to those in Flanders, em phasising capital subsi­ dies and finance o f research programmes, together with support for exports. That support provoked a major political crisis in Septem ber 1991, as we discuss later.

A Dual-Use Policy? A longside the policies adopted with respect to defence industry and technology which, it should be recalled, are characterised more by econom ic pragm atism than by long-term vision, the federal and regional authorities have developed since the mid-1970s som e relatively purposeful policies in the civil aerospace sector, with respect notably to Airbus and the European Space Agency. Belgium participates in these tw o major cooperative program m es to the tune o f 2.8% of A irbus and 5% o f ESA. T hese are m ajor com m itm ents by the standards of Belgian R&D, with the R&D funds devoted to space activities alone amounting to 19% o f total public funds for R&D in 1993 (C om m ission de cooperation

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federale, 1993, p. 18). This support, moreover, served the im portant purpose of enabling a num ber o f com panies that had been dependent on defence contracts to diversify their activities. The decision to support the aerospace industry in this way was based in part on political considerations (support for European projects), in part sim ply as support to B elgian industry, and also as a w ay to prom ote technological strengthening o f the industry (by integrating firm s into high technology pro­ gram m es from the outset). It proved judicious. T here is alm ost no doubt that the tw o main Belgian aerospace com panies would have failed at the beginning of the 1990s w ithout this increased support for A irbus and the European space programme. In addition, various sm aller initiatives have been taken such as financing by the Walloon Region for the participation o f B elgium ’s only aero-engine m anu­ facturer (Techspace A ero) in the C FM 56 civil engine program m e. This support enabled Techspace A ero to diversify its portfolio on the brink o f a sharp fall in military production. M ore generally, m ost aerospace enterprises (both airfram e and engines) adopted this strategy from the end o f the 1970s, taking part in the A irbus program m e or forging alliances with large foreign groups to develop civilian products. A survey carried out in 1991 in the W alloon R egion show ed that defence-related em ploym ent declined from 6,400 jo b s in 1983 to 3,026 in 1990, w hereas jobs in civil aerospace increased from 600 to 2,507 during the same period (Adam et a l 1991b, p. 70). How successful, from a technological point o f view, has this diversification been? No system atic studies have been done o f the com panies’ redeploym ent of equipm ent, labour and other technological assets, but som e hypotheses can be advanced. The low R& D capacity o f com panies that m anufacture arm s only under license to foreign firm s makes it unlikely that they have becom e inte­ grated into the most advanced civilian technological fields. However, infrastruc­ ture and personnel inherited from m ilitary program m es have, w ithout doubt, been used in a num ber o f cases. A major difficulty facing the typical defence m anufacturer is adaptation to the realities o f the civilian market. M anagers long accustom ed to a protected defence market are ill equipped to cope with com petition rules, com petitiveness issues, m arketing, financial risk taking and managing shareholder equity. One of the keys to success in diversification, and even to corporate survival, lies in the ability to break econom ic habits and to adapt to an increasingly com petitive civilian market. The Belgian experience o f diversification has follow ed three distinct pat­ terns related to the type o f company concerned.

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EURO PEA N D EFENCE TECH NO LOG Y IN TRA N SITION

A Spectacular Failure o f D iversification An exam ple o f the first kind is a failure which hit the most im portant Belgian military m anufacturer. The com pany FN was created in 1889 under the name of ‘Fabrique nationale d ’arm es de guerre’. It has alw ays been involved in civilian activities along with the production of sm all arms and munitions. In the 1960s, it began building military aircraft engines. About ten years later, it went into the production and m arketing o f sports equipm ent, o f which som e products, such as hunting and fishing equipm ent and surf boards, are technologically closely related to light military equipm ent. In 1978, FN look over the Browning sales netw ork, with 10,000 points o f sale in the United States. At the beginning o f the 1980s, new industrial processes were developed, particularly in robotics. In 1975, the defence and security division accounted for 60% o f F N ’s turnover. However, by 1985, defence turnover had declined to 37%. From the end o f the 1970s, FN organised its production in four divisions: defence and security, engines, sport and leisure, and goods and services. At that time, the com pany’s aerospace business was 90% dependent on military production (the F-16's F-100 engine). H andling equipm ent, waste processing and other engi­ neering accounted for a m aximum o f 4% o f FN ’s turnover. T he FN diversification aim ed to free the com pany from dependency on highly cyclical and volatile military business. For instance, in 1982 and 1983 FN faced serious problem s from the decrease in T hird World dem and, and 15,000 w orkers engaged in arm am ents production, som e 60% o f the total labour force, were made redundant. M oreover, from the end o f the 1970s, the scale o f F N ’s handling equipm ent and sport and leisure investm ent was already too am bitious in com parison with expected sales. H ow ever, the com pany borrow ed m oney to finance further investm ent and m arketing in these areas, such that by 1986, servicing the debt required nearly 10% o f the com pany’s turnover. D iversification was therefore curbed, first in 1984, and then m uch more strongly in 1988, following a restruc­ turing plan devised by the Societe Generate de Belgique. F N ’s industrial goods and services division was cut back, and the handling equipm ent division was taken over by the French com pany SN ECM A in 1989. The Browning division (sport and entertainm ent) become a subsidiary, but products such as tennis rackets, golf equipm ent and wind surfers are no longer manufactured. The production o f hunting weapons and fishing equipm ent is now the only rem nant o f FN ’s successive diversification efforts. FN itself was taken over by the French GIAT in 1991. It was renam ed ‘Fabrique Nationale Nouvelle H erstal’ and is now concentrating on core business activity, m anufacturing infantry w eapons and m unitions. In 1993, the com pany em ployed less than 1,300 people, com pared to 9,500 in 1982.

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A confused attempt at diversification with no consistent industrial and tech­ nological strategy can partially account for this failure. The FN group, specialis­ ing in defence, entertainm ent, aerospace, and industrial equipm ent at the beginning o f the 1980s, was in effect an incoherent business. N um erous com ­ m entators have questioned the m anagem ent’s ability, in particular as regards m arketing, to im plem ent new, com petitive strategies geared to a civilian market very different in character to the military market. From One Type o f D ependence to Another O ther enterprises — mainly in aerospace — diversified their activities more suc­ cessfully than FN, taking fewer risks. In the 1980s, when the F-16 fighter bomber production was at its highest (160 units produced), military activity dominated the aerospace sector. In 1987, military orders accounted for 61% of aerospace business; by 1992 this had fallen to 46% , and in 1995 to less than 30%. T hese same, mainly military, aerospace com panies benefited from massive public spending on ESA and Airbus, which began in 1976 and 1979, respec­ tively. It is hard to say how far the technological and industrial capacities which the firm s acquired in the course o f military work has been applied to these civil­ ian program m es. Som e of the w orkforce has been transferred successfully from one side to the other. On the other hand, in the international context, these com ­ panies, relatively small and often subcontractors, could not expect to play a deci­ sive technological role. As a consequence o f public spending on these tw o civil aerospace p ro ­ gram m es, the four main Belgian aerospace com panies were able to reverse their dependency on military business betw een 1987 and 1990. At present, civil busi­ ness accounts for more than half o f their aggregate turnover. In terms o f em ploy­ m ent, the 3,374 military-related jo b s that were lost betw een 1983 and 1990 were partially offset by 1,907 civilian jo b s created in the sam e enterprises (Adam et al., 1991b, pp. 41-2 ). However, although these com panies have m anaged to survive relatively intact, this was achieved only by substituting dependency on ‘protected’ European aerospace program m es fo r dependency on military orders from governm ent. N eedless to say, both sides o f the business are dependent on public finance, which has com e under increasing pressure in Belgium. From M il-Spec to Mil-Tailored Production Belgium offers the example, in a third type o f diversification, o f a firm that has built a capability in the military m arket by supplying materials that meet military needs, but at prices much low er than those o f its com petitors. Barco Electronics, specialising in electronic and liquid crystal displays, has been described in the trade press as able to adapt technologies o f civil origin to military ends. Thus, its

44

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

military aircraft displays are ‘mil-tailored’ rather than mil-spec. That is, Barco engineers have designed a more affordable, but equally effective, product by tai­ loring a generic design to meet the military’s specific requirements, rather than following a design strategy based purely upon conformance with broader mili­ tary specifications. This approach has also made it possible to manufacture com ­ mercial and military displays on the same production line.16 Originally, Barco was a television equipm ent manufacturer. It becam e involved in the F-16 programme and, owing to a particularly daring R&D pol­ icy, managed to lay claim to several prom ising technological niches. It spe­ cialised in the production of electronic displays, both for commercial markets such as television studios, air traffic control and civil aviation, and in ruggedised form (to meet the specific requirements o f the military environment: tempera­ ture, shock, electromagnetic impulses, etc), or mil-tailored for a series o f mili­ tary clients. Barco’s flexibility extends to adapting its technological skills and capacities (infrastructure, assembly lines) for military customers outside Belgium. The company supplies flat panel displays for fighter aircraft (F-16 and Rafale) and for the US Air Force Missile Army Center (Cheyenne M ountain).17 Barco has been developing continuously since 1987; it has set up subsidiaries in several countries including the United States. Other Belgian electronics or telecommuni­ cations enterprises have tried to follow Barco’s example, although with some­ what less success.

Dual-Use and Military Technology Export Controls In July 1991, Belgium adopted a new law on the import, export and transit of weapons, munitions, material specially designed for military use, and related materiel, in the wake of the discovery of numerous illegal arms exports to coun­ tries under embargo such as Iraq and Iran. However, the issue aroused markedly different political sensibilities in the Flemish part of the country — where the last ammunition exporting enterprise had already gone bankrupt — and in the Walloon Region, where several companies were struggling to survive. There was active debate in Belgium concerning numerous applications for arms export licences to M iddle-East countries at the end of the G ulf war. Diverging assess­ ments and interests ultim ately led to the fall o f the federal governm ent in September 1991. The political problem was dealt with by redistributing the power to grant export licences to the Flemish, Brussels and Walloon regional governments. Since then, Belgian arms exports have increased each year, from BF 7.5 billion in

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1990, to BF 11.8 billion in 1991, BF 14.9 billion in 1992, and probably to more than BF 20 billion in 1993. W allonian firms account for most o f the increase. The federal governm ent does not publish any system atic inform ation on the nature o r destinations o f arm s exports, nor o f possible restrictions placed on arm s exports. A ccording to inform ation obtained directly from the m anufactur­ ers and reported in the press, there seem s to have been no change, in practice, in the arm s export regime. Most exports still go to Saudi A rabia and m ore gener­ ally to the M iddle East, to Turkey and, to a lesser extent, to A frica.18 A s far as controls on dual-use and m ilitary technology are concerned, one m ust distinguish betw een conventional and nuclear technology. Belgium has never been an im portant exporter o f conventional weapons technology because o f its relatively low level o f m ilitary technological developm ent; in fact, many o f these technologies are imported. In most cases, foreign com panies or states transferring technology to B elgium im pose strict re-export restrictions. For exam ple, B elgian industry produces alm ost the entire F-16 aircraft, but the U nited States prohibits sub-system s export except through negotiated offset agreem ents. T he situation regarding dual-use nuclear technologies is m ore com plex. Here, B elgium plays an im portant technological and industrial role in Europe. She builds nuclear plants, develops nuclear w aste reprocessing technology and trains num erous nuclear specialists. In order o f im portance, the Belgian nuclear industry ranks fourth in Europe after France, the United Kingdom and Germany. The Belgian authorities’ stance towards the enforcem ent o f non-proliferation procedures revealed a certain ambiguity during the 1980s — not surprisingly, considering the great econom ic stakes facing the Belgian nuclear industry. Officially, Belgium has supported the efforts made by the International Atomic Energy Agency, the former COCOM and the European Comm unity to control the diffusion o f nuclear and dual-use technology (Verbeek, 1992). But according to some sources, Belgium is not am ong the strictest countries in observing non­ proliferation controls. O f the 72 dual-use items found in the N uclear Suppliers G roup List and in the form er COCOM N uclear list (to which Belgium has nom i­ nally adhered), 20 are not proscribed under national legislation (Muller, 1993, p. 12). Fears that the political will to enforce non-proliferation policy is inade­ quate have been reinforced by the welcom ing o f Pakistani nuclear scientists to the Mol nuclear research centre in the north o f Belgium. Belgian authorities appear to be willing to strengthen controls on dual-use products and technology transfer only insofar as all exporting countries adopt a sim ilar attitude (Verbeek, 1992, p. 183). The same approach is used within the fram ew ork of negotiations aim ed at harm onising arms export legislation at the European level.

46

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

Conclusion: A Japanese Model in the Heart of Europe? The Belgian defence industry has undergone massive and painful changes in the past decade. Turnover was cut by one half between 1983 and 1992, and 28,000 jobs (out o f a total o f 44,000 in 1983) were lost. However, despite the lack o f a long-term defence technology policy, or even o f medium-term management of military R&D, the various initiatives taken by public authorities, both federal and regional, have nevertheless had the effect o f mitigating the decline in military business. It is paradoxical that a system o f distributed responsibility for industrial and technology policy amongst three federal ministries and three regional ministries should produce a relatively consistent overall policy. This is probably a result of traditional Belgian economic and social pragm atism dominating over party political and cultural considerations. However, while pragmatism evidently has been useful to certain enterprises, it has also had long-term drawbacks: this kind of short-term market-pull technology policy has not given Belgian defence industry the opportunity to develop technological capacities equivalent to those of, for instance, Swiss or Swedish industries. Three types o f company faced the crisis in demand for military equipment in different ways. Small arms and munitions producers have suffered from a decline in sales to the third world as well as the emergence o f new competitors. Faced with these difficulties and confronted with enterprises highly specialised in military ‘low -tech’ production, public authorities could only act to curb the social consequences o f industrial restructuring and jo b losses. In Wallonia, the most affected region, the authorities in the end provided financial and political support to relaunch the surviving enterprises. The aerospace industries were cushioned by some domestic military orders and by the system o f industrial and technological offsets attached to foreign military orders. Some o f these enterprises could not have survived the 1970s without these orders and the associated technology transfers. Public finance of Belgian participation in the European Space Programme and in the Airbus con­ sortium also mitigated the effects o f the decline in military business, while enabling also the redeployment o f their skilled labour and part o f their techno­ logical capability. Thirdly, those civilian high technology enterprises which took part in mili­ tary programmes by integrating military and civil manufacturing developed and put into practice the concepts o f ruggedised and mil-tailored production. To speak o f a ‘Japanese model’ of civilian and military production integration in Belgium would be presumptuous. The expression as such is never used in Belgium. Nevertheless, certain comparisons can be drawn between the two coun­

BELGIUM

47

tries, bearing in mind the important difference in scale between the two economies. Belgium, like Japan, imports most of its military technology and its major weapons systems. Also, military production is commonly done under license by predomi­ nantly civil, successful manufacturing companies. Military production is done in small batches, drawing upon the firms’ existing technological capacity. For the future, a large proportion o f planned equipment programmes o f the Belgian Army (telecom m unications, modernisation and perhaps the Future Large Aircraft) can be accommodated by integrating development and produc­ tion into existing civilian or dual-use technology facilities. In the medium term, it seems that the public authorities can utilise existing civilian and dual-use high technology enterprises capable o f integrating the occasional military equipment orders, preferably by incorporating civilian technologies and production pro­ cesses so as to reduce the costs. As far as strictly military enterprises are con­ cerned, on the other hand, their future would appear to lie in the uncertain world of foreign markets.

Endnotes 1. Several constitutional amendments (in 1980, 1988 and 1993) have reorgan­ ised Belgium into three levels o f power. The federal state has responsibility for areas o f general interest (defence, public order, social security, etc.). Moreover, Belgium is divided into three linguistic Communities con­ sisting o f 5.5 million Flemish speakers, 4.5 million French speakers and a German-speaking minority o f 30,000. These three Communities are mainly responsible for education and culture, and along with the three Regions (Flanders, Brussels-capital and Wallonie), are responsible for the economy, technology and infrastructure. The different aspects o f defence policy cut across these three levels of power. 2. Exchange rate: approximately BF 60 = £1 sterling in 1990, and 50 in 1995. 3. Some enterprises significantly involved in military markets do not provide sufficiently precise information on military turnover and are therefore omit­ ted from this classification. 4. Belgian authorities do not provide any official figures on arms exports. We have therefore calculated the amount by adding up military exports included in company balance sheets and other communications. 5. The British enterprise ASTRA firstly took over les Poudreries Reunies de Belgique and then, wary of the high liabilities, rapidly withdrew.

48

EURO PEA N D EFEN CE T EC H N O LO G Y IN TRA N SITION

6. T he M inistry o f S cientific R esearch w as replaced by the Service o f Scientific Policy Planning, reporting directly to the Prim e M inister, after the 1988 constitutional amendm ents. 7. A ccording to the institution responsible for collecting R& D statistics in Belgium , the figures it provides correspond to the public funding o f R&D as defined in the Frascati handbook and therefore these figures only represent the appropriations and not the actual outlays. See C om m ission de C ooperation federate, 1993, pp. 6 -7 . 8. To face this com plexity the authorities had to set up a new structure, ‘The Com m ission for Federal Cooperation o f the Interm inisterial Conference on Science Policy’, w hose main task is to collect statistical inform ation on R& D from the different federal authorities. Com m unities and R egions in an attem pt to coordinate policies. 9. For instance, in 1989 the defence budget released BF 608 million in R&D investm ent credits for the T rigat program m e alone. T hat sam e year, the Federal Com m ission reported to the O ECD that total m ilitary R&D spend­ ing in B elgium am ounted to BF 196 million. 10. T his estim ate could be refined by system atically analysing the different m ilitary program m es, but this has not been possible within the framework o f the present study. 11. To illustrate the lack o f credibility o f official statistics, two studies were car­ ried out in 1992 by the universities o f Gand (Ghent) and Louvain (Leuven) on technological aspects o f the defence industry, at the request o f the Central E conom ic C ouncil (CCE). The findings provide no statistics on m ilitary R &D spending in Belgium! See Debacker, 1992; and Sleuw aegen, 1992. 12. Interview with G. Coem e, IEPG C hairm an, in A vianew s International, no. 198, July-A ugust 1991. 13. T he M inistry o f Econom ic A ffairs is responsible for assessing proposed offsets and enforces, som etim es o v er the course o f several decades (F-16), com pliance with contractual agreem ents. Financial penalties can be im posed in cases o f non-com pliance. 14. Le Soir, ‘Le MDN veut acheter mieux et moins ch er’, 3 Septem ber 1993. 15. According to an estim ate made in a study by the Free University o f Brussels, Belgium is said to have paid 34% more for the first 116 F-16s produced in Belgium than if it purchased them o ff the shelf (van Brusselen, 1992, p. 57).

BELGIUM

49

16. ‘B elgium ’s Barco foresees grow ing dem and for large high-resolution colour displays’, Aviation Week and Space Technology, 18 M ay 1992, p. 59. 17. The com pany proposed ruggedised or m il-tailored flat screens for a price 2 -6 tim es cheaper than that o f a screen designed and produced according to standard m ilitary criteria. Source: B arco lecture on ‘D ual-use P ro d u cts’ given to the ‘C entre de R echerche et d ’Etudes de D efense’. 18. De M orgen, ‘B elgisch-w aalse 29 D ecem ber 1993, p. 2.

w apenuitvoer:

business

as

u sual’,

References Adam, B., 1989, La production d ’arm es en B elgique, Brussels: GRIP, Notes et D ocum ents no. 139. Adam, B., De Vestel, P. and Zaks, A., 1991a, P erspectives d ’harm onisation des reglem entations et p o litiques d ’exportations d ’a rm es au sein de la Comm unaute Europe'enne, Brussels: GRIP, N otes et docum ents no. 157-58. A dam , B., De Vestel, P. and Zaks, A., 1991b, C ontexte et perspectives de restructuration de I ’industrie de I ’arm em ent en Wallonie, Brussels: GRIP, Notes et D ocum ents no. 161-162. C om m ission de Cooperation federale de la Conference interm inisterielle de la Politique scientifique, 1993, ‘A percu des depenses de R&D par les autorites beiges 1989-1993’, Brussels, December. Central Economic C ouncil, 1992, ‘Perspectives du m arche de defence’, synthe­ sis report, Brussels: CCE, April. D elhauteur, D., 1991, La cooperation europe'enne dans le dom aine des equipem ents m ilitaire: la relance du G EIP, B russels: GRIP, Notes et D ocum ents no. 159. Dehousse, F„ et al. 1992, ‘Aspects juridiques, institutionnels et politiques des perspectives du m arche de defense’, U niversite de Liege, CCE, 1992/299. Debacker, K., et al. 1992, ‘O nderzoek naar de technologische toekom st van de belgische defensie industrie’, R ijksuniversiteit G ent, C CE 1992/300. De Vestel, P., 1995, D efence M arkets and Industries: Time fo r P olitical D ecisions? Paris: W estern European Union, Institute for Security Studies, Chaillot Paper no. 21. De Vestel, P., et al. 1993, European arm am ents industry: research technological developm ent and c o n versio n ', Luxem bourg: E uropean Parliam ent — Scientific and Technological O ptions Assessment.

50

EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

De Vestel, P. and Fohn, R., 1993, ‘Les donnees m acro-econom iques de la defense en E urope’ in M em ento defense-desarm em ent 1993, Brussels: GRIP, pp. 337-390. D um oulin, A., 1992, ‘La restructuration des forces arm ees’, C ourrier hebdom adaire, no. 1383-1984, Brussels: CRISP. ‘Guide de la recherche scientifique’, 1991, Brussels: Service de la program m ation de la politique scientifique. M inistry o f National D efence, 1993, Plan a m oyen terme du M inistere de la D efense N ationale 1993-1997, Brussels: MND. MUller, H., 1993, ‘The export control debate in the “ N ew ” European C om m unity’, A n n s Control Today, Vol. 23, (2). OECD, 1992, Main science and technology indicators, Paris: OECD. Sleuw aegen, L., et al. 1992, ‘De toekom st van de belgische defensie-industrie: industriel, strategische asp ecten ’ C atholic U niversity o f Leuven, CCE 1992/303. Van B russelen, P., et al. 1992, ‘Pespectives du m arche de la defense en Belgique: etudes des aspects m acroeconom iques de l'industrie beige de la defense’, U niversite Libre de Bruxelles, CCE 1992/302. Verbeek, P., 1992, ‘B elgium ’, in H. M uller et al. The European non-proliferation policy 8 8-92, Brussels: Inter-university Press, pp. 175-184. Zaks, A., 1992, D iversification et reconversion de I ’industrie d ’arm em ent, Brussels: GRIP, N otes et D ocum ents no. 165.

Chapter 2

France Claude Serfati' Introduction The French arm am ents industry faces today considerable difficulties. The eco­ nom ic and political conditions in which it developed in the 1960s and 1970s have changed profoundly. The production o f a wide range o f nuclear and con­ ventional weapons required to m aintain ‘strategic independence’ has absorbed vast financial means, m obilised scarce technological resources and subjugated certain crucial industrial branches (especially electronics, and certain types of specialised equipm ent suppliers) to ‘exotic’ uses. This strategy o f independence, the limits o f which were shown in the G ulf War, where the French arm ed forces played an auxiliary role in the American intervention, becam e increasingly difficult to defend in economic terms. The spi­ ralling costs o f improving weapons perform ance have been an ever-increasing burden, aggravating the budget deficit. M oreover, France lacks the m eans to bring to m aturity on its own those technologies w hich are essential to remaining in the race for m ilitary innovation. In som e fields, she is already dependent on foreign suppliers (electronic com ponents, materials, composites). This chapter outlines the particular fram ew ork in w hich French arm aments decisions are taken. It discusses the central role o f the D elegation G enerale pour l ’Arm em ent (DGA) which, as the key military institution in the arm aments field, structures the system o f arm s production by acting as the hub o f a tight network o f relationships between the large enterprises, their sub-contractors, and the pub­ lic research laboratories. It indicates the scale o f resources devoted to military technologies, estim ating the R&D expenditures o f com panies w orking in the defence sector to represent about 30% o f total industrial R&D expenditure. It suggests that the concept o f m ilitary R&D is both qualitatively and quantita­ tively different from the traditional concept o f R&D. We outline the recent intro­ duction by the D GA o f the concept o f ‘dual use’ technologies, showing, on the one hand, how this notion has been used to draw up a list o f ‘critical technolo­ g ies’ for the arm am ents industry and, on the other, how it has been used to try to reinforce the links within and betw een the m ilitary-industrial and the civilian system s o f innovation. We shall see also how the concept has been used to pro­ pose an increased role for the D GA in the form ulation and im plem entation of

51

52

E U R O PEA N D E F E N C E T E C H N O L O G Y IN T R A N S IT IO N

F rench technology policy. F inally, w e d iscu ss the issue o f co n v ersio n . We conclude that the D G A does not en v isag e u n d ertak in g c o n v ersio n m easures. Indeed, in the period 19 8 2 -1 9 9 3 , the num ber o f jo b s in the arm s industry fell from 310,000 to 230,000 despite a rise o f 16% in real term s in equipm ent ex p en ­ diture, and at least a further 64,000 jo b s are expected to go in the next few years, even though, at least until m id -1995, equipm ent expenditure had been expected to rem ain steady. W hile the D G A does speak o f diversification, it considers that the general state budget (and not its ow n) should foot the bill, although under the direction o f the M inister o f D efence.

Basic Information T he O rgan isational C ontext T he organisation o f the defen ce industry and defen ce research is profoundly influenced by the D GA . Its head holds the sam e rank as the com m ander-in-chief o f the arm ed forces. But its im portance can be better seen by its position at every point along the interface betw een d ecisions over French m ilitary needs and over their industrial fulfilm ent. T hrough its various divisions, the DGA is involved in every step in the life o f an equipm ent program m e, from establishm ent o f o p era­ tional requirem ents, through feasibility definition, and on through developm ent, production, acquisition, subsequent m aintenance and m odifications, and export (Playe, 1983). If a co m p ariso n o f broad e q u ip m ent acquisition p rocedures b etw een France, the UK and G erm any show s few fundam ental differen ces (H uffschm id and Voss, 1991), it is nonetheless probable that the role played by the D G A has no near eq uivalent in either o f those tw o countries. T his role is reinforced by the fact that the D G A has tw o m issions: a p o licy m ission (general orientations, elaboration o f concepts, follow ed by specification and oversight o f arm am ents program m es, etc.) and an industrial m ission, in the sense that a significant part o f defence research, production and m aintenance is conducted w ithin its ow n estab lish m en ts. T he policy m ission draw s upon over 20,000 staff, w hile the industrial m ission is essentially concentrated in the D irectorate for N aval C o n stru ctio n (D C N ); in co n trast, aircraft w ork lies in the hands o f private or state-o w n ed firm s, w hile land eq u ip m en t p roduction w as transferred from d irect D GA control w hen it w as reconstituted as GIATindustries. T he D G A is the key to the o rg an isatio n o f F rench arm s prod u ctio n (C hesnais and Serfati, 1992; Serfati 1992, and 1995; H ebert 1995). T he produc­ tion o f arm am ents is organised into a netw ork defined by the m arket and non­

FRANCE

53

market relations am ong the large com panies, the publicly-funded dedicated m ili­ tary research laboratories (CEA, O NERA) and the DGA, the last being at the centre by virtue o f the pow er at its disposal. A rm am ents Engineers, who form one o f the grands corps o f the Ecole Polytechnique and run the DGA, reinforce the cohesion o f this network by their ubiquitous presence at the head of all o f the large defence com panies. This ensem ble constitutes a subsystem (or meso-system ) o f the national production system itself. For more than 30 years the defence m eso-system has had rules and procedures which distinguish it clearly from the civilian sector. The reproduction o f this meso-system, beyond any form o f public accountability, is facilitated by this m ode o f functioning, reinforced by the status o f military institutions in general in French society. Form ally speaking, the State is able to control the arm s industry because it controls the majority — and often the totality — o f the capital o f most o f the arm s producing firms. State-ow ned com panies (where the majority of capital is under state control) are responsible for about 80% o f production and employ 100,000 workers. In practice, however, the proposed privatisation o f these com ­ panies, which for som e o f them would simply represent a return to the status quo ante their nationalisation in 1981 (follow ing the election o f Francois Mitterrand), would not change the depth or the cohesion o f the meso-system, nor the close links o f these com panies with the DGA. In any case, by the time of writing, no military com panies had yet been firmly presented for privatisation, partly perhaps because some o f them (eg, SN ECM A , A erospatiale) are in finan­ cial difficulties. Since the start o f 1995, the DGA began to undergo reorganisation, in order better to deal w ith the radical changes in the arm s m arket and the need to achieve substantial econom ies in the arm s budget, which becam e even more acute with the cuts announced in June 1995 by the Jupp6 governm ent, and a clear expectation that m uch m ore w as to com e as the new governm ent set about its econom ic program m e and planned reform s o f the arm ed services. The reorganisation hinges on the DGA distinguishing more sharply its responsibili­ ties for form ulating arm am ents policy from those for m anaging the industrial im plem entation o f those policies. T hese latter are in any case decreasing. Not only have the DGA’s form er land-system s activities been transferred to GIAT, but a reorganisation o f the activities o f the D irectorate for N aval C onstruc­ tion is also underway. N evertheless, the DGA will aim to profit from this reo r­ ganisation to reinforce its role o f ‘industrial arc h itec t’ o f m ajor arm s program m es (Info-D G A , 1994). Perhaps one o f the more striking changes, at least in sym bolic term s, w as the appointm ent o f an industrialist, rather than a career ingenieur d'arm em ent, as head o f the DGA from early 1996.

54

EUROPEAN D EFENCE TEC H N O LO G Y IN TRA N SITION

Som e D ata on the Arm s Industry In 1994, the turnover o f the French arm am ents industry stood at FF 97 billion, or 2% o f GDP, down from I T 103 billion in 1993, and FF 113 billion in 1992. E xports accounted for 20% o f this turnover. Table 1 show s that the turnover increased in both real and current values between 1982 and 1990, and subse­ quently fell slightly (by 3.5% between 1990 and 1992). Exports have continued to drop from their peak in 1985. A ccording to D GA estim ates, the num ber o f em ployees in the sector also began to fall dram atically from 1985. As o f January 1993, the arm s industry (including the policy-m aking staff o f the D G A ) directly em ployed 230,000 peo­ ple (80,000 few er than in 1982), o f whom 189,000 worked to supply national orders and 41,000 on exports (CG P 1993). This represents approxim ately 5% of national industrial employment. Estim ates indicate (CG P 1993) that one indirect jo b is provided for every 2.5 direct jobs, w hich gives an estim ated 330,000 peo­ ple em ployed directly or indirectly in arm s production. This num ber can be expected to continue to fall in the light o f more recent defence cutbacks. The main arm s firms, and their specialisations, are listed in Table 2. (See also Table 7 for further data). It is evident from Table 7 that exports are extrem ely im portant to the indus­ try, a subject we return to later. H ere, though, let us note that in order to export within Europe, French companies have increasingly had to enter into agreem ents with military contractors in the im porting countries, especially as m arket condi­ tions have become increasingly more difficult and the costs o f developm ent and production have risen. The D assault group is an exception: despite strong export activities, it has alw ays refused any form o f cooperation with foreign firms.2 French firms have developed two types o f general strategy for these purposes: •

•

creation o f joint venture com panies (GIE — Econom ic Interest G roups in the French legal term inology), or sim ilar form s of partnership. The capital of the new company is shared (equally or not) am ong its parents, with the result that governm ent oversight o f firm strategy and accounts becom es more difficult. assumption o f a majority share holding in the foreign firm by the French firm.

The choice o f strategy depends on the histories o f the firms, their corporate cultures, and their degree o f overlap in products. Some exam ples are given in Table 3. Both Aerospatiale and Matra generally prefer the first solution. Aerospatiale, a fully nationalised enterprise (though listed now for eventual privatisation), is

Table 1: Sales of French Arms Industry, 1982-1993, Billions of Current and Constant (1991) Francs 1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993 1994

FF billion, current In France Exports

46.6 28.9

53.1 33.0

56.4 41.9

60.5 43.9

65.3 43.1

72.9 34.1

78.0 38.2

82.9 37.3

85.9 38.6

86.5 29.1

84.7 28.3

82.5 80.2 20.6 16.7

TOTAL

75.5

86.1

98.3

104.4

108.4

107.0

116.2

120.2

124.5

115.6

FF billion, constant 1991 In France E xports

71.6 44.4

74.4 46.3

73.7 54.8

74.5 54.1

76.3 50.3

82.5 38.6

85.5 41.9

88.1 39.7

88.6 39.8

86.5 29.1

116.0

120.7

128.5

128.5

126.6

121.2

127.4

127.8

128.4

TOTAL S ource:

i i

Adapted from CGP (1993).

113

103.1 96.9

81.7 27.3

79.3 77.1 19.9 16.1

115.6 109.0

99.2 93.2

FRA N CE

1982

56

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

Table 2: Specialisms of the Principal Arms Firms M ilitary as % of Total Turnover 1993

GROUPS*

MAIN MILITARY PRODUCTS

Aerospatiale

Aerospace: military aviation (helicopters, transport aircraft), missiles (long range), space (observation satellites)

30

Thomson-CSF

Electronic systems: aeronautical (radar, opto-electronic, displays), communication, control and detection (land, air and sea), missiles (air defence)

70

Matra-Hachette

Electronic systems: missiles (air-air, ground-air), information and control systems

10

Dassault-Aviation**

Aircraft: combat, patrol, maritime

80

Dassault-Electronique**

Electronic systems: guidance systems, onboard computers, detection, electronic warfare

91

GIAT-industries

Land equipment: tanks, armoured vehicles, weapons and munitions

93

SNPE

Chemicals: rocket motors, explosives, decoys, reactive armour

42

SAGEM

Electronic systems: navigation, inertial guidance, opto-electronic equipment (thermal imaging, guidance, aerial reconnaissance)

26

Labinal

Aircraft: engines (for aircraft, helicopters, missiles), and related equipment

45

SNECMA

Aircraft: engines, landing gear, brake systems, power transmission systems, reverse thrusters

46

Source: Company annual reports. Notes: * The term ‘group’ denotes a consolidated company, which might include other subsidiary companies (as in the case o f Aerospatiale, which includes its joint venture, Eurocopter, with the German firm Daimler Aerospace. ** Dassault-Aviation and Dassault-Electronique are companies within the Dassault-Aviation Group. In these cases the relevant information is published at company rather than group level.

FR A N C E

57

Table 3: E xam ples o f Foreign O perations o f 4 French Industrial G roups French Firm Thom son-CSF

Operations with Foreign Firms

Type

Defence division o f Philips (NL)

Acquisition

(1990) Link-m iles (USA) (1990) Ferranti (UK) (1990) Pilkington (UK) SAES (Spain) Short Brothers (UK) (1993)

Acquisition Acquisition o f 50% o f sonar division Acquisition o f 50% of optronics division 49% share holding Joint venture

GIAT-Industries Herstal SA (Belgium)

Acquisition

Aerospatiale

Creation with MBB of Eurocopter (30% MBB, 70% Aerospatiale) Joint venture for satellites

MBB (Germany) (1991)

Alenia (Italy) DASA (Germany) Euromissile

Joint venture with DASA Matra

GEC Marconi (UK) British Aerospace Dynamics

Source:

Joint venture, M atra-M arconi-Espace Joint venture on missiles (planned from 1993)

Author, drawing on specialist press.

under strong state control: it is the m onopoly supplier o f nuclear m issiles, and m aintains close ties w ith the DGA. Since the 1960s, at the behest o f the public authorities, A erospatiale has developed a policy o f very close cooperation with M BB (now D aim ler Benz A erospace) in both m ilitary (E urom issile) and civilian dom ains (A irbus Industrie), in w hich A erospatiale retains de facto operational m anagem ent and technological leadership (although in planned further coopera­ tion in space activities, the leadership role will be reversed). T he French group realises 60% o f its turnover in cooperation w ith the G erm an firm .3 T here have, how ever, been m odifications in the w ork share since the end o f the 1980s in the light o f the grow ing strength o f M BB w ithin the D aim ler B enz group, and its desire to gain leadership in the civilian sphere, w hile leaving the dom inant m ili­ tary role to A erospatiale (Serfati 1992). Today, A ero sp atiale’s c h ie f executive envisages transform ing the group into a holding com pany w hich w ould m anage the group participants in jo in t com panies (M arx, 1993).

58

EU RO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITIO N

Matra is one o f the rare large m ilitary contractors in w hich the majority share­ holders are private. This com pany has developed a strategy of cooperation with E uropean and US firms because o f its relatively secondary role in m ilitary elec­ tronics, far behind industry leader T hom son, a long-standing favourite of the DGA. In addition, the com pany’s wish to develop its abilities in civil space has led it to develop a strategy of cooperation w hich is indispensable in that sector. Thomson and GIAT-industries (since its transform ation from the status o f a state arsenal in 1990) more often choose the second solution, that o f taking majority control. For more than twenty years, T hom son’s strategy within France has been to take a dom inant position, preferably a monopoly, in the field o f m ilitary elec­ tronics. Through a series o f takeovers o f state com panies in the 1980s, it thus becam e the ‘national cham pion’ in the electronics industry. Following the sam e strategy internationally, Thom son is attem pting to strengthen its hold on the larger European market. It has even ventured into the US m arket, but its attem pt to acquire the m issile division o f LTV m et not only opposition from the D epartm ent o f D efence (DoD), but also strong reservations from A erospatiale and the DGA. The attem pt to form in 1991 a 5 0 -5 0 joint venture with British Aerospace for the production o f m issiles also failed.

M ajor Program m es C urrently in D evelopm ent Table 4 show s the ten largest m ilitary program m es currently underw ay in France. The six largest o f these will cost a minimum o f FF 500 billion in current year term s, o f w hich FF 350 billion rem ain to be spent w ithin the next 8 to 10 years. These substantial sum s mean that these six program m es alone will account for som e 40% o f annual equipm ent expenditures (so-called ‘Title 5 ’ in the term inology o f the defence budget) (Paecht, 1993). Spending on M ilitary Equipm ent and M ilitary R&D There has been a steady reduction in recent years in the proportion o f G N P devoted to defence, falling from 4.08% in 1983 to 3.13% in 1993. O ver the same time period, the proportion o f defence spending allocated to equipm ent (Title 5), as opposed to operating costs, grew from 45.7% in 1983 to 53.02% in 1991, falling slightly in the two years after that. Table 5 shows a continuous rise until the 1990s in military R&D expenditure, and a significant change between the 1970s and 1980s, sustained into the 1990s, in its im portance relative to the overall equipm ent budget. The equipm ent budget itself enjoyed substantial growth over the past three decades: +10.5% per annum in current francs and +2.5% in constant francs between 1965 and 1990. These

59

FRANCE T a b le 4: Major Programmes in Development Duration

Principal firms

197

1986-2015

Dassault-Aviation (35%), SNECM A (30%) Thom son-CSF (13%)

Ballistic missile launching nuclear subm arines (SNLE NG)

89

1986-2005

Directions des constructions navales (DCN): 51% , ECN Indret (12%), Thom son-CSF (6%)

M irage 2000 (D, DA)

80

1976-2002

Dassault-Aviation (26%), SNECM A (27%), Thom son-CSF (12%)

Submarine launched ballistic missile (M4 and M5 MSBS)

71

1983-2011

A erospatiale (55%), SEP (17%), SNPE (8%)

AMX Leclerc Tank

42

1982-2007

GIAT-industrics (50%), SAGEM (20%), SACM M (11%)

Helicopters HAF/HAC (Tigre and Gerfault)

35

1987-2010

Eurocopter (78%), Turbomeca (8%), M TU (8%)

H elicopter NH 90

35

1991-2011

Eurocoptcr, Agusta, Fokker

Nuclear powered aircraft carrier (PAN)

27

1986-2007

Directions des constructions navalcs (DCN) 51%, ECN Indret (21%), Thom son-CSF (23%)

Long range airground missile (ASLP)

28

1991-2007

Aerospatiale (ND)

M aritime patrol aircraft (Atlantique 2)

24

1977-2002

Dassault-Aviation (20%), Thom son-CSF (19%), A erospatiale (14% )

Program m es

Rafale

Sources:

Cost (FF billions 1992)

DGA, and Boucheron (1992).

60

EUROPEAN D EFEN CE TEC H N O LO G Y IN TRA N SITIO N

Table S: M ilitary R& D Expenditure 1971-94 (Billions o f Current Francs) Year

Military R&D spending (a) (FF billions)

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

3.90 3.90 4.35 4.65 5.05 5.60 6.10 7.55 9.35 11.35 17.67 17.86 20.31 22.98 23.60 24.60 26.62 32.41 32.98 34.69 33 32 30 29

Defence spending (b) (FF billions) 14.14 15.34 16.38 18.48 20.44 22.84 24.21 25.58 31.23 36.06 44.61 51.09 55.48 66.64 71.64 75.68 85.81 90.85 98.00 103.10 102.93 102.90 96 94.9

Ratio a/b (%)

27.6 25.4 26.6 25.2 24.7 24.5 25.2 29.5 29.9 31.5 39.6 35.0 36.6 34.5 32.9 32.5 31.0 35.7 33.7 33.6 32 30.9 31.2 30.5

Source:

Author, drawing on parliamentary reports and data from the Ministry of Research and Technology. Note: There is a discontinuity between 1981 and 1982 due to a redefinition of the financing of military R&D in 1981.

rates o f increase exceeded those for budget provision for major state-funded civil­ ian infrastructure programmes (hospitals and roads, for example) over the same period. Moreover, in the period 1962-1990, defence equipm ent spending rose faster than G NP (excluding non-profit state turnover). Military equipment alone accounts for almost half of total annual state capital expenditure (47.5% in 1993). M ilitary R&D and procurem ent spending is regulated by M ilitary Pro­ gramme Laws (Lois de programmation militaires) which were introduced in 1960. Their goal is to establish an intermediate temporal horizon between planning, that

FRAN CE

61

is, formal reflections by the M inistry o f Defence on its military capabilities and long term missions (1 5 -2 0 years), and fin a n ce laws, voted every year, which perm it the undertaking o f expenditures based on the voted budget allocations.4 The objectives set for equipm ent expenditures in the seven military programme laws between 1960 and 1994 w ere rarely met precisely, and the differences between those objectives and credits voted in the annual finance law becam e w ider under the military program m e law o f 1987-1991 (named, after the then defence minister, the ‘G iraud’ law). Nonetheless, it has been em phasised (Schm idt 1992) that the military pro­ gram me laws have enabled a rise in equipm ent expenditures and have eventually ensured the com pletion o f the basic arm am ents program m es, even if at the cost of a delay in their tim etable. By and large, since 1977 the ratio o f planned to realised expenditures has been over 93% . Hitherto, therefore, Program m e laws have m aintained their status as a guiding fram ew ork. W hether the sam e will apply to the 1995-2000 military program m e law, in view o f the cuts announced in m id -1995 (see below ), seem s much less certain. In 1992 the M inistry o f D efence adopted a new method o f presenting its budget. W here formerly the budget was broken down by branches o f the military services5, the new presentation is m ade by m odule (that is, is m ore projectbased). The M oD considers that this reform will allow better inter-service m an­ agem ent o f resources, since many arm s program m es have the potential to be used by more than one service (Rafale and the NH 90, for exam ple, will be used by both the land- and sea-based forces). The reform will also enable better account to be kept o f expenditures on space, intelligence gathering and research. It should be noted, however, that this sanguine view was contested by the chair­ man of the D efence C om m ittee o f the Parliam ent who, in analysing the budget for 1993, argued that the new procedures will mean that ‘control of the credits will become more difficult’ (H ollande, 1993, p. 114). A new Program m e Law (1995-2000) was voted by the Parliam ent in spring 1994. Under this law, equipm ent spending would be FF 613 billion in 1994, of which FF 162 billion (26% ) would be devoted to research and developm ent. Equipm ent expenditure was voted to increase by 0.5% per annum until 1997, from when it could rise to 1.5% per annum ‘if the econom ic situation perm its’ (M oD, 1994). The main program m es are (cf. again Table 4): Rafale (FF 198 billion in 1994), SN LE (FF 77 billion), Leclerc (FF 42 billion), Tigre (FF 41 billion), and NH 90 (FF 40 billion). No major program m e was cancelled, but the M5 missile program m e was delayed until 2010. From the outset, however, it was clear that this budget could not realistically sustain all the program m es that were under developm ent. It was widely expected that some o f them (perhaps Rafale) would be reduced in scale, and others (the

62

EUROPEAN D EFEN CE TECH N O LO G Y IN TRA N SITION

NH 90 helicopter?) even cancelled. Even so, against a background o f deter­ mined efforts by the Balladur governm ent to control public spending, a budget that projected growth was rem arkable. It was, therefore, not too surprising when the Juppe governm ent announced in June 1995 a reduction o f 8.5% in 1995 defence equipm ent spending, with more to follow. The im plications o f such a step, how ever, against the background o f the inadequate provision in the 1995-2000 Program m e Law for the program m es under developm ent, led to con­ siderable industrial and parliam entary concern. O ver 70 conservative legislators, all m em bers o f the parliam entary defence com m ittee, abstained from voting in July 1995 when the governm ent presented a supplem entary bill to cut the planned defence budget. (Defense N ews, 17 July 1995; J a n e ’s D efence Weekly, 29 July 1995), but without much prospect o f reversing the cuts.

A rm s Exports As we saw in Table 1, arms exports are a major com ponent of the turnover o f the arm am ents industry. Indeed, this has been true since the 1960s, in terms o f the im portance o f arms exports both to the econom y as a whole (with arms exports being the leading surplus category in the 1992 balance o f paym ents) and to the arms companies. N evertheless, their net macro-econom ic effects rem ain unclear, not least because o f taxpayer contributions, am ounting som etim es to the entire cost o f non-paym ents, as happened over Iraq in 1990 for arm am ents totalling several billion francs (Fontanel and Ward, 1990).

M ilitary R&D The M inistry o f Defence plays a m ajor role not m erely as the prim e source of funds for defence R&D, but also as the principal provider o f public R&D funds to companies. B efore proceeding, we should note that there are considerable m ethod­ ological difficulties with using French defence R&D statistics. This is because data are presented according to differen t conventions by d ifferent official bodies. These differ in the categories used, on w hat counts as R&D, and on such questions as w hether or not to include value-added tax. In recent years, the M inistry o f R esearch and H igher Education (M RES) has had the responsi­ bility o f reconciling figures from different sources, and o f bringing them into line w ith the O E C D ’s F rascati convention. Just to illustrate, this process required the am endm ent o f the M o D ’s figure for R&D spending in 1988, from FF 32 billion to FF 25 billion (M RES, 1990). We use M RES figures as far as possible below.

Table 6: E xport O rders, by C ategory o f M ateriel 1978 1979 1980 1981

8.6 1.9 16.9 27.4

8.0 2.3 11.4 21.7

4.4 1.7 18.9 25.0

11.2 15.1 11.0 37.3

18.1 3.9 11.8 33.8

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 9.3 4.0 28.3 41.3

5.6 1.5 22.0 29.1

43.6 2.3 15.9 61.8

11.6 4.8 28.1 44.5

8.5 2.4 14.4 25.3

7.9 5.5 15.5 28.9

13.5 4.2 19.8 37.5

7.1 17.4 2.5 4.6 10.4 11.4 20.0 33.4

10.1 16.7 7.4 34.2

—

1993 1994 —

— — — — 45.7* 38.9

—

— — 31.7

FRANCE

Land system s Sea system s Air system s Total

1977

* Rapport d ’information, Comm ission de la defense nationale et forces armees, A ssem blee nationale. Source: M inistry o f Defence.

Os u>

64

EU R O PEA N D EFEN CE TEC H N O LO G Y IN T RA N SITIO N

In 1994, the R&D expenditure o f the M oD am ounted to FF 29 billion. This broke dow n thus: 52% to com panies, 44% to laboratories under the MoD (ONERA, Institut Saint-Louis, DGA experim ental centres, and Atomic Energy C om m ission (CEA) military research, etc.), and 3% to public laboratories and universities. O f the public laboratory money, the majority goes to the CEA for civilian research and to the National Centre for Space Studies (CNES). E xpenditures for m ilitary R&D represented 31% o f total allocations for public research (FF 95 billion in 1994) (M RES, 1995). But if we focus on public funding o f R& D in com panies, the significance o f the M oD rises sharply: it pro­ vides nearly 70% o f the total public funding for research available to companies. This funding, m oreover, is concentrated in a very sm all num ber o f firms (cf. Table 7), with 92% o f it going to firms em ploying more than 2000 w orkers. These enterprises, in addition, often belong to larger groups, and it is estim ated that the ten largest contractor groups receive 70% o f the total military R&D bud­ get. The aerospace sector is the largest beneficiary o f military R&D expenditure (57% o f total), follow ed by electronics (34%). These two sectors thus capture more than 90% o f the total public expenditures for m ilitary R&D. In addition to M oD -funded R&D done by firms, the question arises o f how much defence R&D firm s them selves fund. There being no official statistics on this matter, we have made an estim ate based on a direct survey o f the principal arms groups (Table 7). This suggests that self-financed R&D was about FF 15 billion francs in 1992. Adding the R&D funds supplied by the DGA, we esti­ mate that in 1992 French arm s groups spent approxim ately FF 30 billion on R&D, representing nearly 30% o f total 1992 R&D expenditures by French com ­ panies. The m ilitary-oriented groups also figure prom inently am ong the largest French industrial groups, and com e high in the rankings o f groups according to R&D expenditure (8 o f the top 25 French firms, on this indicator, being arms firms). W hen ranked by R&D expenditures, the top five French industrial groups all have military activities,6 while 11 o f the top 25 firm s in terms o f patents are also military oriented. The concentrated distribution o f DGA funds has, there­ fore, im portant im plications for the overall innovative effort o f French firms. R elative to equipm ent spending, public spending on m ilitary R&D will probably increase moderately, but steadily, in the next few years. In particular, strong grow th is expected in the space sector, at the expense o f nuclear R&D. This change results from the realisation o f the military and strategic importance of space-based assets, especially since the G ulf War, and more recent concerns over Iraqi troop m ovem ents, and from the w illingness o f the M oD to be the focus o f the efforts to regroup European military space activities, thanks to the guiding role o f the French space industry in the civilian realm. The ‘upstream ’ research (roughly equivalent to basic and strategic research, in Frascati terms)

Table 7: Leading French Arms Companies (Excluding DGA and CEA), in Order of Armaments Turnover, 1993 Company

Total turnover (F F m illion s)

Arm am ents as % total turnover

Total R&D

Self-

Arms Exports

( F F m illions)

financed R&D (F F m illions)

( F F m illions)

( F F m illio n s)

Personnel

(Persons)

34,300 50,850 11,315 19,556 53,900 5,500 8,540 13,038 2,770

23,940 15,050 9,030 9,000 5,500 (a) 5,115 3,840 (b) 3,400 (c) 2,520

70 30 80 46 10 93 45 26 91

8,100 15,600 2,800 3,452 6,000 1,160 900 NA 1,643

2,600 4,300 1,211 2,278 NA 334 NA NA 316

4,160 1,661 1,885

1,760 (a) 1,080 660

42 65 35

700 405 330

150 98 NA

116 316 0

6,150 2,451 1,304

18,000 7,400 1,850 1,700 (d) 3,000 1,700 1,600 NA 518

48,900 43,900 10,250 12,240 41,900 11,600 16,200 14,500 2,888

2,073

632

30

NA

86

156

2,873

1,249

437

35

NA

152

412

2,150

FRANCE

Thom son-CSF A erospatiale Dassault-Aviation SNECM A M atra-H achette GIAT-industries Labinal SAGEM DassaultElectronique SNPE SFIM Alcatel Espace Defense Com pagnie des Signaux Inter-technique

Arm am ents turnover

Notes:

NA: not available. a) Space/D efence Branch; b) Defence aeronautical branch; Source:

c) Navigation, optronic, defence branch;

d) Engines only.

Annual reports, and data collected from the firms, 1995. on L f\

66

EUROPEAN D EFEN CE TECH NO LOG Y IN TRA N SITION

devoted to m ilitary space activities exceeded FF 200 m illion in 1991 and nearly FF 800 m illion in 1994. However, despite this shift, nuclear continues to be funded about four tim es more heavily than space research (Paecht, 1993). A nother significant developm ent in the pattern o f funding o f m ilitary research was the announcem ent in 1994 that FF 2 billion were to be allocated for ‘dual use’ aeronautical and nuclear research.

Current Thinking on Defence and ‘Dual Use’ Technologies The Future o f D efence Technology C apabilities Before proceeding further, it is im portant to recall the particular role and posi­ tion o f the DGA within the French system, as described earlier. The apparent absence, or late publication, o f official policy positions does not in any way imply that the officials o f the DGA have been inactive in researching the prob­ lems concerned with the planning o f new technology and arms systems: on the contrary. This is why we will draw heavily here on a report published in 1993 by a w orking group o f the C om m issariat G eneral du Plan (CGP, 1993), charged with exam ining the future of the defence industries. Such a report does not bind the governm ent to its recom m endations, yet the very strong representation on the w orking group o f the DGA, and o f other elem ents o f the arm am ents mesosystem, means that the report can be safely taken to represent their thinking. In addition to its interest as a dem onstration o f how French policy-m aking works in this field, there is another reason for dw elling upon this report. This is that the report is one o f the most explicit and systematic treatm ents of the issue o f dual-use technologies to be found anyw here in Europe, and this alone makes it worthy o f attention. We should note, how ever, that this report w as published in advance o f the reform ulation o f French defence policy follow ing the dram atic changes in the international situation at the end o f the 1980s. That reform ulation began in the Livre blanc sur la defense (February 1994) and continued in the 1995-2000 Program m e law (June 1994), and thereafter. In these documents, six types o f crisis are envisaged, in which France might be involved. From the nuclear level (e.g., a ‘regional crisis’ in which a nuclear­ armed M iddle Eastern country might be involved), through threats to overseas departm ents and territories, or the possibility of a major threat to any Western European country, the sam e them e em erges: the scale and com plexity o f the threats requires France to keep her military budget at a high level and, if need be, to increase it. All existing m ajor equipm ent program m es were to be maintained,

FRAN CE

67

even though som e o f them, such as the Leclerc tank, Rafale, and the Charles de G aulle aircraft carrier, had been conceived in the very different clim ate o f the early 1980s. In recognition, however, o f the disparity between the costs o f such program m es and the available resources, renew ed em phasis was placed upon European cooperation. O f course, we should also recall that the dom estic political environm ent within which these docum ents were produced has itself since changed signifi­ cantly, following the 1995 presidential elections and the new defence cuts subse­ quently announced by prim e m inister Juppe. Further changes are in train, most notably the moves towards a sm aller but wholly professional army announced in early 1996. N evertheless, at the time o f w riting the docum ents referred to above rem ain the principal statem ents o f official thinking about the future o f French defence industrial and technological capabilities.

The Issue o f Dual-U se Technologies Appendix 5 o f the C G P report merits special attention. Dealing specifically with ‘technological aspects,’ and com prising the most com plete official statem ent to date on the issue o f dual-use technologies, it was prepared by a group headed by V. M arcais, form er head o f the Direction des recherches, etudes et techniques (DRET) in the DGA. At the outset, we can observe that the concept o f ‘dual-use’ technologies proves to be very elastic in the usage o f the report. M ethodologically, it is as poorly founded as the idea o f ‘spin-off’ which preceded it in the vocabulary of the chiefs o f the m ilitary-industrial com plex (Serfati, 1993). Consequently, the notion o f ‘dual-use’ technologies can be em ployed for num erous policy pur­ poses. A ppendix 5 o f the C G P report uses it in two particular ways. First, the term is used as a constituent, if subordinate, elem ent in an analysis w hich establishes a list o f ‘critical technologies’ (see Table 8). Second, it is pre­ sented as a significant new feature o f the technological landscape in order both to advocate a tightening o f the relations w ithin the process o f innovation between the civilian and the military sectors, and to propose a larger role for the DGA in the planning and im plem entation o f overall French technology policy.

D ual-U se Technologies and the Idea o f C ritical Technologies T he C G P report defines critical technologies as ‘those which condition the future o f defence industries in terms, first, o f their military com ponents, but also o f their increasingly im portant civilian applications’ (p. 168). The report goes on

Table 8: C ritical Technologies, as defined in CGP (1993) Key:

Dual character: - T echnology u n iquely defence - T echnology w eakly dual

O

- T echnology m edium dual

XX

- T echnology stro n g ly dual

XXX

- T echnology to tally dual

XXXX

X

Degree of dependence acceptable: - T echnology o f w hich F rance w ishes to keep total m astery, rejectin g all dep e n d en ce and all co o p eratio n - T echnology th a t F rance is w illin g to share in m ore o r less ex ten d ed partn ersh ip w ith W HU countries, w hile k ee p in g a certain natio n al cap acity - T echnology that F rance w ill share on a w id er scale, o r acquire via licenses, taking account o f the ex isten ce o f several su p p lie rs glo b ally

Very high military technology: - T echnology p articu larly sen sitiv e to risk o f p roliferation o f certain arm am ents

oo

as

EUROPEAN

E

X

IN TRA N SITION

M

DEFENCE TECHNOLOGY

F

Priority A (Highest) Critical Technologies

Comments

Nuclear technologies Structural new materials (including composites) and associated processes for their development and application

N u clear arm am ents T aking into account the totality o f

vu ln erab ility and problem s o f m aintenance ... T aking into acco u n t 2 fields in particular:

F

xxxx

Very high military technology X

1 ) ]

M aterials: E*

]

F ibres: M

]

P rocesses: E

]

XXX

F

XXX

E

X X

H ardening

0 XXX

F

X

E E

X

A ircraft engines

N u clear reactors A utom atic, piloted, guidance E lectrom agnetic, acoustic, optic Subm arine acoustic D ata fusion E lectronic w arfare

Control of signatures and technologies relevant to stealth

co m p u ter codes, m astery o f stealth m aterials,

Mastery of complex systems

d istrib u ted antennae C o n cep tio n , integration

U nd erstan d in g o f p henom ena, d ev elo p m en t o f

A rchitecture tools (infom atic, softw are) M odelling and sim ulation

XXX 0 X**

E F

X

XX

F

X

XX

E

X

XX XX

E E

X

XXX

E

0 0

F

X

E

X

XXX

F

X

xxxx xxxx

M

FRANCE

- therm ostructural m aterials S pecific electro n ics

M o to rs and propellants for strategic m issiles

* E xcept Fibres. ** S om e duality w ith space launchers.

XXX

acoustic and therm al), as w ell as fatigue,

L and and sea diesel engines M o to rs and p ro p ellan ts for tactical m issiles

Navigation equipment Detection equipment (sensors, receivers) and signal processing

Degree of dependence acceptable

0

m echanical co n strain ts (including vibratory,

- corrosion, surface treatm ents

Micro/nano electronics (for systems and sub-systems) Propulsion systems

Dual character

X

E Os vO

P rio rity B (In term ed iate) Comments

Advanced com puter codes

M odelling o f co m p lex p h y sical p h en o m en a

Very high military technology

XXX

E

XXX

M

XXXX

M

XXX

M

X

E

X

X

in the fields of: - aero th erm o d y n am ics - structural analysis - h igh speed dynam ics - hy d ro d y n am ics - ca v itatio n p h enom en a - m eteorology - electro m ag n etic p h en o m en a

Software engineering for inform ation systems Artificial intelligence and neural networks Electronic module architecture Energetic and detonating materials

E specially fo r aircraft A m m unition L iquid ro ck et fuels E xplosives

A dvanced computers Telecommunications materiel and networks

F or m assiv ely parallel co m p u tin g O n the g ro u n d , sea, air and in sp ace, fo r voice,

XXX

E

XXXX

E

XX X

E

X

E

X

F E

X

w ritten and im age tran sm issio n In terco n n ectio n s

Optical and optronic devices Directed energy devices Power generators. Electricity storage and processing devices

L asers M icro-w aves F or electrical p ropulsio n and electrical w eapons

0 XXX

IN TRA N SITIO N

Degree of dependence acceptable

DEFENCE TECHNOLOGY

Dual character

EUROPEAN

Critical Technologies

Priority C (Lowest) Com m ents

Industrial production systems Shaping and processing of conventional m aterials Control system s Ergonom ics and neurosciences Technologies and m ethods supporting security o f weapons system s and materiel Im pact o f weapons system s and materiel on the environm ent

Including autom atic and robotic

Including cognitive sciences

Dual character

Degree o f dependence acceptable

XXXX XXXX

M M

XXX XXXX XXXX

E E M

XXXX

M

Very high military technology

FRANCE

Critical technologies

72

EUROPEAN D EFEN CE TECH N O LO G Y IN TRA N SITIO N

to propose that, in order to avoid the trap o f too open-ended a list o f critical technologies, these technologies can be usefully classified according to: • • •

the extent to which they have dual ‘civil-m ilitary’ character; the level o f dependency vis-a-vis foreign countries which France is prepared to accept in each case; their sensitivity with respect to arm s proliferation.

They develop the first o f these criteria by proposing that each technology can be classified on a scale running from solely for defence purposes, to weakly, moderately, strongly, and, finally, totally dual-use. The second criterion is elaborated in terms of w hether France: • •

•

wishes to maintain total m astery o f the technology, rejecting all dependency and cooperation; would be willing to share the technology with the mem bers o f the Western European Union, while maintaining a certain level o f technological capabil­ ity within France; would consent either to engage in partnerships on an even w ider scale, or to acquire the technology by license agreem ent or purchase o f materiel, taking into account num erous global sources o f supply.

Finally, the criterion concerning proliferation im plications would be an absolute one, turning upon w hether or not a technology belongs to the group o f the most sensitive m ilitary technologies. In such a case, the technology should not be diffused outside France, except perhaps to a very lim ited num ber o f reliable partners. U sing these three criteria, the appendix lists a total o f 24 technological dom ains critical to the future o f the arm s industry (Table 8). Eight o f these dom ains were given the highest priority (group A), nine were given an interm e­ diate priority (group B), and seven were given a lesser priority (group C). No great surprises emerge. B roadly speaking, the list corresponds very closely with the critical technologies list o f the US D epartm ent o f D efense (DoD). The com position o f group A, does, how ever, confirm the ever-present nuclear and aerospace priorities o f the French arm aments meso-system. Included within this group are nuclear technology; new structural materials; micro- and nano-electronic com ponents; propulsion systems; detection and signal process­ ing equipm ent; stealth technologies; and system s integration.

FRANCE

73

D ual-U se Technologies and the T ightening o f the N etwork Linked to Innovation It has been docum ented elsew here how the French national innovation system as a whole (Chesnais, 1992), and the constituent sub-sections o f the arms mesosystem (Chesnais and Serfati, 1992), display systemic relations which are rather more extensive than those found in most other industrialised states. N onetheless, the DGA and the other authors o f A ppendix 5 o f the CGP report propose yet fur­ ther tightening in both civilian-defence synergy and in the military innovation system itself. Underlying this preoccupation is concern over A m erican com petition in the dom ain o f dual use high technology and the evolution that the appendix authors foresaw in the GATT process. They considered the GATT negotiations to be ‘very im portant for the future o f the defence-linked industries w hich for the m ost part now also hold, or will hold, civilian high technology capabilities which will be the focus o f relentless com petition, notably between France and the United States. The clear American objective is to regain technological and com m ercial leadership in such sectors as aeronautics and space, where France and the rest o f Europe have seized im portant m arket shares, and in materials and electronics, where Japan has taken m arket leadership.’ (p. 157). According to the DGA and their co-authors, the A m ericans would seek to im pose their ’national m odel’ o f industry support. This model o f support would include: • •

•

no subsidy or loans for developing a com m ercial product; only indirect state support, that is, upstream o f the products, including research support, exploratory developm ent and support for dem onstrator projects; no limitation on this last support, or if there must be one, it should be pro­ portional to the turnover in the area in question, which gives advantage in the majority o f cases to the American industry, whose vast dom estic market assures them o f supremacy.

In this event, the central issue for high technology French firms would be ‘to augm ent civilian and military support for research and technological develop­ ment — a route heavily exploited by the A m ericans.’ M ore im portantly: ‘as dem onstrated by the A m ericans, it has becom e fundam ental to have the political will, m anifested in a closing o f ranks at the national level, and also at the European level, to form a more efficient ‘alliance’ among the diverse actors in

74

EURO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITION

research and technology. It is also essential to recognise the inherent difficulty that the European Econom ic C om m unity (EEC) has com petence only for civil­ ian research, and that we lack, at the European level, a collaborative framework for m ilitary research’. (CGP, 1993, p. 157. Em phases in original).

The T ightening o f the Network Linked to M ilitary Innovation R egardless o f the subsequent actual outcom e o f the U ruguay R ound, these observations rem ain im portant as an indication o f French official thinking on this subject. It lead them to the conclusion that they can count only on their own strength. Thus, they wrote o f the need for concentration o f activities between the D GA, the chiefs o f staff, research institutes and laboratories, and industry, at the levels o f system s and sub-system s firms and equipm ent m anufacturers. Using the current term inology o f the econom ics o f technical change, they explain that ‘these organisations constitute a netw ork within which must be organised a har­ m onisation, perm itting the necessary synthesis, updated periodically, in such a way as to support the establishm ent o f 'technological plans o f action' optimised w ith respect to estim ated needs.’ (CGP, 1993, p. 148). The appendix makes detailed proposals for such harm onising o f technologi­ cal plans o f action, including the establishm ent o f a com pulsory annual meeting o f the different institutions within the network, and the formation o f new coordi­ nating structures. For these, it suggests: • •

technology groups draw n from the DGA and arm ed services, industry, and the research laboratories, to focus on specific critical technologies; and a consultative com m ittee representing all elem ents o f the network, charged with preparing an annual synthesis o f technology plans for each sector in order to make them hom ogeneous. It would also oversee their consistency with the results o f national ‘prospective’ (foresight) analyses.

The perceived need to keep abreast o f the US technological com petition also lead the authors to press for further financial support. They argued that whereas in France the division betw een research, exploratory developm ent and final developm ent has rem ained fairly steady over the last decade, in the USA the research share o f the procurem ent budget has similarly remained steady, whereas that allocated to exploratory developm ent and dem onstrator program m e has increased, at the expense o f final developm ent and production. W hile, say the authors, it would be difficult for France to follow suit in the short to medium term, given current budgetary projections and equipm ent plans, it is essential at least to maintain the current level o f research and technology support.

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Increasing the R ole o f the DGA in C ivilian Technology Policy T he DGA and its allies do not restrict them selves to presenting reco m m en d a­ tions for the internal strengthening o f the defence m eso-system , but also take aim at the o rganisatio n o f French tech n o lo g y p olicy itself. H ence, they observe that there is a large dom ain o f science and o f generic technologies that is o f interest to both civil and m ilitary in terests, and is am enable to stronger coo rd in atio n . T hey note w ith approval the co n certed policies for stim ulating such fields as advanced m aterials and processes, m anufacturing techniques, and electro n ic com ponents in co u n tries such as G erm any and Japan. T hey do not hesitate them selv es to criticise the traditio n al French em phasis (in w hich they them selves had, o f course, played no sm all part) on vertical integration via ‘grands p rogram m es’ w hich, they say, no longer co rre­ sponds w ith today’s requirem ents for the diffusion o f new technologies (CGP, 1993, pp. 158-9). From this analy sis, they proceed to argue for c lo se r co o rd in atio n o f the research and technology program m es o f civ il m in istries and o f the M inistry o f D efence. T hus, they ask, ‘T aking acco u n t o f the cu rren t and future econom ic co m p etitio n , should not the M inistry o f D efence involve itself m ore in national technology p o licy ?’. In a reversal o f the current liberal econom ic discourse on the ‘retreat o f the sta te ’, they suggest that civil m ini­ stries w ould also find advantage in a b etter d efinition and coordination o f techno-eco nom ic strategies for industry and the econom y m ore generally. H ence, they call for the establishm ent o f som e ‘grands program m es generiques technologiques’, and for the creation o f a new organisation, a ‘direction de la technologie au to n o m e’, to define these program m es. (CGP, 1993, p p . 159-160) In this respect, the recent history o f the National Centre for Space Studies (CNES) illustrates this new thinking at work. The CNES, created in 1962, was the only m ajor technologically-oriented French governm ent agency not under the auspices o f the M inistry o f Defence. The crucial role o f space in military strategy, underlined in the G ulf War, has since led the M oD to strengthen the ties betw een the space agency and the DGA. An im portant step was taken in August 1991 with the creation o f a joint com m ittee o f the CNES and the DGA charged with harm onising civil and military space R&D (CNES, 1992). This tightening of institutional links was described by the heads o f the CNES as, ‘very original from the point o f view o f what is done in other places, notably the United States, and very w ell-suited to French strengths ... (It is) o f im m ense im portance to the future’ (CNES, 1992). The ‘co-tutelage’ thus introduced defines a new stage in relations between these organisations.

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International C ollaboration in R&D by French C om panies Both the Livre blanc and the CGP report emphasised the need for increased inter­ national defence technological cooperation. In practice, cooperative R&D pro­ gram mes at the level o f French com panies are very lim ited in scope. The annual am ounts invested in this area are only a few hundred m illion francs (MF): 100MF with Germany, 70M F with the United Kingdom, 60M F within EUCLID. These sums represent barely 1% o f the military R&D budget. It is interesting to note in passing that, insofar as this was its aim, the EUCLID program m e has had difficulty in ‘federalising’ European military R&D: thus, the French invest­ ment is less than that devoted to cooperation with Germ any or the UK. In view o f the ever-rising costs o f R&D, the DGA advocates a strengthening o f European cooperation, both East and West. With the countries o f Western Europe, a special effort is being made to integrate testing facilities7 (cf. also the UK chapter, this volum e), and in a m ore general sense, to establish joint exploratory developm ent program m es. With the countries o f Eastern Europe, efforts are concentrated on the developm ent o f intensive contacts with high-level scientific researchers (De Saint-G erm ain, 1993). T here could be as m any as 150 cooperation agreem ents with the countries o f the East for a total o f 50 m il­ lion francs (Les E chos, 28 April 1993). The DGA also favours strengthening cooperation in research and technol­ ogy am ong the m em ber states o f the W EU. In this respect, it has taken the lead in the form ation o f a jo in t A rm am ents Agency with Germ any and others (see Introduction), intended in due course to operate with w ider m em bership under the auspices o f the W EU. The DGA seeks, likew ise, to involve itself more closely in the form ulation o f research proposals by French industry for participa­ tion in the EUREKA program m e; believing that som e EUREKA program m es have dual-use characteristics that could benefit the MoD.

Conversion and Diversification To conclude, we offer a few words on the subjects o f policy on defence conver­ sion and diversification, and on controlling the diffusion o f defence-related technologies. There has been great stability over two decades in the list o f leading French defence contractors, and correspondingly little interest in conversion to civil production. In the 1980s, how ever, certain highly specialised m ilitary firms began to develop a degree o f diversification based on the technical expertise derived from their m ilitary activities. This was the case within the aerospace industry, particularly with A erospatiale and SNECM A. The electronics groups.

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on the other hand, have had more lim ited success with diversification, the diffi­ culties being pronounced at Thom son, and to a lesser extent at SAGEM and D assault-Electronique. The M atra group (defence electronics) has diversified, not by transfer o f m ilitary technology to civil purposes, but m ostly by acquisi­ tion o f other firms, including space activities and, far rem oved from its high technology activities, also publishing interests. M ore recently, the defence cutbacks have led the public authorities to con­ sider the problems facing military specialist companies. But this has not resulted in any thorough-going policy o f defence conversion. At the most, it has resulted in consideration o f a few proposals for assisting diversification, and m ainly o f small and medium enterprises (SME). To help these SM Es, the M oD created in 1991 a D elegation fo r R estruc­ turing (DAR) whose objective was to help the restructuring o f the armed forces and the arm s industry. The DAR m anages the F und fo r R econstruction and Em ploym ent in D efence, w hich was aw arded FF 100 m illion in 1992, and FF 160 million in 1993 and 1994. M oD officials are not optim istic about the possibilities for diversification o f SM Es. They believe that most arms com panies which intend to will already have diversified their activities, and that further possibilities will be limited. (CGP, 1993, p. 206). M oreover, the officials charged with these questions are sceptical about the technological and com m ercial capacities o f SM Es, estim at­ ing that only one com pany in three is capable o f successful conversion. A ccording to D GA estim ates, this conversion could take from 18 to 36 m onths (Les Echos Industries, 28 April 1993). N evertheless, these sam e officials argue that diversification issues do fall within the purview o f the State and should be supported, but by funds allocated by other m inistries (CGP, 1993, p. 224). The disbursem ent o f these funds, however, in their view, should still be directed by the MoD. Overall, therefore, we see no French organisations or institutions proposing wholesale conversion o f their m ilitary activities. On the political level, all o f the major parties (those represented in Parliam ent) support the continued existence o f a strong arms industry (though some favour reducing the nuclear emphasis). Thus, the Rafale programme, w ith an estim ated cost o f FF 200 billion, is sup­ ported by all the political parties, all the unions, and by a wider public. W hile diversification activities can be played out on the micro-econom ic level, m easures dealing with defence conversion demand an ensem ble o f macroeconom ic measures. There is little sign o f these emerging, even with the more substantial recent defence cuts. Essentially, the arm am ents m eso-system has em bedded itself firm ly in the national econom y, and constitutes a type o f enclave which thus far has proved very difficult to dislodge.

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Controlling the Diffusion of Defence Technologies The official regulations regarding the export o f arm s are very rigorous. The decree-law o f 18 April 1938 is the basis for the control o f exports. In principle, all exports o f arm am ents are forbidden8 but the state can nonetheless authorise exports according to very strict rules. For exam ple, each sale o f w ar materiel, and o f equipm ent for its construction, is subject, prior to the decision o f the prim e minister, to the opinion of the Interm inisterial Com m ission for the Study o f Exports of War M ateriel (CIEEM G). Arms leave the country only after the M inister o f Finance has delivered an A uthorisation for the E xport o f War M ateriel (AEM G). Additionally, in the past COCOM controlled the export o f military goods or dual use goods (Ferrier, 1991). O ther documents have been written to support this law in principle. France adheres to the guidelines o f the A ustralia G roup, created in 1984, which in 1992 published the first export control list o f ‘dual use’ m aterials related to chem ical and biological w eapons (Daguzan, 1993). France has also ratified the M issile Technology Control Regim e (M TCR). N onetheless, the governm ent has been wary o f proposals from the US gov­ ernm ent since the G ulf War aim ed at restricting arms exports. The French see these proposals as linked to the unprecedented effort from the Bush and then the C linton A dm inistration to increase the m arket share o f American producers and force the French and the British out o f markets where they had previously dom i­ nated. M oreover, as we have seen, the French arm s industry, and econom y, depend to an im portant extent on arms exports. All the official reports o f the last few years em phasise this point, and express concern over the decline o f exports since the end o f the 1980s. The reports suggest that, in the face o f the aggressive stance o f A m erican producers on the export m arkets, the French governm ent should engage more strongly in the support o f French exporters. Thus, a 1993 parliam entary report (G aly-Dejean, 1993) argued that political activities must com e into line with efforts to conquer m arkets, and should no longer work at cross-purposes to them. D espite the im plication in these reports that arm s and technology export regulations are ham pering French industry, it is clear that, at least in the past (e.g., K olodziej, 1987), arm s sales have often bypassed diplom atic channels and made a m ockery o f the allegedly strict rules. Hence, while the governm ent is clearly concerned to prevent exports to certain countries, in general there is strong pressure in favour of arms exports (Serfati and Chesnais, 1995). With respect to the control of dual use goods and technologies, a licensing system aim ed at what is termed control o f fin a l destination is applied by the M inistry of Industry. That is to say, judgem ents about the issuing o f authority to

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export depend not only on the technology (a list o f controlled m aterials and sen­ sitive technologies being published in the Journal O fficiel), but also on the pur­ chaser and on the country in which the technology will finally be used. T he control o f technology exports is also affected by Interm inisterial Instruction 486. This instruction was established by the Secretary General for National D efence (SGDN) in 1982 to protect French scientific and technological property within international exchanges. Certain o f its measures9 are specifically oriented tow ards m ilitary and dual use technologies. Thus, the DGA has the right o f oversight on all patent registrations, including those not directly relevant to the military industry, and the DGA can prohibit or delay the granting o f a patent if the technology could enhance national security10. In addition, the new penal code, as reform ed in July 1992, makes the trans­ gression o f rules regarding technology transfer punishable as an attack on the fundam ental interests o f the n ation". In terms o f internationally agreed controls, France seeks com plem entary relations betw een the EU and other control regimes. As regards the European C om m ission’s attem pts to introduce dual use controls, there has been consider­ able debate over how to resolve differences over whether certain items should be classified as dual use or as m ilitary goods, with the French governm ent often taking the tougher view. (Ferrier, 1991). As for the discussion over a successor to COCO M , France has been reserved on the idea o f a ‘Super-CO C O M ’, that is, a body to regulate north-south as well as the traditional east-w est trade, prefer­ ring instead better enforcem ent and strengthening o f established system s.12

Conclusion France is today still the leading European country in terms o f defence equipm ent expenditure and general determ ination to m aintain an independent capability in this sector. Behind this present position lies a long and deeply em bedded tradi­ tion, though one w hose consequences for overall French industrial and techno­ logical developm ent can be questioned. At the sam e time, there is now a clear political appreciation that the budget levels o f the past can no longer be sus­ tained; that significant restructuring o f the industry is required; and that indus­ trial and technological capabilities must increasingly be achieved on a European, rather than a national, basis. The French arm s industry, built as a ‘m eso-system ’ at the end o f the 1950s, is today facing its greatest change in 40 years, with the nature of any new equi­ librium point still far from clear. Som e argue that the currcnt changes could be so dram atic as to lead to an ‘im plosion’ or 'm utation' o f the system (Hebert,

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1995). Alternatively, the deepening cuts in the workforce, the privatisation o f the major com panies, the increase in European collaboration, and the stream lining o f the DGA can be seen simply as a m ajor reshuffling of the elem ents o f the sys­ tem , in an attem pt to maintain its essential character (Serfati 1995).

Endnotes 1 F. C hesnais contributed to parts o f this chapter. We thank Tiffany Tyler for the translation. 2 An im portant exception is D assault-System s, w hich produces large-scale, integrated softw are solutions for m echanical design and m anufacturing (C om puter A ssisted D esign and M anufacturing (C A D -C A M )). D assaultSystem s has links with IBM, w hich owns 10% o f the company. 3

A ccording to its chief executive, cf. Le Monde, 8 June 1993.

4

W ithin each annual budget (finance law), the parliam ent also includes pro ­ gram m e authorisations, which are elem ents o f expenditure for equipm ent program m es which go beyond a specified time period. But only those p a y ­ ment authorisations which are w ritten into the finance law may actually be spent.

5 There were 5 budgetary sections: land, sea and air forces, national guard, and com m on (which includes nuclear expenditures). 6 T hese are A erospatiale, A lcatel-A lsthom , T hom son, SN ECM A , MatraH achette. 7 cf. P I. de Saint-G erm ain, then head o f D RET (Research D irectorate o f the DGA): ‘Each time an investm ent exceeds 5 million ECUs, we act in concert [with the Germ ans and the British, C.S.] to elim inate duplication o f facili­ ties,’ Les Echos, 28 April 1993. 8 A rticle 13 o f 18 April 1938 stipulates: ‘The exportation through any cus­ toms adm inistration w hatsoever, w ithout authorisation, o f war equipm ent o r equivalent goods, is prohibited.' 9 T hese m easures define procedures concerning scientific and technical cooperations and those concerning visits and internships, as well as rules concerning foreign nationals wishing to work in ‘sensitive’ installations and rules for French nationals living abroad. 10 Interview with a DGA official.

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11 A ccording to A rticle 4 1 0 .1 , ‘T he fu ndam ental in terests o f the nation are understood to m ean its independence, its territorial integrity, its security, the republican form o f its institutions, its m eans o f defence and diplom acy, the safety o f its population w ithin France and abroad, the defence o f its “natural situation” and env iro n m en t and the essential interests o f its scientific and econom ic p o tentia l, and o f its cultural patrim ony.’ 12 Cf. A nnie K ahn, Le M onde, 30 A pril 1993.

References B ensadoun, M „ 1990, ‘P o litiq u e de rech erch e des industries d ’a rm e m e n t’, L ’A rm em ent, no. 25. B eregovoy, P., 1992, Projet de loi de prog ra m m a tio n m ilitaire p o u r les annees 1992-1994, Paris: A ssem blee N ationale, 1 July. B oucheron, M ., 1992, R apport re la tif a I'eq u ip em en t m ilitaire et aux effectifs de la d efen se p o u r les a n n ees 1 9 9 2 -1 9 9 4 , Paris: A ssem blee N atio n ale, no. 2935, 7 O ctober. C hesnais, F., 1992, in R. N elson, N a tio n a l Innovation System s: C om parative A nalysis, O xford: O xford U niversity Press. C hesnais, F. and Serfati, C., 1992, L ’industrie fran gaise d ’arm ement: genese, am pleur et cout d ’une Industrie, Paris: C IR C A N athan. C hesnais, F., (ed.), 1990, C om p etitivite in tern a tio n a le et dep en ses m ilitaires, Paris: E conom ica. C om m issariat G eneral du Plan, 1993, L ’a ven ir des industries liees a la defense, Paris: La D ocum entation fran^aisc. C onze, H., 1994, D eleg u e g en eral p o u r l ’A rm em ent, Interview , La Tribune D esfosses, 13 January. C urien, H., 1993, M inistre de la rccherchc, com m unication, C onseil des m inistres, 12 February. D aguzan, J-F., 1993, ‘D iffusion dc la technologic ct detournem ent, com m u n ica­ tion aux jo u rn ecs d ’etudes du S G D N ’, Secu rite collective et crises internationales, Toulon 9 and 10 Septem ber. De Saint-G erm ain, P-I., 1993, ‘Politique scientifique et technique du m inistere dc la d efen se’, Les recherches de defense 1993, Paris: D GA -DRET. D G A , 1993, d o ssier ‘La D G A el la p rep aratio n de I ’a v e n ir’, A rm ees d ’a u jo u rd ’hui, no. 185, N ovem ber. D G A , 1994, ‘R eorganisation de la D G A : ce qui va c h an g e r’, Info-D G A , no. 60, January. D G A -D R ET, 1993, L es recherches de defense 1993, Paris: D G A , 1993.

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Fcrricr, M ., 1991, ‘Lc controlc k l’cxportation dcs m ateriels sen sib les’, L ’Armemertt, no. 26, February/M arch. Fontanel, J. and Ward, M.D., 1990, ‘Les exportations d ’arm es et la croissance econom ique’, ARES, vol. 12. G aly-D ejean, 1993, Rapport d'inform ation, La crise des industries de defense, Paris: A ssem blee Nationale, no. 552, October. Gras, O., 1987, ‘Les com posants electroniques dans la defense’, L'Arm ement, December. Hebert, J-P , 1995, Production d'arm em ent: M utation du systeme francais, Paris: La docum entation frant^aise. H ollande, F., 1993, Rapport sur le projet de loi des fin a n c es p o u r 1993, annexe no. 39, D efense, Paris: Assem ble N ationale, no. 2945, October. H uffschm id, J. and Voss, W., 1991, D efence Procurement, the A rm s Trade and the C onversion o f the A rm am ents Industry in the C om m unity, Brem en: Progress-Institut fur W irtschaftsforschung GmbH, May. Javclot, M., 1993, ‘Point de vue’, D efense et Technologie, no. 12, March. K olodziej, E.A., 1987, M aking and M arketing Arms, The French Experience and its Im plications fo r the International System, New Jersey: Princeton U niversity Press. Labbe, M -H., 1993, ‘Le controlc a 1’exportation des technologies de pointe, com m unication au colloque de 1’IR IS’, L 'avenir de I ’industrie de defense, Paris, 9 June. Les Echos industries (D ossier), 1993, ‘La difficile reconversion de I’industrie d ’arm em ent, Les Echos, 28 April. M arx, P., 1993, ‘G allois oriente A erospatiale vers un holding industriel’, La Tribune Desfosses, June. M inistere de la D efense (1994), Loi de program m ation m ilitaire 1995-2000, Paris: Im prim crie Nationale. M inistere de la recherche et de l’cnseigncm ent supcrieur (M RES), 1990 and 1995, E lat de la recherche et du developpem ent technologique, Paris: Im prim erie Nationalc. M uller, H., 1993, ‘The E xport C ontrols D ebate in the “N ew ” European Comm unity, A rm s Control Today, vol. 23, November. Paecht, A., 1994, Rapport sur le projet de loi de fin a n ces p o u r 1994, annexe no. 39, D efense, Paris: A ssem blee N ationale, no. 580, October. Paecht, A. and Balkany, P., 1993, Rapport d'inform ation sur la politique m ili­ taire de la France et son financem ent, Paris: A ssem blee Nationale, no. 452, September. Perrin, P., 1992, ‘Interoperabilite’, DGA Science et Defense, Paris: D unod, vol. 2.

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Playe, 1983, ‘L a D GA et la definition des arm em ents’, L'Arm em ent, October. Pouplard, J.P., Zigm ann, R. and Sandt, F., 1992, ‘La dualite en vision pour la robotique m obile’, DGA Science et Defense, Paris: Dunod, vol. 1. Schm idt, C „ 1992, ‘La portee econom ique des lois de program m ation m ilitaire’, D efense Nationale, March. Senges, G „ 1991, L’A erospatiale se donne des allures de holding, Les Echos, 10 June. Serfati, C „ 1990, ‘L’econom ie francaise et le fardeau des depenses m ilitaires’, l^es Temps Modernes, no. 524, March. Serfati, C., 1990, ‘Strategic et contraintes d ’un groupe francais a specialisation: 1’exem ple de T hom son” , in Chesnais, 1990. Serfati, C., 1991, ‘Primaute des technologies militaires, faiblesse des retombees civiles et declin de competitivite: le cas de l’industrie electronique francaise’, C ommunication au Colloque international “Maitrise sociale de la technolog ie ’, Lyon (M SHR) September. Serfati, C., 1992, ‘Le meso-systdm e de l’arm em ent et son im pact sur le systeme productif de la F rance’, ARES, vol. 13. Serfati, C., 1993, ‘L’em prise couteuse des technologies m ilitaires’, M ondes en developpement, 3rd trimester. Serfati, C. and Messisi-Lavorel, L., 1995, ‘L’innovation militaire et l’industrie des biens d’equipement en France: quelques hypotheses de travail’, Innovation, (L’Harmattan), no. 2. Serfati, C., 1995, Production d'arm es, croissance et innovation, Paris: Economica. Serfati, C. and C hesnais, F., 1995, ‘Im perieuses et couteuses exportations d ’arm es’, O bservatoire des transferts d ’armement, Rapport 1995, Lyon. Southw ood, P., 1991, D isarm ing M ilitary Industries: Turning an Outbreak o f Peace into an Enduring Legacy, H oundm ills and London: Macmillan.

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Germany P eter Lock and Werner Voss Introduction T he im pact o f the radical political changes in defence and security policy since the later 1980s has been far m ore pronounced in G erm any than in oth er parts o f W estern E urope, for several reasons. First, and q u ite u n expectedly, G erm an y becam e reunited. T he N ational P eo p le’s A rm y (NVA) o f the form er G D R w as partially integ rated into the B undesw ehr before its d isso lu tio n . T he in tern atio n ally agreed ceilin g o f 370.000 soldiers to be achieved by the end o f 1994 w as to be approxim ately h alf the m anpow er o f the tw o arm ies before unification. By late sum m er 1994 m ore than h alf a m illion p erso n s b elo n g in g to the S oviet Red A rm y w ere w ithdraw n from the territory o f the form er G D R . T he troops o f NATO allies stationed in the form er FR G also saw considerable cuts. T hus, 853,000 soldiers will have disappeared from G erm an soil, a reduction o f 62% . T he d isso lu tio n o f the NVA and the en su in g ex ten siv e restru ctu rin g o f the rem aining resou rces co n tin u es to ab so rb virtu ally all av ailab le p lanning resources o f the G erm an M inistry o f D efence. The em ploym ent consequences o f w inding dow n the arm ed forces in G erm an y e licit w ide-spread local and regional opposition w hich im pedes the on-going redeploym ent o f units. N ev er­ theless, ad ditional cuts w ere p roposed by the m in ister o f defen ce in A pril 1994 and M arch 1995 because the available financial resources did not suffice to support a m odern arm y o f 370,000. Second, G erm any has had to cope w ith the huge costs o f reunification. So far, the net transfers absorbed annually by the new L ander have been in the range o f D M 150 billion, w ith a steady upw ard trend. By the end o f 1994 the diverse ‘hidden b udg ets’ w ere expected to accum ulate liabilities o f well above DM 500 billion (for a detailed analysis o f the costs see: H offm ann 1993). T his volum e o f debt severely restricts the financial flexibility o f the governm ent for the years to com e and lim its such policy options as an active industrial policy, for exam ple. Third, G erm any fulfilled its C F E obligations to reduce its arm our m ainly by elim inating heavy w eapons that it had inherited from the form er G DR. The stocks o f defence m ateriel w hich cam e to be ad m inistered by the B undesw ehr w ere beyond the im agination o f w estern intelligence. T hey included 52,000 trucks, 25.000 trailers, 1,500 m otorbikes, 295,000 tons o f am m unition, 1.2 m illion hand 85

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guns, 4,500 tons o f liquid fuel for m issiles, 760,000 items o f clothing and 600,000 pieces o f personal equipment. The governm ent managed to sell at bargain prices or donate most o f this unwanted surplus materiel, but a lot remained to be dismantled and disposed o f at considerable cost. H owever, this disposal activity did at least provide a new market niche for the ailing amm unition industry. Fourth, the new international circum stances provoked controversy concern­ ing Germ an participation in military m issions out o f area. The positions taken ranged from contending that all conceivable actions were perm issible under G erm any’s Basic Law, to the view that any activity o f men in uniform outside the NATO-mandate violated the Basic Law. The first position was confirm ed by the Federal C onstitutional Council on 12 July 1994, but the constitutional court ruled later that G erm an participation in international peace preserving opera­ tions is a feasible option o f Germ an foreign policy. It also em phasised the role in such matters o f the United Nations and ruled that the governm ent cannot act on its own; it must seek an absolute majority o f all m em bers o f parliam ent. Finally, under long-standing NATO arrangem ents, G erm any has supported Turkey, G reece and Portugal with military equipm ent by heavily subsidising the purchase o f equipm ent or by ‘cascading’ refurbished equipm ent in large quanti­ ties. In the wake o f severe budget restrictions, G erm an defence industrial, naval construction and tank production in particular will be affected, as this ‘military godparent’ regim e is not likely to be continued.

Basic Data The O rganisational C ontext Reflecting historical experience, the military in G erm any are clearly subordi­ nated to civilian control. The institutional fram ew ork o f arm s procurem ent reflects this deliberate policy. R equests for weapon system s are formulated by a military hierarchy within the M inistry o f Defence, but their im plem entation is the responsibility o f the A rm am ents Division in cooperation with the Federal Office for D efence Technology and Procurem ent (BW B — B undesam t fur W ehrtechnik und Beschaffung). The BWB was established in 1957, clearly sepa­ rated from the ministry, with the legal status o f a ‘suprem e federal authority’. It runs several test centres (W ehrtechnische D ienststellen) and laboratories (W ehrwissenschaftliche D ienststellen) as well as arsenals. Its headquarters are located in Koblenz, while the other agencies are widely dispersed throughout the form er FRG. In addition, the M oD is required to coordinate its defence program m es with the Federal M inistry o f Economics. This puts it under tighter control than non­

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87

military state procurem ent activity (e.g., railw ays or mail) w hich has tradition­ ally been conducted under the sole control o f the relevant authority (Bontrup, 1986, p. 53). In response to the recent costly reduction o f the armed forces, an assumed expansion o f tasks and the severe budget lim itations, the M oD is determ ined to cut costs radically w herever possible. Struggling against bureaucratic inertia and entrenched interests, it envisages a profound rationalisation of its procedures at every level (W ehrtechnik, No. 1/1994, p. 5). As a first step, more precise jo b descriptions were introduced in order to elim inate high levels o f duplication. The BWB is targeted to cut 4,000 o f its present 17,000 em ployees by the year 2000. At the same time, major responsi­ bilities pertaining to the procurem ent process were transferred from the M oD to the BW B, including that for the Research and Technology Program m e (RTP, on which more below ). The share of procurem ent orders adm inistered by the BWB will increase beyond the present level o f 70%. The enhanced duties o f the BWB include: • • • • • • • •

m anagem ent o f complex projects system s technology (integration o f technical devices into com plex systems) system s technology within prelim inary phases other tasks in the field o f research and technology not assigned to MoD procurem ent m ajor technical tasks including checking o f quality m ajor econom ic tasks (contract m onitoring and assessing prices) m ajor adm inistrative tasks and control.

The existing parallel capacities o f the test centres and laboratories will be am al­ gam ated into single institutions. Furtherm ore, the departm ents o f weapons and am m unition technology and the departm ent o f missiles were merged in 1994. The responsibilities o f the division for com m unications technology and electronics underw ent a major reorganisation at the end o f 1994 w hereby its mandate for procurem ent was reduced. This change reflects the rapid technolo­ gical progress in the field o f com m unications and data processing, which today is determ ined by innovation in the civilian m arkets and not by extensive military research. The M oD intends to take advantage o f off-the-shelf civilian techno­ logy, in order both to reduce costs and to im prove the quality o f procurement. In contrast to the U SA, the form er USSR, the UK and France, the FRG abstained from creating large state-ow ned m ilitary laboratories. Instead, about tw o-thirds o f the m ilitary R&D budget is designated as ‘applied research’. It involves close connection w ith the developm ent o f specific w eapon system s

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EURO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITIO N

such as fighter aircraft, naval ships and tanks. The bulk o f contracts is awarded either to private com panies or so-called ‘supporting institutions’, m ostly inde­ pendent non-profit general research institutions. Extensive (though unw arranted) secrecy concerning R&D prevents us from specifying the distribution by sectors and com panies, but rough estim ates indi­ cate that the lion’s share o f the thousand contracts aw arded annually goes to only a few com panies. The various defence producers, now concentrated under the roof o f D aim ler Benz, were reported to receive 25% o f total military R&D expenditures in 1987. Siem ens is another m ajor contractor. Both receive an equally large share o f civilian R&D funds. W hile industry receives more than half o f the military R&D budget, about one third is allocated to publicly funded research institutes. The rest goes into applied research in universities, two o f which actually belong to the MoD, and other institutions. The Publicly Funded Research Infrastructure in Germ any Funding for public research institutions com es from both the federal and state (Lander) governm ents — directed basically at four types o f institution. A.

G rofiforschungseinrichtungen (GFE)

16 different GFEs carry out research in fields which were considered central to the strategic com petitiveness o f German industry at the tim e o f their creation. T heir activities are typically long-term and they have invested heavily in large research facilities. Total m anpow er in 1992 was 24,000, and the budget was DM 3.5 billion. The fields covered include (nuclear) energy, environm ental prob­ lems, space and aeronautics, and bio-technology. The Germ an Research Institute for Aviation and Space Technology (DLR — D eutsche Forschungsanstalt fur Luft-und R aum fahrt) is by far the largest engineering research institution in the FRG, with a budget o f over DM 800 m il­ lion (1992), more than 4,000 staff, and seven (geographically dispersed) major facilities. M ajor fields o f research are flight engineering/flight control, aerody­ namics, m aterials/construction, com m unications technology, reconnaissance and energetics. The relevance o f the research for military aircraft technology is obvi­ ous, though MoD contracts cover only a portion o f the DLR budget. B.

The M ax Planck Society (M PG)

Founded in 1911 as the K aiser W ilhelm Society, the MPG com prises over 60 research institutes which perform basic scientific research, most o f which is in the natural sciences. The linkages to the M oD are negligible.

G ERM A NY

C.

89

Institutes o f the Blue List

The Institutes o f the Blue List com prise a wide range o f independent research organisations, jointly funded by federal and state governm ents. T hey work in such disparate fields as social science, econom ics, m edicine, biology, history, and scientific m useums. A lthough the overall budget o f these institutes is almost 1 billion DM, there are no visible linkages to the MoD. D.

The F raunhofer Society (FhG)

The Fraunhofer Society is mandated to transfer research results into industrial use with particular em phasis on innovation in products and production techno­ logy. In 1993, the FhG budget was one billion DM. Its staff totalled 7,800, of w hich 2,600 were scientists and engineers as well as roughly 1,000 graduate or doctoral students. It is structured into 47 independent institutes, w orking in a w ide variety o f fields. Five institutes w ork exclusively for the M oD , while others have absolutely no defence connection. Defence research funding at the FhG in 1993 totalled DM 66 million, o f which DM 55 million cam e directly from the MoD. The balance cam e from industry on the basis o f MoD contracts they were carrying out, together with one jo in t project with the M inistry for Science and Technology. The FhG was created in the early 1950s by the state o f Bavaria in support of its regional industrial policy. The broadening of its sponsorship was relatively slow and it was only in the early 1960s when the MoD began to award dem and­ ing, medium range contracts, that the FhG consolidated its existence. W hen the liberal/social-dem ocratic governm ent took over in 1969, the FhG was chosen to carry out a large portion o f the greatly expanded industrial policy the federal governm ent was undertaking. This big push laid the foundation for its present structure. M ost FhG institutes receive research contracts from industry. On aver­ age, one third o f the budget derives from contracts aw arded by industry and one third governm ental research projects, including contracts with the MoD. W ith its apogee o f military research in the 1960s, the FhG is typical o f the institutional path o f military R&D in Germany. (Interestingly, data in the 1993 Annual Report suggested that the average age o f defence scientists in the FhG is markedly higher than for scientists in the form er FRG as a whole, confirm ing the idea that the defence institutions reached their peak in the 1960s). The rela­ tively small size o f the individual units and the built-in com petition for research contracts from industry and governm ent agencies have allowed an unusual flexi­ bility. Thus, institutes are used to reorienting their focus. Even fully militaryoriented institutes have taken the initiative to move into civilian applications o f their research. The Institute for A pplied M aterials Science (Institut fiir

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EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

angewandte M aterialwissenschaften) is one example. This Bremen-based insti­ tute has been diversifying since the beginning o f the 1990s, for which purpose it entered into formal cooperation with the University of Bremen. E.

Other

Some other arrangements outside this general institutional framework must also be mentioned. One is the Research Institute for Water, Sonar and Geophysics operating under the direct control of the MoD. The Research Society for Applied Natural Sciences (Forschungsgesellschaft fiir angewandte Naturwissenschaften) carries out research on high frequency physics, data processing, optics, sensor data in particular and electronic warfare. Wholly financed by the MoD, in 1993 its budget was DM 45 million and the staff totalled almost 350. The Industrieanlagen Betriebsgesellschaft GmbH (IABG) was established in 1961 at the M oD’s initiative to provide research facilities for the evolving aerospace industry. Its mandate gradually expanded into systems analysis, simu­ lation, project management and the application o f operations research. Most of its revenue came either directly from the MoD or via industrial research con­ tracts related to military projects. From 1990 onwards, the IABG faced a sharp reduction of military orders, to below 50% o f its income. However, public sector orders still represent 80% of its turnover, because the IABG successfully entered the field o f monitoring the environmental damage caused by military activities on German territory, especially in the former GDR, where the Soviet troops left a heritage o f environmental damage. But with a clear, finite time associated with this particular diversification activity, the future o f this establishment is inse­ cure. The government failed to interest a German or European consortium in taking it over, and IABG was finally taken over by the US company BDM. It had 1,500 employees and recorded a turnover o f DM 350 million in 1993. Finally, dating back to the early 1950s, there is a joint Franco-Germ an research institute in Saint Louis. It employs 500 people in military research (aerodynamics, ballistics and m easurem ent). The German contribution was almost DM 40 million in 1993. This short overview o f the institutional framework and trends in military R&D in Germany reveals a strong tendency towards decentralisation and towards further privatisation of activities. The MoD has also taken steps to give civilian innovation an important role in procurement. W hile most of these changes reflect a secular trend dating back to well before the end o f the Cold War, overcoming the inertia of the system has been greatly assisted by sharp defence budget cuts. The cost of German reunification has clearly been the most important factor in a major restructuring of the defence sector. The present trend

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91

tends to increase the structural differences between Germany on the one hand and the UK and France on the other. The rhetoric o f centralising procurement, and by implication, R&D at a European level, is clearly contradicted by this rapid restructuring in Germany. German Defence Industry With respect to military procurement, turnover and employment in the defence industrial sector, Germany belongs to the ‘Big T hree’ in Western Europe. The German defence industry is comparable to its French and British counterparts as far as conventional weapons are concerned. This is particularly evident in the case of naval shipbuilding, which gained larger shares o f the international mar­ ket during the last decade (VolJ, 1993), and for tank construction. New techno­ logical developments like the development of a vehicle with a single all-electric propulsion system may even gain a competitive edge in international markets (Wehrlechnik 11/1993, p. 56). Certain components like diesel engines, 120 mm guns and gear boxes have already gained dominant positions in international markets, notw ithstanding national procurement policies. These positions are related to civilian synergies or reflect an implicit know-how gained in almost one hundred years o f specialisation. The standing of the German aerospace industry is more ambiguous. In the design of military fighter aircraft, France and the UK clearly dominate. So far, there has always been political support for keeping the German aircraft manufac­ turers as partners in European co-production projects, even at high costs, the declared aim being to catch up and to maintain a production base for fighter air­ craft. This political decision put Deutsche Aerospace in a relatively fragile posi­ tion with respect to military aircraft production. While the corporate strategy of its parent, Daimler Benz, focuses on global markets — still civilian by definition — the envisaged production of the Eurofighter neither offers significant militarycivilian synergies nor contributes to a strategic expansion of markets, in the for­ mer Soviet Union in particular. The equipm ent industry, on the other hand, claims to be fully competitive in several important areas. The huge merger of the aerospace industry under the aegis of Daimler Benz provides it with strategic financial resources, but also subordinates it to the corporate logic of its parent on questions o f restructuring and efficiency. However, the production of defence materiel is only a small part o f German industry. According to the respected IFO-Institut, the number of jobs directly or indirectly depending on defence production in 1991 was 280,000 (IFO 1991), or 1.1% of the total work force. Decreasing procurement reduced employment, so that by late 1994, only 130,000 jobs — directly or indirectly dependent on

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defence orders — were left, a reduction o f more than 50% within 4 years. Quasi­ official estim ates anticipate a further reduction that could am ount to as much as another 50,000 jobs lost in the next three to four years. (K ieler N achrichten, 29 O ctober 1994). The G erm an defencc industry is characterised by the dom inance o f the pri­ vate sector and its relatively high concentration. These features w ere reinforced by a profound restructuring o f the defence sector throughout the 1980s. The result o f this restructuring is reflected in the ranking o f com panies by turnover (Table 1). D aim ler Benz moved from position 18 in 1983 to the top position after successively taking over MTU, AEG (TST), D om ier and MBB. Its dom i­ nant position was further strengthened by acquiring the Dutch com pany Fokker. Siem ens AG, ranking second, also internationalised its defence business by pur­ chasing part o f Plessey (UK), although defencc production rem ains below 2% o f its turnover and is strategically negligible. In contrast, Rheinm etall AG, Diehl G mbH & Co, as well as the B rem er Vulkan G roup, expanded their defence businesses by purchasing Germ an defence com panies, while Rheinm etall and B rem er Vulkan also diversified, by acquiring civilian companies. Hence, in spite o f their military acquisitions, they reduced the share o f defence in total produc­ tion. However, there are no signs so far o f an international netw ork in defence production beyond strategic alliances. N or is there an international netw ork in naval shipbuilding. One o f the m ajor strategies that shipyards pursued in the afterm ath o f the crisis o f m erchant shipbuilding in 1975 was to shift tow ards naval export m arkets. Indeed, the export o f naval ships becam e an im portant asset in their survival strategies. T heir success was based on technological innovation (m odularisation) and sys­ tematic international sourcing o f subsystem s and com ponents. The ten largest defence research and procurem ent projects are show n in Table 2, from which the dominance o f the Eurofighter project can be clearly seen. N om inal military expenditures have declined, but only slowly, since 1990. H owever, this apparently low rate o f reduction conceals more than it reveals, since a considerable share o f the defence outlays have gone to cover the high costs o f partially integrating the form er NVA into the Bundeswehr, and extend­ ing the m ilitary infrastructure to cover the w hole territory o f the reunited Germany. Since personnel expenditures are not flexible in the short term, the consequences o f these reductions have fallen mostly on investm ents (meaning equipm ent procurem ent plus spending on physical infrastructure such as bases, barracks, etc.). H ow ever, in a pre-election speech in 1994, C hancellor Kohl prom ised that the military could plan on the basis that the budget has bottom ed out at DM 48 billion, and that the arm ed forces could expect increases in line with inflation.

Table 1: The Main Defence Corporations in Germany

i

Rank 1983

18 18 n.a.

11

Rank 1991

C orporation

Arms products

Arm s turn over in 1983 (Mn DM)

Arms turn over in 1991 (M n DM)

Arm s share o f turn-over in 1991 (%)

Total em ploym ent 1991

V, A, H, M, EL, E, V A, H, M, EL, E

320 320 n.a.

6550 490 6060

7 1 49

379250 237442 56465

- MBB

A, H, M, EL

>3290

2450

51

20730

- Telefunken System Technik - M TU - D ornier

EL E A, EL, M

440

1326 190(a)

44 67(a)

15529 n.a.

n.a. n.a. 15

Brem er Vulkan - System technik-N ord - A tlas Elektronik

WS, EL EL EL

100 n.a. 215

1300 710 474

39 75 59

15021 2441 4259

Rheinmetall - M AK System G esellschalt

0 ,1 V, OT

936

z

vO

vO

T able 1: continued R ank

R ank

1983

1991

A r m s tu rn

A r m s sh a r e

T otal

o v e r in 1991

o f tu r n -o v e r

e m p lo y m e n t

(M n D M )

(M n D M )

in 1991 (% )

1991

Mannesmann - Krauss-Maffei

V V

>0 1880

657 657

3 46

125188 5004

Lurssen

WS

279

640(a)

81(a)

1080(a)

10

HDW

ws

1000

490

42

4866

n.a.

n.a.

MAN

V, WS

n.a.

385

2

64170

n.a.

n.a.

Mainz Industries

V, O T

n.a.

350

100

2700

n.a.

n.a.

Dynamit Nobel

IOT

n.a.

320

18

8646(a)

n.a.

n.a.

Bosch

EL

n.a

250

1

181498

n.a.

n.a.

IABG

OT

n.a.

145

51

1650

n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a.

IWKA Knapp SEL Wegmann Rhode & Schwartz

0

n.a. n.a. n.a. n.a. n.a.

152 n.a. n.a. n.a. n.a.

8 n.a. n.a. n.a. n.a.

8539 n.a. n.a. n.a. n.a.

V

EL V

EL

(a) = data from 1990.

SIPRI company data bank; Grundmann and Matthies (1993). Arms products: A = aircrafts, E = engines, EL = electronics, H = helicopters, 1 = infantry weapons, M = missiles, O = ordnance, OT = others, V = vehicles, WS = war ships.

S o u r c e s:

IN TRA N SITIO N

16

DEFENCE TECHNOLOGY

11

A r m s tu rn o v e r in 198 3

EUROPEAN

n.a.

A rm s p r o d u c ts

C o r p o r a tio n

95

G ERM A NY

T able 2: The Ten Largest D efence Projects W e a p o n s y ste m

N u m b e r s p la n n e d

C o sts o f r e se a r c h a n d p r o c u r e m e n t (in b illio n D M )

Support Helicoptcr (UHU)

360

17

NATO Helicopter 90 (NH-90)

272

>10

Eurofighter 2000

140

>22

Air Independent Submarine

4

3.5

Frigate 124

4

3.5

Supplier EVG 702

2

0.5

Corvette

6

Tactical Air-Defence System (TVLS)

Reconnaissance Vehicle Zobcl

262

Modernisation of Leopard 2-tanks

252

M. Martin and P. Schafcr, ‘Die Bundcswchr als Instrument dcutschcr M achtprojektion’, Blatter fu r Deutsche und Internationale Politik, No. I (1994), p. 44; and various issues of Wehrdienst. S o u r c e s:

E xpenditures for military research and developm ent fell more slowly to a level o f DM 2.5 billion by 1993 (see Table 3). This figure com pares with a total o f approxim ately DM 80 billion for all research and developm ent in Germany. It should be noted that the reunification process has been associated with a relative increase o f the governm ental share o f R&D relative to private industry (OECD Science and Technology Statistics, 1993).

Policy Towards Defence and Dual-Use Technology Initially, the FRG relied on the private sector to carry out military R&D and did not create institutions w ithin the public dom ain. The m ilitary orders were believed to enhance the com petitiveness o f the Germ an m anufacturing sector. It would also have been a dem anding task to create a public research infrastructure w hile the defence bureaucracy itself was still in the process o f formation.

96

EUROPEAN D EFEN CE TEC H N O LO G Y IN TRA N SITION

T able 3: Developm ent of Certain Sections of the Einzelplan 14 (in billion DM) Year

E inzelplan 14

o f w hich ex p en ses on person nel

ex p en ses on investm ents

e x p en ses on p rocurem en t

exp en ses on research and technology

1985

48.872

20.616

16.640

11.605

2.461

1986

50.188

21.33

17.468

12.254

2.487

1987

51.089

22.009

17.383

11.970

2.812

1988

51.223

22.447

16.828

11.610

2.759

1989

52.524

23.116

17.093

11.367

3.030

1990

53.366

23.871

17.013

10.833

3.296

1991

53.605

26.825

14.420

9.115

3.055

1992

52.107

25.949

13.149

7.790

2.994

1993*

49.600

26.300

11.1

6.6

2.5

1994**

48.481

24.991

10.6

5.870

2.2

* preliminary information. ** planned outlays. Sou rces: Information supplied by the Ministry of Defence, 1992 and 1994.

A few sectors, aerospace in particular, were developed w ith massive gov­ ernm ent support and direct intervention. W hile proclaim ing straightforw ard m ar­ ket econom ics as its guiding principle, the M inistry o f Econom ics explained the interventionist policy practised in this sector in term s o f the lim ited num ber o f m anufacturers able to integrate system s, as well as the unique characteristics of the international market for large civilian aircraft. Another exam ple where the procurem ent o f military equipm ent served as an instrum ent o f interventionist econom ic policy, in this case stabilisation o f the shipbuilding industry in a specific region, was the construction o f a series o f frigates (F-122) which was spread across five different shipyards. The concentration o f the aerospace sector in 1989 under D aim ler Benz was only possible because the M inister o f Econom ics overruled a decision o f the Federal Cartel Office, which had opposed the m ergers on the grounds that they turned D aim ler Benz into the largest defence producer in Germany. The M oE argued that only the resolute leadership o f a globally-oriented com pany like

G ERM A NY

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D aim ler Benz would be capable o f correcting the profound deform ation o f the Germ an aerospace sector caused by three decades o f political intervention by federal and state (Lander) agents. D aim ler Benz was apparently seeking syner­ gies betw een the aerospace and autom otive sectors. G overnm ent Policy Statem ents on the Future o f the National Defence Technology Base In anticipation of sharp defence cuts, prelim inary studies on the future o f the German defence industry had begun as early as 1992. Five w orking groups were set up within official circles, with the aim of establishing the thresholds o f indis­ pensable industrial capacities needed in order to preserve the technological capa­ bilities of the different branches o f the defence sector. They aim ed first to reach provisional conclusions, and then to review these by the spring o f 1995. The five working groups focused on: (1) (2) (3) (4) (5)

tank construction aerospace and astronautics (m ilitary aircraft, helicopters, missiles) amm unition shipbuilding inform ation technology/electronics

A lthough the recom m endations w ere not officially published, they were leaked in a lobby new sletter at the end o f 1993 and again in the spring o f 1995. As m ight be expected o f a bureaucratic-industrial panel, the outcom e basically sought the preservation of the m inim um capacities across the whole spectrum o f military m anufacturing. The recom m endations covered a wide range o f issues: • • • • • •

further reduction and (cross-border, if necessary) concentration o f industry, together with reduced scope for com petition; restructuring of procurem ent by integrating the phases o f research and developm ent; reorganisation of program m e tim espans; introduction of support program m es; EC-based harm onisation o f regulations for the export o f arm am ents and their application; reasonable com pensation in the case o f foreign procurement.

Confronted with tight budgets for the foreseeable future, industry dem anded that the preservation of the key technological and econom ic areas o f arm am ent should becom e an integral part o f B undesw ehr planning. The defence indus­ try considered it indispensable to increase the proportion o f procurem ent

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EURO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITION

expenditure within the defence budget, while pursuing all possibilities to ratio­ nalise further and to seek additional support. All w orking groups concurred with the dem and to preserve national capabil­ ities for the developm ent and integration o f state-of-the-art w eapon systems and main sub-system s (system capability), and for the production o f critical com po­ nents (com ponent capability). According to the MoD, support for the m aintenance o f the national research and developm ent base is indispensable because (H eyden 1992, p. 13): •

• • •

•

•

The credibility and acceptability o f the national defence policy presupposes a capacity to contribute to the NATO defence technology base, and in par­ ticular to verification technology. There is an international consensus that active participation in the form ula­ tion o f security policy presupposes a sufficiently developed technology base. A dvancing G erm any’s security strategy also dem ands a sufficient scientific base for independent evaluation. The participation o f G ermany in cooperative developm ent and production involves risks that should be m inim ised by the use o f carefully tested com ­ ponents and modules. In order to im prove control o f time and costs, the early (m ore research-oriented) phase o f system design should be extended. In an environm ent of decreasing budgets, the grow ing com plexity o f future weapon system s will require international cooperation to start earlier, at the concept evaluation stage, as opposed to the present developm ent stage. The role o f research and technology during the present phase o f arms reduc­ tion is am bivalent. As technological capabilities are difficult to assess, only quantitative reductions can be relied upon. It is therefore o f increasing im portance to rely on the autonom ous ability o f a country to respond fast, and w ith flexibility, to changing scenarios w ith the appropriate defence technology.

Additionally the follow ing issues were em phasised by the MoD: • • • • •

m inim ising dependence on foreign countries; m inim ising the risk o f buying obsolete products; preservation o f national state-of-the-art technology; m aintaining sensitivity with respect to certain product areas; difficulties involved in the eventual reconstruction o f a particular industrial capacity once it had been abandoned.

The detailed list o f technological capabilities which the w orking groups con­ cluded should be maintained in the national domain is reproduced in Appendix 1.

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T his jo in t report o f M oD and the defence industrial sector reflects the tradi­ tional pattern o f m ilitary d e v elo p m en t and p ro cu rem en t policy. V irtually all basic fields o f technology are given priority, though it is questionable w hether all these capacities can in fact be m aintained, as the g o vernm ent has refused to support the defence sector in addition to placing norm al procurem ent contracts. T he 1ABG is a case in point. W hile the preservation o f this com pany w as co n ­ sidered to be in disp en sab le to an ind ep en d en t natio n al cap acity in system s analysis and risk evaluation in the field o f artillery, the governm ent nevertheless consented to its take-over by an A m erican com pany. At the sam e tim e, m ore radical thinking is also gaining ground. In 1993, the chairm an o f R heinm etall — a m ajor traditional arm s m anufacturer (sm ooth bore guns, m achine guns, anti-aircraft artillery) — gave a talk about developm ents in the field o f defen ce tech n o lo g y at the annual m eeting o f ‘W ehrtechnische G esellschaft’. H is view s o f the future o f defence technology reflect the interrela­ tionship betw een general econom ic developm ent, industrial innovation in p artic­ ular and m ilitary security. W hereas the M oD /defence industry prescriptions do not take account o f the industrial and econom ic param eters o f future defence production, this m anager attem pted to draw a realistic picture o f the d ev elo p ­ m ent o f the defence industry, saying: A n im p o rta n t e le m e n t o f the d e fe n c e in d u stry w ith in the n ew fra m e w o rk se e m s to b e th e d e s ig n o f p ro d u c tio n fo r the fu tu re e q u ip m e n t o f the arm y. I am ta lk in g ab o u t th e in ten sity o f a rm a m e n t s p e ­ c ia lisa tio n c o n c e rn in g the stru c tu re o f p ro d u c tio n o f d e fe n c e m a teriel. A s far as I am c o n c e rn e d , w e h ad a lread y reac h ed the p o in t fro m w h en ce e x p e n d itu re s in tim e an d m o n e y — c o m p a tib le w ith s u c ­ ce ss — fo r th e d ev e lo p m e n t o f d e fe n c e m a teriel w ere no lo n g e r a p p ro p riate. W e h av e a sk e d o u rse lv e s for m a n y y e a rs w hy, for e x a m p le , e le c tro n ic gun fire -c o n tro l e q u ip m e n t h ad to b e d e v e lo p e d an e w w h en s ta te -o f-th e -a rt e q u ip m e n t u sefu l fo r th is p u rp o se is alre a d y d e v e lo p e d by th e c iv il in d u stry . ... If the d e fe n c e in d u stry in te n d s to sta y c o m p e titiv e , s u p p ly in g th e a rm y a g a in s t th e b a c k g ro u n d o f a d e c re a s in g b u d g et, the a p p ro p ria te stra te g y w o u ld be to cu t b ac k th e in te n sity o f a rm a m e n t s p e c ia l­ isa tio n o f the p ro d u c ts in o rd e r to re d u c e th e re q u ire m e n ts fo r d e v e lo p m e n t an d to lo w e r th e c o s ts o f p ro d u ctio n . In th e fu tu re , th e p ro p o rtio n o f c iv il c o m p o n e n ts u sed fo r d e fe n c e m a te rie l h a s to b e m a rk e d ly in c re a se d . O n ly th e le v el o f p ro d u c t in te g ra tio n s h o u ld be m ilita ris e d ... ... L o o k in g at the p ro b le m fro m a te c h n o lo g ic a l p o in t o f view , the fact th a t s p in -in s fro m th e civ il in d u stry a lre a d y o u tw e ig h s p in -o ffs fro m th e d e fe n c e in d u stry sh o w s th e stra te g y o f le ss e n in g the in te n sity o f s p e c ia lisa tio n o f a rm a m e n t p ro d u c ts to be re a listic . ... S c ie n tists in th e d e fe n c e in d u stry w ill h av e to c o n c e n tra te h ard on c rea tin g n ew sy ste m s b y red u c­ in g the in te n sity o f d e fe n c e sp e c ia lisa tio n o f the p ro d u c t.’ (M a n u s c rip t o f th e sp e e c h )

W hile there is hardly any com m onality betw een the proposals o f the five w ork­ ing groups and this view by a defence industry m anager, it seem s certain that the severe financial drain o f G erm an reunification will influence political decisions

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towards more econom ical forms of defence procurem ent in the way the defence m anager suggested, rather than by follow ing the m aximal dem ands o f the MoD w orking groups. A selective approach concerning the preservation o f capacities is inevitable. Priorities are not likely to be chosen on a strategic basis; rather, case by case decisions will lead to an implicit selection. Budgetary Trends The strategy o f using, for military purposes, technologies which em erge from civilian activity was already part o f the ‘Research and Technology Program m e’ (RTP), initiated by the current conservative-liberal governm ent as early as 1985. T his strategy is based on recom m endations by the ‘Com m ission for the Long­ term Planning o f the Armed Forces’ (K om m ission fiir die Langzeitplanung der B undesw ehr). W ithin the fram ew ork o f the P lanning C oncept o f the A rmed Forces, the RTP is produced, with the aim, inter a lia, o f guaranteeing that tech­ nological developm ents in civilian areas are also considered for military pur­ poses. The RTP is form ulated in joint w orking groups o f the service branches and the Armam ents Division. R&D targets are discussed in detail with industry and m ilitary-oriented research institutes. Only after these extensive deliberations are research projects proposed to the Secretary o f D efence for approval. The RTP is evaluated and updated every year. This procedure ensures that in accordance with changes o f military concepts, any necessary reorientation of the developm ent o f advanced defence technology is integrated into the planning process ( Wehrtechnik no. 12/1990, p. 81). T his new em phasis is reflected in the defence budget. In 1991, DM 766.2 million were divided between: • • •

the field o f ‘m ilitary research ’ (W ehriechnische Forschung) with DM 265 million; a sub-section called ‘technology o f the future’ with DM 324.5 million; and ‘systems technology’ with DM 176.4 million.

In 1993, the plan for the A rmed Forces made provision for research funding to rise steadily from DM 550 m illion in 1993 to DM 690 m illion in 1999 ( Wehrdiensi No. 1304, p. 2). Because, however, o f substantial changes in the M oD ’s planning procedures, these numbers give only a rough indication o f the future volum e o f defence research. The broader context o f these trends is that, from 1987, the budget for defence research and technology began to decrease, with the cuts falling mainly on the industrial contractors. By 1991, the volume o f contracts aw arded annually to industry had fallen nom inally by DM 172 m illion com pared to 1987, and

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its share o f all m ilitary R & D contracts from 49% to 43% (H eyden, op. cited, p. 14). T he m ilitary oriented research institutes fared slightly b etter and at least saw their relative share increasing. In the ‘B u ndcsw eh rp lan u n g ’ 1993, freezing the budgets at current prices (thereby m aking red u ctio n s in real term s) estab lish ed a new trend. T hus, the research institutes D eu tsch e F o rsch u n g san stalt fiir L uft-und R aum fahrt, F rau n h o fer G esellsch aft, F o rsch u n g sg esellsch aft fiir A ng ew an d te N aturw issenschaften and the F ran co -G erm an Institut St. L ouis w ere set to receive DM 203 m illion in 1993, and DM 202 m illion in the years to follow. T h is financial stag n atio n has en tailed a red u ctio n o f personnel at these institutes. T he F raunhofer Institut fur an g ew andte M aterialforschung has been tran sferred from the M oD to the B M F T (F ed eral M inistry o f R esearch and T echnology) w ith a c o n cu rren t red u ctio n in p erso nn el. A n o th er F rau n h o fer In stitu t sp ecialisin g in h y d ro -aco u stics w as clo sed dow n in 1993. F u rth er drastic personnel reductions are under consideration, especially at institutes in G ottingen (D FL R /aerodynam ics), B raunschw eig (D FL R /aerospace) and Freiburg (FhG /E rnst-M ach-Institut).

D evelopm ents in Institutions T he apparent im pact o f the on-going reorientation o f m ilitary policy on research policy, particularly as regards dual-use technology, is m inim al. T he project o ri­ entation o f m ilitary research in G erm any has, how ever, put the various institu­ tions on perm anent alert to look for new pro jects, eith e r m ilitary or civilian (B urton/H ansen 1993, p. 37). T he approach taken by the T Z N research and technology centre in Low er Saxony (T echnologiezentrum N ord), created in 1986, is an exam ple o f such a strategy. O fficially, the T ZN is a jo in t initiative by the state o f L ow er Saxony and R heinm etall. L ow er S ax o n y ’s contribution to the foundation o f the ‘highte c h ’ institute w as a DM 100 m illion loan. A dditionally, local com panies have form ed a society in support o f the TZN . T Z N , situated next to the prem ises o f R heinm etall in UnterluG, received adm inistrative support from the com pany. In m id -1992, T Z N had 86 em ployees, w orking on sensors, lasers, m icro electro n ics, test and installatio n m ethods, com puter-aided sim ulation and com puter netw orks. T he contracts T ZN secured in 1990 and 1991 w ere h alf m ilitary, h alf c iv il­ ian. T he proclaim ed aim o f the institute is to achieve a 2:1 ratio in favour o f civilian orders, w ith the focus on aerospace and astronautics, robots, production autom atisation and conservation technology. R heinm etall m anagers have stated, how ever, that progress tow ards d iv ersificatio n has been m uch slo w er than expected, mainly, they suggest, because o f the econom ic recession.

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P articip ation in Intern ation al C ollab orative D efence R esearch P rojects The G overnm ent o f the FR G has alw ays em phasised the need for international cooperation am ong the countries o f both W estern E urope and N orth A m erica in the developm ent and p roduction o f arm s. O v er 70% (o r DM 4 billion) o f its m ain p ro jects are based on in tern ation al c o o p eratio n , (letter from the M oD , 4 M arch 1993). T hus, the 1985 D efence W hite P aper form ulated the goals o f ‘political, m ilitary, econom ic and tech n o lo g ical’ cooperation as follow s (W hite P aper 1985, pp. 3 6 0 -3 6 1 ): T h e p o litic a l aim is th e still c lo s e r in te g ra tio n o f the (N A T O ) A llia n c e . . . T h e m ilita ry aim is th e s ta n d a rd is a tio n o f e q u ip m e n t a n d p ro c e d u re s. W h e re s ta n d a rd is a tio n c a n n o t b e a tta in e d , th e m e m b e r sta te s s h o u ld at least aim at in te ro p e ra b ility o f e q u ip m e n t. T h e e c o n o m ic a im is to m a k e m o re e f f e c ­ tiv e use o f n atio n al p u b lic fu n d s fo r d e f e n c e ... T h e te c h n o lo g ic a l a im is an in c re a s e d e x c h a n g e o f te c h n o lo g ic a l a n d sc ie n tific k n o w -h o w . T h is in te rc h a n g e o f e x p e rie n c e an d k n o w le d g e in c re a s e s th e c a p a b ility o f n atio n al in d u s trie s , a s m ilitary sy ste m s a rc te c h n o lo g ic a lly m o st d e m a n d in g d ev ices.

In addition, efforts to achieve intensified international com petition (such as the initiatives o f the IE PG ) have been consistently supported by the FRG.

M ajor Intern ational C orp orate J o in t Ventures G iven the size o f the US arm s m arket in contrast to the ‘sm all’ and nationally fragm ented W estern E uropean m arkets, the large G erm an m anufacturers give priority to the creation o f large, transnationally operating units capable o f facing the A m erican com petition. O nly a single consolidated E uropean procurem ent m arket will secure the conditions w hich w ould stim ulate the restructuring and rationalisation o f the E uropean arm s industries, they contend. T hus, the then chairm an o f D A SA , and later chairm an o f D aim ler B enz, has called for the fo r­ m ulation o f a jo in t E uropean export policy, and the com pletion o f the p rivatisa­ tion o f state-ow ned or state-controlled d efence industries as a p rerequisite for the form ation o f enterprise alliances and transnational groups in defence produc­ tion (S chrem pp 1994). G erm an defence firm s co n sid er them selves equal to their W est E uropean counterparts and, in certain product ranges, even superior. The use o f G erm an engines and gear boxes for the Leclerc tank and naval shipbuilding are exam ples o f particu lar technolo g ical ex cellen ce. In dustry co n stan tly c riticises G erm an export regulations for discrim inating against G erm an m anufacturers. F urtherm ore, the dom inant m anufacturers pursue a strategy o f focusing on certain product ranges, and being prepared to shed others. The tran sfer o f its

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helicopter developm ent capability to Aerospatiale illustrates this approach by DASA. The emerging global alliance to build a ‘very large commercial transport aircraft’ confirms the corporate long-term strategy. At the same time, though, DASA has lobbied jointly with other European companies for the funding of the military future large aircraft (FLA) (Schrempp 1994). In the FRG, military technology is mostly incorporated into the general innovation system. This explains why so few changes have been made thus far to adjust the system of military development and procurement to the new postCold War scenario. It may, however, also be the case that the MoD is too weak to impose fast and far-reaching changes against the vested company and regional interests. So far, the MoD appears to be geared towards ‘a preservation of exist­ ing structures’, although it is safe to predict that the financial situation in Germany will generate a transformation of the defence industrial sector towards further specialisation, and increasingly, the adoption of dual-use technologies. While the defence industry seems set for an aggressive European strategy, all serious political attention to far-reaching decisions was suspended for a period prior to the 1994 parliam entary election. It was noticeable during the election campaign that there was no significant opposition to the C hancellor’s pledge concerning stability in the defence budget. Since the election, the opposi­ tion has been in agreement with the government regarding appropriate and sta­ ble defence expenditures.

Policy Towards Conversion Past Experience The political and analytical debate about the restructuring of defence resources reached its climax in the mid-1980s (Grundmann/Matthies, 1993, p. 12). One part o f the debate focused on the situation o f the work force in the defence industry. Declining defence orders had begun to threaten the traditional job secu­ rity in the sector. Conversion was conceived as a formula to mitigate the nega­ tive employment consequences o f procurement cycles, to reduce the pressure from the industry for an expansion o f arms exports, and to compensate for the reduction of defence orders following the emerging conclusion o f arms control agreements. The discussion was also oriented towards qualitative concepts o f economic developm ent. The social utility o f potential alternative production became a focus of discussion. The resources tied to the production o f armaments were to be transferred to areas o f social deficit, such as social and environmental pro­ grammes, as well as foreign aid. Alternative non-military production was not to

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be oriented tow ards existing civilian m arkets, but to satisfy social and ecological needs. In a num ber o f enterprises, u n ion-oriented em ployees established task forces for the developm ent o f alternative production, m odelled on the initiative by shop stew ards o f L ucas A erospace in the UK. S hort-term interests at the en terp rise level w ere to be replaced by a long­ term orientation tow ards social and global interests. H ow ever, the supporters o f this strategy w ere unable to con v ert their preferences into operational concepts eith er at the en terp rise level o r through the political process. F inancial co n ­ straints and other claim s on public funds prevailed, and the federal governm ent refused even to launch a pilot program m e for conversion. Political pressure in favour o f conversion cam e m ainly from the unions and, in a broader sense, from a left-w ing, union-oriented and peace-com m itted p u b ­ lic. Politicians at the federal level and com pany m anagem ent hardly reacted to the pressure from below because they either rem ained com m itted to the continu­ ity o f the C old W ar pattern (a perception greatly reinforced by the arm s drive o f the R eagan adm in istratio n ) or w ere co m m itted to co rp o rate d iv ersificatio n w ithin the prevailing m arket stru ctu res, as o p p o sed to a potential m ark et o f politically-regulated dem and. A s a consequence, the federal governm ent w as not prepared to define an ex plicit policy on restru ctu rin g the reso u rces o f the defence industry: T h e fed era l g o v e rn m e n t n e ith e r can no r w an ts to a s s u m e re s p o n s ib ility fo r the d e fe n c e in d u stry . It trie s to k ee p in d isp e n sa b le d e fe n c e c a p a c itie s c o n tin u o u s ly e m p lo y e d , alth o u g h it is u n a b le to g iv e an y g u a ra n te e on e m p lo y m e n t an d o rd e rs. T h is ca n a lso be a p p lie d to e s s e n tia l c h a n g e s o f stru ctu re an d siz e o f d e fe n c e c a p a c itie s that resu lt fro m v ary in g p rio ritie s o f the B u n d e s w e h r p la n n in g , p u ttin g in c re a s in g stre s s on e sse n tia l p arts o f sy ste m s like a m m u n itio n an d c o m m a n d sy ste m s (W h ite P a p e r 1985, p. 369).

The disarm am ent processes betw een 1990 and 1992 significantly changed the situation. The question o f defence restructuring reappeared inescapably on the public agenda. B ut this tim e, the sp ectru m o f d iscussion w as m uch broader. T he dram atic reductio n s o f troops statio n ed in G erm any created profound econom ic problem s at regional levels. H ow ever, the ensuing debate focused on the closure o f bases, and did not give co m parable attention to the problem o f converting industrial plants.

C urrent G overnm ent P olicy T ow ards Industrial C onversion A fter the end o f the C old War, several reports on the defence industrial sector concluded that disarm am en t, defen ce cuts, and in dustrial co nversion did not pose serious challen g es for G e rm an y ’s industrial econom y. C o m pared to the

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U SA , the UK and F rance, G erm an com panies have generally been less d epen­ dent on m ilitary spending. For exam ple, the IF O -Institute for econom ic research in M unich rejected the idea o f a nation-w ide program m e for conversion in its report P roduktion von W ehrgutern in d e r B u n d esrep u b lik D eu tsch la n d (IFO 1991) for the M inistry o f E conom ics. A ccording to the IFO: S in c c th e re is no re s is ta n c e to e x p e c t e ith e r at the n atio n al e c o n o m ic , o r at th e s e c to ra l le v el th at co u ld p o s sib ly o v e rta x the m e c h a n ism o f free e n te rp ris e a d a p ta tio n , th e re is no n e e d fo r g o v e rn m e n ­ tal s u p p o rt o f the d e fe n c e in d u stry . R e g io n s b e in g a ffe c te d by la rg e -sc a le d is m iss a ls a re e n title d to d ra w o n s u p p o rt fro m re g io n a l e c o n o m ic p ro g ra m m e s , a s w e ll as on re s o u rc e s p ro v id e d b y th e L aw o n E m p lo y m e n t P ro m o tio n .

W hile the Federal G overnm ent concurred w ith the IF O ’s position, those Lander mostly affected by the reduction o f troops and defence orders dem anded that a program m e o f support be launched by the Federal G overnm ent. Thus, the issue o f conversion w as discussed at the level o f the Fachm inister, both from the Lander and the Federal G overnm ent, w ithin the fram ew ork o f the C onference o f the M inistries o f Econom ics in 1991. A greem ent on a basic com m itm ent for a region­ ally and structurally oriented program m e for conversion was achieved. H ow ever there are m ajor disagreem ents am ong the L ander, and betw een the Federal G overnm ent and the Lander, concerning the time fram e, the criteria for applicabil­ ity o f the program m e, and w ho was to pay for it, which rem ain unresolved. In D ecem ber 1991, the issue w as w ithdraw n from the ag en d a o f the Fachm inister conferences, and resolved instead through the m echanism o f m edi­ ation betw een the L ander and the Federal G overnm ent o v er the distribution o f tax revenue in 1992. In practical term s, this m eant that the funds w ere to be d is­ tributed in order to cope w ith a broad range o f problem s. R estructuring o f the defence industry w as clearly not a top priority. Som e L ander d ecid ed to institute th eir ow n schem es. O ne such was Brem en, one o f the m ajor centres o f the defence industry in G erm any. F or cen ­ turies, the Free H anseatic C ity o f B rem en has served as an international port and a centre for all types o f shipb u ild in g . N aval sh ip b u ild in g p rom oted the grow th o f a m aritim e and naval electronics sector through upstream linkages. T he local aircraft industry is also partly m ilitary. In 1990, about 13,000 jo b s w ere directly o r in d irectly d ep en d en t on defen ce o rders (alm o st 14% o f all industrial jo b s in B rem en). S om e co m p an ies w ere as m uch as 75% defence d ep en d en t (BA W 1990, 1991; and E isner 1993). A ccording to EEC data, B rem en is the third hig h est D efence In dustry D epen d en t R egion in w estern E urope, behind the UK regions o f C um bria and Essex (EEC 1992). To com plicate m atters further, the B rem en econom y is structurally w eak, even ap art from the defen ce industry. T his is b ecau se o f stru ctu ral shocks,

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mainly in shipbuilding, fisheries and steel, in the 1970s and 1980s. For example, in the shipbuilding sector, the w ork force decreased from 21,000 in 1975 to about 6,500 by 1992. The decline o f the shipbuilding sector initiated an on­ going debate on regional restructuring. D efence conversion is therefore but one aspect in this discourse. B rem en’s state governm ent com m issioned a study which produced A Report on the C onsequence o f D em ilitarisation fo r Bremen a n d on Possible Actions (BAW 1991). This report concluded that 4,500 industrial jobs were in danger from procurem ent cuts expected through 1996, constituting one in three o f the region’s defence jobs. Since the regional econom y could not offer alternative em ploym ent the report recom m ended conversion within the existing facilities. The State o f Brem en initiated and coordinated discussions among experts, the public, com panies and unions. As a result, a state conversion programme, an integral part o f a com prehensive econom ic policy program m e for the region, was approved by the state parliam ent in 1992. The prim e objectives were supplying subsidies for pilot projects in defence-oriented enterprises and for conversion investm ent, providing risk capital for new ly founded firm s, and developing the R&D infrastructure in Bremen. A regional conversion fund was established in 1993 w ith alm ost DM 10 million, including a contribution from the EU PERIFRA programme. Bremen planned to spend DM 10 million in 1994 and in 1995; DM 15 million were ear­ marked for 1996. The long-term plan proposes annual increases o f the conver­ sion fund until the year 2004. A further contribution to this strategy arises from B rem en’s success in being funded by the EU KONVER program m e until 1998, to the tune o f DM 18 million. Each com pany applying for conversion subsidies is requested to subm it a corporate m edium -term conversion plan, containing articulated goals for reducing defence dependence, for transform ing specific military know-how into civilian know -how , and for training em ployees to m eet future civil m arket requirem ents. The program m e is coordinated by a C om m issioner for C on­ version, supported and reviewed by a w ide-ranging advisory comm ittee. This conversion program m e com bines an econom ically acceptable restruc­ turing fram ew ork with transparency, cooperation and political participation. U sing these m easures, it appears feasible to overcom e am biguous short-run ‘m arket’ signals, as well as to support calculated and coordinated projects which speed the necessary transform ation o f industry, in a way that reduces the risk of further jo b losses. In contrast to the situation in Bremen, the labour market in other Lander is more affected by the reduction o f troops and the closure o f m ilitary bases. Therefore the em phasis o f conversion program m es elsew here is on reinforcing the regional economy, and not the support o f specific industrial enterprises.

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In som e o f the L ander, defence enterprises receive support from fo u n d a­ tions created to prom ote technological innovation. In som e cases the F raunhofer G esellschaft is involved in adv isin g on restru ctu rin g, and m any regional and local authorities offer the services o f technology transfer departm ents. A p articu­ larly interesting case is the technology foundation in S chlesw ig-H olstein created in 1992. T he sale o f g o v ern m en t sh ares o f H DW , a m ajo r ship y ard in Kiel engaging in naval production, provided the funds. T he aim s o f the foundation explicitly include the support o f enterprises en gaged in converting th eir m ilitary production. Som e success stories o f sm all enterp rises are attributed to the sup­ port the foundation gave in dow n-stream fields like m arket exploration, product selection and m arketing. M ention o f these activities should not obscure the fact that very little g o v ­ ernm ent subsidy is available for these conversion program m es, and the co m p a­ nies concerned have to rely m ainly on th eir ow n resources.

Controlling the Diffusion of Defence Technologies A rm s exports have long been a politically sensitive issue in G erm any. A rticle 26 o f the B asic Law reflects G erm an history, and tries to draw lessons from G erm any’s role in tw o w orld w ars. In the early post-second w orld w ar years, all activities relating to G erm an production and sale o f arm am ents w ere controlled by the A llied H igh C om m ission. In tim e, how ever, G erm any b ecam e a full m em ber o f all the m ajor arm s e x p o rt co n tro l regim es. T he L aw on F oreign E conom ic R elations (A ussenw irtschaftsgesetz — AW G) o f 1961 served to regu­ late foreign trade, p articu larly u n d er the C O C O M agreem en ts. A reg u latio n appended to the law (A ussenw irtschaftsverordnung — AW V) contains a list o f com m odities covering w eapons o f w ar and strategic goods w hich the govern­ m ent had pledged to control under the C O C O M agreem ents. T he early controls im posed upon it m eant that the G erm an defence industry w as never allow ed to com pete fully in the A rab oil-producing countries, even though K uw ait w as a m ajor shareholder in, am ong others, D aim ler Benz (about 10%). A special relationship with Israel largely confined the G erm an role in Arab countries to co-production, where the partner nation nominally figured as exporter. A s industrial pressure for a free hand in arm s exports began to m ount, the governm ent chose to grant export licences by stretching its ow n regulations to extrem es. A fter the global crisis in sh ip b u ild in g in 1975, the gov ern m en t decided to license virtually all naval exports (although a large T aiw anese naval order w as denied by the governm ent, strategic trade interests in C hina having p revailed). E ven clearly ag g ressiv e d ictato rsh ip s becam e e lig ib le for naval exports. C om m entin g on one such fav o u rab le d ecisio n , a Social D em ocrat

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M inister o f Defence argued that at least subm arines could not be used against dom estic opposition parties. In trying to accom m odate the increasing pressure arising from an arm s industry that was suffering from cyclical procurem ent and a lack o f entrepre­ neurial initiative, as well as a politically vocal peace-oriented general public, the Liberal/Social D em ocrat governm ent form ulated and published new guide­ lines for the export o f arm am ents in 1982. The successor C onservative govern­ m ent m aintained these guidelines. The governm ent also relinquished its veto against exports in all cooperative production schem es within NATO, insisting only that recipients o f Germ an w eapons outside NATO should not be in an ‘area of tension’, a criterion that turned out to be o f lim ited significance in practice. The export o f defence technology as such has never been particularly im portant to the Germ an economy, in sharp contrast to exports o f machine tools and construction o f industrial installations abroad. In practice, therefore, recent years have seen the export of, in effect, dual use capabilities that have been used to develop arm s capabilities. Successive G erm an governm ents failed to exert diligent controls and accepted most civilian applications stated in the licence applications at face value. Germ any hence became the preferred supplier o f any country that aspired to establish its ow n arm s industry (like Libya, Iran and Iraq), o r (like South A frica) was under an mandatory arms embargo. These practices cam e under political scrutiny only after the delivery o f a poison gas factory was discovered in Libya, at the sam e time as disclosures concerning the export o f sensitive technology to Iraq. Faced w ith these events, a major review was undertaken of the law to control weapons o f war (K riegsw affenkontrollgesetz). In general, the governm ent showed an unprece­ dented eagerness to support all international control regimes. M ost significantly, a list was appended to the law, with a set o f countries whose trade would be monitored with particular care. Exporters are now required to make a declaration that, to the best o f their knowledge, the exported item will not be used for ‘the establishm ent or the oper­ ation o f an installation for the exclusive or partial manufacture, m odernisation or servicing o f weapons, munition or military m ateriel’. In addition, the m anage­ ment is held legally responsible for all export activities concerning its com pany; courts do not have to prove its active involvement. This clause is a reaction to the increased sophistication o f potential buyers o f sensitive technology who try to disguise their aim by deliberately splitting their orders. The participation of G erm an specialists in w eapons production and m issile projects outside the OECD countries was also brought under the export controls. The AWG and AWV now provide tighter controls over the final destination of com m odities w ith respect to both export and im port. (Im ports also cam e

G ER M A N Y

109

under scrutiny because G erm any w as found to have served as a tran sit country for sensitive transfers: a case in point w as heavy w ater from N orw ay to India in the 1960s). T he requirem ents o f the various international regim es w ere trans­ lated into different lists o f co m m o d ities w hich require a licence. E ven w hen C O C O M reached a consensus to reduce considerably the list o f items to be m on­ itored o r excluded from export to form er C om m unist countries, the G erm an g o v ­ ernm ent did not correspondingly reduce the lists o f the AW V because, by then, the geographical focus o f trade to be m onitored had shifted. Politically, therefo re, the g o v ern m en t has in recen t years d isp lay ed an unprecedented resolve to bring sensitive trade under control. The export control ad m inistration has been restru ctu red and its p ersonnel tripled, the cu sto m s authorities have been reinforced, and the protection o f personal privacy can now be tem porarily lifted if there is reason to suspect an infringem ent o f export reg u ­ lations. N evertheless, the vigorous export orientation o f G erm an m anufacturing industry m ust be recalled in o rd er to put these controls into perspective. The control o f exports is a truly H erculean task, w ith 18 m illion separate transactions to be m onitored annually. G erm an export controls today, in com parison to their state at the end o f the G u lf War, have im proved considerably. G iven the profound dam age to the im age o f G erm an industry w hich the sp ectacu lar cases o f illegal exports o f m ilitary technology for the m anufacture o f w eapons o f m ass destruction had caused, there was initially a broad consensus, including the pow erful A ssociation o f G erm an Industrialists (B D I), that the inconvenience and com m ercial d isadvantages of strengthening export controls w as in the best interest o f all parties involved. M ore recently, how ever, in d ustry has begun to lobby for a reduction o f existing controls, claim ing that present G erm an practice seriously disadvantages both G erm an exports and the in tern atio n al co o p erativ e p rospects o f G erm an com panies. T he strong national consensus behind the tightening o f controls had perhaps been helped by the expectation o f the arm s industry that the integrated E uropean m arket w ould soon com e into effect, prov id in g less strin g en t E uropean export controls. D uring 1993, it becam e evident that a E uropean solu­ tion w ould take som e tim e to evolve and that its likely configuration w ould pose problem s for the special situation o f G erm any. T he continuation o f the tightened G erm an controls has led to the arm s industry resum ing its criticism s o f them . T he cam paign o f the A ssociation o f G erm an Industrialists, and the arm s industry, has prom pted rapid g o v ern m en t action. T he g o v ern m en t d ecreed a reduction in the list o f sensitive co untries to tw enty countries, w ith a further reduction to only eight or nine projected for the spring o f 1995. H ence, w hile on paper the regulations continue to look tight, their geographical scope is in the process o f being considerably reduced.

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This outcom e suggests that the dichotomy reflected in G erm any’s post-war foreign economic policy between Article 26 o f the Basic Law, which embodies G erm any’s political role in the first half o f the century, and the free trade philoso­ phy pressed by specific industrial interests, is shifting away from ‘moral’ restraints on exports. Reunification may have tipped the balance. On the other hand, we should also note that, in comparison with Britain, the structure o f German industry as a whole gives military-industrial interests a more limited voice. If the defence sector does follow the path o f the rapidly globalising civilian industry, the leading G erm an players in the global econom y can be expected to exert pressure for abandoning G erm any’s historical position in this field. Thus, we may hypothesise that the strong pressure o f the BDI anticipates the rapidly increasing share o f civilian com ponents in the total o f value added in future military production as well as the ensuing internationalisation o f military m anu­ facturing. The Japanese, for exam ple, do not export weapons, yet their products are em bodied in every modern weapon system produced in the United States, a position that Germ an players in the global econom y would like to emulate.

The German Arms Industry in a European Context H arsh political decisions (including the decision over procurem ent o f the EF 2000) were postponed until 1995 and the assum ption o f office by the new gov­ ernm ent, and even then not all were decisively resolved. The European political context will have a m ajor im pact on these decisions or, to put the point con­ versely, these decisions will be a test o f the viability o f continued political inte­ gration o f Europe. Several mutually exclusive scenarios have their respective lobbies. Some scenarios require the renewed creation o f an ideological consensus as a neces­ sary precondition for increasing defence expenditures considerably. A nother option, in order not to depend on superior American military technology, would be to introduce a European-w ide ‘peace tax ’ (rather than a peace dividend). Pre1995 French budgetary decisions heralded this option, though Europe as a whole moved in the opposite direction. O ther options require a new geo-strategic orientation, aim ing at integrating Eastern Europe, including Russia, into the European com m onwealth o f dem o­ cratic and highly industrialised nations. This option presupposes an integration o f the m ilitary-industrial and research and developm ent capacities o f Russia and Western Europe. For the time being, this is beyond the horizon o f the establish­ ments entrenched in the German M oD and defence industries. N either are the relevant actors in Russia mentally prepared to envision such an option. All other

GERM ANY

111

options involve confrontation and renew ed arm am ents developm ent, production and m arketing, possibly even less regulated than during the C old War. In the absence o f a broad new pro-defence consensus in Western Europe, the econom ic realities are likely to im pose profound and deeply unw elcom e changes onto the dom inant national defence establishm ents. The relentless glob­ alisation o f production and markets is rapidly taking root in Eastern Europe as well. The German economy, being more directly exposed than other industrial nations, is likely to spearhead such developm ents. It is a difficult task, though, given the historical apprehension o f its neighbours, especially concerning Germ an relations with Russia. Though the agenda of procurem ent issues still reflects bureaucratic inertia and projects launched years ago, the Eurofighter being the most visible example, the future European defence equation will emerge in the context o f these new political and geo-strategic options involving hitherto unknown complexities. The future course o f the German defence industry and its stance tow ards interna­ tional cooperation will be an im portant elem ent in this equation. The rhetoric o f integration, cooperation, co-production, and interoperability has dominated the discussion for at least two decades within NATO, and more recently within the revived WEU as well. The institutional web o f intended coop­ eration contrasts with the reality o f entrenched national military-industrial inter­ ests, which have successfully fended o ff rationalisation, internationalisation, division o f labour, and the form ulation o f a European m ilitary doctrine. As a result, there are few viable transnational corporations capable o f generating civilmilitary synergies, and o f assimilating the huge potential o f civilian innovations into weapon systems and their manufacture. The European defence industry is still not part of the thriving global networks which dominate the civilian economy. The first m anifestations o f rapid restructuring have, how ever, begun to emerge in Germany. N owhere else in Europe is the defence industry quite as integrated into the dynam ics o f the global civilian markets. M oreover, R ussia’s econom y with its over-sized m ilitary-industrial com plex is about to enter the global stage, yet R ussia’s com parative advantages are already being integrated into the global production netw orks o f corporations like D aim ler B enz and Siem ens. Given, finally, the change o f technological paradigm , whereby civilian industry sets the pace o f technological innovation, will a strict separation of civilian and m ilitary activities still be a viable strategy w ithin the production networks of these large global corporations, o f the type which now controls the core o f the defence industry in G erm any? W hatever the preferences o f the industrial actors involved, it is unlikely, that G erm any can pursue a scenario of its own liking. The burden o f history lim its the param eters o f independent G erm an action w ithout creating severe

112

EU R O PEA N D EFEN CE TECH N O LO G Y IN T RA N SITIO N

dissonance am ong its W estern partners. Here, however, our analysis would have to return to the structural differences at both governm ental and industrial levels that bedevil attem pts at integration o f the European defence sector. How this European quagm ire o f contradictory defence-industrial interests will eventually evolve is difficult to predict. Radical changes are in the offing, but their pace and direction w ill result from a com plex political equation, as entrenched actors attem pt to pursue their own interests in the guise o f national interest.

Appendix Key Technology Areas The follow ing areas were listed by the w orking groups o f the M oD as potential national preserves to be protected by future defence planning (cited in: Wehrdienst no. 49, 6.12. 1993, p. 2): Working Group on the Construction o f Tanks -

tank protection tracks and suspensions hull and turret

Working Group on Cannons and Am m unition tank cannons and ordnance autom atic guns am m unition o f tanks and artillery sm art am m unition for cannons propellants anti-personnel and anti-tank mines sm oke and decoy m ines/am m unition Working Group on Aerospace and Astronautics/M ilitary Aircraft ♦system m anagem ent firms -

capability o f realising research in the field o f definition and develop­ ment in a cooperative m anner physics o f aviation, friend-foe-identification highly stressed, highly integrated and camouflage constructions (stealth) landing gear and integration, hydraulics

GERMANY

113

*engine construction firms -

capability of realising cooperative research in the field of definition and development development o f components engine control systems testing

*key areas of equipment -

flight control and engine control systems process data computer including software communications, navigation displays mission avionics

W orking G roup on A erospace a n d A stronautics/D rones

*systcm management firms -

capability of realising cooperative research in the field of definition and development carrier and airframe technology air navigation processing sensor data and information, transmission of information, mission planning test and flight experiments

*equipment industry FLIR, static-free data transfer, radar warhead engine, gyropilot Working G roup on A erospace a n d A stronautics/H elicopters

-

development of high technology components (for instance, rotor and rotor control) verification through simulation projects

Working Group on M issiles

homing warheads radar homing warheads

114

-

EURO PEA N D EFEN CE T EC H N O LO G Y IN TRA N SITIO N

infrared homing warheads com bination o f fuse/w arheads engine

Working Group on N aval Shipbuilding/N aval Technology -

-

anti-ship w arfare, air defence and anti-subm arine warfare with sensors and data processing dissim ulation through signature m anagem ent and air independent propulsion anti-m ine sensors, anti-m ine sim ulation and clearing technology as well as rem ote control and data transm ission technology used by anti-m ine drones task and cost optim ised platform s and their com ponents reconnaissance instrum ents, signal intelligence and code instrum ents, ECM installations and databases

Working G roup on Inform ation Technology/Electronics * data processing/inform ation systems -

com m and inform ation systems com bat and operational weapon systems com bat com m and technology sim ulation technology

* com m unications technology com m unication networks radio cryptography navigation (except aeronautical navigation) identification * reconnaissance technology/fire control technology

-

radar technology optronics/optics other sensor technologies (m ulti-sensors, sonar technology)

* electronic warfare signal intelligence electronic counterm easures supportive measures

G ERM ANY

115

References A rbeitsgem einschaft S chiffbau/IG M etall, 1993, B ezirk Kiiste, K urzfassung der V SM -Studie R oland B erger & P artner G m bH , P erspektiven der W ettbewerbsfahigkeit der deutschen Schiffbauindustrie, Hamburg. BAW 1990: H einrich G raber and G erd Voss: ‘Z ur Riistungsabhangigkeit des Landes Brem en: A nalyse und w irtschaftspolitische SchluG folgerungen’; BAW -M onatsbericht 3 -4 . BAW 1991: W olfram Eisner und Gerd Voss, ‘Bericht zu den Abriistungsfolgen fur das Land Bremen und zu den H andlungsm oglichkeiten’, in Regionalw irtschaftliche Studien No. 9, Bremen: BAW. B ontrup, H-J., 1986, Preisbildung bei Rustungsgiitern, Koln. Brixle, M., 1993, N eue G eschaftsfelder und Konversionsstrategien, Probleme, Lo sun gen und Fallbeispiele, Miinchen. Briickl, S., 1994, ‘Krauss-M affei — Pionier okologisch orientierter K onversion?’ in: S. Briickl, A. Burger, R. Erben, E. Petri, M. Sim on (ed.), Betriebliche Konversion, Erfahrungen — Probleme — P erspektiven, Munster. Brzoska, M „ 1986, Riistungsexportpolitik, Frankfurt. Burton, D.F. and H ansen, K .M ., 1993, ‘G erm an Technology Policy: Incentive for industrial innovation’, Challenge, January/February. EEC, 1992: C om m ission o f the European C om m unities, D irectorate G eneral for Regional Policies, The econom ic a n d social impact o f reductions in defence spending and m ilitary fo rces on the regions o f the Comm unity (Study pre­ pared by Econom ists A dvisory G roup in conjunction with the Centre for Defence Econom ics, U niversity o f York), Brussels/ Luxembourg. Eisner, W., 1993, ‘Industrial D efence Conversion: G uiding the M arket at the Regional L evel’, paper presented at the annual A SSA /A FE E -m eetings, Anaheim , CA, January. Fock, H., 1993, ‘Zur Zukunft des europaischen Schiffbaus’, Wehrtechnik no. 1/1993. G rundm ann, M. and M atthies, M ., 1993, K leinere B undesw ehr und w eniger Riistungsproduktion: Konversion als regionale und betriebliche G estaltung, Miinster/Hamburg. H eyden, J., 1992, ‘Forschung und Technologie im R ustungsbereich’, Wehrtechnik no. 4/1992. Hoffm ann, L., 1991, Warten a u f den A ufschw ung, Regensburg. IFO, 1991: Ifo-Institut fur W irtschaftsforschung, M. Berger, W. G erstenberger et al., Produktion von Wehrgiitern in d er B undesrepublik D eutschland, Munich. Mey, H.M ., 1993, Die Zukunft der deutschen wehrtechnischen Industrie, IAPDienst, no. 19-20, Bonn.

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Pfeifer, S., VoB, W„ Wilke, P. and Wulf, H., 1993, Rustling und Abriistung in Deutschland — Perspektiven fu r Riistungsindustrie und Riistungskonversion, ISA Schriftenreihe No. 5, Hamburg/Bochum. Pottmeyer, K„ 1991, Kriegswaffenkontrollgesetz, Kommentar, Koln. Schrem pp, J.E., 1994, ‘ “Partnerschaft fur den Frieden” heiBt mehr denn je “wirtschaftliche Partnerschaft” Handelsblatt no. 29, February 10. VoB, W., 1992, Die Riistungsindustrie vor unsicheren Zeiten. Strategien und Diversifikationsbemiihungen riistungs-orientierter Unternehmen, Bremen. VoB, W., 1993, Langfristige Entwicklungen und Trends im deutschen M arineschiffbau, Bremen. White Paper, 1985, Federal Ministry o f Defence, White Paper 1985, Bonn. White Paper, 1994, Federal M inistry o f Defence, White Paper 1994, Bonn. Wulf, H., 1991, T h e Federal Republic o f G erm any’, in I. Anthony (ed.), Arm s Export Regulations, Oxford University Press, for SIPRI.

Chapter 4

G reece A n th o n y B a r tz o k a s

Introduction The European defence market is in unprecedented flux. Demand is falling and shifting in composition, governm ents are reviewing the regulation of internal and external markets, and industries are reorganising within and across frontiers. How to manage effectively defence technology and procurement needs without distort­ ing the civilian economy, have therefore become acute problem s for advanced Western European countries. The R&D costs im posed by the developm ent of defence technological capabilities on these countries’ economies, and thus eventu­ ally on their geopolitical standing, provide one reason for their interest in reducing the burden o f military expenditure, and in finding more efficient ways o f organis­ ing the domestic defence industrial base. There are other, even stronger, pressures to change the relationships between states and defence industries and the policies that underpin them. They are coming in particular from revolutionary changes in technology, not least because these changes are mainly initiated in civil industry sectors; and from changes in the perceptions and realities o f international security. Until the events o f 1989, there was a broadly com m on view o f security and military strategy in W estern Europe. There were, o f course, many differences of opinion, even am ounting on occasion to serious conflict. However, the broad strategic paradigm o f the Cold War rem ained intact. It resulted in a rather stable force structure, leading to broad agreem ent on the quantity and type o f equip­ ment that was needed. It also involved acceptance o f the different roles and stances taken by European countries. The defence industries regarded the future levels o f dem and for military equipm ent as relatively predictable. These certainties no longer exist. With the passing of the US-Soviet dom i­ nated geopolitical order, the international situation has become extremely complex and confused. The Southern European region, in particular, finds itself in a peculiar strategic position. On the one side it participates in the European balance, while on the other it borders upon North Africa and the Middle East. In the evolving security environment, a new area o f regional threat has emerged in the Balkans. Different political systems, econom ic disparities and religious discord have exacerbated regional instability. Emerging risks from the Southern European region and the continuing Greek-Turkish problems make the Greek perception o f indigenous arms production remarkably different from that in other European nations.

117

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EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

Greek Defence Market and Defence Industry The decision to develop the G reek m ilitary industry was first o f all a response to fears o f regional conflict with Turkey. It was also a way o f achieving indepen­ dence from foreign w eapons suppliers. Sim ilar intentions w ere developed later in the area of military m anufacturing technology. A large-scale investm ent pro­ gram m e o f technology transfer was im plem ented in an attem pt to establish links with diverse sources o f foreign military technology. In the defence literature and am ong policy m akers, military industrialisation has been understood as a sim ple im port-substitution process: the transfer of pro­ curem ent program m es from foreign suppliers to local firms. The developm ent of the G reek arm am ent sector was strongly influenced by such perceptions. It was believed that the size o f the m arket would be sufficient to occupy the installed m ilitary m anufacturing capacity. Investm ent in arm s production was part o f the national defence policy and therefore a broad consensus could be expected. H ow ever, both argum ents had their weak points. T he G reek m arket was not large when set against the huge m odernisation program m e w hich was under way. A nd w hat o f the longer-term future? T he assum ption was m ade that roughly the sam e volum e of orders could be sustained for the future. Table 1 provides information on the size o f G reek defence spending since 1970. T he increasing level o f defence expenditures was the outcom e o f the m ajor modernisation program m e for the A ir Force and the Navy which started in

Table 1: Defence Expenditures and Equipm ent Procurem ent (1970-1994) US $ million, constant 1985 prices

D e fe n c e

19 7 0

1975

198 0

198 5

199 0

1991

1992

19 9 3

1994

939

1727

1774

2332

2101

2025

2122

2094

2125

4.7

6.7

6.6

6.2

5.8

5.4

5.6

5.5

5.6

77.0

333.3 308.7

8.2

19.3

E x p e n d itu r e % o f G r o ss D o m e stic P r o d u c t E q u ip m e n t

424.4 449.6 411.1 496.5 517.2 518.5

E x p e n d itu r e

% o f D e fe n c e

17.4

E x p e n d itu r e

Source:

NATO Review, various years.

18.2

21.4

20.3

23.4

24.7

24.4

119

G REECE

Table 2: Greek Defence M arket and Loan R epaym ent, 1990-1994 million US$, current prices 1990

1991

1992

1993

1994*

D e fe n c e p r o c u r e m e n t

1087

1119

1411

1373

1604

L o a n p a y m e n ts

726 (66.8%)

644 (57.5%)

884 (62.6%)

900 (65.5%)

1149 (71.6%)

2727

2776

3168

2956

3058

T o ta l d e fe n c e s p e n d in g

*: Estimates. Author’s calculations based on data provided by the Ministry of Economics.

S ou rce:

the m id-1970s and expanded rapidly until the early 1990s. These aggregate data, how ever, provide lim ited inform ation on the scale o f contracts allocated to dom estic firm s. A closer look at recent trends in the G reek defence budget reveals that a large share o f annual defence spending goes to loan paym ents, for the increasing debt on Foreign M ilitary Sales loans provided by the US G overnm ent to the G reek M inistry o f D efence (see Table 2). O f the orders for equipm ent-related procurem ent, m any contracts go to foreign suppliers, esp e­ cially in the case o f advanced w eapon system s. T herefore, for a country like G reece, with high im port penetration in its dom estic defence market, we should distinguish between aggregate defence procurem ent and new orders available for the dom estic defence industrial base. The G reek defence industry com prises state enterprises and small private com panies, w ith between them approxim ately 20,000 em ployees in total. The defence m anufacturing base is largely state controlled. The state controls the m ajor Greek m ilitary firm s and is the source o f 70% o f total fixed capital. In terms o f em ploym ent the share o f the private sector is 20%. The state-owned firm s are m odern capital-intensive plants; the private sector includes m any sm all, labour intensive firm s and a few dynamic firm s specialised in metal parts and electronic equipm ent manufacturing. M ilitary arsenals cover m aintenance needs w ith a total w orkforce o f around 10,000. T hey arc part o f the arm ed force’s m anagem ent structure. The privatisation program m e o f the two major shipyards is changing the existing ow nership structure. M ilitary m anufacturing capabilities have been established in six product areas: tanks and military vehicles, aircraft m aintenance and parts manufacturing, naval shipbuilding, electronic equipm ent, arms and amm unition, and spare parts. The degree o f indigenous technological capabilities is limited. M ost o f G reece’s

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m ilitary firms have concentrated on mass production, repairs and manufacturing o f parts o f low technological com plexity. O nly the tw o m ajor state-ow ned defence com panies (HAI and EVO) have been involved in advanced production activities. H AI is a state com pany located near Athens, which was founded in 1979. It is a supporting and m aintenance centre, mainly for Hellenic A ir Force aircraft and helicopters. HAI has invested heavily in facilities, based on foreign technology, for parts m anufacturing and electronic equipm ent. Involvem ent in m aintenance and retrofitting has become a w ell-established corporate activity. In comparison, m anufacturing o f aircraft equipm ent rem ains heavily subsidised. Since 1991, foreign personnel (US L ockheed’s staff) took over H A I’s m anagem ent in an attem pt to strengthen m anagem ent capabilities needed to im plem ent a m ajor reconstruction program m e in HAI. EVO is a state com pany with four plants: small arm s and medium calibre can­ nons, heavy and precision engineering, foundry and am m unition. EVO experi­ enced rapid growth during the 1980s by expanding its mass production lines for rifles and am m unition. However, the am bitious plan to becom e a systems m anu­ facturing centre was less successful. The com pany is kept operating with state subsidies and, recently, the G reek G overnm ent decided to support EVO with new orders for indigenously designed products. P YRK AL rem ains a traditional am m unition m anufacturer, established in 1894, with a wide range o f capabilities in the production o f infantry projectiles. Facing a shrinking export market, PY RK AL also produces for only a sm all fraction of the dom estic dem and for amm unition. Its manufacturing equipm ent is obsoles­ cent and the prospects for modernisation investm ent are limited. The govern­ ment is pursuing a plan for the merger o f PYRKAL with EVO. ELVO is a state com pany with a m inor private shareholder. It was established in the early 1970s as a jo in t venture between the Austrian com pany Steyr Daimler Puch and G reek state-ow ned banks. Initially, it represented an attem pt to estab­ lish an assem bly plant for military vehicles and tractors in a w ell-protected m ar­ ket. The G reek G overnm ent assum ed m anagem ent control in 1983, and tried to increase corporate efficiency, technical capabilities and the degree o f local value added. H ow ever, the transform ation o f an assem bly plant to an independent m anufacturing centre proved to be difficult. ELVO im proved its m anufacturing capacity but its product developm ent capabilities rem ained rather narrow. In 1993, the G reek G overnm ent announced its intention to privatise ELVO by sell­

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ing forty per cent o f its portfolio to the private sector. The advertisem ent received limited attention am ong foreign investors and, after continuous pres­ sure from unions and regional authorities, a m ajor policy reversal took place in 1994 and the program m e was cancelled. Eleusis and H ellenic Shipyards are the tw o m ajor G reek shipyards. In the early 1980s they failed to diversify when the tanker m arket collapsed. Naval procure­ ment has been part o f a state-coordinated effort to keep them operating. Since 1985, naval orders have com prised the m ajor part o f their new shipbuilding work, representing a new area o f activity for these yards. The shift from tankers and bulk carriers to naval ships required new investm ents in machinery, training and more m an-hours o f production work. B ecause o f serious delays in the im plem entation process, this program m e did not in the event help the shipyards very much, and their debts increased. Eleusis (the sm aller yard) has been priva­ tised and Hellenic Shipyard (Skaram anga) has been on the privatisation list for som e time. The privatisation o f Skaram anga proved, how ever, to be very com plicated. From one side there was grow ing pressure from the European Com m ission to stop the increasing flow o f subsidies provided by the Greek gov­ ernm ent to the yard. From the other side, investors were reluctant to invest in a shipyard with such large liabilities. Privatisation has also been under increasing pressure from the unions. In M arch 1995, a bill was passed by the G reek G overnm ent which wrote off all liabilities and allowed a radical reduction o f the y ard ’s personnel. U nder the new rules o f the game, negotiations went ahead betw een the G reek governm ent and foreign investors and the final outcom e was expected in 1995. A large part o f the G reek defence industry’s capacity is dedicated to m ainte­ nance, repairs, upgrading and retrofits. M ilitary facilities and naval yards cover­ ing these needs have been involved in the m odernisation o f military equipm ent. The installed machinery is typically old, needing extensive repairs. Only a few military arsenals have m odernised their ow n inventory. The presence o f private com panies in the Greek defence industry has been rather lim ited. They participate in the production o f am m unition, electronic equipm ent and metal manufacturing. State com panies have established subcon­ tracting netw orks with a few small private m anufacturers. For example, a small group o f dynamic medium-sized firms has been involved in spare parts and elec­ tronic com ponents production. The m ajority o f these firm s have invested in advanced manufacturing equipm ent in an attem pt to produce according to high quality standards and military specifications. With constant defence orders and easy access to investm ent loans, they have managed to improve their technologi­ cal capabilities.

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The G reek defence industrial base expanded in three directions with quite different objectives. The first was the continuation o f m aintenance and mass pro­ duction activities for internal defence needs and the production o f simple weapon platform s with assem bly and m ature m anufacturing technologies. Initially, the M inistry o f Defence allocated resources to these areas in an attem pt to assure the future viability o f these military firms. Later, disputes emerged on the size o f future orders and the increasing production costs o f local manufacturers. The second direction led to increasing m ilitary m anufacturing capacity. A significant share o f the dom estic defence m arket constituted, in effect, an indi­ rect state subsidy, to firms involved in heavy engineering activities. In most of them , state-controlled banks assum ed managerial control. These projects were essentially part o f the state’s industrial policy and their links with national secu­ rity objectives were slight. The defence procurem ent agencies o f the G reek armed forces supported them only when additional funds were allocated. The third direction taken was the involvem ent o f the more advanced stateow ned military firm s in indigenous product developm ent and system s design. C orporate plans for rapid expansion and governm ent am bition for technological m odernisation were the driving forces behind these programmes. However, the im plem entation o f specific projects required additional funds and subsidies, and the arm ed forces opposed the re-allocation o f their resources to this end. During the expansion phase, the policy tow ards defence industrialisation becam e less clearly defined. First, it proved difficult to reconcile defence and industrial pol­ icy objectives. Also, control over the defence industrial base becam e an area o f dispute betw een the governm ent and the arm ed forces. D evelopm ents along this third direction resulted in various failures, them ­ selves the result of both policy errors and structural defects in the interplay o f the institutions involved. Technical inefficiency was also a factor. The entry into pro­ duction o f weapon platform s began with many expectations for in-depth defence industrialisation and ambitious targets for the domestic defence industry. In com ­ parison with the technical requirem ents o f simple defence equipm ent and mainte­ nance, the scale o f investm ent was larger and these projects needed imports of product technology and systems integration knowledge. Systems integration is an industrial activity with complex technical requirem ents but it provides limited value added to the assem bly plant which puts together im ported sub-system s (electronic equipm ent, w eapons). At the sam e time, orders from the domestic defence m arket could hardly provide enough work to pay for the installed manu­ facturing capacity. In addition, the increasing num ber o f technical faults and delays in assembly work caused serious conflicts between military firms and their customers. O ther side-effects were the expansion o f military technology imports and the increasing investm ent cost o f new military manufacturing projects.

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Another problem was the excessive optim ism o f corporate and official fore­ casts o f the future o f military firms. The interpretation o f occasional successes in arms exports as a clear indication o f future dem and, and the b elief that there were increasing prospects for beneficial cooperation with m ilitary firm s from allied countries, were am ong the assum ptions on which investm ent program m es w ere based. Finally, G reek access to foreign markets proved difficult, whereas firm s from other W estern countries follow ed a policy o f m arket penetration through technology transfer to G reek firms. D uring the expansion phase, the first m ajor problem was the re-allocation of orders from im ports to dom estic military firms. Institutional m alfunction led to excess m anufacturing capacity, the absence o f a realistic strategy for the dom es­ tic defence industry and its interrelations with foreign firm s, and disputes between the local defence m arket and military firms. Technical difficulties dur­ ing the transition to the production o f weapon platform s and other advanced mil­ itary manufacturing projects caused delays and dissatisfaction. The credibility of the optim istic view s on indigenous defence industrialisation was seriously affected. In the end, the two main objectives adopted by the state and military firms — defence procurem ent as a form o f industrial policy and investm ent in system s technologies — were abandoned. The defence industry becam e an enclave m anufacturing system w orking for the m onopsonistic defence m arket while the broad industrial base was facing fierce com petition from foreign firms, especially in dow nstream engineering activities (e.g., shipbuilding, foundries, metal processing, assem bly). M ilitary specialised firms made new investm ents on the assum ption that the domestic defence m arket was going to provide a stream of future contracts. T heir m anu­ facturing process was organised according to preferences defined by the defence m arket. In so doing, production m anagem ent gave priority to product reliability and special-purpose machinery. O ther factors like efficiency and cost effective­ ness on the shop floor received less attention. Even quite small contracts could become the basis for new investm ents in manufacturing capacity and technology imports without serious consideration being given to other options such as the adaptation o f existing capacity and diversification o f other military firms. After only a few years, however, dom estic dem and proved unable to continue to sup­ port local defence firms in this process o f expansion through new orders and subsidies. Thus, an overcapacity problem emerged for the Greek defence indus­ trial base. A dditionally, the heavy burden o f loan repaym ents decreased the availability o f funds for new orders from dom estic defence firms. The Greek defence industry is not com parable to those o f the advanced European nations. The links between the defence and the civilian sectors o f indus­ try are minim al, and the defence firms are not part o f an integrated industrial

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infrastructure. Since the 1950s, it has been a receiver rather than a generator of m ilitary technology, w hether when obtaining used military equipm ent through military grants, importing weapon systems, buying military manufacturing tech­ nology, or selling to play an active role in current European attempts to create an integrated European defence market and/or force structure. The pressure for effi­ cient management o f the defence industrial bases that has become increasingly im portant in many other states in the 1990s has still not really materialised in G reece. Its defence industry is isolated from broader econom ic activities, and national planners are willing to subsidise arms production because they expect thereby to gain greater independence and to introduce technologies that could be spread to other sectors o f the national industrial base. Economic activity within the military sector is being conducted in a regulatory environm ent that has been largely autonomous, and that has enjoyed its own distinctive rules and procedures.

Defence Technology Capabilities The defence industrial base in Greece developed as a system o f manufacturing activities closely linked to defence procurement but isolated from the broad manu­ facturing sector. W hen the decision to develop the defence industry was taken in the mid-1970s, the manufacturing sector was facing serious structural problems. The dom estic industry was unable to carry out defence production without addi­ tional state support for modernisation. However, the evolution o f the defence industrial base was also determined by the formulation o f a defence industrialisa­ tion strategy which gave priority to the developm ent o f ‘military specialised’ firms in every category of defence needs — from simple items to weapon sys­ tems. D efence planners m aintained that this form o f investm ent could safeguard discipline and efficiency in the emerging Greek arm am ent sector, avoiding at the same tim e the presence o f private monopolies in the defence market. Am ong the Greek governm ent's expectations was that investm ent in defence m anufacturing could provide technological benefits for the broad dom estic industry. But general trends in the Greek economy underm ined this strategy. In the 1980s, the gap betw een defence industrialisation priorities and declining dom estic engineering capabilities increased. R esources w ere poured into the defence area when the dom estic industry was in decline. Heavy engineering plants shifted to the defence m arket trying to secure orders and state subsidies. The enclave character o f the defence sector further com pounded the problem. N evertheless, the strategy o f developing ‘m ilitary specialised’ plants worked fairly well for a time. During the first phase o f im port-substitution (the ‘easy ’ phase), all the internal actors (governm ent, armed forces, corporate man­

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agem ent) supported the indigenisation o f m aintenance and the local production o f sim ple defence equipm ent. The size o f the contracts and the export demand arising from Iran-iraq w ar were sufficient to support the installed capacity in the new plants. Also, technological requirem ents were relatively modest. Most o f the plants were using mass production or standardised m aintenance tech­ niques, w hich w ere both high value-added m anufacturing activities. With im ported technical assistance, a m anufacturing system was established based on em bodied technology and strictly defined specifications. The G reek personnel proved efficient in assim ilating process technology and the military firms m an­ aged to respond to the defence m arket’s technical requirem ents. The initial objective o f the Greek program m e as regards dcfence industriali­ sation was clear. Taking into account defence needs, available financial resources, access to foreign technology, and indigenous technological capabili­ ties, defence planners had to decide the form o f foreign technology transfer and o f specific investm ent program m es in military manufacturing. However, institu­ tional malfunction and com peting interests am ongst the actors involved caused problem s during the im plem entation o f these projects. But as the general objec­ tives were clearly defined, investm ents were carried out with some success. Later, however, things becam e more com plicated. New issues such as the objectives o f the defence sector and the future control o f military firms emerged. The armed forces wanted to preserve their control over the defence industrial base. The governm ent developed sim ilar intentions. And naturally, corporate managem ent o f military firms sought more independence. Ill-conceived objec­ tives and plans for the future o f military firms were a constant source o f difficul­ ties. W hile for all the involved actors the defence industrial base was a strategic asset, their specific proposals for its developm ent w ere often contradictory. Different roles within the defence industrial system underpinned different inter­ ests (and priorities). The arm ed forces supported program m es linked to security, while the governm ent introduced broader objectives into the defence industriali­ sation strategy. The heterogeneity o f proposals on the future o f the dom estic defence sector becam e a difficult problem to handle. In the G reek case, the local defence m anufacturing base was successfully developed in the areas o f m aintenance and production o f sim ple defence items. The move into more sophisticated weapon platform s was thw arted by technical problem s and institutional m alfunction am ongst local agents involved in the defence industrialisation process. C orporate perform ance has been better in process technologies than in design, product developm ent and system s integra­ tion. C om paring different areas o f technological achievements, metal processing techniques have been absorbed relatively efficiently, while in the case o f m ili­ tary electronics, domestic production has been limited to simple products.

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EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

Technology acquisition and development by state-owned and private mili­ tary firms has been ‘dem and-led’ and so aligned with specific procurem ent objectives. The most common practice is to import or copy the basic idea, and sometimes even the detailed design, from abroad. As Table 3 shows (columns E -J), the Greek military technology system operates in close co-operation with foreign companies and research centres. Laboratory equipment and scientific instruments are imported. Specialised studies, tests, and experiments are another type o f foreign input. Greek military firms have concentrated on the development of laboratory proto­ types of relatively simple defence items. In such cases, foreign companies have been involved in the supply of sub-systems and problem-solving services for

Table 3: Greek Defence Industry: Areas o f Technological Collaboration and Endogenous Capabilities F irm

S o u rc e o f tech n o lo g y

A

D

E

F

G

H

*

*

*

*

*

*

*

ELVO (military trucks and LAVs)

*

*

Hellenic (shipbuilding)

*

*

HAI (aerospace: maintenance and parts manufacturing) EVO (arms, artillery, and ammunition)

B

*

*

C

*

*

*

*

*

I

J

*

*

*

*

Eleusis (shipbuilding) Military arsenals (maintenance) *

Private firms (metal parts, electronics) Military research centres

*

*

*

*

*

A = Firm’s own research & development; B = Firm’s engineering experience; C = Purchasing domestic patents; D = Joint research with domestic research centres; E = Importing technical data packages; F = Purchasing the entire production line; G = Foreign technology participants; H = Foreign consultancy imports; I = Copying products of other countries; J = Improving products of other countries. S o u rc c : A. Bartzokas (1992a), p. 154, updated in January 1994 with telephone interviews. N otes:

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prototype developm ent, w hich requires extensive technical expertise for the suc­ cessful integration o f parts and sub-system s. T he form o f co-operation during this initial phase can d eterm in e the shape o f co m m itm en t in long term co ­ production program m es. T here has, how ever, been som e attem pt at the developm ent o f a G reek m ili­ tary R & D system . T he m ilitary research infrastructure began to be established in the 1970s w hen m ajor program m es for setting up laboratories and general infra­ structure w ere undertaken by the A rm ed Forces. Table 4 provides an indication o f the lim ited scale o f investm ent in m ilitary R & D since 1981. We should em p h asise, how ever, that this in frastru ctu re is not d ed icated exclusively to product developm ent. T he scientific personnel also provide c ali­ bration services, w eapon o p erational studies, technical assistance for m anufac­ turing process and o th er serv ices. A cco rd in g to ro ugh estim ates. O nly an estim ated 27% o f the scientific personnel w orking in m ilitary research centres participate in true developm ent projects. T he capacity o f this R& D infrastructure to prom ote innovation has rem ained sm all com pared to that o f foreign suppliers. Foreign co m p an ies’ engagem ent in technical cooperation w ith G reek firm s has been a clear part o f their m arketing strategies. T he transfer o f technology to the G reek m ilitary industry has helped them to export parts, sub-system s and o th er final products to the G reek m arket. T h eir prim e concern, how ever, has been to establish preferential access in the host defence m arket and not to create perm anent sub contracting netw orks in G reece. For the G reek firm s, access to

Table 4: G overnm ent R & D A ppropriations for D efence, 1981 to 1993 (m illion US$, current prices)

Year Defence K&D % of Governmentfunded K&D Year Defence R&D % of Governmentfunded R&D

1981

1982

1983

1984

1985

1986

1987

1.3 2.2

1.2 2.0

1.2 1.4

2.8 3.5

2.4 2.9

2.6 2.7

2.9 2.3

1988

1989

1990

1991

1992

1993*

3.2 2.2

3.6 2.0

2.1 1.4

4.4 1.5

2.7 1.5

2.4 1.4

■"Estimates. Data provided by the Greek Secretariat for Science and Technology (figures correspond to OECD Frascati definitions).

Source:

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EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

technology in oligopolistic markets (e.g., aircraft technology) was linked to the development o f close relations with major Western firms. A similar strong influ­ ence during the importation of mature manufacturing technologies was exer­ cised through direct management control of the Greek plant for the Leonidas project. In these cases, technology transfer was carried out on a turn-key basis. Foreign suppliers provided process technology, technical assistance and instruc­ tions for equipment purchases in ‘package’ form. The Greek government and the armed forces expected to import reliable production technology for specific defence equipment needs. However, fulfilment o f this objective encountered two problems. Firstly, the government and the Ministry of Defence failed to control the process of technology transfer. Secondly, technology was imported without realistic consideration of future demand. The expiry o f domestic orders created idle capacity and financial problems. In projects with less advanced technical requirements, Greek firms tried to develop indigenous product developm ent policies (e.g., Artemis anti-aircraft system, landing craft). The extent of technology transfer was decided by the local firms. Successful im plem entation of these projects required not only process technology but also design and systems engineering skills. In the mean­ time, the promotion of ‘great expectations’ for future achievements became, for these firms, a way to secure new orders. The manufacturing process itself, how­ ever, was another matter. Firms engaged in the production o f indigenously designed defence equipment faced serious technical problems in their manufac­ turing work and, in some cases, declining support from the domestic defence market. The armed forces had doubts about the expansion of Greek military firms into complex m anufacturing projects. In most cases, the initiative was taken by the corporate management o f military firms and by the government. New investments were primarily the result o f the proliferation in the objectives of the defence industrialisation strategy (support o f declining industries and technological modernisation) rather than on defence requirements. Field research by the author in five different case studies has provided a basis for com parative analysis of the accum ulation of defence technological capabilities in the Greek defence industry (Bartzokas 1992a). Aircraft m ainte­ nance work was found to have been undertaken in a protected market which provided a constant stream of orders. A gradual process of accelerating improve­ ments in manufacturing work and production management led to a sufficient degree of specialisation in maintenance services. The introduction of mature manufacturing technologies in vehicle production lines and naval shipbuilding, however, has produced more equivocal results. Technological requirements were relatively modest and manufacturing work was carried out successfully, at least

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in term s o f product reliability. But the scale o f the projects and m anagerial inef­ ficiency proved obstacles to technological benefits and financial gains. The rem aining case studies were either o f investm ents in advanced m anufacturing equipm ent required for sub-contracting w ork (aircraft m anufacturing) or on the developm ent o f system s integration capabilities. M ilitary firm s tended to underestim ate technical requirem ents and the com ­ plexity o f m anufacturing work in these projects. T heir industrial inefficiency caused delays and increasing product developm ent cost. T heir expansion into m ore advanced program m es was based on state subsidies. W hen the link with the dom estic defence m arket becam e w eak, military firm s were unable to selffinance their projects or to gain orders in com petitive markets. Thus, while the im port o f process technologies and large defence contracts created favourable initial conditions for local military firms, to which they responded with enthu­ siasm, the move into w eapon platform s becam e problem atic cither as a result of institutional m alfunction and limited domestic demand or due to technical ineffi­ ciency in product developm ent and m anufacturing work.

Declining Demand and Changing Policy in the Defence Manufacturing Base By the early 1990s, the decline o f dem and had led to the following structural problem s in the Greek defence industry: • • • • • •

D eclining dem and for new procurem ent contracts; Increasing debt from Foreign M ilitary Sales Loans; Lack o f financial resources needed to m aintain em ploym ent levels and to finance new developm ent projects; D eclining credibility o f technical capabilities; C heap im ports o f second-hand military equipm ent from allied countries; C uts in R&D support provided by the M inistry o f Defence for developm ent projects by state-ow ned military firms.

For these reasons, G reek participation in international m ilitary research p ro­ gram m es such as EU CLID rem ained m arginal, and engagem ent in European research program m es such as ESPRIT and BRITE declined. The reaction to these problem s at the firm level was to cut existing levels o f em ploym ent and R&D budgets. The collective reduction o f m ilitary R&D expenditures by EVO, PYRKAL and HAI, arms, artillery and aerospace respec­ tively, in the years 1986-91, is shown in Table 5.

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Table 5: Defence Industrial R& D Spending in EVO, PYRKAL and HAI (million US$, current prices) 1986

1989

1991

Arms and Ammunition

4.7

8.6

1.2

Aerospace

0.2

0.4

0.4

SECTO R

Data provided by the Greek Secretariat for Science and Tech­ nology (figures correspond to OF.CD Frascati definitions). S o u rc e :

In the m eantim e, loans from state-ow ned banks helped state-ow ned m ili­ tary firm s to run their plant with idle capacity. S killed personnel moved to dynamic private firms in areas such as consulting, electronics and software. G overnm ent policy shifted to privatisation in areas o f dual use capabilities such as m ilitary truck and heavy vehicles, shipbuilding and electronic equip­ m ent m anufacturing. The production o f arm s, artillery, am m unition, and the aerospace plant, however, rem ained under state control. This privatisation pro­ gram me was intended to cope with the heavy financial burden o f state-owned m ilitary firms without offering a clear conversion strategy to transfer existing technological capabilities to the local m anufacturing base. Additionally, the pri­ vatisation program m e encountered many delays as a result o f the huge financial liabilities accum ulated in military firms. M oreover, the attem pt to transfer tech­ nological capabilities from defence firms to civil coincided with the decline of the local m anufacturing industry as it struggled to find a viable position in the com petitive environm ent of the EEC. The Greek governm ent financed projects and gave subsidies to the defence industry in the belief that it provided significant externalities to the domestic civil manufacturing sector. Training effects, the developm ent o f sub-contracting net­ works in high value-added activities and the developm ent o f technologically sophisticated industries in Greece were the prime examples o f spillovers that were anticipated. The experience of attempts to achieve conversion into civil m anufac­ turing activities suggests that it is unlikely that these benefits can be realised. G reek military firms have responded to declining dem and in different ways. HAI: In 1991, the G reek G overnm ent hired foreign m anagem ent (Lockheed staff) to reorganise HAI. Financial problem s were the first priority for the new m anagement. The G reek Air Force subsidised HAI through overpricing m ainte­

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nance services. The accum ulated debt and lack o f previous experience in collab­ oration program m es underm ined corporate plans for active involvem ent in com ­ m ercial and com petitive m arkets. Corporate plans failed to cope with problems em erging from the co-existence o f cost-plus m aintenance activities and m anu­ facturing/product developm ent activities. To address the problem o f idle capa­ city, H AI tried to increase exports to foreign m aintenance m arkets and to increase its participation in subcontracting netw orks. In the dom estic market, H A I’s m anagem ent has suggested diversification into the local telecom m unica­ tions equipm ent market. However, HAI faces com petition from well-established G reek private firms. HAI introduced a program m e o f prototype developm ent in electronic and telecom m unications equipm ent with lim ited success. EVO and PYRKAL'. The Greek G overnm ent considers the production o f arms, artillery and am m unition to be the core o f dom estic defence m anufacturing capabilities, and keeps it under state control for national security reasons. The response to declining dem and was to reduce em ploym ent by 30 per cent and increase efficiency through the merger o f the two firms. The experience so far is an attem pt to develop, on a sm aller scale, a defence industrial system linked to the dom estic defence market on the principles o f the G reek defence industriali­ sation program m e in the early 1980s. H owever, the environm ent is different because the Armed Forces are reluctant to finance future defence m anufacturing projects. Further developm ent o f endogenous technological capabilities received limited financial support and all the m ajor product developm ent projects have been cancelled. Im ported technology and technical assistance becam e the main source o f m ilitary technology. Capable R&D personnel moved to the private sector. The im plem entation o f across-the-board cost reduction without a clearly defined corporate plan for the deploym ent o f the w orkforce is putting accum u­ lated technological capabilities in jeopardy. D eclining credibility o f existing m anufacturing capabilities, im port penetration and shortage o f financial resources for new purchases o f defence equipm ent created increasing difficulties to EVO and PYRKAL. Production lines have been closed with harmful effects on accum ulated experience and technological capabilities. ELVO : ELVO is a firm with significant technological capabilities in the assembly o f heavy trucks and other vehicles. The corporate response to declining demand was a reduction o f the labour force and discussions with foreign firms on the local production o f trucks and other vehicles. ELVO is a typical exam ple o f a dual-use plant with skilled personnel and significant technological capabilities. Since 1990, delays in the im plem entation o f the privatisation program m e have underm ined plans for corporate restructuring. The governm ent cancelled plans to

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privatise ELVO in 1994. The M inistry o f D efence then decided to support ELVO with a m ajor contract for the production o f arm oured personnel vehicles. ELEUSIS: Eleusis was sold to one o f the leading expatriate G reek ship owners (Peratikos). U nder the new m anagem ent, Eleusis is carrying out a m ajor pro­ gram m e for the construction o f landing craft for the G reek Navy. At the same time, it has developed a grow ing interest in public procurem ent projects such as water supply and big environm ental projects in the Attiki (Athens) region. Since 1993, the ship-repair division has increased its turnover. The factors underlining the success o f Eleusis’ diversification program m e are the previous experience of the new m anagem ent in shipping services, the availability o f financial resources provided to Eleusis by the Peratikos group o f com panies, and corporate assets, including dual use infrastructure and its privileged geographical position in the Piraeus port. Contacts with the local public procurem ent m arket will determ ine future m arket prospects for Eleusis. Skaramanga'. Skaram anga is the m ajor G reek shipyard, where construction of frigates for the G reek Navy is taking place with German technical assistance. Its poor perform ances and declining defence sales have, however, led to an increas­ ing debt to G reek banks. Private interests are proving reluctant to get involved in the ow nership o f a firm with huge financial liabilities, while the Greek Navy prefers in any case to keep the yard under public control, at least until the frigate programme is com pleted. From Decem ber 1993, however, the European Union put increased pressure on the Greek G overnment to end subsidies to Skaramanga. Private Firms: A sm all group o f private firms invested in advanced m anufactur­ ing capabilities during the expansion o f the Greek defence industry in the mid1980s. They responded to declining dem and with successful export prom otion program m es for m odernisation and increasing involvem ent in the dom estic public procurem ent market. The expansion o f R&D activities in private firms has benefited from their participation in European and national science and technology projects. R ecruitm ent o f engineers and research personnel from state-ow ned military firms stim ulated the initial developm ent o f their techno­ logical capabilities. The majority o f small private firms failed to keep operating in the dom estic defence m arket follow ing the decline o f new orders and the elim ination o f subsidies and financial support. T he diversification o f private firms has, however, had mixed success. It has tended to depend on their contacts in the international m arket, established during the participation in offset pro­ gram m es, and on engineering product integration capabilities accum ulated in defence m anufacturing projects.

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The defence industry does not appear to be a particularly appropriate or effective developm ent instrum ent for pulling the G reek m anufacturing base tow ards technological m odernisation. Training effects and other learning exter­ nalities, though occasionally im portant for individual careers, could hardly ju s­ tify the outlays involved in the expansion phase o f the industry. Training effects can only be considered externalities if, during the im plem entation o f a conver­ sion program m e, labour is eventually released and em ployed again, m aking full use o f learned skills in other activities. W eapon system s design and fabrication, however, dem and specialised skills that in countries like Greece, with a weak m anufacturing base, are unlikely to be efficiently used in alternative sources of em ploym ent. From the G reek experience, it appears that successful transfer of skills has taken place only from state-ow ned m ilitary firm s to sm all private firms, and in the area o f general purpose engineering and product integration technological capabilities.

Export Controls In the early 1990s, the defence industries o f the Balkans gained renewed signifi­ cance. For example, the capabilities o f the domestic military industry supported Serbian military strategy in Bosnia-Herzegovina. In other small Balkan countries, the evolution o f military strategies depends, to a large extent, on the weapons they can produce or import. In a region with strong tensions, the introduction o f offen­ sive conventional weapons poses a fundamental challenge to the stability o f the military balance. Furthermore, were indigenous technological capabilities to be used to achieve ‘breakthroughs’ that perm itted qualitative leaps in the type and quantity o f weapon systems deployed in the region, they could complicate the regional security system upon which a fragile stability has in the past been based. The G reek M inistry o f Foreign Affairs has put forward a proposal for the lim itation o f arm s trade in the Balkan peninsula, covering all types o f weapons o f mass destruction and close monitoring o f other military sales in the region. T his idea seem s particularly beneficial for a region with historical experience of deep-seated local arm s races. The problem o f non-proliferation, however, is alw ays a problem o f the rela­ tionship between civilian and military applications o f relevant technologies. If, in establishing a regim e to prevent the proliferation o f this or that type of weapon, we also limit the peaceful econom ic and technological developm ent o f countries, we will create a regime that can hardly endure. Thus, the analysis o f policies for the peaceful use of technology and scientific cooperation m ust be included when exploring the foundations o f a regional non-proliferation regime.

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Conclusions In recent decades, econom ic activity within the G reek military sector has been conducted within a regulatory fram ew ork that has been largely autonom ous, and has had its own distinctive rules and procedures. In the US and W estern Europe, the pressures for efficient m anagem ent o f the defence industrial base call for greater constraint on the exports o f w eapons and on the transfer o f weapons m anufacturing capabilities. T hese pressures are likely to becom e even more com pelling in the late 1990s. However, this is not the case in Greece. M ilitaryindustrial com plexes there have been isolated from broader econom ic activities, and national planners have designed strategies with strong em phases on defence needs. In the G reek defence industrialisation program m e, the shift from large-scale production runs to sm aller orders for w eapon platform s requiring advanced product and process technologies created many difficulties. In recent years, increasing financial problem s in state-ow ned m ilitary firm s forced the Greek G overnm ent to change its policy in favour o f the privatisation o f dual-use stateowned plants. The G overnm ent asked som e o f the main state military companies to convert their activities to the production o f civil goods. For the Greek defence planners, the response to the privatisation program m e from European and US firms was disappointing, with the notable exception o f the aerospace industry. In this case, DASA and m ajor US defence firm s have expressed interest in HAI. Discussions are continuing over the form o f collaboration w ith foreign partners in aerospace. A deputy m inister responsible for the defence industry was appointed in November 1993 and the Ministry o f Defence expressed its intention to re-examine its policy for the local defence industry. Policy-m akers in the M inistry o f D efence have em phasised the need for efficient m anagem ent in the defence m anufacturing system , with increasing em phasis being placed on the m obilisa­ tion o f existing technological capabilities and long-term planning o f dem and and supply. The current reconstruction o f the West European defence and security struc­ ture is already exercising a significant influence on national procurem ent prac­ tices in G reece. Pressures for the adoption o f ‘buy E uropean’ clauses and for com pensation agreem ents using surplus equipm ent have grown. In the m ean­ time, the European defence industry faces a steep recession, w ith declining orders and pressure for reconstruction and adjustm ent to the appropriate size in the new security environm ent. In this rationalisation process, G reece has limited opportunities for specialisation at the low end o f defence m anufacturing tech­ nologies, a sector which also faces dram atic jo b losses, mergers and concentra­

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tion in the advanced European countries. Moreover, stagnating procurem ent bud­ gets could increase protectionism in defence m arkets right across Europe. Potential suppliers from Greece, mainly in the areas o f metal parts and electronic components, will find m arket entry difficult. Participation in co-production pro­ gram mes with advanced arm s m anufacturers from allied countries will rem ain linked to the evolution o f defence cooperation in the E uropean integration process and the degree o f influence exercised by the US on G reek procurem ent preferences. In any case, future developm ents in the G reek defence industry will be shaped more by the regional situation than by general trends in European defence cooperation. The basic prerequisite for a realistic policy for the Greek defence industry is the adoption o f m odest objectives for future defence m anufacturing activities and the reconstruction o f the local defence industrial system. The first step in this direction is to solve the problem s o f idle capacity and the introduction of more efficient m anufacturing and m anagerial practices at the firm level. Hitherto, policies for these problem s have revolved around the distinction between public and private control o f defence firms. W hat rem ains unclear is the linkage betw een the privatisation program m e and conversion policy. W hat is needed now is to find ways to preserve the existing technological capabilities in firms under privatisation and to inject them into other productive activities with the transfer o f skills and the developm ent o f w ell-defined corporate plans approved by the G overnm ent and private investors. A quasi-public market is not always a viable solution, especially when other dom estic firm s have established them selves in a strong position in the local market. For the rem ainder o f the defence industry, the challenges facing the M inistry o f D efence and corporate m anagement are twofold: to propose policies to reconcile m arket protection with the introduction o f efficient managerial practices; and to find practical ways to modify such characteristics o f the established military specialised plants as their dependence on defence orders. To respond to these challenges, state-ow ned firms will need to introduce w ell-defined restructuring programmes.

References Note: there is very little literature on the Greek defence industry published in English. References to publications and articles in the G reek trade press can be found in the following sources, all by the present author: — 1992a, M ilitary Technology Transfer and D omestic D efence Production: The Case o f Greece, Ph.D. Thesis, University o f Sussex.

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— 1992b, ‘The Developing Arms Industries in Greece, Portugal and Turkey’, in Brzoska, M. and Lock, P. (eds.) R estru ctu rin g o f A rm s P roduction in Western F.urope, Oxford: Oxford University Press. — (1993), D efence Industrialisation in Greece, P ortugal a n d Turkey (the D D Is), Brussels: NATO Fellowship Report.

Chapter 5

Italy Giancarlo Graziola, Sergio Parazzini, and Giulio Perani Basic Data M ain C haracteristics o f Italian W eapons Procurem ent Italian military planning in general, and w eapons procurem ent in particular, is characterised by the lack o f a strong centralised authority. The C hief o f D efence Staff (CSD) is responsible for coordinating technical and financial plans drawn up by the C hiefs o f Staff o f the Army, the Navy and the Air Force. The G eneral Secretary o f D efence (GSD), as National Arm am ents D irector (NAD), coordi­ nates the separate service General D irectorates in charge o f w eapons procure­ m ent. But it is these G eneral D irectorates w hich, acting on b ehalf o f their service chiefs, constitute the principal ‘poles’ o f procurem ent decision making. (See Figure 1). D uring the 1980s, successive D efence M inisters drew up draft reform s, but none o f them reached the stage o f parliam entary debate. A draft law on the reform o f the central organisation o f defence subm itted on 4 February 1993 by then M inister Salvo Ando, was passed by the Senate but w as not voted on in the C ham ber o f D eputies. A t the end o f July 1994, the Council of M inisters approved a new draft. In Septem ber 1994 it also approved a draft law on the ‘R estructuring o f the Armed Forces and the Reorganisation o f D efence M ilitary and Civilian P ersonnel’, which contained im portant innova­ tions on such m atters as the increased role o f volunteers, and the enlistm ent o f w omen in the A rmed Forces. N either o f these draft laws has yet been discussed in Parliam ent. U nder these reform s, the GSD would have direct responsibility for coordinating the G eneral D irectorates in charge o f w eapons acquisition; undertaking industrial planning in respect o f both public and private industry; and directing R&D activities, production, procurem ent and deploym ent. The C S D ’s position would also be strengthened relative to the separate service chiefs. (Figure 1). A second im portant characteristic o f the Italian w eapons procurem ent regime is that Parliam entary control of program m es for research, developm ent, production and acquisition of m ajor w eapons system s is inadequate. This inade­ quacy does not arise from any lack o f legislative tools; indeed, the M inistry o f Defence is required by law to transm it more com prehensive information con­ cerning its operations to the Parliam ent than any other M inistry.1

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EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

1. T he present m ulti-polar organization

G eneral S ecretary o f D efen ce/N atio n al A rm am en ts D irector

C hief o f D efence Staff

1' CSAR*

A

C SNA *

7\ 7\

m

G DAR1 G DA R2

GDNAI

2. The proposed unipolar organization

F igure 1:

CSAF*

C entral O rganization fo r W eapons P rocurem ent in Italy.

G DN A 2

GDAF1 G D A F2

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Despite the legislative powers at their disposal, m em bers o f Parliam ent are often ill equipped to form ulate a realistic and coherent defence policy as many are unduly influenced by ideological argum ents or lobbying interests. M ajor weapons procurem ent program m es are rarely subject to serious evaluation or debate. For example, the New Defence Model (NDM ) presented to the Parlia­ ment by the then M inister o f D efence Virginio Rognoni in N ovem ber 1991, has never been debated. In the m eantim e, rapid political and econom ic changes forced the Defence A dm inistration to prepare a second, dow nsized version o f the NDM , subm itted to the Parliam ent in July 1992 by Salvo Ando. A further, even more reduced, version was announced at the end o f 1993. M ore recently, in the spring of 1995, the C hief o f Staff o f the Army openly complained about this lack o f political attention to the NDM , and its consequences for military planning. A third im portant characteristic o f Italian arm s procurem ent has been the lack o f effective coordination betw een the M inistry o f Defence and other, indus­ trial, m inistries responsible for sectors in w hich defence firm s operate. This affects aerospace and electronics firms, whose turnover is dom inated by military sales, and telecom m unications and shipbuilding com panies with substantial m il­ itary business. M inistry o f Defence spending for R&D and weapons production is basically determ ined by the needs o f defence, and not by m acro- or microeconom ic considerations, such as the stabilisation o f aggregate dem and or the support o f private R&D activities. However, given the extent o f dual-use tech­ nologies and the im portance o f military dem and in shaping the prospects o f indi­ vidual firm s, including the m arket structures o f the sectors in w hich they operate, there is an obvious need for coordination. In A ugust 1984, a Defence Industry C om m ittee (DIC) was established by the M inistry o f D efence, the M inistry o f Industry and the M inistry o f State H oldings (since abolished, in 1993) as part o f a larger reorganisation o f military procurem ent and the military technology base. In addition to draw ing mem bers from the three m inistries, the DIC included representatives of the M inistry of Foreign Trade, the M inistry o f Scientific Research and the defence industry. The DIC was set up to: • • • •

coordinate the m inistries involved in R&D relevant to the military; coordinate the R&D activities o f the M inistry o f D efence w ith those of Italian military firms; prom ote the participation o f Italian defence firm s in international military R&D programmes, especially under NATO; and coordinate the activities o f m inistries supporting arm s sales abroad.

These aim s were never actively pursued. To appreciate the full extent o f what the DIC could have done, consider that all its tasks but the last w ere fully

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supported by the necessary legislation.2 For exam ple, the M inistry of Industry adm inisters a Fund for Applied Research, established at the end o f the 1960s, which could have been used to support military R&D in firms through soft loans or grants. In 1982, the Fund for Technological D evelopm ent was set up,3 provid­ ing additional money for R&D o f a more basic or risky nature, which could also have been used in this way. From 1982-87, these tw o M inistry o f Industry funds provided industrial firm s w ith Lit. 4.64 billion and Lit. 4.11 billion respectively. A large share o f these funds was channelled to pharm aceutical, electronics, transport and telecom m unications com panies, am ong w hich w ere the principal com panies involved in defence production. Roughly 90% o f the funds disbursed from the Fund for A pplied R esearch, and 75% from the Fund for Technological Developm ent, w ent to large com panies. In fact, alm ost half o f the money from the Fund for A pplied R esearch w ent to IRI, ENI, EFIM and FIAT (w hich historically have dom inated the industry), together w ith O livetti, Pirelli and M ontedison. Because these industrial groups are typically diversified, there is a clear need to coordinate the R&D funds assigned to them from the tw o M inistry o f Industry funds and those obtained through contracts for m ajor w eapons pro­ gram m es aw arded by the M inistry o f Defence. A nother lost opportunity for R&D coordination betw een the M inistry of D efence and other ministries has been in the aerospace sector. A law passed on Christm as Eve, 1985 in support o f the aeronautical industry, and the establish­ ment o f the Italian Centre for Aerospace Research (CIRA) in 1989, did not lead to any significant policy initiatives. In contrast, Italian space policy has been very active and successful, figuring prom inently in the M ajor Research Program m es o f the M inistry o f Universities and S cientific and Technological R esearch (M URST, established in 1989). During the 1980s, public financing o f space research activities rose by a factor of seven in real terms, and is presently about Lit. 70 0 -8 0 0 billion/year4 (although it has fallen since 1991 due to the difficulties caused by the huge national deficit). Almost all public finance for space R&D in industry is channelled through the Italian Space Agency (ASI — A g e n d a Spaziale Italiana) established in 1988. Its activities are predom inantly civil, but it would seem natural that an institution like the DIC would take account o f the dual-use nature o f the technologies devel­ oped under the aegis o f ASI, especially with respect to the industrial sector. There are, however, no indications o f any explicit coordination between military and civilian space R&D activities, apart from som e modest support by the MoD for some prim arily civil space program m es that also have a military aim, such as the Lit. 40 billions approved in 1995 for the Helios satellite.

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M ajor P rojects T he 1993 estim ate for ‘m odernisation and ren ew al’ expenditure by the M inistry o f D efence w as Lit. 4150 billion (see Table 1, w hich gives basic data on the defence budget), o f w hich 1154 billion w as allocated to the Army, 851 billion to the N avy, 1480 billion to the A ir Force, and 666 billion to interservice projects run by the G SD /N A D . O f this expenditure, Lit. 919 billion w as allocated to R & D , 2769 billion for w eapons procurem ent and 462 billion for infrastructure. T he first tw o o f these co n stitu te the co re o f dom estic dem and fo r the Italian d efen ce ind u stry ; the rem aind er is for the purchase o f m inor w eapons and for m aintenance activities. T here are roughly 20 m ultiyear projects in progress in the m ilitary services at any given time.

Table 1: Italian D efence E xpenditure, 1985-1995 (Lit. billions, current prices) Year

Investm ent

O peration

&

Total

Total

Total

D efence

M oD

D efence

Budget

N ato

M aintenance

D efinition M ajor

R&D

w eapons

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

3,511 3,905 3,882 4,356 3,813 3,118 3,197 2,766 2,429 2,481

Infra­

Total

structure

397 522 906 496 610 721 1,071 918 915 904

711 675 677 535 669 382 510 465 421 478

4,619 5,102 5,465 5,387 5,093 4,221 4,778 4,150 3,765 3,863

4,103 4,405 4,851 5,055 5,312 5,241 5,416 5,114 5,518 5,534

13,001 13,981 15,113 16,517 17,977 18,214a 18,304 19,568b 18,136 18,480 18,398

16,380 17,585 19,104 21,047 22,905 23,155 24,466 24,517 25,560 26,166 25,974

17,767 20,071 22,872 25,539 27,342 28,007 30,191 30,813 32,364 34,179 —

a) During the Fiscal Year 1990, cuts were made of Lit. 286 bn (Figures after cuts: Total Invest = 4,807; Total Def. = Lit. 17,929 bn). b) During the Fiscal Year 1992, cuts were made of Lit. 1800 bn (Figures after cuts: Total Invest = 3,577; Op&M = 4,859; Personnel = 9,332; Total Def. = Lit. 17,768 bn). Sources: MoD, ‘Nota Aggiuntiva alio Stato di presvisione per la Difesa’, various years. NATO, ‘Financial and Economical data relating to NATO defence’, various years.

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Table 2: M ajor Projects, and their C osts (Lit. billions) T o ta l c o st

1 9 9 3 e stim a te

1 9 9 4 e s tim a te

963 1531 1453

150 260 79

583 300 1374

2238 1373 1403

85 8 153

1145 9 937

13545 2057 7636 9330

520 78 409 40

11460 580 1571 2335

ARMY S k y g u a r d A sp id e , S A M C e n ta u r o , A C V A r ie te 1, M B T NAVY E H -1 0 1 h e lic o p te r T w o D e L a F e n n e d e s tr o y e r s A V -8B fig h te r A IR F O R C E E u r o fig h tc r 2 0 0 0 SPA D A , SA M A M X ta c tic a l fig h te r M R C A bom ber

Note: the above figures are not directly comparable because of the differing timeframes and spending patterns associated wiih each project.

M ajor projects (costing m ore than Lit. 1000 billion at 1993 prices) are shown in Table 2. The total expenditure on m ajor projects by the A ir Force, even excluding the E urofighter 2000, is by far the largest. In fact, all the m ajor projects except the A riete 1 involve the aerospace industry. T hree m ajor projects, M RCA, E H -101 and E urofighter 2000, involve E uropean collaboration, and one, the AMX, is conducted in collaboration with Brazil. One project, the AV-8B, is based on a weapons import, with offsets in its production. A few o f the m ajor projects are expected to absorb a considerable am ount o f the total m ilitary equipm ent developm ent expenditure in the future: the Ariete 1 will com prise alm ost half of the A rm y’s share; the E H -101 and AV-8B will take 60% o f the N avy’s share; and the Eurofighter 2000 is expected to absorb over half o f the A ir Force’s budget.

Policy Towards Defence and Dual-Use Technology Policies R egarding the National Defence Technology Base For the first tim e in many years, the Italian M inistry o f Industry (M ol) p re ­ sented, in a 1993 report entitled A D ifferent Future fo r the Italian Econom y, a statem ent regarding the future o f the national military industry.5 In this docu­

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ment, the M ol proposed ‘a process o f reorganisation that ... through industrial alliances either at national or international level, could maintain the (m ilitary) sector at the leading edge o f advanced technology, w ith high skill jo b s and centres o f decision m aking preferably based in o u r co u n try ’. T here were, however, no consequential policy changes during 1994 that strayed from the tra­ ditional approach to military procurem ent, technological developm ent, defence industrial policy and conversion. N evertheless, w ithin that traditional fram e­ work, two trends could be discerned: 1) increasing reductions in procurem ent spending; and 2) concentration o f military industrial and R&D activities in two industrial groupings: F inm eccanica and FIAT (the third historical grouping, EFIM , having been w ound up in 1994 — see below). Political support for increased m ilitary spending received a boost in February 1994 when the then Prime M inister, C.A. C iam pi, stated, ‘we have to provide ourselves, in conjunction with our Allies, with defensive and dissuasive capacities against any possible aggression’ and, as a consequence, ‘to increase, within our national capabilities, the financial effort for D efence’. At the same time, he anticipated a need, after several years o f spending cuts, to stabilise the m ilitary budget, pegging it to the evolution o f the GDP, in order to make reliable planning possible, not least for industry. In February 1995, the M inister o f Defence, M r Corcione, confirm ed the gov­ ernm ent’s com m itm ent to sustain the Italian defence industry, saying: ‘a strong financial allocation needs to be im plem ented as soon as p ossible.... time flies, and the technological gap is widening; one consequence will be a reduced capac­ ity to spread this effort over a long period o f time, while the operational capacity o f the arm ed forces will be increasingly reduced.’ (Interarm a N ew s, No. 3, 22 February 1995, p. 30). Nevertheless, the strict financial policy im posed by the prime minister, M r Dini, led by the following month to a further 1% cut in the already declining defence budget. The overall financial position will make it hard in subsequent years for the governm ent substantially to increase the military pro­ curem ent budget (Interarm a News, No. 4, 8 M arch 1995, p. 48). P olicies on D ual-U se Technologies A Three-Year Plan fo r Research is published by the M inistry o f University and Scientific R esearch (M U R ST) every three years w hich includes policies on m ission-oriented R&D. In the 1994-96 Plan, two m ajor objectives are defined with respect to dual-use technologies (M URST, 1994). The first is to orient civil research tow ards dual-use applications; the second is to co-ordinate M oD m ili­ tary program m es with other, civil research program m es, especially in the socalled ‘diffusive technologies’ (i.e. inform ation technologies, biotechnologies and new materials).

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In the Three-Year P lan, M U RST com m its support for five priority tasks for the Italian Armed Forces, in order to acquire a national production capability for the follow ing six classes o f w eapons systems: • • • • • •

air defence systems (fighter aircraft, SAM m issiles, ABM missiles, UAVs, etc.); air and space reconnaissance systems (satellites, aircraft, UAVs); transport aircraft; com m and, control, com m unication, intelligence and inform ation systems; air defence radar systems (both airborne and ground-based); sim ulators for advanced training.

The technological areas underpinning these system s include artificial in telli­ gence, robotics, optoelectronics, com posite m aterials, laser and radar technolo­ gies. H owever, despite the specificity o f the Three-Year P la n , it does not formally oblige any specific action to be taken by either public or private bodies. W ithin the M oD, the definition o f critical defence technologies is the responsibility o f the G eneral Secretary/N ational A rm am ents Director. A p ro ­ posed M ilitary Technology Plan by the Office o f the G eneral Secretary is due to replace a 1989 docum ent listing 13 technological areas as priorities for national defence, but although prelim inary studies have been done, a definitive text will not be released until after the New D efence Model has received parliam entary approval. There has been some overlap between these 13 areas and those consid­ ered critical by NATO, and by W E AG in its EU CLID Program m e. However, according to a high-ranking MoD official, the forthcom ing M ilitary Technology Plan will be ‘alm ost com pletely m atched’ with technologies being pursued under the EUCLID Programme. At a national conference on the Italian defence industry in M arch 1993, Mr G. Bocchini, then President of the Advanced Technology for Defence Industries Group (RITAD), summarised the industrial perspective by saying that the ch allenge is lo replace a nu m b er o f national industries w ith a new , integ rated , m ultin atio n al stru ctu re, m ore te ch n o lo g ically co m p etitiv e and m ore co st-e ffe ctiv e, but safeg u ard in g all p a rtic ip a n ts’ rights.

RITAD ’s concern was that the Italian industry was in a w eak position with respect to the larger E uropean defence m arket. Bocchini thus proposed to m anage carefully the integration process, saying: this p ro ccss o f tran sitio n (to w ard s a u n ification o f supply and d em and at th e E u ro p ean lev el) needs to b e led (tow ards] a grad u al ratio n alisatio n o f the industrial base (w hile p ro v id in g ] for a b alan ced and in tellig en t presen ce o f ev e ry country.

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The Italian defence industry is aw are that its future position in the European Union is highly dependent upon current investm ent in R&D. Nevertheless, this aw areness is qualified, since, according to Bocchini: n o w ad ay s th e re is a w ide c o n sc io u sn e ss ab o u t the need to p reserv e research a c tiv itie s a n d m ore a d v a n ced p ro d u ctio n [cap ab ility ]. B u t w ith a m ore precise d efin itio n : an in c reasin g level o f high te ch n o lo g ies is c h a ra c te risin g d efen c e sy stem s, w ith the soft co m p o n en t o f such te ch n o lo g y ... p re ­ v ailing upon the hard co m p o n en t; such an ev o lu tio n is quite obvious. B ut it w ould be a m istak e ... to bet o nly on hig h tech req u irem en ts ... [based o n hy p o th e tic al scenarios. O ne] needs, in stead , to w ork o u t sele ctio n crite ria based on ... needed technologies, p ro m o tin g th e d ev e lo p m en t o f a b alan ced m ix o f te c h n o lo g ie s , bo th c o n v e n tio n a l an d in n o v a tiv e . T h e se te c h n o lo g ie s s h o u ld e n a b le th e [E u ropean] C o m m u n ity to m ain tain , w ith reg ard to auto n o m y an d co m p leten ess, its o w n sy stem o f d efen c e in the future (Interarma News, N o. 6 , 26 M arch 1993, p. 207).

A nalysis o f M ilitary Technology Policy The Italian M inistry o f D efence is paying closer attention to industrial activity, accepting that policies for technology and procurem ent may not coincide with the operational needs o f the A rm ed Forces. The M ilitary Technology Plan cur­ rently in preparation appears to be, quite simply, a m eans to give political and financial support to firm s involved in international collaborative projects. This approach, in the absence o f a more general technology policy and the explicit definition o f national priorities, would appear to be driven prim arily by national m ilitary procurem ent choices. In July 1993, there was extensive debate over the need for the Armed Forces to im plem ent a ‘buy Italian’ policy. The issue was forced by the perceived need for a fighter aircraft to fill the gap before the Eurofighter 2000 would become available (De A ndreis and Perani, 1994). The debate was reinforced by the Italian aerospace industry’s b elief that the aging fleet o f F-104 fighters needed upgrading and/or that additional AM -X tactical fighters should be purchased as air interceptors. The M inister o f Defence, M r F. Fabbri, stated that if the n ational industry w ere now able to su p p ly us the aircraft w e need, w e w o u ld h av e no p ro b lem o p tin g for a national aircraft ... [but] national firm s cannot attem pt to (in flu en ce d ecisio n m ak in g on) n atio n al secu rity [by] th re a te n in g jo b cu ts. A ir d e fe n c e is a p rio rity now . W e c a n n o t u p d ate th e F -I0 4 s on ly to sustain o u r industry. (Interarma News, N o. 13, 2 Ju ly 1993, p. 463).

In the event, a procurem ent package was worked out whereby 24 British MRCA IDS Tornado aircraft were leased, worth Lit. 2,176 billion, and funds were pro­ vided for updating 6 0 -7 0 F-104 fighters. However, only Lit. 500 billion were allocated to the United Kingdom, with industrial offsets worth Lit. 120 billion to

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be spent in Italy. Furtherm ore, Lit. 1,600 billion would be devoted to m ainte­ nance and upgrading the Tornado and F-104 aircraft by Italian firms. According to the 1995 MoD procurem ent budget proposal, Lit. 1,237 billion will be spent on R&D out o f a total procurem ent budget o f about Lit. 3,300 billion. M ost o f this is earm arked for m odernising existing equipm ent, such as the Tornado and F-104 aircraft, frigates and other m ajor w eapons systems, com ­ m issioning foreign technologies (a subject o f som e im portance; see Sandri and Politi, 1994), such as the H arrier Plus AV-8B aircraft, aeroengines and radars, or for prom oting and engineering new weapons systems. Very little was reserved for advanced research projects. M ilitary R&D Institutions M ilitary R&D in Italy is carried out by three main types o f organisations; • • •

16 technical and experim ental centres o f the M inistry o f Defence private and public military firms universities and other research centres (as m inor performers).

T here are only a few military research centres in Italy: •

•

•

Centro Ricerche Esperienze e Studi p e r A pplicazioni M ilitari (CRESAM — Centre for M ilitary Research and Studies) based in Pisa, Tuscany. CRESAM w orks in four fields: nuclear energy, opto-electronics, electro-m agnetic com patibility and material diagnostics. A rm ed Forces Technical Centres serving the Army, the Air Force and the Navy. The Air Force A ir D ivision for Studies, Research and Experim ents (D ASRS) is o f special interest because o f its collaboration w ith the aero­ space industry. Experim ental Centres and Firing G rounds m aintained by the three Armed Forces; Salto di Q uirra (Sardinia), for naval experim entation, and Nettuno, for ground artillery, are the best known.

These research centres have played only a limited role in the past in developing m ilitary products; they acted mainly as testing facilities for industrial firms pro­ ducing m ilitary equipm ent. N onetheless, the acceleration o f MoD procurem ent budget cuts, coupled with the need to preserve technological capabilities within m ilitary industry, will probably lead to lim itations in the Armed F orces’ R&D activities, and even the possible closure o f som e experim ental and technical centres. As the Air Force C hief o f Staff, Gen. Pillinini, said in M arch 1994, ‘... we cannot have both a reduced A ir Force and a research branch, even if im por­

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tant and efficient, oversized with respect to requirem ents. The A ir Force has to m aintain [the] right ratio betw een research, experim ental activity and opera­ tional activity.’ (Interarma News, No. 4, 9 M arch 1993, p. 55). Consequently, even though the political em phasis is on increasing R&D spending, the A rmed Services are in practice experiencing a reduction in R&D and experim ental capabilities. Participation in International R& D Program m es The Italian share o f EU CLID resources initially amounted to some 14 M ECU (nearly 12% o f the total), and Italy chaired the C om m on European Priority A rea (CEPA) on O pto-electronic Devices. The Italian M inistry o f Defence judged this to be the most appropriate area because its technological requirem ents w ere less advanced than some other CEPAs. A technology support group brought together some o f the leading Italian defence firms (Agusta, Alenia, Elettronica, FIAT and OTO M elara) to assist the M oD in coordinating this research activity. In 1994, Italian firms participated in 28 out o f 44 Research and Technology Projects (RTPs) within EUCLID , taking a leadership role in projects on intelli­ gent sensors, advanced space synthetic aperture radar and optical fibres for underw ater acoustics (Pavone, 1994). The Italian defence industry is also actively involved in various NATO Industrial A dvisory G roup (N IA G) pre-feasibility studies, including: • • • • • •

Future Light Battlefield H elicopter (FLBH) Conventional D isarm am ent Verification Technologies Very Short-Range Air D efence System for Ships Smoke A m munition NATO Subm arine Rescue System NIAG Study on a Technology Forecast (PO ST 2000)

Only a small group o f leading m ilitary com panies in Italy, m ostly in the aero­ space and electronics sectors, participate in EUREKA. N evertheless, participa­ tion by Italian military firms in European program m es, especially EUCLID and EU R EK A , is considered im portant for the industry. Furtherm ore, the Italian defence industry is increasingly turning to E uropean Union research p ro ­ gram m es to support both civilian and dual-use activities. Significant Industrial D evelopm ents Until the early 1990s, the Italian defence industry was dom inated by two m ajor public holding com panies, IRI (w hose defence interests were in turn

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concentrated within the group Finm eccanica) and EFIM. The second o f these, EFIM , had been built up from the 1960s around a conglom eration o f mechanical engineering interests, civil (notably, railw ays) as well as military. In 1973 it entered the aeronautical sector, taking over Agusta helicopters and OTO M elara (battle tanks and defence system s), am ong others. In 1992, EFIM was put into liquidation, the result o f a long history o f oper­ ating w ith weak financial controls and persistent losses in m any o f its busi­ nesses. At the tim e o f its liquidation, 81 o f its 114 com panies w ere running deficits. The governm ent decided to transfer the defence and aeronautical firms to Finm eccanica, together with a recapitalisation fund o f Lit. 4,068 billion. By the end o f May 1994, all 28 o f these firms, including Agusta, Agusta Sistemi, O fficine Galileo, OTO M elara, and Breda M eccanica Bresciana had been trans­ ferred. (M inistro del Tesoro, 1994). As a result o f these developm ents, by early 1995 Finm eccanica controlled about three-quarters o f the Italian defence industry, playing a m onopoly role in aerospace, radars and defence systems, and a major role in defence electronics, as well as such technologically im portant civil sectors as transport, energy and autom ation. It ranked eighth am ong Italian com panies in terms o f consolidated sales, and third am ong m anufacturing firms. It had already been the dom inant Italian firm in several defence sectors, notably aerospace, where the m erger in 1990 of Selenia and A eritalia into Alenia gave it an aerospace firm comparable to British A erospace, A erospatiale and D aim ler Benz Aerospace. The addition of the EFIM firms strengthened its position in this and other sectors. A fter Finm eccanica, the next most im portant defence firm is FIAT Avio, which has been strongly involved in restructuring FIA T’s defence interests during the 1990s. A specialist designer and m anufacturer o f aeroengine parts, from the 1980s it began diversifying into com m ercial aeroengines, pow er plant generators, and gas turbines. In the 1990s it engaged in a series o f joint ventures w ith leading international aeroengine and pow er generator firm s, including G eneral Electric, Pratt and W hitney and W estinghouse (US), Rolls Royce (UK) and SN EC M A (France). A nother m ajor step in this diversification process cam e with a com m itm ent towards space propulsion activities, particularly from 1993-94. Taking into account the ow nership patterns that emerged by the mid-1990s, the lop ten Italian defence firms, in descending order o f military sales in 1992, are shown in Table 3 (see also Appendix for further details o f these firms). Sales for these firms in 1992 am ounted to som e Lit. 5,963 billion, account­ ing for 70.4% o f the total gross m ilitary sales revenues o f the top 55 Italian defence com panies. Seven o f them are in high-technology sectors (aerospace, electronics and com m unications). Five are state owned and, o f the others, three

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Table 3: The Ten Leading Italian D efence Firms, (listed in descending order of total military sales revenues in 1992) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Alenia (IRI/Finmeccanica), aerospace OTO Melara (IRI/Finmeccanica), land warfare Agusta (IRI/Finmeccanica), aerospace FIAT Avio (FIAT), aerospace IVECO (FIAT), transportation Aermacchi (private), aerospace Alenia Elsag Sistemi Navali (IRI/Finmeccanica), electronics BPD Difesa e Spazio (FIAT), land warfare Elettronica (private), electronics Elmer (IRI/Finmeccanica), electronics

are controlled by FIA T It should also be noted that Finm eccanica has a critical stake in both o f the non-FIAT private firms, controlling 25% o f A eronautica M acchi, the parent com pany o f Aerm acchi, and 47% o f Elettronica. T hese ten com panies are adopting different strategies to cope with the shrinking defence equipm ent m arket, a decline they see as perm anent. Our analysis is based on the concept o f a firm ’s vulnerability level, after B itzinger’s (1993) analysis o f the huge, heterogeneous US defence industrial base and the work o f H uffschm id and Voss (1991) in analysing 30 major arms producers in Europe for the European Parliam ent. Table 4 show s that firm s from the aerospace sector generally have a m edium level o f vulnerability (A erm acchi is an exception), and a mainly ‘expansion’ strategic response. These firm s are opting for concentration and international cooperation, com bined with a slow withdrawal from military activ­ ity by diversifying their business and laying off staff. All three electronics and com m unications firms are highly vulnerable, and have adopted a com bination of an ‘expansion’ strategy, concentrating their defence activities, with a ‘defensive’ strategy involving layoffs. The two firms in land warfare manufacturing fall into the medium vulnerability category. However, they differ in their strategies. The state-ow ned OTO M elara has m aintained its levels o f production and em ploy­ ment until relatively recently, while the privately-ow ned BPD D ifesa e Spa/.io has taken a num ber o f different approaches. Taken as a whole, the ten leading Italian defence firm s would appear to have adopted a predom inantly ‘expansion’ strategy, by concentrating and spe­ cialising their activities, and by reinforcing their position in the international market through international cooperation. However, this is not the full story, as alm ost all o f these firm s have also adopted ‘w ithdraw al’ strategies including

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Table 4: Strategic R esponses o f the 10 M ajor Italian D efence Firm s Firm

Military Depend­ ency (%)

Level of Vulnera­ bility

Firm Strategy

Expansion

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Alenia OTO Melara Augusta FIAT Avio IVECO Aermacchi Alenia Elsag B P D D if.E S p . Elettronica Elmer

69 100 82 50 7 95 100 46 96 95

Medium Medium Medium Medium Low High High Medium High High

1 +

+ + + +

2 ++ + + ++ ++ + + + +

Withdrawal defensive offensive 3 ++ ++ ++ ++ ++ ++ +

4 ++ + ++

++ + + +

5

6 ++ + ++ + + + + +

7

+

+ +

Notes: There are two main strategies: A) stabilising or extending defence activities (expansion or specialisation); B) withdrawing (slowly or rapidly) from defence activity. Further, each strategy may contemplate different options. Strategy A, options: (1) increasing exports; (2) concentrating or reorganising military pro­ ductions at a national level; (3) reinforcing firm’s position at international level through international co-operation. Strategy B, options may refer to two subsets of options: a) defensive, b) offensive. Among the defensive options: (4) downsizing production level through laying-off of employees and possibly shutting down plants; (5) selling off defence activities. Among offensive options we could find: (6) diversifying activities towards civil sector, and (7) converting military to civil activities.

diversification and dow nsizing. T here have been no notable instances o f selling o ff divisions o r o f conversion to civil production. Firm s in the high-technology sectors (aerospace, electronics and co m m u n i­ catio n s) are m ore firm ly co m m itted to an ‘e x p a n sio n ’ strategy than those in m ature technology sectors (land w arfare and transportation). Interestingly, there seem s to be no essen tial d ifferen ce betw een the strateg ies adopted by stateow ned and private firm s, except in F inm eccanica’s active process o f concentra­ tion through m ergers and acquisitions in the aerospace and electronics sectors. T he survival strategy o f the m ajor Italian defence firm s is first to m aintain a certain level o f production capability, taking into account expected national and

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international dem and, but also to participate in international R&D and industrial collaboration program m es in order to develop technological strength and share risk. These firms will probably becom e more selective as they concentrate in critical areas. The high-technology firms in particular are com m itted to defence w ork, paring and tailoring their R&D and production facilities as required to concentrate on m arket niches and core technological capabilities. H owever, there are also som e cases o f successful diversification activities. For example: •

•

•

A ermacchi agreed in 1990 to jo in the G erm an firm D om ier (part o f D aimler Benz A erospace) in the D 0 3 2 8 regional aircraft. In early 1994, when m ili­ tary production was flagging, this new developm ent provided some, though insufficient, com pensatory work; Alenia strengthened its position in regional aircraft through partnership with A erospatiale, enlarging the successful ATR aircraft family, and through par­ ticipation as a sub-contractor or m inor partner in m ajor com m ercial aircraft program m es such as the Boeing B767 and the M cD onnell D ouglas M D 11; FIAT Avio, as already m entioned, diversified in the early 1990s through increased participation in international civil aeroengine consortia and by strengthening its space activities (eg, by developm ent o f key parts o f the engine for the European A riane launcher). It also joined with W estinghouse Electric and M itsubishi Heavy Industries to increase its activities in indus­ trial gas turbines.

It is in the aerospace sector that the most far-reaching efforts to diversify have occurred, and this also happens to be the sector for which collaborative R&D and industrial cooperation in Europe is most im portant. Policies on International C ollaboration T here is no coherent national policy on internationalisation for the Italian defence industry. In fact, extensive support for the mostly public-ow ned large dom estic producers in Italy has had the effect o f hindering the international com petitiveness o f the defence industry and slowing the process o f industrial integration at the international level. N evertheless, the Italian m ilitary has sponsored international program m es, including consortia established by inter­ governm ental M em oranda o f U nderstanding (M oUs) and international, mainly European, developm ent and production agreem ents for a weapon system or a fam ily o f w eapons. T his position was confirm ed in February 1995 by the M inister o f Defence, who argued that ever-increasing participation in interna­ tional cooperative projects was vital, not least because without such nourish­ ment the technological assets acquired through years o f hard work would decay

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T able 5: M ain C o -o p e ra tiv e P ro jects in w hich Italian M ilitary F irm s are P articip atin g PROGRAMME OR JOINT VENTURE

PARTICIPANT FIRMS

Panavia GmbH (Tornado) Turbo Union Ltd (engine RB 199) Eurofighter

Finmeccanica-Alenia (I), BAe (UK), MBB (G) FIAT Avio (I) MTU (G), Rolls Royce (UK) Finmeccanica-Alenia (I), BAe (UK) CASA (Sp) DASA (G) FIAT Avio (I) MTU (G) Rolls Royce (UK) Sener (Sp) FIAT Avio (I), GE (US), SNECMA (F) Finmeccanica-Alenia (I) Aerospatiale, Thomson-CSF (F) Finmeccanica-Alenia (I), Aerospatiale (F) OTO Melara (I), Matra (F) OTO Melara (I), SNPE (F)

Eurojel Engines GmbH (engine Eurojet 200) GE 90 (aeroengine) GIE Eurosam (missiles) GIE Atr (ATR 42/72 commuters) Milas (anti ship missile) Consorzio Esplosivi Compositi (explosives) Euroflag (transport aircraft)

Finmeccanica-Alenia (I), Aerospatiale (F), BAe (UK), CASA (Sp), DASA (G) MIDS (Multifunctional Information Computing Device (Can), INISEL (Sp) Italtel (I), Distribution System) Plessey (USA), Siemens (G), Thomson-CSF (F) NIS (NATO Identification System) Eseina (Sp), Italtel (I), Plessey (UK), Bendix, Raytheon (USA), Siemens (G), Thomson-CSF (F) Aerospatiale (F), Hunting (UK), RTO (G) MLRS (Multiple Launch BPD Difesa e Spazio (I) Rocket System) Euro Hermespace Finmeccanica-Alenia (I), Aerospatiale (F), D ASA(G) Helios (military satellite) Finmeccanica-Alenia (I), DASA (G), Matra (F) AM-X International (AM-X fighter) Finmeccanica-Alenia, Aermacchi (I) Embraer (Brazil) Agusta (I), Westland (UK) EH Industries (EH-101 helicopter) BPD Difesa e Spazio (I), SNPE (F) Regulus (booster for Ariane V) Source: S. Rolfo, ‘Mutamenti dell’industria militare: la prospettiva europea' in L ’industria, No. 4/1993. fast, w ith n eg ativ e co n seq u e n ce s fo r civ ilian spin-offs. (In tera rm a N ew s, No. 3, 22 F eb ru ary 1995, p. 3 0). T ab le 5 lists the m ain c o o p e ra tiv e p ro g ra m m e s in w hich Italian firm s are p articip atin g . Ita lia n firm s are n o t in v o lv e d in stra te g ic a g re e m e n ts o r jo i n t v e n tu re s su c h as E u ro m issile , E u ro d y n a m ic s o r E u ro co p te r. T h ey p re fe r to d e fe n d th e ir

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share w ithin the dom estic m arket or to define international collaboration on a strict ju s te retour basis. T hus, Italian firm s are involved in governm entguaranteed program m es such as Tornado, E urofighter, the RB 199 and EJ 200 engines, A M -X fighter, EH-101 helicopter, M LR S, H elios satellite, H orizon frigate and the NH 90 helicopter. Italian m ilitary firms have also participated, in a lim ited way, in collaborative production in the civil sector. For exam ple, BPD D ifesa e Spazio is part o f the E uropean A riane consortium , Finm eccanica is involved in the production o f the ATR com m uter aircraft with A erospatiale o f France, and FIAT Avio is a partner, with the US G eneral Electric, Japanese IHI, and French SN ECM A , in the developm ent and production o f the civil GE 90 aeroengine. The attitude o f Italian firms — and consequently that o f the Italian govern­ m ent — tow ards either liberalisation o r integration o f the defence m arket is decidedly cool. The rhetoric, as exem plified by M r Airaghi o f Finm eccanica, is that Italian industry is offering a ‘first class’ contribution to international defence cooperation. However, there is an evident attem pt to regulate and to slow down the integration process. As M r M atteucci o f FIAT said in 1994 at a conference in M ilan, ‘... [we need) a cooperation policy oriented to participation in inter­ national program m es both in research and in industrial fields, but w ith fair qual­ itative and quantitative returns ... a E uropean policy but w ithout unilateral eagerness.’ (M atteucci, 1994). M r Bocchini (1993), then President o f RITAD, indicated at a conference in R ome in D ecem ber 1993, that he would favour increasing concentration in the military industrial sector, adding, however, that w e sh o u ld av o id ... u n c o n tro lle d c a rte ls o f firm s d e v e lo p in g ah e ad o f a related a g g re g a tio n o f d em an d . M o n o p o lie s at co n tin e n ta l le v el m ay ac tu ally be e s ta b lis h e d , re p ro d u c in g , on a la rg er [scale], the ‘natio n al c h a m p io n s ’ ... O n the contrary, [there] should be: in a first p h ase, fav o u red ag g regation betw een E uropean firm s, co n sid e rin g e x istin g asy m m etries, and g u aran teein g a w ellb alan ced and ‘in te llig e n t’ p resen ce o f all co u n tries; only in a second p h ase w o u ld estab lish ed in d u s­ trial g roups w ith an ad e q u ate ‘critic al m a ss’ ... be ab le to c o m p ete at the in tern atio n al level, in w hich all q u alified and efficien t pro d u cers could h av e room . D efin itio n o f co m m o n ru le s w ill g u aran tee a b alan ced fu n ctio n in g o f the E u ropean defen c e m arket.

The Italian defence industry clearly prefers a European m arket strongly con­ trolled by national governm ents. The current share o f Italian military industry in the European m arket is considered too small (about 10%) to com pete in a free m arket with B ritish, French and G erm an firms. Joint ventures and strategic alliances between firms are considered to be ju st as much o f a threat to the sur­ vival o f a national military industry in Italy.

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Policy on Conversion Past Experience Military industrial policy has traditionally been the responsibility of the Ministry o f Defence, which used procurement policy to orient and sustain the productive capacity of the military industrial sector. Procurement spending directly influ­ enced the size of military industry both in periods o f rising domestic military spending (1970-1989) and in the current period o f declining budgets. Between 1985 and 1989, growth in domestic procurement spending almost completely compensated (at least in financial terms) for the decrease in arms exports. A fter 1989, the combined reduction in domestic and international demand for Italian military products focused attention on the need to reduce military productive capacity and to develop a policy for conversion. It has been the Parliament rather than the Government that has taken initiatives for conversion. Since 1987, ten draft bills have been presented to define several policy tools, such as a conversion fund, a monitoring unit, and financial support for regional activities in this field. Nevertheless, a comprehensive law has yet to be passed. There have been some general laws which provided partial support for con­ version or diversification activities, inter alia. For example, law 46/1982 sup­ ported technological innovation and applied research in Italian industry, and several projects were undertaken to produce civil items using military technolo­ gies. Similarly, law 808/1985 supported civil activities in the aerospace industry, some o f which drew upon military technologies. Current Conversion Policy In 1993, the attitude of the Italian Government towards the military industry changed substantially. As we have seen, for the first time, the M inistry of Industry officially and publicly recognised the existence of an autonomous ‘defence industrial sector’, and went on to indicate its support for national and international reorganisation of this sector in order to maintain it at the leading edge o f technology, and with a distinct presence in Italy. Also in 1993, the Parliament passed a law (237/1993) creating a Conversion Fund under the administration of the Ministry of Industry, and Lit. 500 billion were appropriated for a five-year period. However, that same law also financed industrial restructuring activities in the defence sector, and the acquisition of four frigates by the Italian Navy. The Conversion Fund consists of two main instrum ents for promoting ‘rationalisation, restructuring and conversion of the war industry’. The Ministry of Industry may offer grants or loans to military firms willing to widen their

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range o f civil products. The Conversion Fund may also support regional initia­ tives in collaboration with local governm ents, firms and other organisations, for developm ents in regions affected by declining military industrial activity and redundancies. H ow ever, the Fund has not yet been im plem ented. So far, the M inistry o f Industry has only issued regulations dealing w ith ‘restructuring activ ities’, and not yet for the effective im plem entation o f the Fund. C o n ­ sequently, the M inistry regards the EU K ONVER program m e as the main con­ version initiative currently underw ay in Italy. F irm s’ Activities O ver the past few years, m ajor Italian arm s producers have m ade it a priority to explore the possibility o f turning to civil production and m arketing. But although a num ber o f feasibility studies and m arket research exercises have been carried out, no significant conversion strategies have em erged. In som e cases, subsidiaries were created to produce com m ercial goods. H owever, m ost o f the large defence firms opted to continue producing for the Italian governm ent, and with a preference for military over civil products. Data in the Appendix (which are in current prices, and so do not allow for inflation) give som e indication o f how firm s have responded to defence cut­ backs. We can note that total and m ilitary sales o f the four aerospace firm s (Alenia, A gusta, A erm acchi and FIAT Avio) started to fall in real terms at the turn o f the 1990s, even taking into account such developm ents as restructuring o f som e o f their defence activity. A significant dow nsizing o f em ploym ent came later, especially by the end of 1991 and early 1992. R&D expenditure (expressed in the Appendix as a percentage of total sales) also fell for the two state-owned firms, A lenia and Agusta, but increased for the private FIAT Avio, indicating a difference in corporate attitudes towards risk. Firms like Elm er and Elettronica, in the electronics sector, show an upward trend in their total and military sales (in current values) and an initial, but weak, process o f diversification in 1991. The dem ise o f civil activities and the sharp increase of military sales o f Alenia Elsag SN reflects the restructuring carried out by Elsag in 1990, whereby all its defence business was concentrated in the newly created Alenia Elsag Sistemi Navali. Data on R&D for these firms are available only for Elettronica, which devotes to R&D about 5% o f total sales. Employment in these firms has fallen since the end o f the 1980s, even if less sharply than in other defence firms. In the case o f OTO M elara, w hich is 100% defence-oriented, sales and em ploym ent have show n a dow nw ard trend since the m id-1980s, when its export markets began to decline. No efforts at diversification have been made. On the other hand, BPD D ifesa e Spazio started in the late 1980s to cope with a

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declining military market by increasing efforts to diversify towards space activi­ ties, as the diverging trends for its military and civil sales confirm. Even so, a significant fall in workforce could not be avoided. Finally, given its low military dependence, IVECO presents a different case. Its military sales have actually increased since 1991, following a sharp fall just before that, largely as a result o f fluctuating domestic demand. Its total sales, on the other hand, were badly affected by the downturn in the commercial transport market, which was also the cause o f the reduction in employees between 1991 and 1993. In 1992, local authorities in the Rome region carried out a study of the reor­ ganisation plans of military firms and found that three basic approaches were being followed: • • •

reduction o f productive capacity and employm ent (by up to 40% o f the 1990 level); widening the product range offered (military, civil and dual-use); reorganisation o f the corporate structure. (Regione Lazio, 1992).

To produce both military and civil products more effectively, firms focused specifically on: • • • •

strengthening R&D and design capacity; creating or strengthening marketing capacity; streamlining the production process; reforming the workforce, by creating a multi-faceted skills base, simplifying hierarchical structures, extending the use o f information technology and introducing Just in Time and Total Quality models.

To give one specific instance of plant-level conversion, BPD Difesa e Spazio set up at one of its sites, in January 1994, a new firm called Bag, through a joint venture with two US firms. As the name might suggest, the firm was to produce automobile air bags, replacing the earlier business of manufacturing military explosives, but using for this purpose some of the firm ’s original explosives expertise. Further expertise came from the two US firms. Hence, a plant that would otherwise have closed continued in business, although with a reduced workforce. (// Sole 24 Ore, 17 November 1994). More recently, interesting conversion initiatives have been taken by the Regional G overnments of Lombardy (M ilan) and Tuscany (Florence). In Lombardy, a regional law was passed establishing a Regional Conversion Agency, to define the most effective actions for promoting defence conversion.

ITALY

157

In Tuscany, the regional governm ent is supporting a public-private non-profit institution aim ed at carrying out research activities for im proving the regional scientific and technological infrastructure, and for encouraging conversion activ­ ities in high-tech m ilitary firms. Conversion Policy and the European Union In 1992, several Italian regions proposed a num ber o f industrial projects to the M inistry o f Industry for joint financing by national sources and the European C om m unity’s KONVER Programme. An ‘Italian D efence Industry C onversion Program m e’ was adopted, consisting o f 15 projects. Four o f these were recom ­ m ended for EC funding: • • • •

a centre for executive aircraft to be based in Genoa; a precision casting plant in L’A quila (A bruzzi), using a plant form erly pro­ ducing m issile castings; the production of air bags for the autom obile industry in the amm unition production plant o f BPD Difesa e Spazio in Colleferro, near Rome; a centre in N aples for design and prototyping o f an am phibious aircraft using advanced com posite materials.

This Conversion Program m e was criticised by the European Com m ission for being too ‘industrial’ in its approach, instead o f focusing on regional develop­ ment, as the KONVER Program m e had intended. Following am endm ents to the proposal, however, the Com m ission approved it in D ecem ber 1993. In 1994, the initial phase o f the program m e was im plem ented in Italy through collaboration betw een the M inistry of Industry and relevant regions. A fter several regional conversion plans had been prepared, the M inistry subm itted to the Comm ission in late 1994 a com prehensive National C onversion Plan w'hich, at the tim e o f writing, was still under exam ination in Brussels. European Union Structural Funds, which could be used to support diversifica­ tion or conversion activities, are underutilised in Italy: only 30% o f the funds available are actually applied for by local government authorities and small and medium industrial firms. In part, this inefficiency is due to the lack o f a tradition in collaboration between the public and the private sectors in Italy, and the associated bureaucratic difficulties. Moreover, the Structural Funds have not generally been used in Italy to promote technological developm ent in small companies. A further problem is that European funds are not intended to support the conversion activi­ ties o f large firms, in order not to distort industrial competition in Europe. Partly as a result o f this situation, the Italian defence industry has not taken an interest in prom oting collaboration betw een the European C om m ission and

158

EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

the Italian G overnm ent in developing a conversion strategy. Instead, they have argued for strict enforcem ent o f A rticle 223 o f the Treaty o f Rome in order to defend public support to the national m ilitary industry. In consequence, we can expect the Italian G overnm ent to prefer ‘restructuring’ o f military industries to conversion to civil production.

Controlling the Diffusion of Defence Technologies N ational M ilitary Exports According to SIPRI estim ates, at the beginning o f the 1980s, Italy was the fourth largest exporter o f w eapons in the w orld. At the end o f the decade, it had dropped from the list o f the ten leading arm s exporters. This decline can be par­ tially attributed to increased governm ent controls on transfers, which were pre­ viously alm ost unrestricted. (F or exam ple, Italy repeatedly ignored the UN em bargo on South Africa, and sold arms to countries at war, such as Iran and Iraq). A nother factor has presum ably been the declining technological and com ­ mercial com petitiveness o f the Italian arm s industry. Export regulations were initially im plem ented by M inisterial Decree. Then, in July 1990, a law on export controls was passed by the Parliam ent, and in 1992 this was follow ed by a law dealing specifically with the transfer o f dualuse advanced technologies. U nder the 1990 law, N ew rules fo r the control o f export, im port and transit o f military equipm ent, arm s transfers are subject to state approval and must be in accordance with Italian foreign and defence policies. The law prohibits: • • •

•

the production, im port and export o f nuclear, chem ical and biological w eapons and related technologies; exports which are contrary to the Italian C onstitution, to international oblig­ ations and to national security; exports to countries engaged in wars, countries em bargoed by the United N ations, countries w hich violate hum an rights, and countries benefiting from Italian developm ent aid program m es whose m ilitary expenditure exceeds that required for self-defence; exports when there are inadequate guarantees on the final destinations o f the items concerned.

However, certain categories of arm s transfers, such as sports and non-autom atic w eapons, the im port o f w eapons from NATO allies, and governm ent-togovernm ent exports under a military aid program m e, are exem pted from these controls.

ITALY

159

The 1990 controls list thirteen categories o f w eapons system s, som e o f w hich, such as m issiles, torpedos and how itzers, are for m ilitary use only. O thers, such as aircraft, vehicles and ships are considered dual-use items and are only subject to control if ‘specifically constructed for m ilitary u se’. In Septem ber 1991, a detailed list o f all items included in the thirteen categories was published by the M inistry of Defence. More recently, some items have been transferred to com e under the jurisdiction o f the 1992 law on the transfer o f military technologies (see below). Parliam ent has the legal right to be informed ex-post about arm s exports by a special branch o f the Prime M inister’s Office, through an annual report detail­ ing the previous y ear’s export authorisations and deliveries. In cases o f violations o f the law, the M inistry o f D efence can suspend a com pany from the National Register o f exporting com panies, and the M inistry o f Foreign Affairs can suspend any authorisation. In addition, the law provides for penalties o f up to twelve years’ im prisonm ent and fines for false declarations o f inform ation, violations o f procedure related to final destinations o f w eapons, and exports without authorisation. G eneral guidelines for export policy w ere initially provided by an InterM inisterial Com m ittee on the Exchange o f D efence Weapons. The C om m ittee was responsible for approving major, politically-sensitive arm s deals, and for defining and updating the countries to which restrictive arm s sales apply. It was also the C om m ittee’s responsibility to identify exceptional cases in which a tem ­ porary suspension o f sales o f non-autom atic w eapons m ight be im posed. In 1994, this C om m ittee was disbanded, and its responsibilities were reassigned to a less specific Inter-M inisterial C om m ittee for Econom ic Program m ing. At the international level, Italy is a m em ber o f all the main organisations involved in controlling arm s exports, including the UN, EU, G -7, COCO M (until it was disbanded), M TCR, A ustralia G roup, N uclear Suppliers G roup, O SCE, CW C and Z angger Group. The Italian G overnm ent also aim s to im prove international cooperation in controlling the diffusion of military equipm ent and technologies, both in order to make controls more effective and to prevent Italian firms from being disadvan­ taged as a result o f the restrictive Italian laws and regulations. Italy has con­ tributed to the UN Arms Trade Register, the definition o f com m on European Union criteria for limiting arms exports, a join t policy o f the G -7 countries for controlling trade o f ‘critical’ products, and the reform o f the COCOM regime together with an extended partnership with East European countries. A lm ost all arms export deals signed by Italian firms are linked to technol­ ogy transfers or offset agreem ents involving mutual exchange o f products and know-how. For instance, in the last decade, A gusta and A erm acchi exported

160

EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

aircraft to countries such as the Philippines, A ustralia, South Africa, Brazil and Singapore, and with them, related know ledge on assem bly and maintenance. On occasion, technology is also transferred to another highly industrialised country, such as the Interm arine blueprint for building one-piece G RP m ine-hunter hulls sold to the US Navy, and a license to produce the naval gun 76/62 sold by OTO M elara to the American firm FMC. The Italian Parliam ent is discussing the need to institute a requirem ent that any high-technology product purchased by the G overnm ent abroad must be accom panied by a compensatory order to an Italian firm. The aerospace industry is pressing strongly for such a regulation, particularly since 1993 and the planned acquisition o f four Canadair CL-415 fire-fighting aircraft by the Italian govern­ ment w ithout any elem ent o f industrial or technological offset. To com pound the political sensitivity, this order was placed shortly after the new ly-elected C anadian G overnm ent announced the cancellation o f an order for 35 EH-101 anti-subm arine warfare helicopters from Agusta and W estland in the UK. Export o f D ual-U se Technology In 1992, a law was passed (222/1992) controlling the transfer o f high technology products, which required checks on the final destination and use o f equipm ent and on the potential proliferation o f technologies for weapons o f mass destruc­ tion. The responsibility for controlling exports o f dual-use item s thus passed to the M inistry o f Foreign Trade. In 1993, a M inisterial Decree was issued liberalising the export o f hightechnology products to industrialised countries and stream lining the license application process. The D ecree allow s for a ‘general au thorisation’ to be granted to a m anufacturer which obviates the need for licenses for individual exports to the E uropean U nion, A ustralia, Japan, N orway, Sw itzerland, or Turkey. Only a few items, such as supercom puters, cryptographic devices and atom ic clocks, m ust follow the normal procedures. In Italy, there are no known restrictions on the nationality o f scientists or engineers w orking on international research program m es, or o f those working in universities. However, researchers em ployed by m ilitary firms must normally be cleared for access to classified data. Export control in Italy is motivated prim arily by the desire to coordinate security policies at an international level. Issues o f national security and eco­ nomic and industrial considerations have only been secondary in defining export restrictions. The Italian G overnm ent is com m itted to define a com m on hightechnology export policy in collaboration w ith its European partners, as well as the m em bers o f G-7, OSCE, N PT and other m ultinational fora.

ITALY

161

The general attitude o f the Italian G overnm ent towards military and dual-use exports neither favours nor restricts exports. Rather, Italy attem pts to establish a link betw een military exports and foreign policy. In fact, one o f the criticism s levelled at the old regim e by the C ham ber o f Deputies was that the transfer and the transit o f w eapons had become a ‘parallel foreign policy’. Consequently, the decision making authority was shifted, after the approval o f law no. 185 in 1990, from the M inistries o f D efence and Foreign Trade to the M inistry o f Foreign Affairs. However, this transfer o f pow er has been difficult to im plem ent because it is not clearly set out in law, and the M inistry o f Foreign Affairs has not been allocated additional funds to carry out its new responsibilities.

Conclusion The overall approach o f the Italian governm ent towards m ilitary and dual-use technology and industry has been to seek an institutional fram ew ork in which each country m aintains a negotiated and balanced trade position corresponding as much as possible to the status quo. Italy would not w elcom e greater com peti­ tion within Europe, nor with the other major W estern arms producers; nor is it strongly com m itted to conversion. Rather than confront the im plications o f the overall decline in dem and for military equipm ent, Italy is defending its military industrial interests; issues o f national security and more strategic econom ic con­ siderations have been o f secondary importance.

Endnotes 1

One particularly im portant law (D irections for sim plifying and controlling the procedures adopted for the central procurem ent for D efence) was adopted on 4 O ctober 1988. Article 1 o f this law establishes that the pro­ gram m es for the upkeep and m odernisation o f arm am ents systems and other defence equipm ent must be approved either by law (in case o f extraordinary financing) or by M inisterial D ecree (w here ordinary budgeting applies). In the latter case, the program m es m ust be subm itted to the relevant Parliam entary C om m ittees for approval.

2

It was only in 1990 that the Italian Parliam ent passed a law on ‘New Norms on the Control o f Exports, Imports and Transit o f War M aterials’.

3

The relevant law was ‘Intervention for econom ic sectors of national im por­ tance’, 17 February 1982.

E U R O P E A N D E F E N C E T E C H N O L O G Y IN T R A N S IT IO N

162

4

To put this into p erspective, 1991 state R & D ex p en d itu re w as estim ated at Lit. 3,225 billion, o f w hich Lit. 852 billion w as allocated to defence and Lit. 733 billion to space. The am ounts allocated to oth er o b jectives w ere m uch sm aller.

5

‘P er un futuro div erso d c lF eco n o m ia ita lia n a ’, M in istero d ellT n d u stria , D ecem ber 1993; see 11 Sole 24 O re, 15/12/1993.

Appendix: Main Economic Indicators of Major Defence Firms, 1986-1993 (Lit. billion) FINM ECCANICA GROUP

ALENIA

1986

1987

1988

1989

1990

1991

1992

1993

Total Sales

1,404

1,586

1,655

2,052

3,221

3,866

3,779

n.a.

Military Sales

980

1,030

1,100

1,130

1,970

2,660

2,600

n.a.

M.S./T.S. (%)

70

65

66

55

61

69

69

n.a.

R&D (% of TS)

38

37

36

29

25

18

n.a.

n.a.

Employment (no.) 12,906 13,662 14,177 14,903 21,981 21,836 18,433 17,354

ALENIA ELSAG SISTEMI NAVALI

1986

1987

1988

1989

1990

1991

1992

1993

Total Sales

378

405

319

342

498

209

257

324

Military Sales

n.a.

162

125

101

90

209

257

324

M.S./T.S. (%)

n.a.

40

40

30

18

100

100

100

R&D (% of TS)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

1,880

1,872

1,844

1,815

1,780

314

278

n.a.

Employment (no.) Note:

1990 data refer to the Military Division of Elsag SpA.

ITALY

163

1986

1987

1988

1 989

1990

1991

1992

1993

T o tal S a le s

n .a .

117

127

158

126

190

190

171

M ilita ry S a le s

n .a.

117

127

158

126

180

180

160

M .S ./T .S . (% )

n .a .

100

100

100

100

95

95

94

R & D (% o f T S )

n .a.

n .a .

n .a .

n .a .

n .a .

n .a.

n.a.

n .a.

E m p lo y m e n t (n o .)

n .a.

1,0 2 4

1,054

1 ,066

1 ,0 6 0

988

927

949

1986

1987

1988

1989

1990

1991

1992

1993

T o ta l S a le s

688

669

777

1 ,127

997

864

845

82 7

M ilita ry S a le s

550

495

536

890

790

650

690

650

M .S ./T .S . (% )

80

74

72

79

79

75

82

79

33

37

30

22

n .a .

n .a.

n .a.

n .a.

3 ,6 1 2

3 ,6 2 9

4 ,2 8 5

8 ,4 2 6

8 ,1 1 7

6 ,9 9 8

6 ,9 9 0

4 ,9 4 3

1986

1987

1988

1989

1990

1991

1992

1993

T o ta l S a le s

625

660

561

607

570

601

748

610

M ilita ry S a le s

625

660

561

607

570

601

748

610

M .S ./T .S . (% )

100

100

100

100

100

100

100

100

15

n .a.

15

14

n.a.

14

12

n .a.

2 ,4 3 7

2 ,3 7 9

2 ,3 2 9

2 ,2 9 4

2 ,2 4 5

2 ,1 4 9

1 ,917

1,823

E L M E R SpA

A G U STA SpA

R & D (% o f T S ) E m p lo y m e n t (n o .)

O T O M E L A R A SpA

R & D (% o f T S ) E m p lo y m e n t (n o .)

164

EUROPEAN D EFEN CE TECH NO LOG Y IN TRA N SITION

FIAT GROUP 1986

1987

1988

1989

1990

1991

1992

1993

Total Sales

490

703

1,044

938

1,007

801

899

1,039

Military Sales

343

422

424

550

560

454

449

415

M.S./T.S. (%)

70

60

41

59

56

57

50

40

R&D (% of TS)

15

12

10

13

16

24

25

n.a.

4,526

4,656

4,749

4,651

4,666

4,719

4,656

4,538

1986

1987

1988

1989

1990

1991

1992

1993

Total Sales

354

335

264

302

374

329

425

351

Military Sales

n.a.

268

210

241

190

184

197

n.a.

M.S./T.S. (%)

n.a.

80

80

80

51

56

46

n.a.

R&D (% of TS)

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2,429

3.519

2,189

2,120

2,019

1,812

1,464

1,160

FIAT AVIO

Employment (no.)

BPD DIFESA e SPAZIO

Employment (no.)

Note:

Data until 1988 refer to BPD Difesa e Spazio Division of SNIA BPD SpA.

OTHER PRIVATE GROUPS

AERMACCHI

1986

1987

1988

1989

1990

1991

1992

1993

Total Sales

230

231

257

330

337

301

323

319

Military Sales

219

220

244

314

320

286

307

287

M.S./T.S. (%)

95

95

95

95

95

95

95

90

R&D (% of TS)

14

n-.a.

n.a.

n.a.

n.a.

n.a.

14

n.a.

2,474

2,649

2,690

2,715

2,740

2,351

2,145

2,059

Employment (no.)

ITALY

165

1986

1987

1988

1989

1990

1991

1992

1993

Total Sales

150

183

205

191

151

224

196

n.a.

Military Sales

148

183

205

190

150

220

188

215

M.S./T.S. (%)

99

100

100

99

99

98

96

n.a.

8

5

5

6

8

4

5

n.a.

1,485

1,319

1,344

1,368

1,363

1,330

1,445

1,217

EL E T T R O N IC A SpA

R&D (% of TS) Employment (no.)

Source:

Coordinamento Nazionale degli Osservatori sull’Industria Militare in Italia, Lettere 2-6, Firm’s Annual Reports.

References De A ndreis, M. and Perani, G ., 1994, ‘Italy ’s aerospace industry and the E urofighter 2000 ’, in R. Forsberg (ed.) The A rm s Production D ilem m a, Cam bridge, M ass.: M IT Press. B itzinger, R.A., 1993, ‘A djusting to the D raw dow n: the T ransition in the Defense Industry’, W ashington, DC: D efense Budget Project. Bocchini, Mr, 1993, speech to ENEA sem inar on A pplicazioni 'd u a li’delle tecnologie m ilitari, Rome, December. Huffschm id, J. and Voss, W„ 1991, D efence Procurement, the Arm s Trade and the Conversion o f the A rm am ents Industry in the Community, Study for the D irectorate-General for Research o f the European Parliament. M atteucci, Mr, 1994, speech to meeting on Trends and Perspectives o f D efence Industry in Western Europe: The firm s ’ adjustm ents and the role o f public policy, Milan: U niversita Cattolica. M inistri del Tesoro, 1994, R elazione sullo stato di attenuazione del decretolegge 19 dicem bre 1992, no. 487, recante 'Soppressione d e l’Ente Partecipiazioni e Finanziamento Industria M unifattuiera-E F IM ’, Rome, 20 July. M URST, 1994, Ricerca e innovazione p e r lo sviluppo (Research and innovation for developm ent), Rome, April. Pavone, G., 1994, Ricerca e sviluppo in cam po militare in Italia, lnform azione della Difesa, No. 4, 1994. Regione Lazio, 1992, R apporto sulle possibility di valorizzazione delle risorse tecnologiche del sistem a dell 'industria civile che opera p e r la Difesa nella regione Lazio, Rapporto di Ricerca, Rome. Sandri, S. and Politi, A., 1994 / / problema della quantificazione di dati attendibili s u it’interscambio m ilitare/industrialefra 1 vari Paesi, Rome: CeMISS.

Page Intentionally Left Blank

Chapter 6

The Netherlands Ton va n O o s te rh o u t a n d W im A . S m it

Introduction The N etherlands is a relatively small country with a small defence industry, and a defence policy aligned to NATO doctrine and strategy. The D utch arm ed forces are today undergoing a substantial post-Cold W ar reorganisation, which affects the Army in particular. D uring the period 1991-2000, the D utch Army is facing a 54% reduction to 36,000 personnel (including 10,700 civilians). The A ir Force will num ber 13,000 personnel and the Navy 17,500 in the year 2000, both being reductions of 25% from the 1991 level. These changes are accom pa­ nied by a reduction in m ateriel acquisitions and a shift in defence equipm ent needs. The Dutch defence industry is fully aware o f these changes. Some sectors, like ship and radar construction, are relatively little affected, but others, like amm unition production, are facing problems. The m ajor part o f D utch defence industry depends on m ilitary sales for only a m odest percentage of its overall output. A few com panies, however, are heavily involved in defence equipm ent production, and are thus m ore vulnerable to reductions and shifts in defence spending. In terms o f expenditure, the D utch Armed Forces buy som e 60% o f their m ateriel needs from D utch com panies and the rem aining 40% from abroad. Apart from Navy surface ships and subm arines, no large w eapon platform s are built in the Netherlands. Tanks and m ilitary aircraft, including helicopters, are bought abroad. The Dutch aerospace com pany Fokker, until its collapse in early 1996, was, however, able to produce military transport aircraft, derived from a civilian machine.

The Organisational Context Dutch defence technology developm ent involves the M inistries o f D efence (M oD) and o f Econom ic Affairs (M oEA). The latter’s interest is confined to the lim ited num ber o f areas in w hich the D utch defence industry operates, and hence is narrow er in scope than that o f the M oD. M oreover, unlike the MoEA the M oD ’s interests are not confined to stim ulating the developm ent of technology and equipm ent by the Dutch defence industry. Rather, the M oD is

167

168

EURO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITION

interested in maintaining a broad technological base o f know-how, in order to be able to operate as a know ledgeable customer. This im plies the ability to evaluate and test technology and equipm ent offered either dom estically or from abroad. In som e cases, the M oD also w ishes to influence the specifications o f new equipm ent. M oD ’s R&D expenditures are to a great extent devoted to these latter tasks. A relatively m odest sum o f money is aim ed at the developm ent o f new technology and new equipm ent, for exam ple when the future m ateriel requirem ents o f the A rmed Forces involve technologies or products that are not readily available o ff the shelf. The role o f the M oEA is secondary as regards both the procurem ent of defence equipm ent by the M oD and the developm ent o f defence technology by Dutch industry. The M oEA is the ch ief D utch actor in negotiations on offset orders for D utch industry in cases o f Dutch purchases o f defence m ateriel from foreign com panies. These offsets may be direct, such as co-production and jo in t developm ent, or indirect, such as placing orders with Dutch com panies in other, som etim es civil, areas. Indirect offsets may also involve opening a subsidiary in the N etherlands o f the foreign com pany selling to the MoD. Dutch policy is that offset orders should contribute to the technological com petitiveness o f Dutch industry at large. At an early stage in the defence acquisition process, negotiations on the possibilities for purchasing from Dutch com panies are held betw een the MoEA and Dutch industry (or its representative organisation NIID — see below). Som etim es, the M oEA subsidises dom estic purchases to make them more attractive to the MoD. Its main aim in such cases is to help Dutch industry. The Dutch defence industry has established an organisation, the Foundation for Dutch Industrial Participation in Defence Procurement (Stichting Nederlandse Industriele Inschakeling bij D efensieopdrachten — NIID), to prom ote its inter­ ests. NIID provides the industry with information on defence needs and materiel projects, mediates in cases o f compensation orders, coordinates industrial activi­ ties in certain defence technology areas, and functions as a spokesman for the industrial membership. It also serves as the secretariat for the Dutch delegation to the European Defence Industrial Group (EDIG). N ational defence technology policy used to be set out in the Defence Technology C oncept (D TC, D efensie Technologie C oncept, TK 23400, X 2, p. 43). The DTC was part o f the Integral D efence Planning Process (IDPP), which is revised annually. However, despite the name, it was more accurate to consider the DTC as a fram e o f reference rather than an established plan. It aim ed to relate future operational tasks o f the arm ed forces to technological needs and requirem ents. To this end, tasks were subdivided into basic elem ents called ‘m issions’; each mission was then translated into a specific technology

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169

need, defined in terms o f requirem ents specified by the arm ed forces. To avoid duplication, the actual m ateriel developm ent projects w ere grouped into systems. A fter a hiatus o f som e years, in 1993 the full cycle o f long-term planning started anew, but the organisation o f the DTC itself rem ained problem atic. In an explanation accom panying the 1994-95 defence budget (TK 23900, X 2, p. 44) the DTC was criticised as too oriented tow ards the near term and involving an overly laborious bureaucratic process. This approach w as, therefore, to be dropped, and replaced by a procedure more attuned to the ID PR The DTC appears, m oreover, to have been a w holly internal M oD procedure, to which parliam ent had little access. A bout 1% o f the annual defence budget is spent on R&D, or Dfl 156 million per year. From this am ount, TN O D efence R esearch (TN O-D O, som etim es described as the ‘house-laboratory’ o f M oD ) receives som e Dfl 100 million per year as a lum p sum from the MoD. TN O -D O com prises three laboratories: the Physics and E lectronics L aboratory (FEL, Fysisch en Electronisch Laboratorium ), the Prins M aurits Laboratory, and the Institute for H um an Factors. (See A ppendix). The C om m ission for the D evelopm ent o f Defence M ateriel (CODEM A — see below ) receives Dfl 27 million from the national defence R& D budget. M ateriel projects conducted by the A ir Force receive Dfi 11 million from the defence R&D budget; A rm y and Navy projects are funded at the levels o f Dfl 4 and 5 m illion respectively. NATO research receives Dll 5 m illion, which is spent on military technological developm ent. TN O -D O receives a further Dfl 21 million from the A rmed Forces for R&D on specific projects, som e D ll 9 million in other subsidies and Dfl 24 million from civilian sources. O ther m ilitary R&D takes place at the N ational A erospace Laboratory (NLR, which does aviation and space research, with a turnover in the defence sector o f Dfl 42 million/year, o f which som e Dfl 25 million is earm arked for projects and Dfl 1 million is core funding) and at the M aritim e Research Institute N etherlands (M A R IN , with a Dfl 3 m illion annual budget). Taken together, D utch defence R&D am ounts to over Dfl 200 m illion. Virtually no m ilitary research is carried out at Dutch universities. M ost industrial defence R&D is done in close cooperation with MoD, and it is often connected with concrete defence m ateriel projects. CO D EM A is an arrangem ent for funding defence technology developm ent at the Dutch indus­ try, in which the M inistries o f Defence and o f Econom ic Affairs and a com pany each contribute one third o f the cost o f R&D projects. The initiative for projects often lies w ith industry. Proposals for funding are judged as to their military and econom ic m erits and for their relevance to the D efence T echnology

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Concept. Two types o f projects are supported. Technology developm ent pro­ jects are directed at new technologies related to specified future defence requirem ents. M ateriel p rojects involve the developm ent o f a prototype. CO D EM A funds are used fo r several projects o f each type, including radar technology, new m aterials/com posites, electro-optics, artificial intelligence and sim ulation technology. Dutch D efence Industry In the period 1984-1988, the average annual turnover o f the D utch defence sector was Dfl 3.3 to 3.5 billion, accounting for about 1.2 to 1.4% o f overall industrial turnover. The defence industry consists o f som e 100 to 125 com pa­ nies, em ploying 15-20,000 people, or between 1.9 and 2.5% o f the entire Dutch industrial w orkforce. Dutch m ilitary production usually takes place in rather small, specialised departm ents o f mainly civilian com panies. Parts o f the elec­ tronics industry, the am m unition factories and the naval ship building industry are, however, predom inantly military. A 1994 official estim ate (AMP, 1994) suggested that o f the 15-20,000 em ployees in defence firms, som e 5000 were fully engaged in military produc­ tion. Em ploym ent in the defence industry w as estim ated to have dim inished since 1988 by about 20%, or about 4000 personnel. These numbers were derived from the aerospace, vehicles, m aterials, electronics and am m unition sectors (AMP, 1992). A nother estim ate (N IID , M arch 1993) m entions an aggregate turnover o f Dfl 3 billion and an overall em ploym ent o f 14,000. It was also esti­ m ated that som e 20 com panies are dependent on military sales for more than 50% o f their business, but that the general dependency on military sales varies from 10 to 20% . A m ong those firm s highly dependent on m ilitary sales are found mainly system s producers; the other firm s are usually sub-system pro­ ducers and sub-contractors. Some data on turnover, em ploym ent and exports o f the D utch defence industry are given in Table 1, while details o f the main firms involved in defence production are given in Box 1. Ten Largest D efence Projects C urrently under D evelopm ent The largest current defence projects include som e developm ent projects, but others that should be considered as simple procurement. The Dutch Navy planned to procure Dfl 758 million o f equipm ent in 1994; the Army Dfl 1,035 million; and the Air Force Dfl 876 million. In the succeeding five years, the Navy, Army and the A ir Force planned to spend Dfl 4,151, 5,856 and 6,576 million, respectively, on equipm ent. Adding in

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T ab le 1: T u rn o v e r, E m p lo y m e n t a n d E x p o rts o f D u tc h D e fe n c e In d u stry , 1 9 8 5 -9 2 Year

Turnover3’

Employm ent

Exports0*

1985 1986 1987 1988 1989 1990 1991 1992

1488 1525 1478 1655 1525 1519 1453 1432

26000 26000 24000 25000 23000 22000 21000 20000

488 406 475 318 488 390 366 328

a) M illions of constant ECU (1990 base). Source: SOT (1993); (G RIP data).

Box 1.

Main firm s involved in Dutch defence production

Shipyards: The Royal Company ‘De Schelde’ (KSG); main activities arc design and con­ struction of naval craft, installation of integrated sensor, weapons and command systems, comm unications and navigation equipment. Has 3500 workers employed in ten business units. Annual turnover is Dfl 750 million, and the stated depend­ ence on military sales is 25%. International cooperation includes the shared devel­ opment and production of a Supply Ship (AOR: Auxiliary O iler Replenishment Ship) and an Amphibian Transport Ship with Bazan of Spain, and developm ent o f an Air Defence and Command Frigate with both Bazan and ARG E F-124, a consor­ tium of German shipyards. The Rotterdamsche Droogdok M aatschappij (RDM): produces ship propulsion systems, ship-board gear for handling helicopters, and various subm arine com po­ nents. Has developed its own subm arine for export, the Moray, and carries out m aintenance and upgrading o f field artillery, tanks and air defence guns. Employment was reduced from 1300 in 1991 to about 800 in 1993, with more recent plans aiming down to 500. In 1991, turnover was Dfl 112 million and pro­ duction was worth Dfl 231 million. RDM ’s overall dependency on military sales is difficult to estim ate, but is known to be decreasing rapidly. On the other hand, winning export orders for subm arines by 1996 has now become vital to the sur­ vival o f R D M ’s military activity.

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Van der Giessen-de Noord Marinebouw (GNM): builds small sophisticated naval vessels, large hulls and superstructures in glass fibre-reinforced polyester. GNM has built the Dutch tri-partite mine hunters, a combined project o f the Dutch, French and Belgian navies, and a series of landing craft for the R.N. Marines Corps. Employment in 1992 was 730, and the turn-over was Dfl 292 million. GNM worked with Beliard Polyship (Belgium) to develop a coastal waters mine hunter for the navies of Holland, Belgium and Portugal. (It was not acquired by the Dutch navy, due to the 1992 cuts.) GNM has changed its main naval focus from long-term production to short-term ren­ ovation and maintenance. Its main activities are in the civilian market. Electronics Van Rietschoten & Houwens Defence Systems (R&H): involved in design, devel­ opment and production o f complex electrical installations and computer systems, mainly for naval platform s. R&H produces system s integrators, rudder roll stabilisation units, platform automation and data-processing systems for frigates and submarines, and test and training simulators. Total R&H employment stands at 2,000, including both military and civilian production personnel. Defence turnover is buried within the gross turnover of the ‘technical’ part o f the Intematio-M iiller group, which includes R&H, other Dutch and foreign com panies, and which amounts to Dfl 1,123 million, for 6,400 employees. The R&H share of this total is estim ated to be about Dfl 300 million. Hollandse Signaalapparaten (HSA): now part o f the French Thomson-CSF, spe­ cialises in electronic equipm ent for defence applications, air and sea traffic control, and military telecommunications. Designs and builds radar, optronics and sonar, data handling and processing equipm ent, displays, and weapon control equipment. HSA reduced its employment from 4800 in 1988 to some 3200 personnel in 1992. Turnover in 1992 was Dfl 662 million. International cooperation includes R&D on Active Phased Array Radar System s with Northern Telecom (Canada) and TST (Germ any), production o f short-range defence systems against incoming missiles (close-in w eapons system ), and others in cooperation with its parent company Thomson-CSF, such as the developm ent o f a naval version o f the Crotale system. D elft Instrum ents: produces im age intensifiers, night vision equipm ent, laser range finders and related equipm ent. In 1992, em ployees numbered 1730, and turnover was Dfl 385 million, of which only Dfl 39 million was attributed to the defence branch. Due to diversification, Delft Instrum ent’s dependence on the m ili­ tary market has dim inished considerably, to about 10 percent. Am m unition Factories Eurometaal: produces medium and heavy calibre ammunition and other pyrotechnical products. O wned by the Dutch state, D ynam it N obel AG, and O erlikonC ontraves AG Pyrotech. The rapid decline in am m unition acquisitions by the Dutch and German armed forces has put the company in a difficult position. It has

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diversified into the civilian market through buying the firms Intcrgas and Euro Mul-T-Lock. Employment stands at around 800, down from 1200 a few years ago. Its turnover in 1992 was Dfl 155 million. Between 1991 and 1992, defence-related sales alm ost halved from Dfl 205 million to Dfl 118 m illion, w hile civilian turnover has increased from Dfl 2 million to Dfl 37 million. N W M De Kruithoorn: produces medium calibre ammunition, com ponents and heavy metal penetrators. Owned by R heinm etall GmbH since 1975; it has developed the missile piercing discarding sabot ammunition for the ‘G oalkeeper’ anti-missile gun. The existing know-how in metallurgy has enabled De Kruithoom to turn to civilian markets with its so-called ‘Metal Injection M oulding’ technology. Aerospace Fokker: Taken over by Daim ler Benz Aerospace in 1993, and allowed to collapse in 1996. Produced the Fokker 50 Maritime Enforcer, the Fokker 60 Transporter for the Dutch Air Force and builds the F-16 under license, as well as various systems and equipm ent, and some com ponents under subcontracts. Produced mainly for the civilian sector. In 1992, defence turnover amounted to some Dfl 300 million, em ploying 1,100 personnel. Trucks, etc. DAF Special Products: manufactures landing gear, actuators, helicopter transmis­ sions, rotor components, armoured infantry fighting vehicles, recovery crane vehi­ cles, recovery tanks, main battle tank components, simulators and training systems. R&D currently centred on the M ulti-Purpose Vehicle, a light reconnaissance vehicle. In 1993, DAF SP was taken over by a combination o f Van Halteren Holding and Liebherr, a Swiss company. DAF SP has a defence turnover o f Dfl 55 million and employs 195 personnel, almost all in the defence area. New M aterials Dutch State M ines (DSM ): develops new light-w eight materials: engineering plastics, com posites and fibres. DSM is a multi-national company that operates mainly on the civilian m arket. It has a turnover o f Dfl 10 billion and 25,000 employees. Its D yneema fibres are used for ballistic protection in vests, helmets, protective shields, arm our and impact plates. Royal Nijverdal Ten Cate is an international concern with two core activities: plastics and advanced textiles. The company m anufactures fibres, resin systems, specialised textiles, plastics, fabrics, prepregnated and lam inated m aterial for protective clothing, w eather protection systems and anti-ballistic protection. The largest part o f its production is for the civil m arket. Em ploys 4300 personnel; turnover is Dfl 1.1 billion. Defence production is centred in Ten Cate Protect, Ten Cate Technical Fabrics, Nicolon, and Ten Cate Advanced Composites.

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the projections for the five years after that (i.e., to the year 2004), the figures are Dfl 10,028, 12,089 and 13,391 million, respectively. The Navy’s largest projects are as follows: • • •

Building eight new M-frigates, a programme which is nearly complete, at a total cost of some Dfl 3,600 million. Building a new supply ship: Dfl 75 million (total Dfl 78 million). Building an amphibian transport ship (due by end o f 1997): Dfl 78 million (total Dfl 249 million).

In addition, mine-hunting and sweeping capabilities are under study, and updates to existing systems are envisaged. The NH-90 helicopter is due to replace the Lynx, and the sensor systems o f the Orion patrol aircraft are being upgraded. The Army has a greater number o f smaller projects. The largest are: • • •

Light trucks: Dfl 48 million (total Dfl 140 million). Combat Net Radio: Dfl 57 million (total Dfl 390 million). Various logistics projects: Dfl 98 million (com munications projects, Dfl 67 million, manoeuvres projects, Dfl 35 million and infrastructure, Dfl 217 million).

The Air Force is involved in a smaller number o f costlier projects: • •

• •

The M id-Life Update o f the F-16 fighter: Dfl 129 million (total Dfl 1639 million until 2003). The recent purchase o f two heavy and four light air transport planes: Dfl 71 million (total Dfl 469 million); and 13 Chinook heavy transport heli­ copters as well as 17 medium weight transport helicopters, at a total price of Dfl 1,226 million. Acquisition and refit o f two com m ercial airliners as air tankers: Dfl 123 million (total Dfl 166 million). The purchase in 1995 of the Apache attack helicopter, for which a budget of Dfl 1,616 million was available.

Budgetary Trends Past and projected expenditures on defence equipment are shown in Table 2. Expenditure on military R&D has changed little over time and amounts to about 1% of the defence budget, or about Dfl 150 million (75 million ECU). In view o f the declared importance of the use of advanced technology in defence it is

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likely lhat Ihis — adm ittedly relatively sm all — am ount w ill not be cut and m ay even grow slightly. Table 2 suggests at first sight that the defence budget has hardly been affected by the end o f the C old War. In current prices, the actual total defence budget is now at an all-tim e high. It is expected to decrease slightly in the com ing years. W eapons procurem ent stands at a relatively low point, but is due to rise again in connection w ith the large m ateriel projects currently in the pipeline. Total pro­ curem ent has been relatively stable, but seem s set to dim inish. In the years to com e, how ever, a relatively heavy em phasis w ill be placed upon w eapons p ro ­ curem ent, due in part to the changed requirem ents o f the Arm ed Forces for large purchases such as transport helicopters and reconnaissance vehicles. In addition, acquisition plans for the years up to 2003 show the N avy spending heavily on replacing the Trom p and K ortenaer frigates, and on buying the N H -90 helicopter and the Troika m ine-sw eeping system. R eductions in the defence budget are being achieved mainly by selling o ff surplus equipm ent and reducing personnel. We should, how ever, be cautious over these figures and projections. T here are technical disputes over the procedures for inflation correction. We are also in a period o f frequent interm ediate budget cuts. A nd the cost o f U N m issions has som ehow to be met. Table 2: D utch M ilitary E xpenditure, 1986 -1 9 9 8 (D fl m illion, current prices) Year

Defence budget

Total procurement3’

Large materiel projects

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

13766 13854 13723 13966 14201 14206 14087 14092 13415 13614 13686 13667 13640

5635 5526 5062 5766 5831 5331 5410 5240 4421

3791 3501 3023 3193 3037 2648 2660 2498 2432 2922 3158 3422 3458

a) includes maintenance, repairs, buildings, consumables. Sources: The figures for the years 1993 and 1994 are from the 1993 and 1994 Defence budgets. The figures for 1995 to 1998 are based on projections in the MoD’s Priorities Whitebook.

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Table 3: Dutch Defence Cuts, 1990-1999 Year

Total cuts since 1989 (DA million)

Cuts against zerogrowth (Dfl million)

Cumulative reduction, as percentage

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

571 1,024 1,537 2,776 3,127 3,697 3,964 4,355 4,562 4,562

501 809 1,194 2,306 2,545 3,005 3,143 3,404 3,480 3,480

4.1 6.6 9.1 17.9 19.9 23.4 24.5 26.2 26.7 26.7

Source:

TK 23900, X n o . 8,

p.

15, 4

N ovem ber

1994.

M oreover, a new governm ent took officc in August 1994. In N ovem ber of that year it announced new cuts over and above those already scheduled, together with the abolition o f conscription from 1998. A thrce-track policy was proposed o f savings on overheads and support costs, intensified international coordination and cooperation, and the slowing down o f major investm ent pro­ jects and so-called ‘structural m easures’, which should enable the M oD to save money while staying within previous Priorities W hitebook force goals. MoD budget cuts for the years 1995-98 were projected to rise progressively from Dfl 448 to 664 per annum. The accum ulating effect o f cuts since just after the fall of the Berlin Wall is shown in Table 3. It seem s unlikely that these will be the final cuts in the defence budget.

Policy Towards Defence and Dual-Use Technology G overnm ent Policy Statem ents on the Future o f the National Defence Technology Base D efence and dual-use technology policy is not prom inent on the Dutch political agenda. Insofar as such policy exists, however, it has been subject to certain reorientations in recent years. G overnm ent defence technology policy only began to be made explicit with the release o f a W hite Paper in 1984 by the then Deputy M inister for Defence, van Houwelingen. Even then, well before the end o f the Cold War, the W hite

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Paper linked defence technology policy to a more general industrial policy aimed at innovation and technology developm ent. The national technological and indus­ trial input to fulfilling military needs was to be strengthened. Domestic defence com panies were to be involved in the process o f m ilitary materiel choice at the earliest possible stage. G overnm ent would be willing to incur costs if this might im prove chances for technological advantages to be realised by the industry, and if it would stimulate international — preferably European — cooperation. The policy for offset orders would be similarly directed (TK 19157, no. 1-2, p. 12). According to the W hite Paper, defence technology policy would be aim ed at bringing together operational plans for fulfilling m ilitary needs, the dom estic potential o f scientific and technological research in the N etherlands and the ability o f domestic industry to apply new technologies in developing and produc­ ing defence materiel. Cooperation in IEPG program m es was to be encouraged1. These policy goals would be im plem ented via the COD EM A-arrangem ent, and coordinated by an interdepartm ental w orking group — the Steering G roup for D efence and Dutch Industry2. The A dvisory Council on M ilitary Production (A M P — see below ) would advise on coordinating governm ent and industry regarding defence technology policy (TK 19404, no. 1-2, pp. 17-18). T here w ere, how ever, problem s in bringing together the Long Term Requirem ent Plan (LTBP) and the D efence Technology C oncept (D TC) (see above) as Dutch industry lacked the required know-how (TK 19157, no. 5, p. 3). Accordingly, the Deputy M inister for Defence, together with the Steering Group for D efence and D utch Industry, issued a second W hite Paper in 1988, on International D efence M ateriel Relations, which placed a greater em phasis on international cooperation. It was considered o f great im portance for the arm ed forces that a certain national defence industrial capability be m aintained that could produce com petitively in order to avoid undue dependence on foreign pro­ ducers and governm ents. On the military side, NATO-wide standardisation and com m on defence activities were to be actively sought; from an industrial point o f view, participation in m ilitary program m es was preferred to offset orders. Here, however, for the first time, mention was made o f the importance o f liberal­ ising the defence equipm ent market as a long-term goal. In the interim, the prin­ ciple o f ‘juste retour’ was to be kept in mind, im plying a preference for return orders or proportional participation in multinational projects to lead to indirect com pensation or licence production (TK 20679, no. 1-2, pp. 6, 12-13). A W hite Paper on the military industry, issued in 1989, just after the end of the C old War, addressed directly the future o f the D utch defence industry (TK 21886). The Dutch governm ent w as quick to announce deep cuts in its future defence budgets, which seriously affected expected military procurem ent orders. In the pream ble to this W hite Paper, the changed international situation

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was described, and international overcapacity in arm s production was given as the rationale for restructuring and possibly closing dow n sizeable parts o f the arm s industry. The dom estic industry, according to the W hite Paper, would be forced to concentrate and to produce more efficiently and on a larger scale, to meet the challenges posed by the ‘ 1992’ Single European Market. However, the W hite Paper noted that the com petitive strength o f the US arm am ents producers and o f the em erging w eapon producing countries w as even more important. At the contextual level, the W hite Paper considered it to be normal that m arkets wax and wane. The free-m arket gospel w as presented as econom ic w isdom , according to w hich it was the responsibility o f the entrepreneur to anticipate m arket developm ents and to react in a tim ely and alert manner. Individual com panies that failed to adapt to the new international m arket situ­ ation could not be helped by the governm ent. M ention was again made o f the COD EM A arrangem ent, and o f the need for international cooperation, prefer­ ably in IEPG projects. Free-m arket rhetoric was used once more to argue for the abandonm ent o f Article 223 o f the Treaty o f Rome. The military industry was treated as a sector o f norm al industrial activity in an extensive section on the general technology policy instrum ents o f the M inistry o f Economic Affairs. Shortly after this, a new D efence W hite Paper was published (TK 21991, no. 2 -3 , 1991, pp. 187-193). It introduced a wholly new defence policy, leading tow ards a substantially reshaped arm ed service characterised as ‘smaller, more versatile [... and perform ing] different tasks’. The W hite Paper stated that MoD would consider buying nationally in the case o f potentially successful, as well as dem onstrably superior, com panies. The Dutch defence industry was, however, advised not to depend wholly upon the MoD, which would place its own needs above those o f industry. Policy regarding military technology was also changed som ewhat, although in slightly contradictory ways. ‘Seen from the national military-strategic point of view, there is no need for a military industry’ said the W hite Paper. From the international perspective, nevertheless, there continued to be a need for an A lliance military industry. This being the case, it seemed sensible to maintain part o f it in the Netherlands. In particular, the industry should be m aintained at a sufficient level to keep the N etherlands involved in international developm ent and production projects, with the ultim ate aim being the ‘Europeanisation’ of defence equipm ent. A certain level o f indigenous know ledge w ould also be needed to evaluate the technical qualities o f weapons system s used by the Dutch military. In this respect, a com parison between buying new defence materiel ‘off the shelf’ versus co-developing equipm ent had concluded that the form er was less risky and generally cheaper. That being so, there was a real risk that, in the tougher financial clim ate, com panies m ight m ove out o f defence R&D, so

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threatening the national d efence technology base. O ne consequence o f such a possibility m ight be that m ore governm ent support m ight have to be given to the T N O -D efence R esearch laboratories. T here w as a fu rth e r reo rien tatio n o f d efen ce p olicy in early 1993. Tw o W hite P apers, on o ffset p olicy (T K 2 2 826) and on p rio rities (T K 22975, P rio riteiten n o ta) w ere issu ed . Industrial p olicy w as rev iew ed in the form er. D efence industrial policy again w as treated as part o f general industrial policy as defined and im plem ented by the M inistry o f E conom ic A ffairs. T he regrettable absence o f an open E uropean or NATO defence technology m arket forced the D utch govern m en t to c o n d u ct a vig o ro u s o ffset o rd ers policy: ‘an effectiv e national offset policy therefore rem ains a vital precondition, if a D utch defence industry is to be viable in the present uneven fie ld ’, the aim being to m aintain the industry’s capability to participate in international developm ents. T he extra costs arising from international coop erativ e program m es w ould, how ever, be acceptable only in exceptional cases, such as if D utch technological know -how w ould thereby be enhanced, if it was likely to result in specific spin-offs, o r if it enabled the M oD to involve D utch firm s in repair, m aintenance and upgrading work. It w as considered im portant that D utch com panies be given the o p p o rtu ­ nity to m aintain or even strengthen their position as co-producers or sub co n trac­ tors. O nly then w ould the N etherlands be able to play a role o f any substance in the area o f defence technology (T K 22826, no. 1 -2, p. 21). In the Priorities W hite Paper (TK 22975, no. 2, p. 61) yet heavier cuts in procurem ent and in virtually all parts o f the arm ed forces w ere announced. The sam e argum ent about M oD needs prevailing over industrial requirem ents was repeated, together w ith the qualification that an indigenous m ilitary industry was still needed for the N etherlands to rem ain involved in international projects and to retain custo m er exp ertise. A lthough the M oD took care to keep industrial interests at a rm ’s length, the form ulation used this tim e allow s the interpretation that these interests w ere nevertheless now considered slightly m ore im portant than they had been in the 1991 W hite Paper. All the sam e, a clear w arning was given that a so-called ‘structural co n cern ’ for the national industry w ould not degenerate into re-nationalisation o f D utch m ilitary procurem ent. T his ‘structural c o n cern ’ w as to consist in attracting industrial cooperation in the earliest phases o f studies on the needs and requirem ents for new arm a­ m ents, through the industrial interest organisation N IID (F oundation for D utch Industrial Participation in D efence Procurem ent). D utch industrial capacity in electronics, m arine vessel, aircraft and land transportation vehicles production and fibres for com posite m aterials w ere to be stim ulated in particular. M ention o f industrial interest g ro u ps lead s naturally to referen ce to the A dvisory C ouncil on M ilitary P roduction (A M P) w hich is given an im portant

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voice in governm ent-industry relations3. Thus, the 1990 W hite Paper on the D utch D efence Industry had included an annexe by the AMP strongly recom ­ m ending greater governm ent com m itm ent to, and support for, the dom estic industry, accom panied by less abrupt truncation o f the defence budget. Despite this privileged platform , however, the AM P evidently did not persuade the gov­ ernm ent in 1990. This sam e divergence o f view s resurfaced in the 1991 Defence W hite Paper, where D utch defence industrial interests appeared alm ost as an afterthought, with industry being advised not to look to M oD for its survival. In the P riorities W hite Paper o f 1993, how ever, the AM P finally succeeded in exerting more influence. The W hite Paper contains a section in which the AMP advice is included in full. M oreover, the W hite Paper lists a set o f industrial capacities that are to be particularly fostered4, a list that coincidcs precisely with the advice o f the AMP. Since, however, the governm ent is reviewing its system o f advisory councils, the future o f the AM P was uncertain at the time o f writing. D ual-U se Technology As with defence technology issues in general, so dual-use technology in particu­ lar is not a prom inent political issue in the Netherlands. However, a 1985 W hite Paper on D efence Technology did discuss the relations betw een m ilitary and civilian technological developm ent (TK 19404, no. 1-2, pp. 10-17). It stated that in a num ber o f industrialised countries the developm ent o f defence techno­ logy had an im portant role to play in strengthening the national industry’s com ­ petitiveness and technological capacities, and that it was com m on in other countries for key technologies developed for both military and civilian use to be paid for by governm ent. The M inistries o f Econom ic Affairs and o f D efence undertook to investigate the possibilities for transferring technology developed by TN O -D efence Research to industry at large, but m aintained that Dutch m ili­ tary requirem ents would remain the main focus o f such R&D. The M inistries also recognised that D efence might well profit from civil R&D results. Two com m ittees were charged with assisting with the form ulation o f policy regarding defence and civil technological developm ent: the Interdepartm ental Steering G roup for D efence and the Dutch Industry, and the AMP. These statem ents on civil-m ilitary relations were, however, o f a very general nature, and did not indi­ cate any special interest with dual-use technology. In the first post-C old W ar W hite Paper on the Dutch defence industry, the issue o f D ual-use/D ual-purpose technology was raised again (TK 21886, no. 2, 1990-91, p. 6). The M inistry o f Econom ic A ffairs was asked to take civilian applications o f military technology and product R&D into account when supply­ ing COD EM A funds to industry. It was added that G overnm ent would thus be

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able to contribute both to the upscaling o f production, spreading risks and costs, and to the adaptive capacities o f the firms. The W hite Paper also stated that these dual-use/dual-purpose technologies would make com panies less dependent on defence activities. In its policy on indirect offset orders, the M inistry o f Economic Affairs also aim ed to link defence technology cooperation projects with existing M oEA pro­ gram m es in inform ation-, m aterials-, bio-, and environm ental-technology, and at using dual-use technology to m inim ise industrial dependence on m ilitary pro­ duction. Indeed, dual-use technology was deem ed to be o f such im portance that the M oEA had also already asked the Policy Studies D epartm ent o f TNO to report on the area in order to enable inform ed discussion o f policy options (Schipper, 1992). The resulting study included a survey m apping the interac­ tions between civilian and defence industry by areas o f research, technology and materiel developm ent. It also restated the main points o f the 1985 W hite Paper on D efence Technology on this subject, outlined above, as well as arguing that the defence R&D activities taking place at M A RIN and NLR w ere already largely integrated with civil R&D. The study was extensively quoted in the W hite Paper on O ffset Policy that was issued at the end o f 1992. In particular, the W hite Paper referred to sections o f the TNO study that focused on com pany-oriented advice on conversion, repeating the point that the prospects for successful conversion would be greatest for com panies that were not internally sharply divided into civil and m ilitary branches, and that had inhouse advanced production technology, a clear insight into civilian m arkets, and finance available for carrying out a w ell-defined conversion plan. The gov­ ernm ent refused to respond to som e industrial dem ands for clear and unam ­ biguous choices for a lim ited num ber o f high technology spearhead projects, of military o r dual use orientation. In the end, therefore, the TNO study failed to initiate any serious discussion on dual-use technology. It thus fitted the general pattern in Dutch governm ent o f not giving great attention to this issue, a con­ clusion that is reinforced by further noting that, under the COD EM A schem e, any dual-use elem ent is only a secondary criterion in ju d g in g the m erit o f industrial proposals. O verall, then, Dutch defence industrial policy rem ains firmly em bedded in general industrial policy, with civil and defence-funded R&D programmes being usually conducted separately. In most cases, the prom otion o f synergy is left to com panies’ hum an resources policies and, in the case o f TN O , to the TNO Board. Only a slight shift o f em phasis in governm ent policy is noticeable, from a very lim ited interest in m aking R&D w ork ‘both w ays’, to encouraging com panies to turn to civilian products via the route o f dual-use technologies (TK 22826, no. 1-2, 1993, p. 21).

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Developm ents in R esearch Institutions There is no obvious attem pt by the governm ent to involve a w ider range o f research institutes in defence activities. Since most Dutch defence technology R&D is done at TN O -D efence Research (TN O-D O), we shall focus on develop­ ments there. As we have seen, it was suggested in the 1993 Priorities W hite Paper that TNO -D O might have to assum e a larger share o f Dutch defence R&D, to com ­ pensate for possible dim inished com pany interest in defence technology. In fact, the M oD has already begun to increase the project-related share of its financial contribution to TNO , and to decrease the general-purpose (lum p sum ) share. Perhaps more significantly, in the past few years, the civilian-financed share of R&D by TNO -D O R&D has increased from som e 6% in 1986, to 14% in 1992. TNO -D O has conducted R&D in areas like aeronautics, space, process safety, traffic safety, logistics, labour environm ent, inform ation system s and telematics. It now considers ‘dual-use’ technologies as prom ising assets, and favours both spin-off and spin-in to military projects. One exam ple is m aritim e traffic control with radar-identification, originally developed for the Navy, then used in Rotterdam harbour, and now applied in military helicopters. A nother is the pro­ duction of ignition m aterials for the Ariane rocket, based on existing explosion know-how. Possibly the most im portant change in T N O -D O ’s R&D priorities, however, has been in the attention now paid to operations research and sim ulation techno­ logy. These new priorities have been form ulated by a governm ent that has been sending Dutch soldiers on United N ations missions all over the w orld. M eeting these new operational circum stances is now an im portant goal for TN O -D O research. Participation in E UC LID and O ther International C ollaborative Defence Research Projects The N etherlands is eager to participate in international defence technology pro­ jects and programmes, such as EUCLID, in order to enlarge its know-how and to strengthen its technological position. Industrial participation in the Research and Technology Projects (RTPs) o f EUCLID is funded within the fram ew ork o f the COD EM A arrangem ent, with NIID often playing a m ediating role. The N etherlands is the lead nation for six o f the RTPs: advanced m aterials and structures, light w eight arm our optim isation, know ledge engineering, crew assistance, low frequency underw ater sound propagation, and training system concepts for sim ulator based m ilitary training.

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Industrial Defence Technology C apabilities We discuss below the overall strategies adopted by firm s in the face o f the changed m arket conditions o f recent years. In terms o f m aintenance o f defencerelated technological capabilities, how ever, we can note here that com panyinitiated defence R&D in the N etherlands is o f a rather lim ited nature. There are som e projects in the very few highly defence-dependent com panies, using w her­ ever possible CODEM A or EUCLID funds. In addition, the NIID has identified a num ber of defence-related ‘industrial ch ain s’ that it believes are worth pre­ serving, meaning by this term industrial niches that contain to som e degree ele­ m ents o f personnel education, R&D, system builders or integrators, subsystem producers, m aintenance capacity and expert customers. The niches listed include naval technology, parts o f the aircraft industry, simulation, com m and and control system s, night vision equipm ent and vehicle tyres.5 As we have already seen, both the AM P and NIID, as representatives o f industry, have criticised the governm ent for its alleged lack o f a long-term indus­ trial vision, and for lack o f support in m atters like export and national materiel acquisition. They believe that T N O -D O and C O D EM A subsidies should be more intentionally geared tow ards possibilities for industrial follow -up activi­ ties. A ccording to AM P and NIID, national policy should be more concerned with future industrial needs than with largely symbolic gestures towards an open European defence materiel market. Policies on International Com pany R elationships The governm ent has noted a trend, which it has neither encouraged nor discour­ aged, for D utch defence com panies to team up with foreign ‘partners’. Recent policy statem ents on international cooperation have, however, given two reasons why international defence materiel projects is considered beneficial. First, there are econom ic and m ilitary advantages in standardisation, inter-operability, econom ies o f scale and avoiding duplication o f effort. Second, international cooperation would enhance the general political and econom ic cohesion am ong NATO partners. In the contexts o f NATO, W EA G and W EU, the N etherlands aim s to achieve an open defence m ateriel m arket in the long run. In the m eantim e, a policy o f offset orders rem ains an im portant m eans to provide D utch industry with assured participation and access to new technologies. In order to ensure the enforceability o f the offset agreem ents, it was deem ed essential that in the M em oranda o f U nderstanding (M oU) concluded betw een the partner countries, an industrial paragraph be included with guarantees for this participation. The

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M inistries o f Defence and o f Econom ic Affairs publicise information on upcom ­ ing opportunities for participation, and prom ote the exchange o f technical data between the involved industries once a project is agreed upon. A distinction is made betw een direct and indirect offsets: direct offsets involving industry in joint ventures, licensed production or co-production o f the im ported defence goods; and indirect offsets obliging the exporting industry to place orders with Dutch industry in other areas (TK 22826, no. 2). On the conceptual level, we should perhaps separate cooperation in interna­ tional defence materiel projects from defence m ateriel-related offset policy. In reality, however, they seem to merge seam lessly, an im portant goal o f offset policy being, as we have seen, to keep Dutch industry at a technologically ade­ quate level to participate in international cooperation projects. EUCLID is also actively used to the same end.

M ajor International A ctivities o f the M ain Dutch Defence M anufacturers Dutch am m unition-producing com panies have been more noticeably affected than other firms by procurem ent cuts which started long before the end o f the C old War. In consequence, M uiden C hem ie International w as taken over by BAe Defence, Royal O rdnance pic., and NW M De Kruithoorn by Rheinm etall as early as 1975. A nother key firm , Eurom etaal, which was nom inally priva­ tised in 1973, nevertheless had 70% o f its stock retained by the state, the rest being in the hands o f D ynam it Nobel. Since 1990, however, the Dutch state, D ynam it Nobel and O erliken-C ontaves AG Pyrotech (Sw itzerland) have held equal shares, adding this to the list o f foreign-linked firms (Stichting O SACI, p. 39). Exam ples o f foreign m ergers, acquisitions and team ing from other parts o f the defence industry include KSG (R oyal Schelde) w hich has linked with Bazan from Spain (see Box 1), in order to m aintain itself as an independent naval shipyard. O ther shipyards have behaved similarly. In the aircraft sector, Fokker explained its takeover in 1993 by DASA (G erm any) by stating that ‘The aerospace industry has been forced to consolidate and integrate by the high cost o f developing new aircraft program m es and the sharp cuts in defence sp en d in g ’, and even this, in the event, did not prevent fu rther losses and the eventual decision by DASA in 1996 to allow Fokker to collapse, ending a 77 y ear tradition o f D utch aircraft m anufacture. In electronics, Philips has sold alm ost all its defence assets, most notably HSA, which was sold to the French Thom son-CSF. In land system s, follow ing the bankruptcy o f DAF, DAF SP was sold to a com bination o f Van H alteren, a Dutch com pany, and the Sw iss L iebherr LAT.

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Policy Towards Conversion Past Experience C onversion has repeatedly been an issue in the Dutch parliam ent, but with a relatively low profile. There have been no moves by any recent governm ent to design and im plem ent a conversion policy. If ‘conversion’ m eans sw itching from predom inantly m ilitary to civilian production, then it has been an issue for only a few com panies in the past. Dutch military production is in general Concentrated in small specialised departm ents o f com panies that predom inantly work in civil areas. T his structure has pre­ vented conversion from becom ing a pressing issue until recently. On the other hand, ‘diversificatio n ’, in the sense o f expanding into new markets through com panies’ own efforts or through acquisitions, has been rather more in evidence. For exam ple, HSA (H ollandse Signaalapparaten) tried in the early 1980s to start a branch specialising in the adaptation o f military radar and radar screen equipm ent to civilian uses in airports and harbours. This branch was geographically and organisationally separated from HSA’s m ilitary sector. The effort w as, how ever, unsuccessful. One reason may have been that the nature o f defence radars and electronics (naval radar and sonar) was too spe­ cialised to make conversion a viable prospect (Schipper, 1992). A nother may have been the tough com petition in this field. Furtherm ore, these efforts seem to have been largely ignored by the M inistry o f Transport. Current G overnm ent Policies on Conversion In the 1990-91 W hite Paper on the defence industry, the D utch governm ent stated as its own role the provision o f favourable econom ic conditions for the industry. Com panies that proved unable to w ithstand the normal pressures o f the m arketplace were not to be helped by public means. Therefore, no conversion fund w as envisaged. A part from the budgetary problem s that such an approach would pose for governm ent, it w as argued that such a fund would give parts o f the defence industry an unfair com m ercial advantage over com panies producing for the civilian m arket only. It w as also considered doubtful w hether the EC would approve such a conversion policy. (TK 21886, no. 2, pp. 5-6 ). The 1993 W hite Paper on Offsets was also som ewhat sceptical o f the prospects for conver­ sion, taking into account the extent to which defence com panies are steeped in the culture o f the military. It considered conversion more a problem o f organisa­ tion, managem ent and culture than o f technology. (TK 22826, no 1-2, p. 22). Despite this formal position, the Dutch government has undertaken a two-track approach that could be considered a de facto conversion policy. First, companies

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continue to he invited to participate both in Dutch and foreign defence procure­ ment, even though the total volume of orders is expected to diminish. This will cushion companies as they switch towards civilian business. Second, those compa­ nies wishing to enlarge the civilian share o f their output are able to utilise various initiatives of the Ministry o f Economic Affairs which aim at general stimulation of new technological developments. These include the BTIP scheme (Bedrijfsgerichte Technologie Stimulering in Internationale Program m a’s — Company-aimed stimu­ lation o f technology in international programmes) which subsidises companies par­ ticipating in international programmes like EUREKA; subsidies for companies participating in European Space Agency programmes; the INSTIR (Innovatie stim­ ulering) scheme which supports innovation; and technology development loans (the TOK — Technisch Ontwikkelingskrediet — scheme). Further schemes apply to the four priority areas of information technology, biotechnology, materials, and environmental technology. The government has also promised preferential treat­ ment for companies that apply for the MoEA programmes for defence conversion purposes (TK 21886, no. 3 ,2 9 January 1991, p. 4).

A ctions Undertaken by Firm s There is a general feeling in the defence industry that com panies are left to their own devices over conversion. R epresentative organisations like N IID and AMP, moreover, are prim arily interested in military production, and seem not to take much interest in conversion efforts. The NIID has, however, identified four different strategies used by com pa­ nies for coping with the new m arket structure (N IID , 1993c): • • •

•

conversion or diversification into civilian production; broadening and deepening defence activities, both nationally and internationally; seeking national and international cooperation, for exam ple through NIID platform s like NISP (Simulation technology), C2 (Com m and and Control) and in concrete projects, such as in EUCLID ; also, the takeover o f com pa­ nies like HSA, Fokker, M uiden Chemie by foreign companies; matching production capacity to the shrinking market.

In practice, the first strategy has often been follow ed in conjunction with the fourth, as we illustrate below. We also give an exam ple o f the second. The third was im plicitly discussed in the preceding sub-section. The first strategy is being pursued by com panies like RDM , KSG, Delft Instrum ents, Eurom etaal, and MFT. It is no accident that these firm s include

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naval shipyards and am m unition producers. The cyclic nature o f m ilitary ex p en ­ diture is especially severe in naval pro cu rem en t, involving lengthy w aits for follow -up orders. In addition, delaying o r cancelling am m unition orders is p ro b ­ ably one o f the easiest w ays to cut the defence budget. A m m unition cuts had in fact already begun before the end o f the C old War, and now the reduced arm y o f the future w ill presum ably need even less. H ence, E urom etaal, one o f the m ain D utch am m unition producers, decided to initiate m easures aim ed at conversion in 1988, in the expectation that these m ight start to pay o ff by about 1993. It acquired sm aller co m p an ies building household heating equipm ent and locks, and m oved into the precision engineer­ ing industry. In the m eantim e, how ever, heavy cuts in m ilitary contracts forced E urom etaal also to follow the fourth strategy and to lay o ff h u n d red s o f its em ployees. Sim ilarly, com panies like M FT (M etaalw aren Fabriek T ilburg, ca r­ tridge link production), M uiden C hem ie International (am m unition, part o f Royal O rdnance) and De K ruithoorn have all en g ag ed in som e form o f co nversion activity. M FT seem s to have been the m ost successful, now being dependent on defence m arkets for o nly 15% o f its total turnover. H ow ever, inform ation on these cases is lim ited since they have been forbidden by their foreign ow ners in the UK and G erm any respectively to discuss their business plans. In the shipbuilding sector, the naval shipyard RDM w as taken o v er by the K oninklijke B egem ann G roep, a large holding com pany, at the end o f 1991. One o f the reasons given was that conversion activities initiated in 1990 w ould thus be on safer ground. RDM is now involved in energy system s, producing large vessels for the oil industry, as well as repair and overhaul o f arm y m ateriel and general (m ilitary and civilian) subcontracting for other parts o f the holding. But strateg y fo u r has also been forced on the com pany. T he d eliv ery o f the last W alrus-subm arine to the D utch N avy left RDM w ith ex c e ss cap acity in that area. N o export licence w as given to sell subm arines to the Taiw an N avy, which precipitated a m ajor restructuring in 1993, including sharp cuts in jobs. Purer cases o f the first strategy include the naval shipyard, R oyal Schelde, w hich has follow ed a policy o f d iv ersification into allied industries for many years. In addition to its m ilitary activities, de S chelde is active today in civilian ship building, offshore equipm ent production, process industry equipm ent, en v i­ ronm ental technology, and w ith the energy industry and o th er m echanical en g i­ n eerin g industries. N aval sh ip b u ild in g co n tin u es, how ever, to be o f m ajor im portance to the com pany. Sim ilarly, W ilton F eyenoord seem s to have exited from naval sh ip b u ild in g entirely. It now co n cen trates on d ry -d o ck facilities, w orkshop facilities, repairs and ship conversion. To take another case, this time from electronics, D elft Instrum ents, a holding com pany w hich w as form ed from the m erger betw een the defence electronics com pany O ldelft and E nraf-N onius

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(a producer o f precision engineering equipm ent), has through acquisitions in the civil sector dim inished its share o f military production in its total activities. In the form er O ldelft part o f the holding, limited real conversion is taking place through using specialised know -how for developm ents in the industrial R&D and space sectors. By now, m edical activities and industrial precision m easure­ ment equipm ent are the mainstay o f most Delft Instrum ents com panies. D efence production has dropped to about 10% o f the overall total. The second strategy is well illustrated by the electronics firm H ollandse Signaalapparaten w hich, since its takeover by Thom son-CSF, has decided to focus alm ost entirely on the military market. One spin-off activity has, however, met with som e success: a num ber o f contracts w ere won from N ederlandse Spoorwegen, the national railway company, to support increased density o f track use, and this civilian activity is now a steady though minor part o f HSA activities. Finally, in term s o f strategy four, we can note that Van der G iessen-de Noord has shifted its naval division from construction to shorter-running pro­ jects like overhaul, m aintenance and modification. It is envisaged that existing know-how can be retained, and that in the design departm ent a distinct military branch will rem ain in place. Indirectly, also, Van der G iessen-de Noord may have profiled from the denial to RDM o f a licence to export subm arines to Taiwan, as it itself recently won contracts from the P eople’s Republic o f China for building two vehicle ferries.

Konver T he E U ’s K ONVER program m e allocated ECU 3.6 million to the Netherlands, to support econom ic conversion and diversification in areas badly hit by the decline o f the arm s industry and military installations. 35% o f this sum (ECU 1.3 million) was for em ploym ent purposes, and cam e from the Economic and Social Fund; the rest (ECU 2.3 million) was for structural conversion measures, taken from the European Regional D evelopm ent Fund. The regions eligible for this funding were Twente, east-Zuid Lim burg, the northern portion o f Noord Holland and the Veluwe. In 1993 and 1994, these regions undertook a num ber o f projects. Noord Holland received the lion’s share, som e Dll 5 million, which it spent on refur­ bishing dock yards for fisheries and the offshore industry, extending the civil use o f a heliport, constructing beach accom m odation on the A m stelm eer, and retraining form er military personnel. G elderland (Veluwe) also set up a retrain­ ing schem e, for form er em ployees in the m ilitary electronics sector. It also investigated the civilian use of former military bases in Harderw ijk, and restored

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tank exercise grounds in N unspeet to their form er state. In Twente, product developm ent aid was given to com panies trying to turn from m ilitary to civilian markets, and form er military sites were ‘revitalised’ for industrial use. Finally, South Lim burg has converted a form er NATO em ergency hospital for industrial use, and has initiated studies into regional effects o f the draw dow n. These include the re-use o f form er military sites and buildings, reduced military spend­ ing in the region, and retraining o f form er m ilitary personnel.

Controlling the Diffusion of Defence Technologies A rm s Export Controls The Dutch arms export regime is best characterised by the words ‘prudence’ and ‘international coordination’. Since no ABC w eapons are produced for or held by the A rm ed Forces, arm s export policy is concerned only with conventional w eapons. It is im plem ented through the E xport D ecision Rules on Strategic Goods. Arms exports to NATO allies are usually considered acceptable. Exports to other countries are not a priori unacceptable, if they concur with Dutch arms export policy criteria. G iven the existing control m easures, legal w eapons exports usually go to a fixed set o f custom er countries. Four criteria are used in Dutch arms export policy: • •

•

•

The area o f tension criterion means that requests for perm its to export to countries in areas o f tension will be subject to political scrutiny. The human rights criterion exam ines whether grave and repeated violations o f human rights occur in the receiving country, and whether the arms under consideration could possibly be used for that purpose. W hen, in the 1970s, the international weapons embargo criterion was for­ m ulated, export policy was m eant to com ply w ith em bargoes ordered specifically by the UN Security Council. Now, em bargoes agreed by the European Union are also covered. G enerally, Dutch weapon export policy com plies with international agreem ents. The reasonable sufficiency criterion im plies a political assessm ent of the needs and intentions o f the receiving country. It was introduced at Dutch behest at the meeting of the European Council in Luxembourg on 2 8 -29 June 1991. If a country appears to be arm ing itself in an undue manner, or trying to im port quantities o f arms far beyond its reasonable defence needs, the European Council can im pose an embargo.

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H ence, decisions on export licences are based on a political assessm ent o f such issues as the nature o f the w eapons involved, the political situation in the receiving country (international or internal conflicts, hum an rights), em bargoes, international agreem ents, the character o f the defence needs o f the receiving country, the risk o f re-export, the econom ic and financial situation o f the receiving country, precedents, the em ploym ent situation o f the producing com ­ panies, agreem ents with third parties, and Dutch security and industrial property considerations? The COCOM list o f proscribed goods, technologies and countries served in the past as a basis for the law regulating Dutch exports with possible military significance: the Dutch list is virtually identical to the form er COCOM list. The N etherlands also participates in the UN Register o f C onventional Arms. In international defence m ateriel developm ent projects, D utch policy is to define the responsibilities for any resulting exports in a M em orandum of U nderstanding. W hen negotiating offset agreem ents, the general arm s export policy guidelines are also consistently followed. This is to prevent Dutch m ili­ tary technology from being exported to countries already proscribed by the Dutch export regime.

Export o f D ual-U se Technologies The Export Rules for Strategic G oods contain, in addition to the military section discussed above, a section on nuclear item s and an industrial section that deals with so-called ‘dual-use’ goods. These dual-use goods consist mainly o f key m aterials and equipm ent for the fabrication o f chem ical, biological and nuclear weapons. Dutch export policy regarding chem ical and biological dual-use goods has becom e stricter in the past few years. For instance, the ‘w arning-list’ approach for certain precursors, w hich left it to the com panies to decide w hether the prospective im porting country m ight intend to produce chem ical weapons, has been abandoned. The N etherlands has also im plem ented the ‘trigger’ lists em a­ nating from the N on-Proliferation Treaty and the N uclear Suppliers G roup. Follow ing a D utch proposal, the N uclear Suppliers G roup has agreed upon a consultation structure for dual use nuclear goods. The N etherlands also sub­ scribes to the M issile Technology Control Regime. The Dutch governm ent has been extrem ely interested in EU-wide dual-use export control measures. The disappearance o f internal European Union border controls has fuelled concerns that dual-use items could leak out through the least effectively guarded external border (TK 22054, no. 1-2 and 9). M oreover, the loosening o f COCOM restrictions — the lists both o f prohibited countries and

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goods having been shortened in the final days o f CO CO M — caused som e Dutch concern, and led to the announcem ent that, if necessary, the Dutch gov­ ernm ent would im pose unilateral export control measures (Pouw, 1993).

Governm ent Policy on Exports Stated governm ent policy on m ilitary and dual-use technology exports generally inclines in the direction of preventing exports. The constraints im posed on such exports w ould indeed seem to indicate that actual practice conform s to this stated policy. H owever, since exports are considered essential to the survival of the defence industry, and since the industry itself is considered vital for the via­ bility o f the D utch contribution to NATO, it is clear that the governm ent is aim ing to strike a balance on this question. In recent years, the Dutch diplom atic service has becom e even more active in prom oting arms exports in a num ber o f countries. The M inistry o f Econom ic Affairs has also stepped up its presence at defence materiel fairs in the M iddle and Far East. Nevertheless, political support for weapon exports rem ains well below ‘average’ European or American levels. Moreover, even though governm ental support for the Dutch defence industry is not overwhelm ing, the governm ent does take some interest in prom oting intraEuropean arms trade. In a succession o f W hite Papers, the Dutch governm ent proposed extending European cooperation into the area of defence industry and trade policy. The (in)fam ous article 223 from the EEC Treaty was regularly cited as an im pedim ent to treating civilian and defence industry alike (TK 21991, no. 2 -3 , p. 186). W ithin the fram ew ork o f a genuine European defence market, the Dutch governm ent would continue to argue that care should be taken to give the Dutch defence industry fair access to business. Dutch com panies, it has been stated, are often hindered by the strict rules applied by som e countries to technology trans­ fer. In addition, the inform ation com panies need to subm it tenders is often not available. Technology and project information transfer is an im portant precondi­ tion for com petitiveness in R&D and production cooperation program m es. In this regard, there have been som e expressions o f concern over signs o f a ten­ dency towards ‘renationalisation’ o f European and US military production and procurem ent in the tighter post-C old War market. Hence, the governm ent parti­ cularly favours liberalising international military trade and production coopera­ tion within a NATO-wide fram ew ork, and has, accordingly, endorsed both the NATO ‘Code o f C onduct’ and the sim ilar IEPG (now W EAG) document. At the sam e time, there is som e concern that any steps tow ards relaxing intra-European arms trade barriers m ight tem pt com panies to export to prohi­ bited destinations through the countries with the w eakest (or the least well

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enforced) arm s exports regimes. The D utch governm ent therefore w elcom ed the European C om m ission’s proposals of 17 January 1992 (and subsequent develop­ ments) concerning harm onisation o f the widely differing rules am ong the coun­ tries o f Europe on dual-use exports (TK 22054, no. 9, p. 11).

Appendix: Defence Research in the Dutch National Laboratories At the Physics and E lectronics Laboratory (FEL) research is carried out in: operations research; system s and com puter m odels in support o f governm ent policy; system s developm ent and inform ation technology; collecting, selecting and processing o f inform ation; radar and com m unications; observation and com m unication using radio waves; physics and acoustics; optical and acoustic sensing; technical developm ents in digital and analogue electronics, video presentation, high-frequency and m icrow ave, opto-electronics, m iniaturised circuitry, high precision m echanical construction, and circuit prints using CAD /CA M ; and com m and and control, training and simulation. The Prins M aurits L aboratory w orks in the fields of: characterisation, identification and detection o f toxic substances; protection against ballistic and chem ical agents; pulse physics research; ballistics and rocket technology; w eapons effects; vulnerability and effectiveness; am m unition and explosives; and explosion prevention. The Institute for Hum an Factors (Instituut voor Technische M enskunde) carries out research in: sensory perception and physiology; human inform ation processing and ergonom ics. Some further research is carried out in the M edical Biological Laboratory (M BL), the P lastic and R ubber Institute, the T echnical Physical Service and the M etal Institute, in areas including acoustics and optics, nutrition, m echanical construction, m etals and non-m etallic m aterials, and m aritim e research (TK 19404, 1-2, pp. 9, 20-24). N ational A erospace Laboratory (N LR — N ationaal Lucht- en R uim tevaartlaboratorium ) w orks on wind tunnel testing, com putational fluid dynam ics, radar cross section prediction, flight testing, flight sim ulation, aircraft navigation, operations research, structures and m aterials testing, etc. At the M aritim e Research Institute N etherlands (M ARIN — M aritiem Research Instituut N ederland) R&D includes: consultative assistance, m athem at­ ical m odelling and model experim ents for the shipbuilding, shipping and off­ shore industries and advice for governm ental and inter-governm ental bodies.

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References AM P (A dvisory C ouncil on M ilitary Production (A dviesraad M ilitaire Productie)), 1992, Advice to the M inisters o f Foreign Affairs, Defence and Econom ic A ffairs, C ontribution to the Priorities Note, 1 O ctober 1992. AMP, 1994, Interview with Secretary of AMP, 11 November 1993. Dijkman, R. and Smit, A., 1993, Moet dezelfde sm id zowel zwaarden als ploegen kunnen sm eden? Groningen: W etenschapswinkel voor Economie, Rijksuniversiteit Groningen. Houwelingen, J. van, 1992, ‘Politically influencing military technology: a policy-m aker’s experience’, in W.A. Smit, J. Grin and L. Voronkov (eds.) M ilitary Technological Innovation and Stability in a Changing World. Politically assessing and influencing weapon innovation and military research and development. Amsterdam: VU University. M inisterie van Econom ische Zaken, D-G voor Industrie en Diensten, Comm issariaat voor M ilitaire Productie, 1993, Catalogue o f Netherlands Defence Related Industries 1993/1994. Den Haag. N1ID, 1993a, Kiezen voor technologic, Lezingenbundel NIID Symposium 29 October 1993, Den Haag: Stichting Nederlandse Industriele inschakeling Defensieopdrachten. N IID, 1993b, Alm anak 1993, Den Haag: Stichting Industriele Inschakeling Defensieopdrachten. N IID, 1993c, Industriele aspecten bij een veranderende defensiem arkt, Den Haag: Stichting Nederlandse Industriele inschakeling Defensieopdrachten. NIID, 1993d, N ieuw sbulletin, Den Haag: Stichting Industriele Inschakeling Defensieopdrachten. NIID, 1994, Nieuwsbulletin, Den Haag: Stichting Industriele Inschakeling Defensieopdrachten. Pouw, F., 1993, Wapens en Dual-use goederen onder controle? N aar een Europees beleid inzake de intra-communautaire handel in wapens en dualuse goederen en de export naar derde landen, Utrecht: W etenschapswinkel Rechten Utrecht. Schipper, P.G., 1992, 'Dual-use technologie: koppelingen en barrieres in het civiel en defensie georienteerd onderzoek en technologie-ontwikkeling, Den Haag: TNO Beleidsstudies technologie/economie, no. 19. Stichting OSACI, 1990, Bezuinigingen op de Nederlandse Defensiebestedingen. Gevolgen voor de Nederlandse Defensiebestedingen, Bewerkte versie van het onderzoeksrapport in opdracht van de Industriebond FNV, Utrecht.

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STOA, 1993, European A rm am ents Industry: Research, Technological D evel­ opm ent and Conversion, F inal Report, Brussels: G RIP (European Institute for Research and Inform ation Peace and Security). C om pany D ocum ents Jaarverslag 1991 De Rotterdam sche D roogdokm aatschappij BV Jaarverslag 1992 K oninklijke Begemann G roep NV Jaaroverzicht 1992 TNO -D efensieonderzoek Jaarverslag 1992 D elft Instrum ents Jaarverslag 1992 Hollandse Signaalapparaten BV Jaarverslag 1992 EUROM ETAAL Jaarverslag 1992 van der G iessen-de Noord NV Jaarverslag 1992 W ilton-Fijenoord Holding bv Annual report 1992 NV K oninklijke Nederlandse V liegtuigenfabriek Fokker Annual report 1992 National Aerospace Laboratory NLR, A m sterdam. Annual report 1991 D A F NV Annual report 1992 Royal Nijverdal-Ten Cate NV Annual report 1992 Intem atio-M iiller NV Schelde G roep B ulletin 1993, Jaargang 3, Nr. 2 C om pany profile van Rietschoten en Houwens Com pany profile D A F Special Products Com pany profile EUROM ETAAL Com pany profile van der G iessen-de Noord Com pany profile Dutch State Mines DSM G overnm ent D ocum ents (TK = Tweede K am er der Staten G eneraal, denoting a Parliam entary paper) TK 19157: D efensieen de N ederlandse Industrie, 1984-1985, 1986-1987 TK 19404: D efensietechnologie, 1985-1986 TK 20679: Indernationale Defensie M aterieelbetrekkingen, 1987-1988 TK 21886: De N ederlandse defensie-industrie, 1990-1991 TK 21991: D efensienota 1991, H erstructurering en verkleining, de Nederlandse krijgsm acht in een veranderende wereld, 1990-1991 TK 22054: W apenexportbeleid, 1990-1991, 1991-1992 TK 22800 H.X: Begroting 1993, hoofdstuk Defensie TK 22826: Het com pensatiebeleid 1974-1992 en de inschakeling van de N ederlandse industrie bij het defensieverw ervingsproces, 1992-1993 TK 22975: Prioriteitennota, Een andere wereld, een andere Defensie, 1992-1993 TK 23400 H.X: Begroting 1994, hoofdstuk Defensie

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TK 23900 X nos. 1, 2, 8: B egroting 1995, hoofdstuk D efensie; B rief van de M inister en de Staatssecretaris van D efensie, N aar een doelm atiger defensie-organisatie D efensie Technologie C oncept, M inisterie van D efensie, 1989

Endnotes 1

For an account o f the difficulties in realizing international cooperation, see van H ouwelingen (1992), from his experiences as chairm an o f the IEPG from 1984-1986.

2

T his Steering G roup (Stuurgroep D efensie en de N ederlandse Industrie) included representatives from the m inistries o f Economic Affairs, Common Affairs, Foreign Affairs, Finances, Social Affairs and Employment, Educa­ tion and Sciences.

3

The A dviesraad M ilitaire Productie consists o f representatives o f industry and the M inistries o f Foreign A ffairs, Economic Affairs, and Defence. Its main aim is to influence defence policy in industry’s favour. This it tries to achieve through issuing com m ents and advice on defence policy.

4

These areas were electronics, marine vessel, aircraft and land transportation vehicles production and fibres for com posite materials.

5

There has been a further study, com m issioned from A rthur D. L ittle by AMP, in cooperation w ith M oD and M oEA, to make a strength/weakness assessm ent o f the Dutch defence industry, but the results are classified and no further inform ation has been released on it.

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Chapter 7

Spain Jordi Molas-Gallart Basic Data O rganisational Context Paradoxical as it may seem , one legacy o f G eneral Franco’s dictatorship was to be an outm oded Spanish defence structure and a weakened m ilitary industrial base. During the Franco years, the arm ed forces were separated into three differ­ ent m inistries. A lthough this arrangem ent caused coordination problem s and econom ic inefficiencies, it suited the interests o f F ranco’s regime. The arm ed forces provided the cornerstone o f political support for the regime, but Franco still had to deal with and control the different political tendencies that arose within the military institutions (Payne, 1967). His defence legacy has therefore to be understood in terms o f the broader internal political context. Predictably, one o f the first m easures approved by the new dem ocratic regime concerning the armed forces was the creation in 1977 o f a single Ministry of D efence (M INDEF). Organisational reform since then has been a slow but continuous process. The new M inistry o f D efence was initially organised into two clearly differ­ entiated dom ains: a m ilitary dom ain, under the m ilitary chain o f com m and, responsible mainly for operational matters; and a political-administrative domain charged with supporting the arm ed forces, including, in particular, the provision of the resources needed by the m ilitary to perform their duties (M inistry of Defence 1986). In 1984, a further step towards centralisation and civilian control was taken with the integration o f the Army, Navy and Air Force within the struc­ ture o f the M inistry o f Defence, and the creation, below the M inister of Defence, o f the position o f Secretary o f State for Defence to adm inister and control both econom ic resources and policies for arm ament, procurem ent and infrastructure. These measures, which effectively ended the M inistry’s previous dual struc­ ture, w ere progressively reinforced by other m inor changes. Politically, their main outcom e has been to establish a clear subordination o f the Armed Forces to the elected civilian authorities. Economically, decision-m aking was concentrated in a few offices within the M inistry with responsibilities for planning, budgeting and procurem ent. The necessary organisational conditions for defence expendi­ ture planning and rational decision-m aking were now in place. Yet organisa­ tional reform alone was not sufficient to achieve the modernisation o f the armed

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forces, nor to attain rational and reliable planning o f the resources made avail­ able to them. T he structural constraints upon the m odernisation o f the arm ed forces stretched far beyond organisational design. Until the late seventies, S p ain ’s defence policy had been only m arginally concerned w ith the situation o f the dom estic defence industry. For decades, Spain had not had anything resem bling a defence industrial policy. The first step in this direction was taken shortly after the creation o f the M inistry o f Defence, w ith the establishm ent o f a centralised office responsible for preparing, developing and co-ordinating arms procurem ent and defence research policies. This office, the Directorate G eneral for Armament and M aterial (D GA M ), came into effect in 1979, effectively becom ing the prin­ cipal policy m aking agency dealing w ith defence industry and technology issues. It coordinates, oversees, and plans equipm ent purchases, organises, nego­ tiates and m onitors all offset agreem ents, sets up the defence R&D policy and is responsible for certification and quality requirem ents. The coordination o f pur­ chasing decisions radically reduced the autonom y with which the three form er A rm ed Forces M inistries had m anaged their procurem ent. Today the DGAM com prises five sub-directorates: strategic analysis and planning; program m es and system s; inspection and technical services; international relations; and research and technology. Centralised procurem ent policies were a pre-condition for the im plem enta­ tion o f m uch-needed and often prom ised medium and long-term procurem ent plans. In the early 1980s, the newly elected Socialist governm ent com m itted itself to elaborate m edium and long-term budget and purchasing plans, thus answ ering the dem ands o f Spanish military producers. D G A M ’s stated policy goals w ere in line with this com m itm ent: they included medium and long-term procurem ent planning (rarely followed) and the creation o f consultative bodies to act as channels o f com m unication with the defence industry.1 In addition, the DGAM oversees an ‘A utonom ous O rganism ’ involved in research: the El Pardo C anal for H ydrodynam ic E xperim ents (CEHP). The larger National Institute o f A erospace Technology (INTA) functions under the jurisdiction o f the Secretary o f State for Defence. These organism s are adm inis­ tratively autonom ous, and have their ow n budgets to which the M inistry of D efence contributes. INTA and C EH P are the tw o most im portant governm ent establishm ents involved in defence research, and before the explosion of defence R&D investm ent in the late eighties, INTA accounted for most Spanish m ilitary-related research. As will be discussed below, INTA’s fortunes as a reci­ pient o f M inistry o f D efence R&D funds reflect the changing priorities betw een carrying out research in State laboratories and contracting R&D out to firms.

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T he Spanish D efence Industry A s shown in Table 1, estimates o f the volum e o f Spanish defence production vary widely. This can be explained by a lack o f information and the absence o f a generally accepted definition o f defence production. In any ease, defence pro­ duction amounts to a small share o f the Spanish econom y; estimates differ only with respect to exactly how sm all a share this amounts to. A ccording to a M INDEF study, the percentage o f industrial manufacturing accounted for by military production was 1.02 in 1991 (down from 1.31% in 1987), with a total T able 1: Contrasting Estimates o f Spanish D efence Production (billion 1990 ptas) Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Afarmade

329 293 202 206 215 233 230 208 194 187 179 173

GRIP

Olivercs

189 227 346 309 372 305 257 283 308 337 301 274 241

165 203 313 307 334 267 240 278 280 298 237 328

Sources: GRIP Database, Brussels; Oliveres (1993). Note: Oliveres’ own figures are an overestimate, as they assume all MINDEF investment to provide demand for the defence industry. He includes all R&D which is partially allocated to government research institutes, and many other investments by the Ministry of Defence that are not related to defence production. ‘Afarmade’ figures are based on domestic arms sales data published by the Association of Spanish Arms Producers (Afarmade) in several issues of its journal La Voz de la Defensa.

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EU RO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITION

production value o f Pesetas (Pt) 194 billion (J a n e ’s D efence Weekly, 18 April 1992, p. 664). A later official estim ate put total defence production in Spain in 1992 at Pt 160 billion.2 M ost estim ates show a marked fall in production after 1989-1990. The per­ centage o f industrial production accounted for by defence products oscillates betw een 1 and 2%, and it is clearly declining. Differences in em ploym ent esti­ mates are also notable (see Table 2). Yet again, they all confirm a substantial reduction in the level o f defence em ploym ent. W ithout exception, defencerelated com panies are substantially reducing their workforce. Production is concentrated in five firms which, according to M IND EF data, com prised 74% o f defence production and 79% o f defence industrial em ploy­ ment in 1992. Four o f them are controlled by State-ow ned holdings: • • •

Conslrucciones A eronauticas, S.A. (CASA) in aerospace. E m presa N acional Bazan de C onstrucciones N avales M ilitares (Bazan), which controls the most im portant military shipyards in Spain. E m presa N acional Santa B arbara de C onstrucciones M ilitares (Santa B arbara), an arm s conglom erate w hich produces m unitions, firearm s, artillery pieces, arm oured vehicles and other m ilitary-related equipm ent.

Table 2: Estim ates o f Em ployees in the Spanish D efence Industry Y ear

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

D ir e c tly

D ir ec tly

D ir ec tly

D ir e c tly e m p lo y e d :

e m p lo y e d :

e m p lo y e d :

e m p lo y e d :

M in is tr y o f

O liv e r e s

G R IP

AFARM ADE

D e fe n c e

36503 36500 29414 30300 30496 31211 26659 25339 23521

47744 68492 62548 77412 64480 51448 49713 52882 55963 50367 45330 40797

30922 30496 31211 26659 25339 23521 21391 16097

33066 (average for the period 1989-93)

Sources: GRIP Database, Brussels; Ministry of Defence 1993b; Oliveres 1993; La Voz de la Defensa, Nr. 14 (September-October 1991), p. 13.

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INDRA, the state-controlled (60% ) electronics holding, which has resulted from the m erger betw een E m presa N acional de E lectronica y Sistem as (IN ISEL) and the most im portant defence-related private electronics com pany (C ESELSA ). H ughes has a 49% stake in three o f IN DRA ’s defence-related com panies: G yconsa (m issiles), ENO SA (electro-optics), and SEA, a recently created spin-off com pany.3

The only privately-controlled firm am ong the five biggest Spanish defence pro­ ducers is the young Industria de Turbo Propulsores, S.A. (ITP). ITP was founded in 1988 in the fram ew ork o f the EFA program m e to develop and manufacture aircraft engine components. ITP is ow ned by Rolls Royce (45% ) and a consor­ tium o f Spanish firm s which includes SENER and Bazan. The rest o f the private sector plays a secondary role in military production, m anufacturing m ostly light weaponry, am m unition, sub-system s and com po­ nents. The group o f private firms involved in military production may be divided broadly into the specialised arm s m anufacturers concentrated in the north o f Spain and firms producing sub-systems and com ponents for both the defence and the civilian markets. The form er constitute a cluster o f small- to medium-sized firms with an intermediate technological level; they include firms like GAMESA, E xplosivos Alaveses (EXPAL) and other defence operations o f the conglom erate Union Espanola de Explosivos (UEE), and Sociedad A nonima Placencia de las Armas. Sub-system s and com ponents producers are usually private firms that display a diversified production pattern in sectors like electronics and comm uni­ cations, for instance, Amper, Telefonica Sistem as, and the Spanish divisions of Alcatel. In vehicles, the defence activities o f the m ultinationals IVECO, Nissan and Peugeot accounted for a total o f Pt 9 billion in sales in 1992. Finally, the M inistry o f D efence ow ns ISDEFE, a systems engineering and consulting com pany specialising in defence system s. Created in 1985, the firm grew very rapidly to reach sales o f Pt 4.3 billion in 1992. W ith the exception o f private sm all and m edium firm s in the traditional arm s and munition sectors, Spanish defence-related firm s maintain close link­ ages with foreign companies. Som e o f the private firm s operating in the elec­ tronics and com m unication areas are divisions o f foreign com panies such as A lcatel and Ericsson. Foreign firm s have acquired m inority shareholdings in som e Spanish military producers, and new jo in t ventures have been created with the ‘big’ Spanish producers, as discussed below. Budgetary Trends The activity o f Spanish com panies is taking place against the background o f a decreasing procurem ent budget. T his contrasts starkly w ith the grow th

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EURO PEA N D EFEN CE TECH NO LOG Y IN TRA N SITIO N

perspectives envisaged in the early and mid 1980s, when new long-term bud­ getary plans were forecasting real growth in defence budgets, as well as budget restructuring in favour o f procurem ent outlays. M oreover, the M inistry o f Defence placed new emphasis on using domestic procurement w henever possible and on obtaining offsets when local production was not a possibility. However, the anticipated rates o f budget grow th failed to materialise. Furtherm ore, when econom ic conditions and the end o f the Cold War forced defence budgets dow n­ w ards, personnel expenditure proved to be very inflexible, so that procurem ent bore the brunt of the cuts. Hence, instead o f increasing the proportion o f procure­ ment within the budget, the 1990s have seen the opposite. T hese trends (reduction in defence expenditure and a more than propor­ tional reduction in procurem ent) have, however, been overturned again more recently. The 1994 budget represents a 6.3% increase in real terms over the pre­ vious year (the first time such an increase has taken place in the 1990s); the grow th in equipm ent expenditure will be much larger (15% ), and within equip­ ment, the budgets for w eapon m odernisation and m ateriel will increase by 24%. The main acquisition program m es include the acquisition o f 130 Pizarro arm oured vehicles for the Army, several com m unications and electronic warfare system s, the m odernisation o f C-130 Hercules and M irage F I, the purchase of eight new Harrier aircraft, the acquisition of new frigates, the construction of four m inehunters, and the developm ent and production of a new am phibious transport. From a low o f Pt 86 billion in 1992, contracts for new defence materiel were expected to grow to Pt 223 billion in 1994. Although the grow th in the 1994 budget was largely unexpected, it left the A rm ed Forces lukew arm . The A rm ed Forces C hiefs o f S taff declared to C ongress on 18 O ctober 1993 that the increase was not sufficient to m eet requirem ents, as years o f budget reductions had depleted the reserves of m ateriel, and had reduced operational capacity to a m inim um (International D efense Review, 26 D ecem ber 1993, p. 931). The woes o f Spanish defence producers w ere com pounded by a sharp reduction in m ilitary equipm ent exports. A substantial part o f the m id-1980s growth was built on the increase in arms exports, and these exports rem ained a key elem ent in the industry’s grow th strategy. Yet the arm s export boom was short lived, adding to the difficulties faced by arm s exporters and com pounding the pressures for a restructuring o f Spanish arm s production. The SIPRI estim ates in Figure 1 show a clear decline in Spanish arm s exports. Such a fall is confirm ed by circum stantial evidence; for instance, in 1992 Spain reported no item s in the UN arm s register list. H owever, there are discernible signs that Spain’s position in the international arm s m arket may be about to recover. Firstly, som e apparently contradictory figures for defence

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Figure 1: Spanish Exports of Major Arms Systems (1985 Million USS). Source: Derived from SIPRI data. Data adjusted to discount re-exports of used equipment.

exports in 1992 were presented to the Senate by the Secretary o f State for Defence in late 1993: these showed exports as amounting to 39% (Pt 62.4 billion) o f the total 1992 defence production o f Pt 160 billion. Such a figure would be very high even if com pared to the ‘golden age’ o f Spanish military exports in the early to mid 1980s.4 Secondly, Spanish firm s signed som e major arm s export contracts in 1992: the sale o f a small aircraft carrier to Thailand and o f 16 trans­ port planes to South Korea may be worth around $400 million. Spanish arms deliveries therefore appear poised to grow again in the near future.

Policy Towards Defence and Dual-Use Technologies W hen, in the 1980s, science and technology policy gained unprecedented atten­ tion in Spain, a grow ing proportion o f the increasing budget for R&D was allo­ cated to defence. As show n in Figure 2, G overnm ent defence R& D budgets grew very rapidly during the second half o f the 1980s, reaching Pt 60.8 billion in 1992. M ilitary R& D w as still grow ing w hile the defence budget was falling rapidly in 1991 and 1992, until it finally started contracting, slightly, in 1993.

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EU RO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITIO N

A lthough modest by international standards, such figures are very substan­ tial given S pain’s science and technology base. The m ilitary R&D spending occurred in an environm ent in which defence investm ent in R&D projects had previously been insignificant. Spanish research facilities could barely absorb the funds suddenly lavished upon them , and parts o f the budget w ent unspent. N evertheless, the high budgets indicate the im portance which the M inistry o f D efence has attached to building up a technologically capable defence industrial base. At present, about 20% o f total State outlays on R&D are being spent by the M inistry o f D efence (and over 60% o f this is earm arked for the E urofighter 2000 aircraft). A ttem pts to coordinate these activities with other R&D and industrial program m es have never been successful. The M inistry of D efence now effectively m anages its own research program m es and priorities with total independence from the other governm ent bodies involved in industrial and S& T policies. In consequence, a very substantial part o f the country’s R&D effort is being targeted at industries undergoing a profound crisis, due mainly but not exclu­ sively to the fall in dem and for military equipm ent. These are circum stances that would seem conducive to the consideration o f dual-use strategies. Yet internal debate on the relationships betw een defence and civil technologies has been slow to appear. Although som e officials and industrialists have paid lip service to the concept o f dual-use technologies, there is little in the way o f explicit poli­ cies to deal with the problem s posed by the com bination o f relatively large R&D efforts carried out in an area accounting for a falling share o f total economic activity. In this, as in other m atters o f defence industrial policy, a distinction must be made between explicit policies (usually absent or lacking in detail) and the em ergence o f trends in day-to-day practice that could be considered im plicit policies. The im plicit policies are clearer in the field o f defence industrial strate­ gies than in the area o f technology and dual-use issues.

D efence Industrial Policies A lthough the D efence M inistry has no explicit responsibilities for industrial policy, there is sufficient o f a legal basis for the Secretary o f State to argue that ‘the M inistry o f D efence has the responsibility to buttress the defence industry as a support and a com ponent o f the national defence system ’ (M inistry of D efence, 1993a). Yet, the concept that the M inistry o f Defence has a role to play in the field o f defence industrial policy does not find easy acceptance either in the Armed Forces or am ong officials within and beyond the M inistry itself. In partial consequence, Spanish defence industrial policy has been form ulated in only the broadest terms. Already in the mid-1980s, the M inistry o f D efence

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called for the establishm ent o f a defence industry that could supply to the m axim um extent possible the requirem ents o f the Spanish Armed Forces, and spoke o f using m ilitary dem and to develop ‘high-technology industries’ (Ruiz M ontero, 1989). Com m on and straightforw ard as it may seem, this approach was new for Spain. N ever before had sim ilar em phasis been placed on the need to develop a viable dom estic arms industry. The main tools to achieve this goal was the M inistry’s purchasing pow er and its consequent capacity to plan and support industrial and research initiatives in selected areas. Although the budget reductions have weakened this capacity, the main defence industrial goals o f the M inistry o f Defence have rem ained unaltered.5 In 1994, the Secretary o f State for Defence sum m arised the goals o f Spanish defence industrial policy as follows: • • • •

To achieve a ‘total capacity’ in the m aintenance o f the systems and equip­ ment used by the Spanish A rmed Forces. To preserve present capacities for the m anufacture o f light and medium con­ ventional weaponry. To prom ote industrial technological developm ent. To maintain a ‘sufficient’ presence in specific subsectors, in line with avail­ able resources. (M edina, 1994).

Such objectives are very much in line w ith the ideas that inform ed defence industrial policy making in the 1980s. It is difficult to find official statem ents signalling a shift in the goals or the procedures o f defence industrial policy, even though a closer look at practices emerging in the 1990s would suggest that new, implicit policies are being im plem ented. For exam ple, a range o f new industrial developm ents is receiving tacit official support, including concentration through mergers at the national level, internationalisation o f research and production, and changes in the locus o f defence R&D. Dual use technology and defence conversion policies, on the other hand, do not feature strongly. We discuss each o f these points im m ediately below.

M ergers O fficials at the M inistry o f Defence are aware o f the weakness o f the Spanish defence industrial base. One expression o f this w eakness is the industrial frag­ mentation found in most defence-related sectors. It is comm on to find references in statem ents by M inistry o f Defence officials and defence industrialists to the lack o f the ‘critical m ass’ necessary to face the highly com plex tasks required from advanced defence companies. So when com petition heightened in the wake

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of w orld-w ide reductions in defence procurem ent, the need for restructuring of the sector becam e especially acute. A slow process o f concentration had taken place since the early 1960s with the gradual but slow transfer of Army plants to the INI defence com pany Santa Barbara and the merger o f aeronautics firms into CASA. In the 1980s, the m ost im portant target for concentration becam e the State electronics com panies leading, in 1985, to the creation o f IN ISEL through the am algam ation o f the leading Spanish electronics firms: EESA and EISA. IN ISEL also becam e the head o f the public electronics holding which operates in both the m ilitary and civilian m arkets. In 1986, the new IN ISEL group had 2554 em ployees; a figure that both INI and the M inistry o f D efence considered still insufficient. In spring 1989, INI proposed a com plete overhaul o f the defence electronics sector based on the m erging o f INISEL with the leading private defence elec­ tronics producer, C ESELSA. The protracted negotiations stalled several times, but political pressure was key in keeping the process moving until July 1992, when the m erger o f the two groups was agreed. In 1993, the resulting C ESE L SA -IN ISE L changed its nam e to INDRA. In that sam e year, the total consolidated sales for the group reached Pt 55 billion, o f which its ‘Defence and Dual-Technologies D ivision’ accounts for about 40% ; this makes it a m edium ­ sized com petitor in the E uropean defence electronics m arkets, and the third biggest defence related firm in Spain. The consolidation in the electronics sector is not limited to the CESELSA -IN ISEL operation. IN ISEL had previously estab­ lished a cross-shareholding agreem ent with A m per (a com m unications equip­ m ent producer that is part o f the Telef6nica group). In 1989, IN ISEL transferred to A m per its com m unications business, including defence activities, in exchange for a m inority share in A m per’s capital (7%). As a consequence, A m per estab­ lished a defence division, w hich has become S pain’s main military com m unica­ tions firm (see A B C (M adrid), 13 April 1989; E l Pat's (M adrid), 14 M ay and 14 June 1989). O ther initiatives in the field o f conventional arm am ent and m unitions have proved less successful. The attem pt to link Santa Barbara with the defence oper­ ations o f UEE (the biggest Spanish private group in the conventional arm aments sector) failed. T hat m erger would have created the most im portant Spanish, and one o f the biggest European, arm s and m unitions producers. A lthough the Spanish governm ent w as keen to merge the firm s into a m ixed ow nership company, disagreem ents about the valuation o f the com panies’ assets seem ed to be insurm ountable. A lthough the sector is sinking into ever deeper crisis, its restructuring keeps being postponed. Evidently, it does not arouse the same interest in the M inistries o f Defence and Industry as did the mergers in the elec­ tronics and com m unications sector.

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Internationalisation o f Research and Production Industrial mergers have been accom panied by foreign firms acquiring shares in Spanish defence-related producers. This is a recent trend. In fact, the 1980s had seen som e high profile w ithdrawals, like N orthrop’s abandonm ent o f its interests in C A SA , in w hich, back in 1965, it had held as much as a 25% share. By the late 1980s, national control o f Spanish defence-related firm s was alm ost absolute with the exception o f the vehicles sector. The internationalisation of Spanish defence production was taking place under m echanism s connected to the purchase o f defence equipm ent (for instance through offset agreem ents) and participation in international arms production and developm ent program m es. The return o f foreign firm s to the ow nership o f Spanish defence-related com panies has been a recent, gradual, and often unnoticed process, in which both foreign and dom estic com panies have an interest. Foreign firms may be attracted to invest in countries like Spain to gain access to their dom estic markets. The generally sluggish conditions o f m ilitary dem and are forcing big defence m anufacturers to seek new foreign m arkets, even when this im plies taking som e risks through investm ents in local com panies. For the Spanish firms, alliances with foreign partners provide access to technological know ledge and to international m arketing and com m ercial structures. A clear pattern o f alliances has emerged. A foreign firm will take a large but minority share (between 40% and 49% ) in an existing or new ly-created division of a big defence related-com pany but never as the group leader.6 N ewly-created divisions are often the result o f ‘spinning o ff’ plants into new firms and, conse­ quently, are m uch sm aller and, at least initially, free from the risk associated with taking over shares o f com panies w hich have historically been burdened by large and alm ost perpetual losses. M ost o f these operations are connected to a specific purchase program m e by the M inistry o f Defence. T hat is, instead of seeking offset agreem ents, Spain has started to require the foreign firm to take a m inority share in a Spanish com pany that will act as a contractor in the pro­ gram me. This has the effect o f granting the Spanish side more control over the project, and hopefully o f linking the foreign supplier to the domestic industry on a longer-term basis than would have been the case in a sim ple offset agreem ent. In this way, the U S-based Hughes com pany has taken minority shares in three INDRA firm s (ENOSA, the newly created Gyconsa, and the spun-off SEA). The French T hom son Sintra took a 49% stake in SA ES, a firm in the INDRA group specialising in underw ater electronics,7 while T hom son-CSF has taken a sim ilar stake in A m per Sistem as, A m p er’s m ilitary com m unications division. Rolls Royce has a 49% interest in ITP, a company which was created to be the Spanish partner in the Eurojet consortium , in charge o f developing the engines for the

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future EFA.8 A nother EFA-related join t venture was CESA , a joint venture o f CASA and Lucas A erospace, which specialises in hydraulic com ponents. Foreign partners have also joined new joint ventures independently o f any specific developm ent or purchasing programme. Santa Barbara has been particu­ larly active in this respect. It has set up four, m ostly sm all, com panies with foreign participation: A eronautica M aintenance Tooling (AM T), with Pratt and W hitney; DEFTEC, with M BB; Surgiclinic Plus, an effort at diversification into the medical equipm ent field in cooperation with the Italian company Cremascoli, which holds a 50% share in the venture; and ICSA, a firm set up with CASA for the developm ent and production o f com posite m aterials, in which A erospatiale has taken a 15% share. The two main axes in the process o f internationalisation are thus participa­ tion in international developm ent and production program m es; and penetration by foreign partners, m ainly into com ponents and sub-system s divisions o f Spanish producers. Both trends strengthen the Spanish technological base in the developm ent and production o f specific com ponents and sub-system s.9 Changes in the Locus o f R&D One o f the most im portant aspects o f recent Spanish defence industrial and tech­ nology policies was the rapid grow th o f R&D investm ent in the mid- to late1980s. W hile sectoral priorities have rem ained stable, with aerospace and electronics topping the list, im portant changes in the main recipient o f these funds have taken place. The main beneficiaries o f the first round o f research expenditure increases in the late 1980s were mainly State-controlled firms. The laboratories and research institutions dependent on the M inistry o f D efence were languishing with budget levels sim ilar to, or even sm aller than, those in the early and mid-1980s. Then, without any official explanation, this trend was abruptly reversed in the 1990s. To dem onstrate this conclusion, it is necessary first to estim ate the percent­ age o f M IN D EF’s research expenditure that is contracted to outside com panies or institutions; official figures at the necessary level o f disaggregation are not available. H aving made such estim ates,10 Figure 2 then show s the shifting budget allocations betw een external firm s11 and M inistry o f D efence research organisations. W hen defence R&D rocketed in the late 1980s, industrial firms got the lion’s share o f the newly available funds, while expenditure in the M inistry o f D efence’s ow n research establishm ents rem ained approxim ately stable. Therefore, the grow th o f defence R&D brought about a change in the main performers o f publicly-funded defence R&D. A fter 1989, a further reversal returned the State-ow ned research facilities, especially INTA, to a key role.

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M eanw hile, research contracted out to firms first stagnated and then started to decline.12 INTA’s rem arkable grow th (a more than 300% increase in its budget betw een 1989 and 1993), accom panied by the rise o f current expenditure in the m inistries in charge o f adm inistering R&D program m es, signalled a shift towards a more balanced distribution o f R&D funds between facilities controlled by the M inistry o f D efence and external firms. This policy may be contrasted with that o f other European countries, like the UK, in w hich the quest for privatisation and com petition is opening to the m arket the research operations conducted by governm ent research facilities (see UK chapter in this volum e). S p ain ’s return to direct financing o f R&D in G overnm ent research organisations has to be understood against the background o f the difficulties o f adm inistering and carrying out the rocketing research budgets in the late 1980s. There were cases in which the results o f feasibility studies and other research projects carried out with public funds were less than satisfactory, to the extent that som e o f the research funds could be construed as hidden subsidies. A lthough never stated officially, these problem s caused concern am ong M inistry officials, and it was felt that research carried out in governm ent laboratories would be easier to monitor. Such opinions were gaining ground when an energetic new director was appointed to INTA, the largest o f the defence research establishm ents. The com bination o f a new managem ent able to set up attractive, achievable goals, and the difficulties encountered with some o f the external research contractors, explains the picture show n in Figure 2. Although it has not been im mune to budget cuts, INTA’s profile in the 1990s has nevertheless grown. INTA’s main lines o f research (all of them in the space field )13 have by their very nature dual-use applications. Therefore, another consequence o f reinforcing INTA’s capacities has been the growing importance of research on dual-use tech­ nologies financed by the M inistry o f D efence.14 Although, again, precise data are unavailable, it seem s that this outcom e has been largely unintentional. Certainly, the increased em phasis on dual-use research resulting from INTA’s new program m es is not a response to any explicit dual-use policy by the M inistry o f Defence. In fact, as the next section will show, the problem s o f dualuse technology have received very little attention in Spanish defence industrial and technology policy-m aking.

D ual-U se and C onversion-D iversification Policies D ual-use technologies, conversion and diversification issues do not seem to be at the forefront o f M IND EF concerns. In the M inistry’s report on the period o f the last legislature (1989-1993), there is only one reference to any o f these concepts:

210 EUROPEAN DEFENCE TECHNOLOGY IN TRA N SITIO N

—$ — Figure 2:

External Contracting

—@—

In-house & State labs

MINDEF R&D by Performer Billions Current Pesetas (Estimate).

—A —

Total

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F inally, the M in istry o f D e fe n c e 's tech n o lo g y p olicy pay s special atten tio n to th o se te ch n o lo g ies that ca n have a du al u se, m ilitary an d c iv ilian , as th e b est w ay to ta k e ad v a n tag e o f th e (defence] R & D reso u rces, thus b ac k in g the S panish in d u stry co n fro n tin g free co m p etitio n in the c o m in g y ears (M in istry o f D efence, 1993b, p. 333).

This statem ent was not backed by any explicit strategy or other elaboration, although certain im plicit policies can be identified in practice. O f particular rele­ vance is the grow ing role, m entioned ju st above, o f INTA (and therefore o f space-related research) within the R&D activities financed by the M inistry o f Defence. There are also som e weak signs o f dual-use activities in the strategies o f individual defence firms, such as the initiatives from Santa Barbara discussed below. Given the State-controlled nature o f m ost Spanish m ilitary-related com ­ panies, these individual company policies cannot be decoupled from govern­ ment policy. But even acknow ledging this point, one has to conclude that the com panies are not responding to a coordinated industrial policy from any o f the m inistries (defence and industry) involved in the supervision o f the main Spanish m ilitary-related firms. In fact, and despite its brief statem ent o f intent concerning dual-use tech­ nologies, the M inistry seems more com m itted to another goal expressed earlier in the same report: [D efence] in d u strial p o licy has so u g h t to fo ster the natio n al in d u strial base ... b u ild in g u p d etailed k n o w led g e o f its ca p a c itie s in o rd e r to m ake the fullest po ssib le use o f them (M in istry o f D efen ce, 1993b, p. 32S).

In other words, the M inistry is monitoring Spanish industrial capacities to iden­ tify firms that could become defence suppliers. To this end, it has long been engaged in constructing a ‘R egister o f Firm s ... o f interest to the national d efence.’ T he M inistry has contacted about 1000 firm s, o f w hich 700 have joined the Register. This is necessary in order to becom e a defence supplier, and so the M inistry has been able to use this resource to m onitor the evolution o f the defence industrial base. This pro-active stance concerning potential suppliers represents an attem pt to introduce more com petitiveness in defence supply, seeking out new firms active in the civilian market that may be able to offer ‘value for m oney’ to the M inistry o f Defence but could be discouraged from entering the m arket by the complexity and the problem s surrounding military procurement. There appears also to be no policy for the diversification or conversion of specialised defence suppliers; rather the opposite as the M inistry tries to draw civilian firm s into m ilitary work. T here are no official data on the results o f this approach, but given the concentration o f m ilitary procurem ent in a few

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established defence suppliers, it is safe to assume that the success of this initia­ tive has been so far very limited. In general, Spanish m anagers are extrem ely sceptical o f the prospects for conversion or even diversification. Javier Alvarez Vara, then President of CASA, stated that ‘my opinion regarding the conversion o f the m ilitary industry is clearly negative. I believe that, with few exceptions, it is simply im possible and that, besides, even attem pting it w ould be a senseless w aste o f reso u rces.’ (Fundacion U niversidad-E m presa, 1993, p. 177). N evertheless, C A SA has a diversified production base within which, probably out o f necessity, the civilian share o f total sales has been grow ing throughout the past decade. Thus, in the same address, A lvarez Vara declared that CASA’s civilian sales had grown from 15% o f the total in 1985 to approxim ately 50% in 1992. One can find exam ples o f diversification attem pts m uch more readily than exam ples of straightforw ard conversion. The process o f spinning off plants and searching for foreign partners has at times been part o f a deliberate diversifica­ tion strategy. For exam ple, Santa Barbara is already claim ing som e success for its venture with the Italian C rem ascoli, in establishing a new firm (Surgiclinic Plus) for the developm ent and manufacture o f medical and surgical equipm ent, to which Santa B arbara transferred its O viedo plant. In 1992 Surgiclinic Plus received an innovation prize for the developm ent o f a new hospital mobile bed. Even when the new spun-off com panies still have defence custom ers as their main market, gaining proficiency in m aterials and com ponents production can place them in a better situation to exploit areas o f technological convergence betw een civilian and m ilitary products. This is the case with ICSA, the com pos­ ites firm in which Santa Barbara holds a 85% stake, which operates in an area with clear potential civilian and military markets. These initiatives are, however, still sm all com pared with the size o f the main Spanish defence producers. It is significant that som e main producers have not m anaged substantially to reduce the proportion o f m ilitary production in their total sales, despite the fall in the defence markets. For exam ple, INDRA has concentrated most o f its defence production in a single division, curiously renam ed ‘D efence and Dual Technologies,’ which in 1992 accounted for 41% of total production. This is very sim ilar to the position o f its precursor INISEL in the mid 1980s. D espite the name o f the division, its director stated in 1992 that the best successes in the application o f technologies and know ledge learnt in the field o f military applications to civilian uses had occurred when brand new sub­ sidiaries had been created within the group to exploit this potential (Fundaci6n U niversidad-Em presa, 1993, p. 192). B azdn’s inroads into the civilian area have been sim ilarly lim ited. Its modest operations in turbines for power stations and other civilian applications have been m aintained, and new m arkets have been sought in the shipbuilding

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sector (such as the construction o f a new fast ferry) and in oth er new areas o f activity. F or exam ple, a new ‘en v iro n m en t p ro g ram m e ’ has been estab lish ed w hich has developed a system for the d etection o f forest fires. The success o f these d iv ersificatio n in itiativ es rem ain s to be seen, but they are in any case peripheral to the m ain th ru st o f th e firm ’s a ctiv ities, w hich rem ain firm ly anchored in its m ilitary shipyard business. S everal oth er diversification attem pts never got beyond the draw ing board. For instance, the m ortar p roducer E speranza com m issioned a study o f the p o ssi­ bilities for diversification and conversion open to the firm. T his concluded that the civilian areas that the com pany could attem pt to en ter (m ainly forging) were already suffering from an ex cess o f supply. F u rth erm o re, any div ersificatio n attem pt w ould require a level o f investm ent w hich the firm , w eakened by the decline in the m unitions m arket, could not afford. T here are, therefore, exam ples o f individual, and usually m odest, attem pts by military firm s to develop civilian business. But there are no public initiatives in the field o f conversion or diversification. Even m ore im portantly, there is little debate over potential policies, and a lack o f aw areness o f initiatives underw ay elsewhere. S pain’s reaction to the E uropean C om m unity K O N V E R initiative is illustra­ tive in this respect. In 1993, seven S panish p ro jects w ere financed under K O N V E R to a total o f Pt 2.4 billion, o f w hich 50% w as financed by the EC and the rest by four Spanish regional authorities, tw o firm s and one local authority. T he K O N V E R initiative passed largely unnoticed in m ost firm s and even am ong o fficials responsible for in dustrial policy at the M in istries o f D efence and Industry. T he projects that w ere approved w ere m ore the result o f individual ini­ tiative by som e regional governm ents and firm s than the outcom e o f any coordi­ nated initiative to increase general aw areness o f K O N V E R . T his explains the odd geographical distribution o f the K O N V E R funds received by Spain; m any o f the Spanish projects have been located in regions w ith little or no dependence on m ilitary activities, w hile areas heavily d efence-dependent received few or no funds. F or instance, C atalonia is the only region receiving K O N V E R funds for as m any as tw o projects, yet it has alm ost no defen ce industry. On the other hand, M adrid has only one project financed, despite being the m ain centre o f Spanish defence m anufacturing and having a large num ber o f m ilitary facilities.

C on trolling the D iffu sion o f D efen ce T echnologies: D efence T echnology E xport R egim es Since 1985, Spain has jo in ed (the form er) C O C O M (1985), becom e a m em ber o f the M T C R (1989), and signed the N PT (1993). T his resulted in the addition o f lists o f controlled dual-use item s to the Spanish legislation governing exports. T he process has, how ever, been particularly slow and has had only a slight effect

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on the organisational structure responsible for m onitoring trade in controlled products. A fter Spain joined C O C O M , regulations on the export o f sensitive technologies began to be introduced, replacing the rather informal system that had been used until then (Fisas, 1988, pp. 123-138). Yet a list o f controlled items follow ing COCOM lines was not introduced until January 1990. It was not until early 1992 that a law was approved classifying the illegal export o f con­ trolled goods as contraband, in accordance with COCOM recom m endations. The organisation in charge o f granting export licences for dual-use item s is sim ilar to the organisation that had been responsible since 1987 for licensing the export o f arm s and m unitions: the Junta Interm inisterial R eguladora del Comercio Exterior de Arm as y Explosivos (JIRCEAE) (Interm inisterial Board R egulating Foreign Trade in A rm s and Explosives). JIRC EA E com prised repre­ sentatives o f the M inistries o f Foreign Affairs, Industry and Trade, Defence, and Economic Affairs, and was chaired by a senior official o f the M inistry o f Trade (the D irector G eneral for Trade Policy). In 1988, a Royal Decree (Real Decreto 480/1988) established the basis o f a new export control system . It changed JIR C E A E ’s name to reflect the extension o f the Interministerial B oard’s respon­ sibilities to cover dual-use technologies,15 but the new Board represented the sam e m inistries as the old JIRCEAE. Several regulations have since been intro­ duced w hich specify the list o f controlled technologies (follow ing CO CO M rules), and establish the procedures for obtaining licences. The w hole process has evolved with little debate and negligible public interest.

Conclusion The main characteristic o f S pain’s defence technology policy is the absence of an explicit form ulation o f strategies beyond the statem ent o f the most general policy goals. This is accom panied by a scarcity o f discussion and debate within industry, governm ent, and the w ider public on any issue related to dual-use tech­ nologies, conversion, diversification and the relationship betw een civilian and m ilitary technologies. Such an absence o f explicit debate and o f identifiable policy responses to the changing situation in the defence industries should not, however, be confused w ith policy inaction. Im portant developm ents which have occurred, but with little or no public announcem ent, include the follow ing: •

•

The M inistry o f Defence has adjusted the balance betw een the recipients of R & D funds in favour o f G overnm ent research organisations under its control, and away from firms. A lthough there is a continuing em phasis on attracting foreign investors to the Spanish defence producers, the means towards this end have changed.

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Instead o f high profile operations involving the main defence firm s, a stealthier approach has been adopted under w hich foreign partners are sought for new divisions o f the larger com panies. T hese divisions are sm aller, specialised firms, at tim es brand new operations, but more often the result o f ‘spinning o ff’ into new firms plants that had previously been integrated within the Spanish parent firm. As a result, foreign firms are becom ing involved in the developm ent and m anufacture o f com ponents and sub-system s, rather than participating in the operations o f the ‘big ’ system s assemblers. The growth o f the M inistry o f D efence’s R&D investm ent in the fledgling Spanish space sector im plies a m ove tow ards an area where technological developm ents have an obvious ‘dual use’.

There has been little debate on conversion and diversification strategies, and there is no explicit public policy in this area. Industry is left to im plem ent its own diversification initiatives. The m eagre attention paid to these issues may be partly explained by the relatively m inor role o f defence production within the Spanish economy. N evertheless, the contraction o f defence dem and is likely to have im portant consequences in a few areas heavily dependent on m ilitaryrelated activities.

References Fisas, V„ 1988, L esA rm e s de la D emocracia. E xportations espanyoles d ’armament, 1980-1987, Barcelona: Fundacio Jaum e B ofill-Edicions La M agrana. Fundacion U niversidad-E m presa, 1993, Tecnologias de D oble Uso, M adrid: Fundacion U niversidad-Em presa, Coleccion F6rum Electronica Militar. M edina, E., 1994, ‘C hequeo a la Industria de D efensa’ Revista Espahola de D efensa, January, p. 48. M inistry o f D efence, 1986, M em oria de L egislatura (1982-1986), M adrid: M inisterio de D efensa, Secretaria G eneral Tecnica. M inistry o f Defence, 1993a, Statem ent o f the Secretary o f State for D efence to the Spanish Senate, M imeo, October. M inistry o f Defence, 1993b, M em oria de la IV Legislatura, 1989-1993, Madrid: M inisterio de D efensa, Secretaria G eneral Tecnica. M olas-G allart, J., 1992, M ilitary Production and Innovation in Spain, Chur: H arwood Academ ic Publishers. O liveres, A., 1993, La viabilitat ecdnom ica del desarm am ent: El cas de la industria m ilitar espanyola, U npublished doctoral dissertation, Universitat A utonom a de Barcelona.

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Payne, S., 1967, Politics and the M ilitary in M odern Spain, Stanford: Stanford U niversity Press. Rufz M ontero, J.F. 1989, ‘Politica G eneral de A rm am ento del M inisterio de D efensa’, in Circulo de Electronica M ilitar, La electronica de defensa ante el reto de Europa, M adrid: Fundacion U niversidad-Em presa.

Endnotes 1 The 'D efence A dvisory C om m ittee on A rm am ents and M aterial’ (CA DA M ), for example, was set up in May 1982 as an advisory body to the M inister o f D efence on questions o f defence industrial policy. However, it has not been particularly active. 2 T he estim ate refers to the defence production declared by firms that are m em bers o f the Spanish A ssociation o f Arms Producers (A farm ade); the 45 m em ber com panies account for most, if not all, Spanish military pro­ duction. The M IND EF/Afarm ade estim ate in Table 1 for 1992 gives a larger figure possibly because it includes a larger num ber o f firms; it was pub­ lished in the official M inistry o f D efence report on its activities in the 1989-1993 period: M inisterio de D efensa M em oria de la IV J^egislatura. 3 H ughes’ penetration is linked to the Spanish acquisition o f TOW missiles and the program m e to develop an electro-optic guided TOW replacement. 4 This figure includes com ponents and sub-system s (some o f them ‘exported’ in the fram ew ork o f international developm ent and production pro­ gram m es), and also munition and small weapons not monitored by SIPRI. 5

E conom ic planning o f defence expenditure was authorised in the 1982 ‘Budget Provisions Act for Investm ent in and M aintenance o f the Armed Forces’. The Act was intended to provide the basis for a long-term planning in Spanish defence expenditures, fixing a m inim um annual increase in real terms for m aintenance and investm ent credits and a maximum growth for defence expenditure. D espite being extended twice (in 1987 and 1990) and being still in force, its application was de fa c to frozen in 1990, when it becam e clear that the next procurem ent budgets would not bear any resem ­ blance to the goals set up in the Act. The Secretary o f State for Defence pre­ pared a new Act for presentation to C ongress in 1994. Its main objective (to provide a solid basis for defence expenditure planning) remained rem ark­ ably sim ilar to the goals set up in the 1982 Act. D espite the noticeable

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failure to provide even short-term planning at both the aggregate and disaggregate levels (M olas-Gallart, M ilitary Production, pp. 114-115), the new A ct w as heralded as a way to achieve success in an area that has seen repeated failures. The new so-called ‘Program m e-A ct’ is designed to specify in greater detail the program m es to be developed and the years in w hich the planned investm ents will be carried out. 6 Despite persistent rum ours in the late 1980s about foreign firms being inter­ ested in buying a share in CASA, the rumours never m aterialised. Similarly, more recently INDRA has rem ained w holly under Spanish control despite reports o f keen interest from Thomson. 7 SAES was founded in 1990 by Inisel (51%) and Bazan (49%). 8 ITP incorporated the aircraft engine m aintenance facilities previously belonging to CASA. 9

By com parison, Spanish participation in the EUCLID program m e is much less significant. A lthough Spain participates in 9 EU CLID projects, the investm ent are very low: Ptas 1300 million in 1992 and Ptas 495 million in 1993. Such am ounts m ake the EU CLID projects m arginal w ithin the research activities financed by the Spanish M inistry o f Defence.

10 All o f the R&D ‘investm ent’ o f the D irectorate G eneral for Econom ic Affairs and m ost o f the D irectorate G eneral for A nns and M ateriel can be assum ed to be contracted-out research. For a more detailed discussion of these assum ptions, see M olas-G allart, 1992, pp. 110-111. 11 T his section includes also universities, but their role as receivers o f M INDEF research funds has always been minimal in com parison with those received by State-ow ned firms. 12 In fairness, the technological base o f Spanish industry could not handle for a sustained period the exponential grow th o f contracted research witnessed in the late 1980s. 13 The most im portant o f INTA’s research program m es are the developm ent of a rocket launcher for m icrosatellites (C A PRICO R N IO ), seem ingly aban­ doned in late 1994, an U nm anned A erial Vehicle for surveillance tasks (SIVA), and the developm ent o f sm all satellites (MINISAT).

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14 M ost o f the R&D financed by M IN D EF is for the developm ent o f specific arm s system s, and therefore often may have lim ited dual-use applications. 15 The new name was Junta Interministerial Reguladora del C om ercio Exterior de M aterial de D efensa y de Productos y Technologias de Doble Uso (JIM D D U ), that is, Interm inisterial Board regulating the foreign trade of defence material and dual-use products and technologies.

Chapter 8

Sweden Bjorn H agelin

Introduction1 Beyond the general posl-Cold W ar re-orientation o f defence and security policy that is being experienced by other west E uropean countries, Sweden faces addi­ tional com plexities arising from its traditional policy o f neutrality in defence and foreign affairs. A lready during the 1980s, Sw eden had experienced reduced dem and for, and postponem ents of, m ateriel acquisitions, resulting in general unit cost increases. Rationalisations were made, both at the national level and within com ­ panies, to try to increase efficiency and thereby reduce costs. The peacetim e (training) m ilitary organisation was also reduced. The ‘peace dividend’ was not realised, however, since the released resources were initially transferred to the budget for new equipm ent orders. This reflected the fact that since the end o f the Cold War, new econom ic pressures have emerged, placing com peting demands on the defence budget. At the industrial level, the order o f the day is restructuring. The main em phasis has changed from national restructuring, which has gone about as far as it can, w ith the possible exceptions o f m issile and electronic industries. Instead, the focus has shifted to international rationalisations and to an evalua­ tion o f which technological areas should be retained in Sweden, and which com ­ plem entary technologies are to be acquired from abroad through imports, offsets and R&D cooperation. The logic o f non-alignm ent, aim ing at neutrality in a European war, was dow nplayed by the governm ent in the early 1990s. In 1994, Sw eden joined N ATO ’s PFP (Partnership for Peace) program m e (see R egeringens skrivelse 1993/94:207). N eutrality is still official policy. Yet, at the same time, the new military situation in Europe has set off a debate about possible Swedish m em ­ bership or association with NATO. Sweden is already becom ing more engaged in international operations, which creates new dem ands for m ilitary production, organisation and training. For the first time in m odem history, Sweden partici­ pated in a jo in t naval operation in the Baltic Sea during 1993. In M arch 1994, NATO troops (Danish) engaged for the first time in jo in t aircraft and tank peace­ keeping training exercises with Sw edish troops, in Sweden. During Septem ber and O ctober 1994, Sweden participated in its first NATO/PFP military exercises. 219

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EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITIO N

Sweden also became a m em ber o f the EU from 1995, a position supported by all the major political parties. This will have implications for public procurement in the areas o f civilian and dual-use products. EU, and possibly W EU, m em ber­ ship will have further consequences for the maintenance o f Swedish defence tech­ nological capabilities. The traditional policy o f striving to m aintain an ‘arm ’s length’ distance from other countries is changing to an ‘arm in arm ’ policy.

Basic Data O rganisational Context A significant am ount o f basic and applied R&D as well as design of military system s takes place in Sweden. There is one military research organisation, the National Defence Research Establishm ent (FOA), and one institute for applied aeronautical research, the A eronautical Research Institute (FFA). The Defence M ateriel A dm inistration (FM V) is the central procurem ent authority for military equipm ent, playing a key role in defining equipm ent requirem ents in coopera­ tion with the arm ed forces. A 1993 governm ent bill entitled ‘Research for K nowledge and Progress’ proposed a new research policy for Sweden (Forskning fo r kunskap och fra m steg). As a result, FOA’s activities are becom ing more specialised while, from 1994, FMV becam e fully funded from equipm ent orders instead o f directly from the governm ent’s budget. In addition, certain universities, m ainly w ithin natural and technical sci­ ences, such as the Royal Institute of Technology in Stockholm and Chalm ers Technical High-school in G othenburg, also play a part in supporting m ilitary requirem ents. H ow ever, som e sporadic references apart, there is no detailed inform ation about defence-academ ic relations. W hat seem s clear, though, is that they will get closer. Sw eden’s D efence Industries Acquisitions and restructuring activities during the 1980s have resulted in a high degree o f defence industrial concentration (see Table 1). Celsius Industries has becom e the m ain arm s producing group with around 50% o f Sw eden’s total defence industry sales. D uring the 1980s it developed, through a deliberate company policy, into a large defence group. In addition to military shipbuilding, located in Kockums and K arlskronavarvet, in 1992 Celsius acquired the Bofors ordnance com pany2. In 1993 a large part o f the electronics industry, formerly

SW EDEN

221

N obelTech, also becam e part o f the group under the nam e o f CelsiusTech (Celsius A nnual Report 1992). A fter the privatisation o f Celsius in 1993, all of Sw eden’s defence industry becam e private. As seen in Table 1, Sw edish military firms are involved in most conven­ tional arms technologies. There is one m ajor company for each o f the main arms categories, such as arm oured vehicles and ordnance in general (Bofors), aircraft (Saab) and jet-engines (Volvo A ero C orporation, until April 1994 Volvo Flygm otor), surface ships (K arlskronavarvet) and subm arines (Kockums). There is some overlap in m issile technology betw een Bofors and Saab M issiles and in land vehicles between Bofors and H agglunds, but in general these capacities are com plem entary and the com panies cooperate rather than com pete. The most im portant outstanding rationalisation is probably in electronics. A mong the few areas o f production not undertaken in Sweden are produc­ tion o f light non-jet aircraft and helicopters (except overhaul), and long-range ground-to-air as well as air-to-air and ground-to-ground m issiles. The latter m issile type is not even in the Sw edish arm s inventory because o f the air-toground role o f the Sw edish A ir Force. Also, as a consequence o f the transition from a heavy to a light navy, som e types o f surface ships are no longer produced. Table 1 also indicates that defence em ploym ent during the period 1991-1993 fell by over 2000 people, mainly in ordnance production. The bottom had prob­ ably not yet been reached. Bofors was im plem enting a major restructuring program due to be com pleted in 1994, and several com panies gave notice to em ployees during 1993 due to reduced orders. The num ber o f em ployees at Bofors was expected to decline by about 2500 between 1991 and 1995 (BoforsKuriren, no. 2, 1994, p. 4). The high share o f defence em ploym ent in the com panies listed in the table is a result o f the restructuring o f the defence industrial base during the 1980s and 1990s. Only in Volvo A ero Corporation was em ploym ent on defence production below 50% o f total em ploym ent in 1993. A fter production and deliveries to A ustralia during 1992 o f subm arine sections (for assembly in Australia), defence em ploym ent at K ockum s fell to ju st over 50% o f the total in 1993. For B arracuda Technologies, producing cam ouflage equipm ent, the defence em ploy­ m ent share increased to more than 60% in 1993. All Sw edish defence com panies have been hit by reduced orders from dim inishing dom estic as well as foreign orders during the 1990s. Table 1 show s the sam e general dow nward trend in total defence materiel sales as in em ploy­ ment. The major exceptions are found in electronics, mainly CelsiusTech, and in K ockums, arising mainly from the sale to A ustralia m entioned above.

222

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

Table 1: Swedish Dcfence Firms, Production Areas, Sales (million SEK) and Employment Group

Industries

Production areas A

Bofors AB

Celsius

B

C

X

Celsius Tech Systems AB

X

FFV Aerotech AB (Kockums)

D

X

Celsius Tech Electronics AB

X

• Karlskronavarvet AB

X

• Kockums Submarine

X

D efence m ateriel D ef.sale 1993

1992

1991

3272

3967

4288

95

914

859

390

99

1289

1149

1284

96

862

1050

861

73

incl. below

455

506

incl. below

788

534

42

34

1219

1269

1407

54

no info

-

-

share 1993

System s AB Ericsson*

Ericsson Radar Electronics AB

X

Ericsson Radio Systems AB Incentive

X

Barracuda Technologies AB

Landsnordic

SA Marine AB

Saab-Scania

Saab Military Aircraft Saab M issiles AB

Volvo

X

X X

Saab Instruments AB +

X

Saab Training Systems AB

X

Volvo Aero Corporation

TOTAL

*Note:

119

184

59

659

904

91

52

42

49

100

1088

1058

1459

61

614

580

860

98

630

559

726

89

977

1316

1417

27

X

Volvo Aero Support AB

S o u rce:

88 631

X

Hagglunds Vehicle AB

X X

-

no info 11083

-

-

12511

13717

-

Fakta om forsvarsindustrin. Sveriges Forsvarsindustriforbund, 1993. Ericsson Radar Electronics and Ericsson Radar Systems today make up Ericsson Microwave AB.

Definitions: D ef.sales = total invoiced company defence materiel sales. Def.empl. = number o f em ployees involved in defence materiel production. Def.exp. = invoiced company defence materiel exports. All shares are in %. Production Areas: A = Weapons & Ammunition, B = Weapon platforms, C = Electronics, D = Other.

SWEDEN

223

(num ber) 1991, 1992 and 1993 E m p lo y m e n t in d e fe n c e

Def.salcs share 1992 97 100

D e fe n c e m a t e r ie l e x p o r t s

1993

1992

1991

Dcf.cmpl. share 1993

Dcf.cmpl. share 1992

4554

4736 1070 1010 1500 750 845

5723 550 1632 1435 700 811

90 99 95 82 incl. below 56

89 99 96 80 86 89

61 5 incl. below 4

43 22 56 3 0 74

Dcf.cxp. share of Def.sales 1993 1992 37 17

96 82 96 84

901 970 1400 incl. below 1553

66

2194

2188

2250

82

84

40

20

-

-

-

-

-

-

-

-

54 91

105 600

140 635

184 690

64 94

51 98

67 57

70 67

100

43

48

43

100

100

23

21

58 96

2855 406

3000 464

3500 496

80 93

75 95

6 31

5 74

95

530

625

804

98

99

69

62

39

1873

2083

49

11

13

-

-

2050 -

46

-

-

-

-

-

17984

19094

20868

224

EURO PEA N D EFEN CE TEC H N O LO G Y IN TRA N SITION

Finally, Table 1 indicates that m ost defence com panies have a high defence share o f total sales. Just as for em ploym ent, this is a result o f the restructuring process; those com panies w hich decided to stay in m ilitary production have become more specialised (see also Table 7). For m ost o f these firms, the military m arket is therefore their main market. In some com panies there are no domestic follow -on R&D orders in their particular line o f production, for instance fighter aircraft, heavy tanks, and anti-aircraft guns. W ithout new orders these areas of production are on the brink o f being closed.3

International Partners A lthough Sweden has officially pursued an ‘independent’ foreign and defence policy, there have in fact been many international contacts over the years, both official and unofficial, at governm ental as well as com pany levels. Moreover, during the 1980s, the internationalisation o f Sw eden’s military industry picked up sharply. One indicator o f this trend is the num ber o f foreign-based sub­ sidiaries o f Sw edish defence firm s, w ith a m inim um o f a 20% stake, w hich rose from a handful in the 1970s (F orsvarsindustrins utlandsverksam het 1987) to a position by 1994 w here six firm s had over 20 subsidiaries in 12 countries. Sim ilarly, w hile there were a little over 10 com panies w hich between 1989 and 1992 reported some 80 active manufacturing licenses abroad, 16 com panies in 1994 reported 162 licenses and cooperative agreem ents (K M l skrivelse 1995). A nother indicator o f Sw eden’s internationalisation is political. Table 2 lists Sw edish bilateral inter-governmental agreem ents for the exchange or protection o f m ilitary inform ation and goods, as well as the most recent agreem ents (M em oranda o f Understanding — M OUs) concerning R&D and industrial coop­ eration. Many countries appear more than once, m ost notably the USA. For several countries, a second agreem ent has been signed during the 1990s, in some cases nullifying its predecessor, but more usually broadening its scope. The M OUs signed during 1994 which most clearly reflect the new security and polit­ ical situation in Europe are those with Poland and the Czech Republic. That with Poland is closely related to future jo in t peacekeeping activity and the conse­ quent need for certain exchanges o f information and goods. Several new agree­ ments o f this kind can be expected with other PFP countries. From a m ilitary-industrial perspective, the m ost im portant new agreem ents are with the m ajor military producers in Europe, such as France, G erm any and the UK, together with those with such non-European states as A ustralia and, of course, the USA. The Sw edish-French MOU states that both countries em pha­ sise a ‘selective’ approach. With Australia and the UK, on the other hand, the

SW EDEN

225

Table 2: S w ed en ’s B ilateral A greem ents for the E xchange o r Protection o f M ilitary Inform ation and G oods, and for R & D and Industrial C ooperation, 1952-June 1994 Year

Country

1952

USA

1961

USA

1962

USA

1964

USA

1966

Switzerland

1967

UK

1969

Norway

1970

Denmark

1974

Austria

1975

Canada

1981

USA, Belgium

1984

France, Netherlands

1985

Spain, Australia

1986

Singapore

1987

USA

1991

Germany

1992

Austria

1993

France

1994

UK, Australia, Malaysia, Poland, Germany, Czech Republic

Sources: Sveriges overenskommelser med frammande makter, and information supplied by the Ministry of Defence. approach seem s m ore open. An indicatio n o f the im p o rtance o f fu tu re c o ­ dev elo p m en t p rogram m e s is the inclusion o f com m on m arketing and third country sales issues (see below ). A feature o f the new agreem ents is the estab ­ lishm ent o f jo in t com m ittees to keep cooperation alive and active.4

226

E U R O PE A N D E F E N C E T E C H N O L O G Y IN T R A N S IT IO N

A particularly significant developm ent w as the bilateral cooperation agree­ m ent signed betw een Saab and B ritish A erospace in February 1994, and taken further a year later, having received governm ental approval. This involves inter­ national m arketing o f the JA S39 G ripen aircraft, com m on further developm ent and production o f the aircraft, and perhaps also m issile cooperation. (Svenska D ag b la d et, 12 February 1994; JA S39 G ripen, p. 118; and A viation W eek, 20 February 1995, p. 27). T he L argest D efence P rojects Table 3 lists the largest current procurem ent program m es at either the R&D, m anu­ facturing or deploym ent stages. The table includes FM V paym ents received by the

Table 3: FM V Paym ents and M ain P roducts (Current millions Swedish Kroner) Firm/group

1989-90

_

1990-91 1991-92 Main products

Swedish Ordnance IGJAS Bofors group

2080 1647

1894 1694 974

2167 2053 495

FFV group Saab group

1579 992

1144 713

1073 697

Ericsson group

562

743

998

Volvo group Karlskronavarvet

322 240

366 134

221 136

Kockums group HB Utveckling Foreign suppliers Other

163 117 1684 4493

287 677 1498 5045

455 170 1524 5810

13,981

15,169

15,799

Total

STRIX 120 mm mortar round JAS39 Gripen Anti-aircraft missile system BAMSE, anti-tank missile system BILL, STRIC C&C system Torpedoes Aircraft, missiles, training equipment PSR-890 AEW radar, troop radio & tele system 8000 Aero engines Smyge ship, corvettes type Goteborg Submarines, type Gotland Fighting vehicle 90

Source: FMV annual reports. The list shows the situation before the enlargement of Celsius Industries.

SW EDEN

227

MSEK

F ig u r e 1: Military expenditures fiscal year 1980/81-1992/93 (constant 1990/91 mil­ lions Swedish Kroner). S o u r c e : Ministry of Defence.

respective company or group for military materiel between the fiscal years 1989-90 and 1991-92 (Swedish Ordnance had then not yet been acquired by Celsius). Some o f the extra financial resources allocated in 1992 (see Figure 1) were used to order, for instance, the developm ent o f guided am m unition (the STRIX term inally-guided 120 mm m ortar round) and additional equipm ent such as field howitzers for the Army. The intention was to increase the quality rather than the quantity o f mainly Army materiel. In early 1994, the G overnm ent approved the acquisition o f the German Leopard 2 Im proved tank as a follow-on to the Swedish S-tank. For the Navy, the major projects include the experim ental stealth techno­ logy surface ship Smyge, the developm ent o f operational ships based on that principle, torpedoes, a ground-to-ship m issile and subm arines. The JA S39 Gripen multi-role aircraft is the biggest acquisition project for the A ir Force. O ther m ajor projects include the developm ent o f an A irborne Early W arning system and a new com m and and control system (STRIC) being developed by Bofors Electronics AB.

228

EURO PEA N D EFEN CE TECH NO LOG Y IN TRA N SITION

Budgetary TVends Swedish official statistics generally correspond to OECD definitions. ‘D efence’ is defined by the objective o f the activities perform ed (as defined by the per­ former). However, as will be illustrated below, a narrow er definition o f ‘m ili­ tary ’; activities can also be adopted. W ith regard to R& D , the ‘d efen ce’ definition does not take into account w hether the activities have secondary civil applications. Clearly, the line is not only difficult to draw, but is open to subjec­ tive interpretations. As a consequence, there are no OECD statistics on dual-use technologies or products. In a 1993 report about Sw edish strategic export controls, dual-use goods were defined as ‘products with double use, i.e., products with an estab­ lished civilian use but which also may be used, directly or indirectly, for destruc­ tive purposes’ (Kontrollen over export av strategiskt kansliga varor 1993, p. 8). There are no specific Swedish national statistics covering such goods. Instead, in accordance with present war m ateriel policy, dual-use materiel is defined as war materiel only when it has both a military and a destructive function. Sw eden’s defence expenditure actually increased during the early 1990s (see Figure 1) as a tem porary result o f the 1992 five-year defence plan. Earmarked financial resources were allocated in order to support developm ent capacity and specific com petence within the defence industry. U nless the next defence plan, due in 1996, adds new financial resources, defence expenditure will continue downwards. M ateriel acquisitions by the arm ed forces did not exceed 30% o f the M inistry o f D efence budget until very recently. By about 1986 that share reached 40% o f the overall M oD budget as a result o f the final stage o f JAS39 Gripen developm ent (Hagelin and Wallensteen 1992). Indeed, that project alone, including all types o f equipm ent in addition to the platform , accounts for about 70% o f the A ir Force budget. Sim ilarly, if coastal artillery equipm ent is included, the materiel share of the Navy budget is roughly 75%. T urning to R&D data, statistics from the Sw edish N ational Bureau of Statistics (SCB) indicate that private (business enterprise) sector R&D has declined as a share o f total R&D during the last 10 years (Table 4). One obvious explanation is that public R&D has increased faster than private R&D. Another is that developm ent expenditure in particular, not least within the military indus­ try, has declined, although it must also be observed that the many structural changes in the defence industrial base com plicate the com pilation o f reliable statistics over time. Roughly 10% o f Sw eden’s defence expenditure is used for R&D (Forskning fo r kunskap och fram steg, p. 98). Total military R&D in Table 4, defined not as a

Table 4: Sw edish R & D Expenditure 1981-1991 (m illions Sw edish Kroner) Year

13320 18189 24989 30553 34903 36410

M I L I T A R Y (o f w hich)

Total

M ilitary

B u sin ess en terp rise sector

m ilitary (R R V )*

as % o f total R & D

8479 11733 17001 20401 22362 23000

889 1426 2602 2971 3389

7 8 10 10 10 —

R & D M ilitary

industry

R&D

Largest military firms**

As % o f total military

As % o f business sector

Funds from mil. o rg ’s total

O ther

796 1181 2233 2652 2596 2009

90 83 86 89 77

9 10 13 13 12 9

542

254

585 1358 1654 1627

596 875 998 969 158

—

1851

funds total

SWEDEN

1981 1983 1985 1987 1989 1991

TOTAL R&D

S ou rces: SCB Forskningsstatistik; SC B , for the author; and RRV B udgetens utfall. N otes: * Since RRV is by calendar year, fiscal year 1992/93 corresponds to calendar year 1993, etc. Total military R & D = expenditures for army, navy and air force R & D , com m on defence research, operational co m m an d and control R & D , and FFA. ** T h e total expenditure by firm s on m ilitary R & D is broken dow n in the final tw o colum ns into funds arising from governm ent sources and those from o th er sources (including firm s’ ow n funds).

229

230

EURO PEA N D EFEN CE TECH N O LO G Y IN T RA N SITIO N

‘defence objective’ in OECD parlance but m ore narrowly as the com bined R&D expenditures o f the three military branches, com m on defence research, aeronau­ tical research (FFA) and operational com m and and control R&D, increased in current prices during the 1980s. During the latter part o f the 1980s it accounted for about 10% o f Sw eden’s total R&D expenditure. ‘D efence R & D ’ as defined in the budget bills during the last 10 years peaked in fiscal years 1986/1987 and 1987/1988 when it accounted for alm ost 26% o f publicly-funded R&D. It then fluctuated around low er levels until it clim bed to a new high o f 27% in fiscal year 1991/1992 (F orskningsslatistik 1992, p. 45; see also H agelin and W allensteen 1992). M ost developm ent w ork is done in industry. The largest defence firm s (roughly speaking, those listed in Table 1) account for well over 50% o f total spending on m ilitary R&D. T heir R&D activity began to decline after 1987, however, and was sharply reduced from 1989. By 1992, total R&D by the major military com panies accounted for about 30% o f their com bined turnover (Fakta om forsvarsindustrin 1993, p. 5). M ilitary com panies without m ajor R&D orders are in future likely to seek m odification and overhaul w ork, international cooperation, and the further developm ent o f already deployed weapon systems. Some o f these undertakings will be partly privately financed. The larger m ilitary firms, in particular, are w illing to risk capital for private projects, at times when governm ent or foreign orders are few, and/or to seek outside private finance. H ence, during 1993 roughly 30% (195 m illion SEK) of B ofors’ total R&D expenses were privately funded (B ofors-K uriren, no. 2, 1994, p. 4). Similarly, within the Celsius group, about 15% o f turnover is allocated to R&D, o f w hich one quarter is private (Annual Report 1993). The total m agnitude o f private financing in the defence industry is difficult to estim ate, but may be reflected in the ‘O th er’ colum n in Table 4. Part o f that sum, however, is paym ent from abroad to Sw edish firm s as well as Sw edish paym ents to foreign companies. Large projects are also often co-financed by a m ixture o f private and public sources. For exam ple, a 50:50 division was used for the initial JAS39 Gripen developm ent phase from 1982. A rm s Im ports & Exports The regional distribution o f w ar materiel exports from 1982 to 1993 is shown in Figure 2. A lthough there are fluctuations, E urope has overall been the m ost im portant recipient region for Swedish war materiel, follow ed by Asia, whose share has, how ever, been sharply reduced latterly. The sharp increase for

SW EDEN

231

Percant

® W.Europe D N America D L.America D Asia

I

0 Africa O Oceania

I

1

1982

1983

F ig u r e 2:

T 1984

T 1985

i-

i

i

__.n 1986

1987

1988

1989

1990

n,

n, in! 1991

1992

Regional Distribution of Sweden's war materiel sales 1982-1993.

O ceania during 1992 w as m ainly due to K ockum ’s shipm ent o f subm arine sec­ tions to A ustralia. F or the cate g o ries used to d escrib e exp o rted m ateriel, see Table 5. In addition, Sw eden has for som e years had an ‘assistan ce’ program m e for the three B altic states. Since the goods under this program m e have so far been defined as gifts, and not as ‘w ar m ateriel’, they are not included in the arm s export statistics. For Sw edish industry, international M ilitary Industrial C ooperation (w hat one m ight call the new M IC, i.e., an international ‘m ilitary-industrial co m p lex ’ in a general sense) is seen as a w ay to sustain certain advanced m ilitary R&D, define new projects and access new m arkets. A new phase w as entered from January 1993 w hen a new S w edish ex p o rt p olicy cam e into effect (Lag om krig sm ateriel, 1992; UU 1992/93). T he g o v ern m en t’s 1992 bill, outlining the principles behind the new policy, d efin ed for the first tim e co n d itio n s for Sw edish participation in international R & D on w ar m ateriel. It m arked a w ater­ shed not only in S w ed en ’s export policy, but also in the future political accep­ tance o f increased w ar m ateriel sales and M IC participation. A ccording to the new policy,5 Sw edish w ar m ateriel sales are perm itted: •

•

w hen deem ed necessary in o rd er to supply Sw eden w ith m ilitary supplies (an argum ent for offsets o f q u id p ro quo), o r w hen otherw ise thought d esir­ able from a security point o f view ; and when not contrary to S w ed en ’s foreign policy principles and goals.

232 EUROPEAN

Table 5: C ategories of War M ateriel Exported 1986-1993, and Totals (Current million SEK. The headings were made more detailed from 1989)

1986 1987 1988 1989 1990 1991 1992 1993

Small. Artill Ammo Msls., torpe­ C31 Explvs Land Ships Air Helmts Traing Tools Other matrls etc equip./d arms/a does, mines /b vhds etc equ./c etc 2532 3447 1 2 2 0 1

1747 634 206 223 150

1662 1008 394 289 287

1294 799 1586 1166 480

399 334 155 267 1007

90 81 90 102 149 77 71 74

4 77 10 272 130 50 11 506

24 2 0 4 0 0 490 117

0 2 0 0 0 0

299 341 5599 20 65 63 75 92

118 18 14 32 10

2

3243 4427 6155 6005 3327 2705 2753 2863

IN TRA N SITION

Source: War Materiel Inspectorate. Notes: a) Incl. arms and ammunition for hunting and marksmanship. b) Incl. powder and certain detonators with civilian uses. c) Incl. parts and parachutes. d) Incl. training aids; radars; electronic support and manufacturing equipment.

294 478 456 384 188 158 129 137

Total

DEFENCE TECHNOLOGY

Year

SW EDEN

233

With regard to the first guideline, the governm ent stated in the 1992 report that Sw eden had ‘a strong security policy need to participate increasingly in interna­ tional research and developm ent cooperation’.6 A particularly sensitive issue in the past has been w hether the Swedish gov­ ernm ent should dem and the right to veto a sale o f co-developed war materiel to certain recipients ('th ird ’ countries). It was soon realised that such a veto would leave Sw eden w ithout interested partners. Therefore, according to the new policy, the conditions governing potential exports should be agreed w'ith partners from the start. As a general rule, an end product with ‘a m ainly foreign identity’ may be exported according to the rules and regulations o f the other country(ies), but Sweden retains the capacity to intervene in the decision when strong defence policy interests are at stake. Sales can also have specific conditions attached. Thus, while the MOUs with Australia and the UK both stipulate the need for approval by both parlies for third country sales o f equipm ent and licenses, only the UK MOU mentions that ‘spe­ cific arrangem ents’ governing such sales ‘will be included in the Im plementing Arrangem ent established for that particular program m e’. This makes the SaabBAe agreem ent, referred to above, particularly im portant as a path breaking step. Turning to im ports, one might have expected that Sw eden’s traditional mili­ tary policy — em phasising independence and a broad indigenous military indus­ trial base — w ould have led to the establishm ent o f form al m ilitary im port restrictions. This, however, is not so. M oreover, if all types o f relevant techno­ logy were held indigenously, the Sw edish dilem m a betw een military-political am bitions and econom ic-technological reality would reduce mainly to a matter of finance. This too is not the case. For even though most conventional materiel is designed and/or m anufactured in Sw eden, m uch rem ains based on, and dependent upon, foreign know -how and technology. Like most other countries, Sweden has never been wholly independent in any area. In the selection o f main military designs, however, Sw edish-designed equipm ent has generally been pre­ ferred over foreign, the military arguing that the equipm ent can then be opti­ m ised to Sw edish needs, thus costing less in the long-run than non-optim al foreign systems. As shown in Table 3, FM V paym ents to foreign suppliers (i.e., governm ent purchases from abroad) accounted for roughly 10% o f total public defence pay­ ments between 1991 and 1993. This figure does not include imports by the com ­ panies them selves ( ‘indirect im ports’). Indirect im ports have generally been estim ated to be roughly 20% o f total acquisition costs, taking overall military imports to an estim ated 30% o f total acquisition costs. However, these statistics fail to reflect the strategic im portance o f the imported technologies or goods. Without these imports, neither Swedish industry,

234

EURO PEA N D EFEN CE TECH NO LOG Y IN TRANSITION

nor Swedish defence materiel, would be as advanced, or perhaps relatively cheap, as they have been. For econom ic reasons, Sw edish producers increased their overseas purchases of subsystem s and com ponents during the 1970s and 1980s (Svensk forsvarsindustri 1982). Such ‘indirect im ports’ may be expected to increase further as a result of internationalisation processes as well as from eco­ nomically and technologically more dem anding military projects. In the JAS39 Gripen project, the foreign content accounts for about 40% by value. Indeed, such is the importance attached to foreign technology that it is now explicitly linked to exports through the argum ent that m aintenance of a strong arms industry (for which exports are crucial) is essential for making Sweden a worthwhile partner in international ventures. Such language was found for the first time in the 1992 defence export bill. And international cooperation is itself seen as necessary in order to sustain an advanced national military industrial base. E xam ples o f im ported goods and technologies include jet engines, heavy guided missiles and electronics. All Swedish jet fighters have had engines m anu­ factured under British or American licenses. Heavy ground-to-air m issiles have been purchased from the UK and the USA. M uch o f the electronics used is either manufactured under foreign licenses or purchased, mainly from the USA, Japan or G ermany (Sveriges utrikeshandel i krislagen 1989, pp. 69-71).

Policy Towards Defence and Dual-Use Technology Future o f the National Defence Technology Base Sweden is concerned to reduce the uncertainties over obtaining advanced tech­ nologies by increasing the opportunities to participate in technology trade am ong the industrialised countries. The em phasis has changed from national restructuring of the industrial base (this phase is nearly com plete) to interna­ tional rationalisations and cooperation. Technological areas which cannot be sus­ tained in Sweden at internationally com petitive costs and technological levels are to be acquired from abroad through imports, offsets and R&D cooperation. The traditionally broad and advanced military industrial base is likely to be further reduced if current threat perceptions do not change drastically. This is especially true with regard to developm ent capacity and system s design leader­ ship. In deciding what capacity should be m aintained, the follow ing criteria for defining m ilitary R&D priorities have been proposed by the Suprem e C om m ander (O B93, p. 49): • •

crucial defence importance or secrecy considerations; cannot be acquired through domestic networking or international cooperation;

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• • • • •

235

creates possibilities for new developm ents and life-extension capacity o f materiel; decisive im portance for an increase in com petence o f m ilitary staffs, bureaucracy, research institutes or industry; can offer attractive possibilities in the future which may be difficult to iden­ tify in detail in the short run; represents Sw edish ‘niches’, but are also attractive for international cooper­ ation; and offers possible gains from g reater efficiency, rationalisation or quality increase w ithout cost increase.

In the January 1994 budget bill, the governm ent suggested that the most urgent future needs lie in the areas o f com m and and control as well as ‘tele-w arfare’. R elevant technologies include sensors, softw are, C 3I, identification, and new m aterials (F orsvarsdepartem entet 1994, p. 87). For both m ilitary and advanced civil technology, the USA has been Sw eden’s m ost im portant supplier (W iechel 1986). Indeed, the stock phrase ‘international military developm ent’ generally refers implicitly to new American or other W estern technology. At the sam e time, the USA, together with its allies, has im posed extensive technology transfer and dual-use controls with which Sweden has had to comply. H ence Sw eden’s am bition o f indigenously develop­ ing the most advanced technologies has in practice been tem pered by a policy of becoming well inform ed, technologically know ledgeable and politically accept­ able in order to be able to access foreign sources without im pedim ent.7 In 1993 a new law was proposed for the control o f ‘strategically sensitive goods’, including both war m ateriel and dual-use technologies (Kontrollen over export av strategiskt kdnsliga varor 1993). The purpose o f the proposal was to sort out various existing laws and regulations, and to make adm inistrative responsibilities clear in order to harm onise Sw eden’s regulations with those of the EU. This was regarded as im portant for future access to western advanced technology. Further am endm ents were proposed in a bill o f M arch 1995. The law regulating the export o f war m ateriel w as not thought to need change. The sam e was true o f that part o f the controls on dual-use products w hich depended on the ‘law on w eapons o f mass destruction’. This law had, in 1991, translated into Sw edish law several international agreem ents to which Sweden is a signatory (the N uclear Suppliers Group, the A ustralia group, and the M issile Technology C ontrol R egim e) (SFS 1991:341 and am ended SFS 1993:106). It regulates the export o f m issiles and m issile technology, certain products in the nuclcar field, manufacturing equipm ent for biological and chem ­ ical w eapons and certain chemical and biological products which can be used for

236

EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

the manufacture o f weapons. Technology in the form of software may also be included. This law was considered sufficient for controlling the spread of such goods and technologies, and is still in force. Revision was, however, deemed necessary for a second set of laws, those comprising the ‘law on nuclear technology’ (the result o f the Non-Proliferation Treaty, SFS 1984:3) and ‘the high technology regulation’ (SFS 1986:89 and TFS 1992:16). The goods covered included electronics, computers, telecommunica­ tions equipment, etc. The new law not only restricts re-exports from Sweden, which was already the case, but also regulates the initial export of all such prod­ ucts. This revision was deemed essential to enable full Swedish participation in international controls on high technology and in the free trade of high techno­ logy products among western countries. Hence, high technology products have, from 1994, been regulated by ‘the law on mass destruction’ administered by a new inspectorate in the Ministry of Foreign Affairs.8 In terms of Sweden’s indigenous capacities in defence technology, the indi­ vidual roles of, and relations between, institutions and organisations relevant to defence R&D are changing. The 1993 government research bill proposed a new research policy for Sweden (Forskning fo r kunskap och framsteg). It noted with regard to military R&D that international cooperation in materiel acquisitions will increase in the future, leading to fewer development orders from Swedish defence-technological organisations to Swedish companies. Instead, develop­ ment decisions will increasingly be taken directly by industry in cooperation with foreign partners. Competence to direct activities and to evaluate functional criteria will grow in importance within the defence organisation, while industry will continue to need access to a broad technology base. University, technical high-school and civil research activities will become more important. The bill made a number of proposals which are steadily being implemented: •

• • • • • •

To increase the responsibility of the Supreme Commander and the Board for Civil Preparedness (Overstyrelsen for Civil Beredskap) in directing general, basic, defence research; The creation of a joint Board to increase the efficiency of, and coordination between, FMV, FOA and FFA; Closer links to research at the Military High-School; Scientific advisors to be appointed to the respective military staffs; Increased use by FMV of FOA, and of international competence; Specialisation by FOA in such areas as threat analysis, the functionality and survivability of equipment, and military-technological developments; More circulation o f technical personnel between public and industry positions;

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• •

237

To strengthen defence cooperation with academ ic research institutions by the establishm ent o f special public financing o f ‘strategic defence research’, ( ‘scientific areas and technology o f potential major military im portance’), the applications for such projects to be evaluated in open com petition; FM V to become responsible for coordinating activities to strengthen inter­ national project-oriented cooperation in defence R&D; FFA to receive more financial resources as part o f a national program for aeronautical research.

FMV has a special advisory and expert role in the areas o f military acquisitions and dual-use technology and goods. To further support military R&D prepared­ ness, the Suprem e C om m ander has established an ‘R&D m anagem ent group’ (FoU -bcredningcn), com prising representatives from the m ilitary branches, FMV, FOA, and the Fortifications Adm inistration. It will suggest priorities and direct activities for total defence R&D and related areas within FMV and indus­ try (O B 93, p. 48). New national structures, so-called ‘netw orks’, are being created to link m ili­ tary and civil R&D organisations, embracing government, industrial and, possibly, academic institutions. A specific aim o f these networks is to diffuse new tech­ nologies and innovative ideas. The means used are often personal relations, such as secondm ent o f professors to non-academ ic institutions, or university Ph.D training for defence employees, as well as part-time teaching by defence experts in universities, and the shared use of equipm ent and installations, for instance in ‘supercom puter centres’ (Svensk forsvarsindustri, 1993, p. 125). Kockums, for exam ple, has established joint projects with the technical high schools in Gothenburg, Lund and Stockholm. The cooperation extends to em ployment and PhD training. O ther parts o f the Celsius group are also said to have established similar relationships (Annual Report, 1993). In addition, and although not prim ar­ ily intended for military purposes, the governm ent has allocated special financial support until 2007 for ‘technology bridges’ (a form o f venture capital) to the uni­ versity towns o f Stockholm, Gothenburg, Lund, Uppsala, Linkoping, Umea and Lulea in an attem pt to activate links between university research and industry applications (Vniversen, vol. 25, no. 1, 1994, p. 18). In the choice o f appropriate or ‘optim al’ technologies for military applica­ tions, it is becom ing increasingly important to draw upon available civilian tech­ nologies and to cooperate with civil R&D institutions. One such exam ple is the national information technology programme, focusing on developing new soft­ ware for a more advanced Swedish IT infrastructure. The largest such programme is, however, the national aero-technological programme. This three-year R&D program m e was launched in 1994 to support Sw eden’s aircraft developm ent

238

EU R O PEA N D EFEN CE TECH NO LOG Y IN TRA N SITION

potential (Svenska Dagbladet, 30 January 1994). Together, the governm ent and industry will supply 180 million SEK to •

•

• •

create a national aero-technological R&D program m e (N FFP — N ationellt Flygtekniskt Forsknings Program ) involving public institutions, technical high schools and industry (m eaning prim arily FMV, FOA, FFA, Chalm ers Technical High School, Saab and Volvo Flygm otor); establish an A ero-Technological Forum (N FF — N ationellt Flygtekniskt Forum ) in Linkoping to guide long-term policy in education, research and technology developm ent; establish a new and specialised civil engineering program m e at Linkoping university; and develop links between the technical high schools in Stockholm and Linkoping.

At the international level, agreem ents (M OUs) for regulating trade in advanced technology have in the past been directed by Sweden less to R&D than to the m anufacture and/or direct purchase o f foreign military equipm ent. M ore recent agreem ents, however, point toward a new path marked by increased R&D coop­ eration in Europe. Ad hoc Sw edish cooperation in international military projects has been projected to increase, due to greater involvem ent in co-developm ent (Forsvarsindustrins utlandsverksam het 1987). Hence, according to the KMI, in 1993 Sw edish com panies had 62 co-developm ent or co-production agreem ents in force, w hereas in 1994 the figure was 162 (KMI Skrivelser, 1995). In the last few years, several Swedish defence com panies have entered into closer cooperation with firms in Norway, France, G erm any and G reat Britain. For instance, B ofors has entered w hat has been described as a ‘strategically im portant’ set o f arrangem ents, namely: •

• • •

An agreem ent with R aufoss (N orw ay) concerning the production o f the B A M SE ground-to-air m issile, which is said to lay the basis for a comm on N ordic defence market. O ther cooperation projects with Norway includes the ARTHUR artillery locating radar, a further developm ent o f the G IR A FFE 50AT radar developed for Norwegian air defence, and possibly a new coastal artillery system; An agreem ent with GIAT-industries (France) to jointly develop the BONUS 150 mm cargo shell with sensor-fused subm unitions; D iscussions with M atra for possible further developm ent o f the Rb90 short range ground-to-air missile; An agreem ent with Thom son-Brandt (France) to further develop the AT4 anti-tank weapon;

SW EDEN

•

•

239

An agreem ent w ith DASA (FR G ) in w hich B ofors participates in the developm ent o f a Target A daptive D ispenser System (B ofors-K uriren, no. 8, D ecem ber 1993, p. 18; Bofors-Kuriren, no. 2, 1994, p. 19; Svensk forsvarsindustri 1993, p. 66); and A fam ily o f air-to-ground m issiles in a joint ARGE-TAURUS consortium (Bofors-Kuriren, no. 1, 1995, p. 5).

Sw edish participation in international high-technology projects in Europe has increased during the 1980s and 1990s. In 1993, Sw eden spent about 300 million SEK on EU industrial program m es, a sum which w as expected to double over three years (Svenska D agbladet, Europabilaga, D ecem ber 30, 1993). Swedish participation in these program m es, it was said as early as 1989, aimed deliber­ ately at strengthening its European identity, increasing its research efficiency, and preparing Sw edish industry for the European m arket (Sverige-EFTA-EG 1989). One area for such co-operation has been R&D, most im portantly in high technology areas such as telecom m unications, information technology and aero­ space (D el av Europa — Sverige och den vdsteuropeiska integrationen 1988). Formally, there are no m ilitary EU program m es. N evertheless, interactions betw een civilian and m ilitary science and technology mean that certain civil industrial projects are also m ilitarily relevant. The Single European Act may therefore indirectly affect defence com panies through their civilian activities, and create civilian capacities w hich could have future m ilitary applications. Space is a case in point, but many other areas have potential military use, such as telecom m unications, m icro-electronics, information technology and materials (OB93, p. 48). Defence is also the most probable im m ediate outlet for some uni­ versity research areas, such as microwave technology, high speed electronics, optronics, aeronautics, light constructions, as well as naval technology (Svensk forsvarsindustri 1993, p. 125). Sw edish m ilitary com panies and groups like Saab-Scania, Volvo Aero C orporation and the Aeronautical Research Institute participate in EU aeronauti­ cal projects within the AERO program m e, the BRITE/EURAM industrial and materials technologies programme, and the European Strategic Program m e for R&D in Inform ation Technology, ESPRIT.9 Also involved in these projects are universities in Lund, Gothenburg, Uppsala and Linkoping, together with firms not directly related to military R&D such as the Sw edish Ceram ic Institute, the Sw edish Institute for M etals Research, the Institute o f O ptical Research, the Sw edish Institute o f Com puter Science (SICS), the Swedish Institute o f M icro­ electronics as well as the Swedish Telecom A dm inistration. Some o f these, such as the Sw edish Telecom A dm inistration and Sw edish Institute o f M icro­ electronics, are also involved in the DRIVE advanced transport telem atics and

240

EU RO PEA N D EFEN CE TECH N O LO G Y IN TRA N SITION

RACE advanced com m unications technologies program m es, together with, for instance, Philips and Ericsson. A m ong other program m es o f potential military interest may be the non-nuclear energy program m e JO U LE, in w hich the A eronautical R esearch Institute is involved together w ith the universities in Linkoping, Lund and Uppsala plus the technological institutes in G othenburg and Stockholm . A nother increasingly im portant research field is biotechnology. Sw edish universities also participate in BIOTECH (previously BRIDG E) pro­ gram m es (see CORD IS databases). O utside the EU fram ew ork, Sw eden also participates in a large num ber o f EUREKA projects. It has been argued that ‘EUREKA is a civil project and that the participation o f the neutral European countries was the price to be paid for this, (D efense & A rm am ents H eracles International, no. 74, June 1988, p. 18). At the same time, it is generally recognised that several projects can have m ili­ tary as well as civil applications. It was hoped during the 1980s, for instance, that Europe through EUREKA could develop technologies sim ilar to the A m erican Strategic D efense Initiative (Aviation Week & Space Technology, D ecem ber 16, 1985, p. 15). Certainly, a considerable num ber o f EUREKA pro­ jects, in such fields as autom ation, energy projects, robotics, m etallurgy and metal treatm ent including die casting and corrosion, polym er manufacturing and ceram ics, rem ote control, aircraft training systems, fatigue strength, com puters, sem i-conductor and chip m anufacturing, laser applications, and com m unication system s may all be considered dual-use (EUREKA database).

Industrial Support D evelopm ents The political discussions o f the 1970s and 1980s did not result in any direct political support o f m ilitary-industry restructuring (see below). A lthough it was som etim es m entioned in the debate, no serious political em phasis was placed upon argum ent that econom ic developm ent seem s to be faster in countries with lower military expenditures, as in Japan and Germany. Instead, Sweden had to consider its heritage o f a broad and advanced defence industry. T here was little political support for a reduced military industrial base and probably also insuffi­ cient political courage to make a decision which would result in unemployment. Instead, the governm ent left the problem of re-structuring the military industrial base to the com panies them selves. No contingency plans for reduced military orders were prepared, although some financial support was given to civilian undertakings at Saab and the then Volvo Flygm otor during the 1980s. Two main phases and a series of industrial strategies may be distinguished in the ensuing history.

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241

The N ational Phase T his really began during the 1970s and continued during the 1980s. It involved both separation o f parts o f com panies by selling o ff peripheral activities, and unification through mergers and acquisition o f companies. These were all im por­ tant activities which not only com plem ented each other but also supported the political am bition during the 1980s to privatise public com panies. The result was fewer, but more specialised, m ilitary companies. All defence com panies except Volvo Aero C orporation have a defence share of total sales above 50% (see Table 7). A high level o f national concentration was achieved, which has been most dram atic for the ordnance com panies. An additional devel­ opm ent was the creation o f groupings o f defence and high technology com pa­ nies. The Celsius group was the first, dating from 1977. Today it is organised into three areas, military being the most im portant, then dual technology support activities (Telub and FFV A erotech), and civil activities (C elsius Invest). In addition to military shipbuilding, it acquired Swedish O rdnance in 1992. In 1993 a large part o f the electronics industry, form erly NobelTech, becam e part o f the group under the name o f CelsiusTech. During 1994 Celsius bought the Swedish D ialog com puter com pany, the British BM T Icons com puter com pany, and acquired a majority share in Enator, a com pany within the civil and military IT and com puter consulting business areas. G rouping is a convenient way to concentrate technological areas and to create a single m arketing organisation. For instance, S aab’s four military sub­ sidiaries (Saab M ilitary A ircraft, Saab M issiles, Saab Instrum ents, and Saab Training System s) were coordinated under one group called Saab D efence in early 1994, though this was later split into Saab M ilitary A ircraft and Saab Dynamics. Similarly, in 1994 a new staff organisation was created in the Celsius Industries group to coordinate defence m arketing activities. O ther company con­ siderations were probably to create a stronger negotiating position vis-a-vis the governm ent for future m ilitary contracts; to consider dem ands by the stock­ holders to reduce the risk o f civil financing o f uncertain military undertakings; and, should it become necessary, to cut military activities, a separate military division facilitating such a decision. The International Phase The international market was not unim portant during the national restructuring phase. Privatisation, for instance, was in part a response to the requirem ent for public com panies to be able to com pete with 'expansionist’ private com panies on the export markets (see the chapter on Italy for a discussion o f ‘expansion’

242

EUROPEAN D EFEN CE T EC H N O LO G Y IN TRA N SITION

vs. ‘w ithdraw al’ strategies). Privatisation opened the door for Celsius to interna­ tional cooperation. E xports becam e an im portant com plem ent to the dim inishing dom estic m arket during the 1970s and 1980s. Today, the foreign m arket seem s to be most im portant for com panies w hich do not produce com plete weapon system s or w eapon platform s, with the possible exceptions o f H agglunds tracked vehicles and Saab M issiles (see Table 7). In addition, offsets are likely to becom e a much more im portant part o f Sw edish defence trade in the future, beginning with the purchase o f the Germ an Leopard II tank. We should also note that privatisation has not only been pursued in response to the need for increasing internationalisation, but that as a corollary it leads to increasing shared ow nership of Sw edish arm s com panies. Thus, about 30% of C elsius is now owned by foreign interests, and the Saab group is open to the possibility o f foreign capital. How far the Swedish governm ent is prepared to go in accepting foreign ow nership in military com panies is not clear. The exam ples o f NobelTech, and Celsius itself, suggest, first, that there is still political interest in these com panies and second, that even with foreign ow nership the govern­ ment is likely to retain a ‘golden share’. As m ight be expected, the preservation o f technological capabilities has been easier for com panies involved in dual technology fields than for firms ori­ ented more toward military activities. In Sweden, as elsewhere, the closer to the generic research end o f the spectrum , the greater has been the potential for dual use developm ent; the nearer to specific military applications, the more restricted have been the possibilities in this regard. Only a few products or technologies have a dual-use option at the stage o f application. The activity o f ‘netw orking’ reflects the intrinsically dual character o f most research, as does Sw edish involvem ent in European research projects. At the other end o f the spectrum we find adaptable applications mainly in electronics and radars. T heir specific applications can be decided in the final stage o f the production process — or som etim es even later. For instance, in the Ericsson D efence System Giraffe radar system, the crucial com ponent seem s to be the ‘black box’ which distinguishes friendly from enem y aircraft. The same is true o f portable telephones and E ricsson’s AXE telephone sw itches, which can be adapted to ‘open’ civilian or restricted military use. E ricsson’s AXE switches and digital technology has made it one o f the m ost im portant telecom m unica­ tions technology com panies in the world. Its m arket share is expected to further increase as a result o f de regulation and privatisation of the telecoms market. In between we find firms which, within either the individual company or the industrial group, have divided their activities into civil and military. This was a common strategy during the concentrations and specialisations of the last 10 years.

SW EDEN

243

Nobel Industries, for instance, to which Bofors belonged at the time, concentrated all non-military work in the Nobel group. Military activities including electronics went to Bofors. The organisation o f Celsius Industries shows a similar division today. Also, the successful civilian aircraft undertakings by the Saab-Scania group are undertaken separately from Saab M ilitary Aircraft. This division has been further strengthened by the creation o f the Saab Dynamics group. It follows that within larger companies or groups there is often dual technol­ ogy capacity. Thus, Saab managers claim that without military aircraft production, Saab could not build civilian aircraft. This spin-off argument is repeated in the 1992 governm ent bill on future research in Sweden (Forskning fo r kunskap och framsteg). It is, however, difficult to find unqualified support for this argument, if it is restricted to engineering m atters and not extended to the levels o f cross­ subsidies and marketing support. Thus, Hagglunds Vehicle argues that spin-off is possible only to a very limited extent.10 Whether this potential is used as an explicit strategy probably depends upon the com pany’s or group’s internal policy, structure and ‘culture’. The Saab aircraft argum ent may, however, to some extent be an exaggeration formulated on political grounds. The coordination o f the companies under a Saab Dynamics group also indicates that military technology is best pre­ served at close quarters, and that the bridging between civil and military techno­ logy within a large company should not automatically be assumed to be strong. In electronics, the potential for dual-use technology seems more easily real­ isable. A 1994 study concluded that, although no formal strategy existed within the then Ericsson R adar Electronics, technology was transferred between civil and military production. Internal consulting was also found, and military engi­ neers have taken up civil activities. Em ployees were encouraged to m ove within the com pany (Lorentzi & N ilsson 1994, p. 116). Sim ilarly, Ericsson D efence System s has been cooperating with its Radio C om m unications Business Area in the developm ent o f radio base stations based on the M ini-Link m icrow ave radio links (Ericsson annual report, 1991, p. 55). A gain, how ever, the creation o f Ericsson M icrowave AB in 1995 by merging E ricsson’s radar and radio interests suggests that effective ‘cross-fertilisation’ has to be nourished.

International Joint Venture Policy and Actions The num ber o f reported joint ventures betw een 1986 and 1989 was higher than for the w hole period from 1950 to 1986 (Table 6). T hese num bers should, however, be treated with caution: they probably include most o f the com panies’ international cooperative program m es, many o f which were not true jo in t ven­ tures. N evertheless, they give an indication o f the upsurge o f interest in interna­ tional corporate activity.

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EUROPEAN DEFENCE TECHNOLOGY IN TRANSITION

Table 6: Number of New Swedish International Ventures 1950-1989 M ateriel group

1980

1981

1982

1983

1984

1985

Total 1950-85*

Weapons/ ammo.

0

4

2

2

15

5

32

38

Vehicles

0

1

0

1

3

1

6

9

Electronics

0

0

1

1

1

1

4

9

Total

0

5

3

4

19

7

42

56

Total 1986-89**

*Number of ventures according to Forsvarsindustrins utlandsverksamhet, 1987. **The figures for 1989 are preliminary according to U(landssamverkan pa krigsmaterielom radet, 1989.

Table 7: Sweden’s Defence Industrial base in 1993 (1992 export position in brackets if different) Total Sales

Defence Share o f Total Sales High

High

M edium

Low

M edium

Bofors Ericsson Radar Kockums+Karlskr. Saab Mil. Aircraft Saab M issiles Volvo Aero Barracuda Tech. Celsius Tech. Elec. Celsius Tech. Sys. FFV Aerotech. Hagglunds Saab Trng Sys+lnstr SA Marine

Low

Export Share of Defence Sales High

M edium

Low

X

x (x)

(x) x X

(X )

X X

X X X X X X

X

Sources: As Table 1. Definitions: High total sales: >1500 MSEK; Medium: 1500-150 MSEK; Low: 50% ; Medium: 50-25% ; Low: