Manufacturing Insecurity: The Rise and Fall of Brazil’s Military-Industrial Complex 9781685858087

Table of contents :
Contents
Tables and Figures
Preface
Acknowledgments
1 The Puzzling Trajectory of Brazil's Defense Sector
2 The Origins of Military Industrialization
Part 1 : The Rise
3 The Rise of the Modern Military-Industrial Sector
4 Brazil in the Global Arms Economy
5 The Domestic Politics of Military Industrialization
Part 2 : The Fall
6 Diverging Structures and Dilemmas of Adjustment
7 The AM-X Tactical Fighter
8 The VLS Program
9 The Osório Battle Tank
10 The Nuclear Submarine Program
Part 3: Implications
11 Institutional Tensions and the Failure to Adjust
12 Development, Security, and Military Industrialization in the Third World
Appendix A Measuring Brazilian Military-Industrial Activity
Appendix B Interviews
Appendix C Acronyms
Index
About the Book

Citation preview

MANUFACTURING INSECURITY

MANUFACTURING INSECURITY The Rise and Fall of Brazil's Military-Industrial Complex

Ken Conca

LYN N E RIENNER PUBLISHERS

B O U L D E R L O N D O N

Published in the United States of America in 1997 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 1997 by Lynne Rienner Publishers, Inc. All rights reserved Library of Congress Cataloging-in-Publication Data Conca, Ken Manufacturing insecurity : the rise and fall of Brazil's militaryindustrial complex / by Ken Conca. Includes bibliographical references and index. ISBN 1-55587-695-1 (he : alk. paper) 1. Defense industries—Brazil. 2. Arms transfers—Brazil. I. Title. HD9743.B682C66 1996 338.4'76233'0981—dc20 96-43235 CIP British Cataloguing-in-Publication Data A Cataloguing-in-Publication record for this book is available from the British Library.

Printed and bound in the United States of America

@

The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984. 5 4 3 2 1

Contents

List of Tables and Figures Preface Acknowledgments 1 2

vii ix xi

The Puzzling Trajectory of Brazil's Defense Sector The Origins of Military Industrialization

1 21

PART 1 THE RISE 3 4 5

The Rise of the Modern Military-Industrial Sector Brazil in the Global Arms Economy The Domestic Politics of Military Industrialization

39 65 85

PART 2 THE FALL 6 7 8 9 10

Diverging Structures and Dilemmas of Adjustment The AM-X Tactical Fighter The VLS Program The Osorio Battle Tank The Nuclear Submarine Program

103 119 141 165 185

PART 3 IMPLICATIONS 11 12

Institutional Tensions and the Failure to Adjust Development, Security, and Military Industrialization in the Third World

215 237

Appendix A: Measuring Brazilian Military-Industrial Activity Appendix B: Interviews Appendix C: Acronyms

259 267 271

Index About the Book

277 283

v

Tables and Figures

Tables 3.1 3.2 3.3 3.4

4.1 4.2 4.3 4.4 4.5 4.6

6.1 6.2 6.3

Comparison of Army, Navy, and Air Force R&D Embraer Aircraft Engesa Vehicles Multinationals and Foreign Firms in the Brazilian Military-Industrial Sector Arms Sales to the Middle East, by Supplier, 1970s and 1980s Third World Recipients of Weapons-System Licenses, 1977-1983 Suppliers of Weapons-System Licenses to the Third World, 1977-1983 Major Brazilian Licensing and Coproduction Agreements Import and Export Dependence of Leading MilitaryIndustrial Firms, 1975-1988 Brazilian Military-Industrial Cooperation with Selected Third World Countries Global Markets, Local Politics, and Military-Industrial Institutions The Leading Third World Importers of Major Weapons Systems, 1985-1989 The Leading Exporters of Major Weapons to the Third World, 1985-1989

47 49 51 58 69 71 72 76 78 79

105 111 111

7.1

Embraer Sales in Civilian and Military Markets, 1985-1989

129

8.1

Characteristics of Brazilian Rockets in the Sonda Program

143

vii

viii

Tables and Figures

9.1 9.2 9.3 9.4 9.5

Evolution of Selected Tank Characteristics, 1950-1970 Engesa Sales of Armored Vehicles, 1975-1985 Technical Specifications of the Tamoyo and Osôrio Tanks Multinational Contributions to the Osorio Tank The Expansion of Engesa

170 174 176 177 178

A.l A.2

Selected Estimates of Defense-Sector Employment Estimates of Brazilian Arms Exports, 1975-1989

262 264

Figures 4.1 4.2 4.3

Sales of Major Weapons Systems to the Third World, 1971-1990 Sales of Major Weapons Systems to the Third World, 1950-1990: Market Share by Supplier Group Licensed Production of Major Weapons Systems in the Third World, 1950-1984

66 67 70

Preface

My work on this project, which began in 1987, originated from my concern that the growth of military industries in the global South threatened international peace and security. I chose to focus on Brazil because its defense industries seemed to epitomize the trend of rapid Third World militaryindustrial development. Fueled by transnational market forces and favorable domestic politics, Brazil appeared poised to test how far and how quickly such development could progress. But as my research proceeded, Brazil's defense sector experienced a dramatic collapse. What started out as a troubling conviction became a genuine puzzle: How could rapid military-industrial growth and seemingly impressive development leave so little in its wake? How could all four of Brazil's most ambitious high-tech weapons programs result in stagnation, decay, and collapse? While seeking answers in the literature on Third World military industrialization, I was struck by the paucity of serious attempts to conceptualize Third World military-industrial development as a process occurring at the intersection of global markets and domestic politics. A second striking feature was a failure to focus on institutions: the rules, roles, procedures, and practices that make it possible to do something as technologically and organizationally complex as producing military aircraft or ballistic missiles. I became convinced that the limiting factor in Third World military industrialization was not technological or financial but rather institutional. Military-industrial ventures demand institutional stability, but stability is difficult to create for activities that are an expression of both highly transnational economic activities and complex domestic political relationships. Given chronic turbulence in both global markets and local politics, Third World defense sectors are faced with the challenge of institutional adjustment to rapid changes on both levels. As global markets and local politics began to pull in opposite directions, this adjustment became an insurmountable obstacle for Brazil's defense sector. ix

x

Preface

This analysis proceeds on two levels. First I trace the role of globalmarket and domestic-political structures in shaping the Brazilian defense sector's trajectory of growth and institutional development. I then turn to comparative case studies of the four ambitious weapons-systems programs that took shape during the 1980s. The common pattern is the growing inability of these programs to meet the military's changing domestic political needs while simultaneously adapting to an increasingly transnationalized economic context. In each case, failure to adjust deeply rooted practices to national and international changes produced the chronic instability that continues to this day. Based on these findings, my concerns about Third World military industrialization have shifted. Threats to international peace notwithstanding, I worry most about the political implications of these activities. I see them used to justify militarized security policies in the North, and to sustain militarism without providing genuine security in the South. Both effects are aided by inflated claims: in the North, overestimates of the South's military-technological potential, and in the South, unexamined claims of the developmental and security benefits resulting from militaryindustrial ventures. I have focused this work solely on Brazil, rather than taking a crossnational comparative approach, for two reasons. First, Brazil's advantages during this period make it the strongest available test of my claim that there are formidable, enduring barriers to Third World military-industrial development. Second, my emphasis on a historical institutionalist approach demanded a level of detail that precluded rigorous cross-national comparisons. Nevertheless, exploring the limits of generalization remains crucial. The book thus concludes with a brief comparison of Brazil's military-industrial experience to those of India and South Korea. Despite very different domestic and regional contexts, these countries are facing broadly similar challenges of military-industrial adjustment, which seem likely to limit their future expansion in much the same fashion as seen in Brazil. —Ken Conca

Acknowledgments

I owe a particular debt of gratitude to two groups of people. First are the many Brazilians who helped me to understand their country, with special thanks to Otavio Mielnik, Adriana Tavares, Renato Dagnino, Domicio Proen§a, Jr., Paulo Moreira Franco, Luiz Pinguelli Rosa, and José Drumond Saraiva. Second are my colleagues at the Energy and Resources Group (ERG) of the University of California-Berkeley, where I conducted the research that laid the foundation for this book. ERG provided a unique and wonderful climate for inquiry. My work benefited in important ways from the prior efforts of a few Brazilian scholars to shed light on their country's military-industrial buildup—at a time when it was neither empirically nor politically easy to do so. In particular, I could not have managed without the foundation provided by the research of Renato Dagnino and José Drumond Saraiva. Thanks also to the many individuals who agreed to be interviewed for this book. Some will no doubt disagree with my interpretation of the story or what I take to be its implications. But all were generous with their time, and together they added important dimensions to my understanding of Brazil's military-industrial experience. Financial support for this work was provided by the Institute for the Study of World Politics; the Institute on Global Conflict and Cooperation; the MacArthur Interdisciplinary Group in International Security Studies and the Center for Latin American Studies at U.C.-Berkeley; and the University of Maryland at College Park. I am grateful to the Graduate Engineering Program of the Federal University of Rio de Janeiro for providing my institutional home in Brazil. I am also grateful to Don Reisman, Michelle Welsh-Horst, and Lesli Brooks of Lynne Rienner Publishers for their contributions during the publication process. Finally, I would like to thank my wife, Tina Cheng, for accompanying the work and its author from start to finish.

—K. C.

xi

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The Puzzling Trajectory of Brazil's Defense Sector

When you talk about materiel for military use, domestic industry, and the Armed Forces, that combination is a great platform for giving development a boost, with applications in many other areas. Technical know-how radiates out into the civilian area. There is no doubt that the Armed Forces play an important part in the country's development.

—General Benedito Onofre Bexerra Leonel, Chief of Staff, Brazilian Army 1

Development is a voyage with more shipwrecks than navigators.

—Eduardo Galeano2

From Explosive Rise to Dramatic Collapse Brazil's military industries expanded dramatically during the 1970s. In a single decade a country heavily dependent on foreign military suppliers became a significant arms exporter and a Third World leader in military R & D . A substantial military-technological infrastructure emerged, anchored by separate R & D institutes for each branch of the armed forces. B y decade's end sizable industries in aeronautics, armored vehicles, and shipbuilding were supplying both Brazil's military and the international market with a range of medium-tech weapons systems. Nuclear and space programs straddling civilian and military applications also flourished. The international defense press heralded "Brazil's Arms Industry on the Move." 3 Ambitious new programs propelled Brazil's defense sector to new heights in the early 1980s. Plans were laid to make Brazil the first Third World producer of several advanced weapons systems, including a stateof-the-art battle tank, a NATO-standard ground attack aircraft, a small nuclear submarine, and a satellite-launching vehicle with ballistic-missile capabilities. These programs deepened Brazil's ties to multinational defense contractors and stimulated a domestic network of high-tech supplier firms.

1

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Manufacturing Insecurity

By the mid-1980s the international defense press routinely heralded Brazil as a new force in the global arms economy, and scholars regularly pointed to Brazil as one of a new wave of Third World suppliers transforming the international arms trade. Even critics accepted the likelihood of sustained defense-sector growth, worrying about the effects of military-industrial development for Brazilian diplomacy, regional peace, and domestic spending priorities in a nation of widespread poverty. 4 A few years later, the contrast could not have been more striking. Arms exports, after peaking at somewhat less than $1 billion annually in the late 1980s, slowed to a trickle by the early 1990s. The three firms making up the core of Brazil's military-industrial base were effectively bankrupt, and the ambitious programs launched a decade earlier were nowhere near their production goals. The battle tank stalled at the prototype stage, then vanished in the financial collapse of the armored-vehicle industry. The ground attack aircraft did enter series production before decade's end—but delays, technical difficulties, and enormous cost overruns staggered the aircraft industry and made the plane far too expensive to export. The satellite launcher became mired in cost overruns, technical snafus, and political controversy; it failed to meet its target of putting a Brazilian-built satellite in orbit by 1989, and has yet to reach the launching pad. The nuclear submarine, stymied by the stagnation of naval shipbuilding and political controversy in Brazil's nuclear program, remains a vision on a distant horizon. Even the defense sector's boosters were acknowledging that it had become "a pale shadow of what it was a short time ago." 5 How can we explain the dramatic rise and precipitous decline of Brazil's defense sector? What does the Brazilian experience tell us about the prospects for military-industrial development in the Third World? Can the increasingly sophisticated defense sectors that emerged in several developing countries during the Cold War be sustained in the post-Cold War era? Or is Brazil a harbinger of formidable constraints facing Third World military industrialization? The answers will influence the prospects for conflict, international security, development, and North-South relations into the twenty-first century. It has long been recognized that sustained Third World militaryindustrial development would transform the structure of the international system. This recognition first crystallized with nuclear weapons: China's 1964 nuclear test ushered in the era of nonproliferation, and India's successful test a decade later heightened international concern. During the 1980s the focus shifted to ballistic missiles and conventional arms, with research, development, and production springing up in several Third World countries. Many scholars began to describe this incipient military industrialization as an indicator of more fundamental change in the international system, with power being redistributed from North to South. 6 The postCold War collapse of the international arms trade, which hit Third World

The Puzzling Trajectory of Brazil's Defense Sector

3

producers with particular force, has tempered such claims of system transformation. But the spread of conventional arms-production technology to the Third World is still described as "the next proliferation challenge," and enduring concerns about Third World nuclear and missile programs reflect the pervasive belief that the South's military-industrial development has global ramifications. 7 Third World programs influence public debates, defense budgets, and force postures throughout the industrialized world. Moreover, the salience of these programs is not limited to the security realm. Typically, Third World military industrialization has a strong developmental orientation as well. The skepticism of Northern academics notwithstanding, the belief remains widespread in the South that militaryindustrial programs can provide tangible economic and technological benefits as well as enhanced military security. 8 The idea that the defense sector can be a springboard for economic development has been particularly strong among the more technologically advanced countries of the Third World. In South Korea, the development of heavy industries in the late 1970s was closely tied to military-industrial initiatives. 9 Broadly similar examples can be cited in countries facing widely varying security contexts, including Taiwan, South Africa, Israel, and Brazil. Even in countries with outdated military-industrial enclaves, including Argentina, Egypt, India, and China, a shift was seen in the 1980s toward greater integration of military and civilian activities. 10 Historically, the industrial countries themselves have been powerful examples of governments perceiving a symbiosis between defense and development: the use of Atlas and Titan ICBM boosters to launch Mercury and Gemini spacecraft was certainly noticed by Third World governments today using national space programs to develop both space-launch and ballisticmissile capabilities.11 The issue is typically not posed as one of guns versus butter, but rather of finding a developmental path that can yield more of both. This book has two purposes. The first is to present the basis for my skepticism about the prospects for sustained military-industrial development for most of the Third World. In adjusting to the discontinuities of the post-Cold War era, foreign policies and security institutions of the industrialized countries have turned their gaze from East to South. The distorted lens through which the South is viewed magnifies the North's fears, in that it projects chronic instability and social conflict combined with weapons proliferation. But this picture frequently overstates and mischaracterizes the South's military-industrial emergence, promoting the continued militarization of North-South relations. I view Brazil as a strong test of the barriers to Third World militaryindustrial growth. What has been seen in Brazil is nothing less than the deinstitutionalization of defense production. Unable to adjust effectively to the turbulence of simultaneously changing domestic and international structures, the defense sector experienced declining output, technological stagnation, and the collapse of established roles and rules governing its

4

Manufacturing Insecurity

earlier growth. More importantly, the sector's problems were worsened by the same institutional features that made previous growth and internationalization possible. In the absence of a dramatic reorientation of both domestic and international structures, the sector's prospects remain bleak. I doubt that an institutional formula can be found by which it becomes possible to simultaneously promote military-technological development, restore the sector's financial base, shore up its political support, adapt to market conditions, and keep path-defining control in military hands. Because all of these elements are necessary for military production to thrive in Brazil, I am skeptical about the prospects for sustained growth. It is difficult to generalize an argument that stresses the role of domestic political structures and practices. But the twin pressures Brazil has faced—for democratic political reform at home and economic competitiveness abroad—are shared by most of the more technologically advanced countries of the Third World. Even though the specific adjustment challenges facing individual countries vary substantially, Brazil's experience casts fundamental doubts on the viability of traditional military-industrial strategies across a wide range of national settings. Both for Brazil and those who seek to imitate it, a formula for sustained military-industrial growth is likely to remain elusive. A second purpose of this book is conceptual. The emergence of Third World military industries has been subjected to competing and often contradictory interpretations. For all that has been written, we still lack explanations that convincingly link the goals driving military-industrial growth to the political, economic, and social conditions that permit or inhibit such growth. One reason is that Third World defense sectors straddle key conceptual borders that shape our understanding of the international system—they lie somewhere between the state and the market, and inherently straddle the boundary between what is domestic and what is international. One goal of this work is to study Third World military industrialization as a historical process shaped by the interplay of global and local forces. At the heart of the defense sector lie institutions that must adjust effectively and often simultaneously to changing conditions on both the domestic and international levels if they are to thrive. Applying this model to the Brazilian case illuminates the multiplicity of forces conditioning military-industrial development, and helps to unravel the puzzle of Brazil's boom and bust.

Misunderstanding Third World Military Industrialization Despite the salience of emerging defense sectors for questions of security, development, and North-South relations, convincing explanations are lacking

The Puzzling Trajectory of Brazil's Defense Sector

5

for recefit patterns of Third World military-industrial growth. This inability to explain the trends is not for lack of effort; returning to the Brazilian example, there is no shortage of explanations for that country's militaryindustrial fortunes. A diverse and often contradictory set of explanations have been invoked, stressing both economic and political variables, domestic as well as international levels of analysis, and a wide range of inferred goals and strategies. Some analysts saw geopolitical goals at the heart of Brazil's expansion. Defense-sector growth has often been described as part of a more general quest for power in international relations. But within this broad rubric there has been little consensus on the specific underlying goals—described variously as security against external threats, arms supply independence, regional hegemony, or recognized great-power status. 12 Other observers have seen an underlying goal of economic development, but again with little consensus on specifics: Some see a quest for export-led growth; others see a search for technologically driven industrial development; and still others see a quest for stable expansion in an economy beset by chronic problems of inflation, debt, and declining productivity. 13 Other observers have inclined toward structural interpretations: Brazil's emergence has alternately been described as part of the transnationalization of global arms production, or as the emergence of a new market niche for medium-tech weapons systems, or as a byproduct of the militarizing effects of superpower rivalry, or as another example of dependent development through transnational industrialization. 14 Still others have invoked domestic structures, ranging from the armed forces' organizational culture to the emergence of dynamic public-private partnerships. 15 Not surprisingly, some analysts have presented models in which militaryindustrial growth was produced by a convergence of economic and political factors, or by a combination of domestic and international structures. 16 These interpretations differ, sometimes dramatically, in the way they describe the goals and priorities that drove military-industrial strategy during Brazil's growth phase. They also vary widely in their description of the constraints on the pursuit of this multiplicity of goals, and they often present contradictory descriptions of power, authority, and organization in Brazil's defense sector. If Brazil's rise exposed a lack of consensus as to what makes Third World military industrialization possible, its subsequent fall has exposed our poor understanding of what makes military industrialization sustainable. According to the conventional wisdom, Brazil was probably better positioned to sustain defense-sector growth than any other emerging supplier of the 1980s. During its growth spurt the defense sector enjoyed an unparalleled combination of favorable conditions: a diversified industrial base with a well-developed technological infrastructure; a large pool of inexpensive but skilled labor; supportive state policies that, unlike many

6

Manufacturing Insecurity

broader technological innovation efforts in Brazil, stressed a pragmatic, market-oriented approach to technology development and industrial expansion; close and longstanding ties to a wide range of U.S. and European multinational defense firms; and the backing of a military establishment strongly committed to defense-sector expansion. Why did Brazil's defense sector fall so quickly and so far, when none of these basic conditions changed? Many observers have cited the faltering of the global arms trade in the early 1990s to explain Brazil's collapse. 17 This is a reasonable hypothesis, given the export dependence of many Third World defense industries. Demand for armaments in the Third World, where most Brazilian exports were sold, declined rapidly: The Stockholm International Peace Research Institute (SIPRI) estimates that Third World purchases of major weapons systems fell by 41 percent from 1989 to 1993. 18 But the onset of serious problems in the Brazilian defense sector predated the drop in global demand by as much as five years in some programs and industries. And several important activities, including those in aerospace, nuclear, and shipbuilding, exported little or nothing during their growth phase; clearly, the loss of export markets cannot explain their difficulties. Indeed, the real puzzle is why Brazil's defense sector did not thrive, or at least hold steady, at a time when the accelerated internationalization of defense production had emerged as a clear global trend. Brazil should have been able to ride out the downturn in the international market, and perhaps even exploit market restructuring to deepen its integration into the global arms economy. If the changing international context cannot explain the Brazilian collapse, perhaps domestic politics holds the key. National defense sectors typically require extensive state support, which in turn requires political support from a coalition of military and civilian interests. A complex, halting transition to civilian rule dominated Brazilian politics during the period in question: The military regime withdrew from formal power in 1985, and the gradual institutionalization of civilian authority had picked up speed by decade's end. To be sure, civil society in modern Brazil has never maintained full and effective control of the military; the history of the armed forces for most of the twentieth century is that of an organization growing more internally driven, more autonomous, and more closed to civilian influence. 19 But the transition to civilian rule did put an end to the military's status as the hegemonic force in Brazilian politics. Perhaps democratization reined in the ability of the military to support key defense programs and industries, or otherwise derailed the strategy underlying Brazil's impressive gains. Again, a plausible hypothesis—but a closer look at Brazilian politics suggests just the opposite. Certainly domestic political change had major consequences for the defense sector. But the slow and complex transition to civilian rule strengthened several aspects of military control over key

The Puzzling Trajectory of Brazil's Defense Sector

7

military-industrial activities during the period in question. Retaining control of the defense sector was a goal the military pursued explicitly and with great success during the transition period; civilian elites offered little or no resistance. Indeed, the defense sector would emerge during the second half of the 1980s as an important lever for the military's enduring political influence in postauthoritarian Brazil. This influence can be seen in the way civilian politicians routinely stress the value to the nation of the military's technological endeavors—often as a way to curry favor with the armed forces. 20 Domestic politics has changed, but not in ways that one would expect to undermine military-industrial growth. In other words, the factors generally thought to favor Third World military-industrial growth were abundantly present in Brazil even as the defense sector collapsed. And neither market change at the global level nor political transitions at the domestic level provide a straightforward explanation for the sector's decline.

An Alternative Conceptualization The failure to explain patterns of military industrialization in Brazil and throughout the Third World is largely conceptual. Third World defense sectors straddle some of the most cherished analytic borders that delimit the disputed terrain of the social sciences. Two such borders are the distinction between state and market (or more generally, between politics and economics), and the boundary between what is domestic and what is international.

Beyond State Versus Market One source of confusion is the widespread desire to distinguish between the political and economic forces governing military-industrial development. Interpretations grounded conceptually in strategic studies have stressed the political and geostrategic factors underlying military-industrial growth. Such frameworks generally view defense-sector expansion as the logical product of the strategic goals of state elites. 21 Interpretations grounded in international political economy have taken a very different approach, stressing global market forces, the transnationalization of production via multinational corporations, and the international availability of technology, financing, and markets. 22 The conceptual divide between political economy and strategic studies has generally meant adopting static assumptions that market conditions determine political relations or vice versa. But treating Third World defense sectors as an extension of the securitymaximizing state or as one sector in a late-industrializing economy cannot

8

Manufacturing

Insecurity

capture the essence of a process that inherently blurs the distinction between politics and economics or state and market. As Bowles and Gintis point out, the desire to "identify one sphere of social life as 'economic' and another as 'political'" often obfuscates more than it clarifies: This convenient division of social space, favored by liberal social theory and academic convention, appears arbitrary given the evidently political nature of corporations, markets, and other institutions commonly termed "economic," and in light of the transparently economic activities of the state. 23

Nowhere is this blurring more evident than in the global arms economy. On the one hand, states are key economic agents, and arms markets are highly politicized given the extensive state presence. On the other hand, defense firms are often influential political actors, and economic considerations loom large in strategic decisions. Under these circumstances, key actors cannot be assumed to respond to a purely economic or political logic, and the relevant structures shaping military-industrial development cannot be characterized simply as economic or political. Crucial institutions such as the market and the state live in both worlds at once. Under these circumstances, the central dynamic of military industrialization is likely to be the balancing of diverse economic and political interests, rather than the consistent subordination of one to the other.

Straddling the Domestic and the International A second traditional distinction that produces conceptual confusion involves the boundary between domestic and international. Systemic-structural and domestic-comparative approaches often present starkly different images of Third World defense sectors. Seen from the systemic point of view, the South's military industries are generally understood as an expression of their countries' limited political and economic power in the international system. 24 In this view, the military-industrial capabilities that do exist in the Third World are the product of the transnationalization of the developed countries' defense industries. The North, driven by a range of economic and political motives, has fueled the South's military-industrial expansion through licensing agreements, coproduction, joint ventures, and technology transfer arrangements. 25 Seen in this light, the fate of Third World defense sectors is determined by whether the South's structural weakness is offset by pressures in favor of military-industrial globalization. Although observers differ on the likely future balance between these forces, there is a shared emphasis on Third World military industries as derivative sectors; their strengths and weaknesses are defined not by their

The Puzzling Trajectory of Brazil's Defense Sector

9

own choices but by power and purpose lying at the core of the world system. 26 Where the system-level view sees an expression of international structure, a domestic-comparative perspective on military industrialization is likely to see an expression of state purpose. As Ayoob suggests, Third World security policies are heavily influenced by the broader economic, social, and political process of state making. 27 But the purposes of state are tempered by the formidable technical and economic barriers to militaryindustrial development. Thus the question of state capacity becomes central to the domestic-comparative perspective—just as it has to the broader question of explaining differing levels of Third World economic development. To be sure, military-authoritarian regimes of the sort that predominated in Latin America and Asia in the 1970s and early 1980s often displayed a natural affinity for military industrialization. But they varied greatly in their willingness and ability to shield fledgling defense sectors from domestic political pressures and economic vagaries, and to steer resources in directions conducive to defense-sector growth. Such differences can have a self-reinforcing effect over time: A very different configuration of material benefits began to flow from defense-sector policies in those states able to stimulate military-industrial development, solidifying important political bonds between the military, civilian industrialists, and transnational interests. In other words, Third World defense sectors sit at the intersection of domestic and international structures. The strongly transnationalized character of most Third World military industries means that their growth is at least partly an extension of evolutionary trends in the global arms economy, and that this will be the case as long as Third World arms producers remain dependent on external sources for technology, investment, and markets. To focus solely on domestic conditions or the goals of domestic elites would overstate the autonomy of domestic actors in a thoroughly transnationalized process. But the global vantage point cannot explain why the defense sectors of states occupying similar niches in the global politicaleconomic hierarchy have so often followed different developmental trajectories. Why did Brazil's defense sector expand much more rapidly and dramatically than, say, Argentina's? System-level analysis may explain why no Third World producers have joined the ranks of first-tier arms suppliers, but beyond this blunt insight it tells us little about variance across individual cases. The global-structural approach fails to consider key domestic variables: the extent of state involvement in defining the sector's trajectory, the role of the military in domestic politics, the nature of publicprivate interactions within the sector, and the particular mix of goals expressed in state policies.

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Manufacturing Insecurity

Global Access and Domestic Control Because Third World defense sectors sit at the intersection of global and local structures, they balance diverse economic and political interests. But what are the relevant structures? Internationally, "structure" could mean the regional security context, key bilateral relationships, the division of labor in the global economy, or the distribution of military and political power among states. Domestically, the term can refer to the distribution of economic power, the organization of the state, or the nature of statesociety relations. While all of these contextual factors matter in some sense, particular attention should be paid to structures governing access at the international level and control at the domestic level—structures I describe as global markets and domestic politics. At the international level, arms transfers have always been based on a complex intertwining of economic, military, and political factors; this will continue for as long as governments value both military power and economic growth. But the fundamental question for Third World defense sectors has been one of access to the technologies, investment capital, and export markets they require to sustain military industrialization. Certainly this has been the case for Brazil: As subsequent chapters will show, growing access to each of these elements in the military-industrial equation fueled military-sector expansion in the 1970s, and changing patterns of access were critical to the deepening sectoral tensions of subsequent crises. Moreover, as discussed in Chapter 5, growth in the number of suppliers, internationalization of production, and commercialization of transactions have combined to create an intensely competitive system—literally, a global arms economy—that operates on the basis of exchange at least as much as on that of persuasion, authority, or coercion. Describing international structures in market terms does not mean that other structural factors—the balance of power, external threats, alliance formation, or rule-based cooperation through international regimes—are irrelevant. But the global-market approach does make claims about how these factors shape military-industrial growth. When governments in the industrialized countries have opposed Third World military industrialization, they have generally invested more energy and political capital in restricting access on the supply side—in particular, access to production technologies—than they have in more direct coercive, persuasive, or rulebased interventions among would-be military industrialize^. 28 International regimes on nuclear and missile proliferation are, in essence, assertions of oligopolist power in the form of suppliers' cartels. Referring to international structures as global markets does not mean that politics does not intrude, but rather that the political intrusion has sought to change patterns of market access.

The Puzzling Trajectory of Brazil's Defense Sector

11

At the domestic level, the fundamental issue is not access but control. State policies play a critical market-creating role, even in the most exportoriented defense sectors. Key inputs such as skilled labor, investment capital, and technology are also highly sensitive to state policies. Thus the principal issue is who controls the political resources that determine patterns of market performance within a set of state-constructed and highly state-dependent market arrangements. Certainly this was the case in Brazil under military rule: The state explicitly created the conditions for production and strongly influenced the character of sectoral demand. One consequence is that the domestic economic relations that grew up around the defense sector have themselves been conditioned by the structure of Brazilian domestic politics, as seen in the historical strength and intrusiveness of the state, the weak and state-dependent character of Brazil's industrial bourgeoisie, and the traditional insularity and autonomy of the military. To the extent that these features differ in Brazil from other countries, so will the institutional form of Brazil's defense sector. Detailed case studies of Third World defense industries or security policies (of which there are f e w ) point to the salience of domestic political structures. Barnett stresses the role of the state's capacity to mobilize resources in his comparative analysis of Egyptian and Israeli security policy. 29 Reiser's study of Israel's military industries reveals the importance of a diverse coalition in mobilizing domestic political support for defensesector expansion.30 Gupta, writing about India, points to diverging civilian and military priorities as a recurring barrier to effective military-industrial development. 31 Nolan, in a comparative study of the Taiwanese and South Korean defense sectors, points to the key role in each case of effective leadership by domestic political elites.32 In other words, from the perspective of Third World defense industries, the most important international structures are those that govern access to the critical resources of technology, financing, and markets. And the most important domestic structures are the political institutions and relationships that define who controls military-industrial policies. The fate and form of the defense sector lie in the space between these global and local structures.

The Problem of Adjustment and the Role of Institutions The foregoing suggests that promoting defense-sector expansion involves a difficult balancing act. A path of growth and development must be found that will satisfy both the demands of a competitive international politicaleconomic context and the demands of the domestic coalition supporting military-industrial ventures. One way to describe this process is as a twolevel game.33 Decisionmakers must play an international game of bargaining

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Manufacturing Insecurity

for access to technology, financing, and markets, and a local game of building support for military-industrial policies among various domestic groups: the military, industrialists, bureaucrats, civilian scientists, and labor unions. Clearly, each "game" affects the other: Successful international bargaining can create resources needed to build a winning domestic coalition, just as "winning" on the domestic level may build support for policies that will "win" internationally. But moves in one game can also complicate the other game. For example, if winning internationally means attracting foreign investment and winning domestically means garnering military support, actions seeking the former (e.g., cutting budgets to create a favorable macroeconomic climate for investment) may complicate the actions needed for the latter (e.g., increasing the size of the defense budget). In the short run, the challenge is to find a "win-set," or a set of policy "moves" that will produce a favorable outcome in both games. 34 But military-industrial development is not a short-run process. The game metaphor breaks down because the key to success is not simply the implementation of effective policies but rather the institutionalization of effective rules and roles. Military industrialization demands stable institutions—routinized sets of rules, roles, procedures, and practices—because, even on the lesser scale seen in most Third World countries, the defense sector brings together a heterogeneous array of manufacturing and supply firms, civilian and military bureaucratic organizations, research institutes, and other groups. 35 Producing military-technological artifacts involves a diverse array of activities, such as military R&D, the training of technical personnel, coordination of supplier industries, arms production, and the testing, demonstration, and marketing of weapons systems, that create a complex division of labor among these groups. Institutionalized rules, predictable routines, unquestioned goals, clear divisions of responsibility, and established hierarchies of authority are needed to give order and predictability to this highly complex process. The centrality of technology also creates a demand for stable institutions. The expansion of military-technological capabilities requires internalizing a broad and heterogeneous set of abilities; more generally, technology development involves carrying previously developed abilities forward to new settings. 36 This view presumes that technology is, as Dahlman suggests, "to a large extent embodied in people and institutions, not just in physical objects, and hence to acquire technological capability is mostly a matter of building up skills and institutions, not of buying hardware." 37 The sunken costs inherent in path-dependent learning (investments in people, process technologies, and forms of organization) mean that past choices typically curtail current options sharply, and current choices cast a long shadow onto the future. The number of directions in which one can embark to build upon past learning are limited. Militarytechnological endeavors therefore tend to follow path-dependent trajectories,

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typically organized around the core weapons systems of a particular military service. 38 For military-industrial development to succeed, stable roles, rules, and routines must be institutionalized. But in most Third World settings, the task of creating and maintaining stable institutions is complicated by rapid change and frequent instability on both the domestic and international level. Their dependent integration into a dynamic global arms economy forces Third World producers to adjust repeatedly to processes of technological change and economic restructuring they cannot control. At the same time, domestic political instability creates its own challenges of adaptation. Thus, over time, the problem of finding a path that works both internationally and domestically is likely to be superseded by a larger problem of institutional adjustment to structural change. The challenge facing individual programs, particular industries, and the defense sector as a whole is to maintain or, more accurately, to continually reproduce a set of institutional practices that reconcile prevailing global-market and domestic-political conditions, in a way that is conducive to sector growth and expansion. The focus on institutions suggests three keys to understanding military-industrial growth and decline: identifying the defense sector's institutional core of roles, rules, and procedures; examining their relationship to the most important international and domestic structures conditioning defense-sector performance; and observing whether and how they adapt to structural change. Because identifying the relevant institutional practices is difficult, two cautions are in order. First, institutions may be nested at different levels of social organization—in this case, individual weaponssystem programs, particular industrial segments, or the defense sector as a whole. 39 Second, institutions are not synonymous with formal organizations, and may be embedded in less formal, uncodified arrangements. This distinction is particularly important in the context of Brazilian politics, where, as Schneider points out, rapid bureaucratic circulation weakens organizational loyalties and increases reliance on personal ties, a factor that in turn further undermines formal organization. . . . Since officials' preferences do not necessarily coincide with those of the agency in which they happen to work, traditional perspectives in bureaucratic politics (based on organizational interests and procedures) are of limited use. 4 0

A guide for where to look for key institutional practices can be found in the influential work of March and Olsen, which lists three general insights from the study of political-economic institutions: (1) institutional rules and routines play a crucial role in shaping behavior; (2) institutions not only respond to their environments, but often actively shape those environments; and (3) rather than responding precisely and immediately to

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changes in the external environment, institutions tend to exhibit "stickiness" as actors cling to established practices, proven procedures, and established technologies. 4 1 First, institutionalists stress how rules and routines shape and constrain the capacities of actors. This points our attention to the hierarchy of authority defined by those rules, and to the division of labor that results from their repeated application. How is authority distributed and acknowledged among R & D organs, firms, state agencies, and the military itself within the principal military-industrial segments? What division of labor has evolved among them? Second, institutionalists stress that institutions both respond to and shape their environment. This calls attention to the nature of the defense sector's external boundary and to the types of linkages that transcend it. How are the key military-industrial programs separated from or tied to a range of actors outside the defense sector, including other Brazilian industries, multinationals operating in Brazil, foreign suppliers, the civilian scientific establishment, Brazilian universities, and organized labor? How stark is the delineation between outsiders and insiders? Does the definition of an insider change over time? Third, institutionalists study the role of norms, belief systems, and socialization in shaping behavior. These conditioning processes create institutional stickiness, meaning that change is often episodic and punctuated rather than continuous and incremental. What are the enduring aims of military industrialization? What goals go unquestioned for extended periods? In particular, what norms govern beliefs toward technology development? D o general themes such as "technological autonomy" take on broadly consensual meanings that in turn shape behavior?

Reinterpreting Brazil's Experience Combining these two observations—that both domestic and international structures shape the defense sector, and that stable institutions are central to military-industrial growth—produces several hypotheses about military industrialization in Brazil and throughout the Third World. First, militaryindustrial expansion is more likely when there is a favorable convergence of domestic and international conditions. Second, sustaining growth will require either unusual structural stability at both of these levels or effective institutional adjustment to change at one or both levels. Third, institutional stickiness makes effective adjustment difficult, particularly when both domestic and international structures are changing simultaneously. Applying this framework to the Brazilian case reveals a clear pattern. In the early stages of defense-sector development, it was possible to pursue a developmental strategy that was viable in both the domestic-political and global-market contexts. Under these circumstances, the sector not only

The Puzzling Trajectory of Brazil's Defense Sector

15

thrived, but also took on an institutional character and a technological trajectory that reflected this structural convergence between the global and the local. The result was not only military-industrial growth but also the institutionalization of several notable characteristics of Brazil's defense sector: its penchant for state-led growth, its limited links to civilian activities, its aggressive but pragmatic approach to technology development, its embrace of a highly commercial logic for production choices, and its subjugation of strategic choices and sector policies to military control. These features proved critical to sector growth. But their deep institutionalization would greatly complicate the problem of adjustment when global markets and local politics began pulling the defense sector in contradictory directions in the late 1980s. The result was a series of doomed efforts at adaptation, which have in turn produced a pattern of chronic instability, chaos, and deinstitutionalization that continues to this day.

Plan of the Book Chapters 2 through 5 chronicle the rise of Brazil's military-industrial sector. The goal is to understand how prevailing domestic and international conditions institutionalized key defense-sector features such as technological strategies, production choices, multinational participation, the public-private division of labor, and the balance of control between civilians and the military. Chapter 2 traces development prior to the 1964 military coup that marks the onset of the modern military-industrial era. The discussion links defense production to broader processes of economic and political development, stressing the changing political role of the military and Brazil's history of transnationalized, dependent industrialization. Chapter 3 describes the modern defense sector that emerged in the wake of the 1964 coup. The chapter discusses the technological path and industrial organization of Brazil's principal military-industrial endeavors, highlighting the sector's, central institutional characteristics: its penchant for state-led growth, limited ties to civilian activities, aggressive but pragmatic approach to technology development, highly commercial logic of production, and enduring military control of strategic choices and sector policies. Chapters 4 and 5 examine the role of global markets and domestic politics in driving and shaping sector expansion. Chapter 4 situates Brazil's emergence in the context of a changing global arms economy; the chapter examines how the emergence of new suppliers, the commercialization of the arms trade, the rise of technology as a medium of exchange, and the internationalization of production promoted Brazil's military-industrial emergence. Chapter 5 provides a parallel interpretation of defense-sector growth in the context of domestic politics, examining how the military's

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political autonomy, technocratic dependence, and internal fragmentation conditioned the size and shape of defense-sector activities. In both chapters the discussion focuses not only on the structural forces propelling sector growth but also on their role in shaping the sector's specific institutional characteristics. Chapters 6 through 10 chronicle Brazil's military-industrial collapse. Chapter 6 examines the onset of important structural changes, beginning in the latter half of the 1980s, at both the global-market and domestic-political levels. Chapters 7 through 10 present four case studies of the sector's principal programs: the AM-X tactical fighter, the VLS ballistic-missile/ satellite-launcher, the Osorio battle tank, and the navy's nuclear submarine. The cases build on the macrostructural discussion of earlier chapters; they examine how the convergence of favorable global-market and domestic-political conditions drove growth and, just as importantly, institutionalized specific roles, rules, and practices. The case study chapters then analyze the problems of institutional adjustment unleashed by globalmarket and domestic-political change. The four cases span the major industrial segments, the three branches of the armed forces, and the major firms and R&D centers. The weapons systems involved are at different developmental stages, ranging from preprototype activity (nuclear submarine) to series production (AM-X aircraft). Each, however, is the culmination of a longstanding developmental effort in its particular industrial segment, with deep institutional roots that predate the structural changes and adjustment challenges being studied. Chapter 11 compares and synthesizes the findings of the case studies, drawing out the adjustment problems seen across the individual cases. The chapter also examines the largely failed efforts of the Collor government (1990-1992) to promote sector-wide adjustment. Chapter 12 addresses the broader applicability of these findings for security, development, and North-South relations. To test the limits of generalization from the Brazilian experience, a comparison is drawn with defense-sector expansion in two other technologically advanced Third World countries, South Korea and India. Despite very different domestic and regional contexts, the defense sectors of these countries are found to face broadly similar, and equally substantial, challenges of institutional adjustment. The chapter concludes with a discussion of the ramifications of Brazil's militaryindustrial experience—for democracy and development in Brazil, and for security, arms control, and North-South relations.

Notes 1. Foreign Broadcast Information Service (FBIS), "Army Chief of Staff on Modernization Priorities," Latin America Daily Report, January 13, 1994.

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Sector

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2. Eduardo Galeano, Open Veins of Latin America (New York: Monthly Press Review, 1973): p. 189. 3. "Brazil's Arms Industry on the Move," Armed Forces Journal International (December 1984). 4. See Clovis Brigagào, "The Brazilian Arms Industry," Journal of International Affairs 40 no. 1 (summer 1986): pp. 101-114. 5. FBIS, "Army Minister Views Programs, S&T Activities," Latin America Daily Report, February 22, 1995. 6. See, for example, Steven E. Miller, "Arms and the Third World: Indigenous Weapons Production," Programme for Strategic and International Studies Occasional Paper no. 3 (University of Geneva Programme for Strategic and International Studies, December 1980); Gerald M. Steinberg, "Technological Transfer and the Future of the Center-Periphery System: A Realist Perspective," Jerusalem Journal of International Relations 11 no. 2 (1989): pp. 96-117; Robert M. Rosh, "Third World Arms Production and the Evolving Interstate System," Journal of Conflict Resolution 34 no. 1 (March 1990): pp. 57-73. 7. Richard A. Bitzinger, "The Globalization of the Arms Industry," International Security 19 no. 2 (fall 1994): pp. 170-198. On missile programs, see William C. Potter and Harlan W. Jencks, eds., The International Missile Bazaar: The New Suppliers' Network (Boulder, CO: Westview Press, 1994). 8. For a recent survey on the literature examining the links between defense spending, industrial development, and economic growth, see Stephanie G. Neuman, "Arms Transfers, Military Assistance, and Defense Industries: Socioeconomic Burden or Opportunity?" The Annals of the American Academy of Political and Social Science 535 (September 1994): pp. 91-109. 9. See Chung-In Moon, "South Korea: Between Security and Vulnerability," in James E. Katz, ed., The Implications of Third World Military Industrialization: Sowing the Serpent's Teeth (Lexington, MA: D.C. Heath, 1986). 10. On Argentina during this period, see Victor Millan, "Argentina: Schemes for Glory," in Michael Brzoska and Thomas Ohlson, eds., Arms Production in the Third World (London: Taylor and Francis, 1986); Miguel Angel Canoura, "A Importancia da Indùstria Bélica para a Seguranza Nacional," Política e Estratégia 6 no. 3 (July-September 1988): pp. 363-373. On India, see Raju G.C. Thomas, Indian Security Policy (Princeton, NJ: Princeton University Press, 1986). On Egypt, see Michael Collins Dunn, "Egypt: From Domestic Needs to Export Market," in Katz, ed., The Implications of Third World Military Industrialization. On China, see Wendy Frieman, "China's Military R&D System: Reform and Reorientation," in D. Simon and M. Goldman, Science and Technology in Post-Mao China (Cambridge, MA: Harvard University Press, 1989). 11. This point is made by Aaron Karp, "Controlling the Spread of Ballistic Missiles to the Third World," Arms Control 1 no. 1 (May 1986): pp. 3 1 ^ 6 . 12. For an interpretation stressing external threats and arms-supply autonomy see Stanley E. Hilton, "The Armed Forces and Industrialists in Modern Brazil: The Drive for Military Autonomy (1889-1954)," Hispanic American Historical Review 62 no. 4 (November 1982): pp. 629-673. The regional hegemony thesis was presented by Michael Moodie, "Defense Industries in the Third World: Problems and Promises," in Stephanie Neuman and Robert Harkavy, eds., Arms Transfers in the Modern World (New York: Praeger, 1979). On great-power status see William Perry, "Brazil: A Local Leviathan," in Rodney W. Jones and Steven A. Hildreth, eds., Emerging Powers: Defense and Security in the Third World (New York: Praeger, 1986); William Perry and Juan Carlos Weiss, "Brazil," in Katz, ed., The Implications of Third World Military Industrialization; Frank D. McCann, "The

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Insecurity

Brazilian Army and the Pursuit of Arms Independence, 1899-1979," in B.F. Cooling, ed., War, Business and World Military Industrial Complexes (Port Washington, NY: Kennikat Press, 1981). 13. Saraiva presented the idea of a broader technological stimulus, stressing in particular the influence among Brazilian elites of John Kenneth Galbraith's 1967 book, The New Industrial State', see José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia corno Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro: Conselho Nacional de Desenvolvimento Científico e Tecnològico, July 1989). The quest for export-led growth was invoked by Carol Evans, "Reappraising Third World Arms Production," Survival 28 no. 2 (March-April 1986): pp. 99-118. For an interpretation stressing the defense sector as an engine of growth see Amalia Cochran and Michael D. Ward, "Economic Growth and Military Spending in Brazil," paper presented at the 23rd annual meeting of the International Studies Association, Vancouver, BC, March 1991. 14. On the effects of the Cold War, see Helena Tuomi and Raimo Vayrynen, Transnational Corporations, Armaments and Development (New York: St. Martin's Press, 1982). On dependent development and global economic restructuring see Augusto Varas, Militarization and the International Arms Race in Latin America (Boulder, CO: Westview Press, 1985); Michael N. Barnett and Alexander Wendt, "Systemic Sources of Dependent Militarization," in Brian L. Job, ed., The Insecurity Dilemma: National Security of Third World States (Boulder, CO: Lynne Rienner, 1992). The idea of an emerging market niche is discussed in Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliagáo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 15. On the military's "organizational culture," see Alexandre Barros, "Brazil," in James E. Katz, ed., Arms Production in Developing Countries: An Analysis of Decision-Making (Lexington, MA: D.C. Heath, 1984). On public-private partnerships, see Patrice Franko-Jones, The Brazilian Defense Industry (Boulder, CO: Westview Press, 1992). 16. Such interpretations include Ethan Kapstein's view of convergent economic and political structures at the international level in "The Brazilian Defense Industry and the International System," Political Science Quarterly 105 no. 4 (1990-1991): pp. 579-596; Barros' organizational-culture models for the separate service branches in "Brazil," in Katz, ed., Arms Production in Developing Countries); Dagnino's model of technological strategies and emerging market niches in A indùstria de armamentos brasileira; and Brigagáo's model of a Brazilian military-industrial complex in "The Brazilian Arms Industry." See also Raul de Gouvea Neto, "How Brazil Competes in the Global Defense Industry," Latin American Research Review 26 no. 3 (1991): pp. 83-107. 17. Laurance, for example, argues that "Brazilian arms sales are almost perfectly correlated with world demand, and nothing within Brazil explains this plunge, except for the fact that the larger powers were better equipped to deal with the lack of recipient cash because of their larger domestic markets." See Edward J. Laurance, The International Arms Trade (New York: Lexington Books, 1992): p. 179. 18. This decrease came on the heels of an increase of 24 percent from 1985 to 1989. Calculated from data in Stockholm International Peace Research Institute, SIPRI Yearbook 1994 (New York: Oxford University Press, 1994): p. 510. These figures cover transfers of major weapons systems only; see Chapter 4 for a discussion and comparison of data sources on the international arms trade.

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19

19. This argument was first made by Edmundo Campos Coelho, Em Busca da Identidade: O Exército na Sociedade Brasileira (Rio de Janeiro: Forense Universitária, 1976). 20. For example, when Vice President Itamar Franco prepared to replace the scandal-plagued Fernando Collor de Mello as the nation's chief executive in 1992, he made a high-profile visit to one of the main military R&D centers and reasserted his support for the military's technological programs. During the 1994 presidential campaign, opposition candidate Luis Inácio Lula da Silva, a frequent critic of military-industrial ventures in the past, courted the armed forces aggressively with a nationalist platform that included renewed support for military-technological programs. 21. See, for example, Moodie, "Defense Industries in the Third World"; Jones and Hildreth, Emerging Powers; Aaron S. Klieman, "Middle-Range Arms Suppliers: The Israeli Case," Journal of International Affairs 40 no. 1 (summer 1986): pp. 115-128; Steinberg, "Technological Transfer and the Future of the CenterPeriphery System." 22. See, for example, David J. Louscher and Michael D. Salamone, eds., Marketing Security Assistance: New Perspectives on Arms Sales (Lexington, MA: D.C. Heath, 1987); Kwang-Il Baek, Ronald D. McLaurin, and Chung-In Moon, eds., The Dilemma of Third World Defense Industries: Supplier Control or Recipient Autonomy? (Boulder, CO: Westview Press, 1989). 23. Samuel Bowles and Herbert Gintis, Democracy and Capitalism: Property, Community, and the Contradictions of Modern Social Thought (New York: Basic Books, 1987): pp. 28-29. 24. See, for example, Krause's discussion of "third tier" producers in the global structure of defense production. Keith Krause, Arms and the State: Patterns of Military Production and Trade (Cambridge: Cambridge University Press, 1992). 25. David J. Louscher and James Sperling, "Arms Transfers and the Structure of International Power," in Norman A. Graham, ed., Seeking Security and Development: The Impact of Military Spending and Arms Transfers (Boulder, CO: Lynne Rienner, 1994); Robert E. Harkavy, "The Changing International System and the Arms Trade," The Annals of the American Academy of Political and Social Science 535 (September 1994): pp. 11-28. 26. For a range of perspectives on this debate, see Richard A. Bitzinger, "The Globalization of the Arms Industry," International Security 19 no. 2 (fall 1994): pp. 170-198; Krause, Arms and the State; and Robert E. Harkavy and Stephanie G. Neuman, eds., The Arms Trade: Problems and Prospects in the Post-Cold War World, The Annals of the American Academy of Political and Social Science 535 (September 1994). 27. Mohammed Ayoob, The Third World Security Predicament: State Making, Regional Conflict, and the International System (Boulder, CO: Lynne Rienner, 1995). See also Gautam Sen, The Military Origins of Industrialization and International Trade Rivalry (New York: St. Martin's Press, 1984). 28. The U.S. government is often characterized as the leading opponent of Third World military industrialization among the industrialized countries. As discussed in Chapter 5, however, the United States was the most active transferrer of defense technologies to the Third World in the late 1970s and early 1980s, a crucial period of structural transformation in the global arms economy. The U.S. government has selectively opposed Third World military-industrial expansion, in certain forms and in certain places, rather than as a general rule. 29. Michael N. Barnett, Confronting the Costs of War: Military Power, State, and Society in Egypt and Israel (Princeton, NJ: Princeton University Press, 1992).

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30. Stewart Reiser, The Israeli Arms Industry: Foreign Policy, Arms Transfers, and Military Doctrine of a Small State (New York: Holmes & Meier, 1989). 31. Amit Gupta, "Building an Arsenal: The Indian Experience," in Graham, Seeking Security and Development; Amit Gupta, "The Indian Arms Industry: A Lumbering Giant?" Asian Survey 30 no. 9 (September 1990): pp. 846-862. 32. Janne Nolan, Military Industry in Taiwan and South Korea (New York: St. Martin's Press, 1986). 33. Robert D. Putnam, "Diplomacy and Domestic Politics: The Logic of Twolevel Games," International Organization 42 no. 3 (summer 1988): pp. 4 2 7 ^ 6 0 . 34. Putnam's formulation of the two-level game model includes simplifying assumptions that render the two games sequential rather than simultaneous; he uses the example of a preliminary international agreement that must then be ratified domestically. Putnam acknowledges that "if international pressures reverberate within domestic politics, or if issues can be linked synergistically, then domestic outcomes are not exogenous, and the two levels cannot be modeled independently." See Putnam, "Diplomacy and Domestic Politics," pp. 454^456. 35. This definition of institutions as routinized mechanisms that facilitate joint action follows Lynne G. Zucker, ed., Institutional Patterns and Organizations: Culture and Environment (Cambridge, MA: Ballinger, 1988). 36. Krause identifies four increasingly complex levels of military-technological capability, which he describes as the ability to operate and maintain, reproduce, adapt, and create. See Krause, Arms and the State. Solingen identifies four conceptually distinct components of technological capability at any given level of skill, which she terms the ability to search-and-choose, absorb-and-modify, generate-and-apply, and integrate-and-diffuse. See Etel Solingen, A Study in the Political Economy of Technology Development: Brazil's Nuclear Program, doctoral dissertation, Department of Political Science, University of California, Los Angeles, 1987. 37. Carl J. Dahlman, "Technological Change in Industry in Developing Countries," Finance and Development 26 no. 2 (June 1989): pp. 13-15. 38. An extreme example of this path dependence is what Kaldor called the "baroque" arsenals produced by the military-industrial complexes of the leading powers. See Mary Kaldor, The Baroque Arsenal (New York: Hill and Wang, 1981). 39. G. John Ikenberry, "Conclusion: An Institutional Approach to American Foreign Policy," International Organization 42 no. 1 (winter 1988): pp. 219-243. 40. Ben Ross Schneider, Politics Within the State: Elite Bureaucrats and Industrial Policy in Authoritarian Brazil (Pittsburgh: University of Pittsburgh Press, 1991): p. 7. 41. James G. March and Johan P. Olsen, Rediscovering Institutions: The Organizational Basis of Politics (New York: Free Press, 1989): p. 169. Ikenberry adds a fourth theme: that the consequences of institutions are best understood through case-specific, historical analysis (G. John Ikenberry, "Conclusion").

2 The Origins of Military Industrialization

Brazilian arms production has a venerable history, dating to the colonial era. 1 The emergence of a sugar-based economy in the sixteenth and seventeenth centuries stimulated shipbuilding in the northeastern territory of Bahia, as Portuguese shipbuilders adapted to the use of tropical woods. The discovery of gold in Minas Gerais in 1695 stimulated a southward movement of the fledgling shipbuilding industry to the increasingly important commercial center of Rio de Janeiro. The Naval Arsenal of Rio de Janeiro was founded in 1763 and completed its first warship in 1767. Dagnino reports that prior to this time cannon and other war material were already being manufactured for Portuguese use. 2 Cannon were also produced and used by the bandeirantes—the explorers, soldiers of fortune, and traders in Indian slaves who carved their way into the interior of the South American continent. 3 A more important stimulus came in 1808 when the Portuguese court, fleeing Napoleon's armies, left Portugal to take up residence in Brazil. One of the first acts of Joao VI upon arriving in Rio de Janeiro was to establish a gunpowder factory. 4 Brazil's first military academy was also opened during this period. Upon Napoleon's defeat the liberals who assumed power in Portugal sought to reassert colonial control over their rapidly growing South American colony, but in doing so they met opposition among Brazil's landowning elite. A revolution fought to preserve the status quo against renewed Portuguese interference yielded Brazil's independence in 1822. In 1824 Brazil established a constitutional monarchy and installed as emperor the Portuguese king's son, whom the king had left behind as regent when the court returned to Lisbon. The military needs of the tenuously independent nation did sustain a modest upsurge in military-industrial capacities. An army arsenal to repair guns was installed in Rio Grande do Sul in 1828, and lingering Portuguese control in Brazil's northeast accelerated the shift of the emerging naval construction industry to the south, in Rio de Janeiro. But economic and 21

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political developments for most of the nineteenth century had a less salutary effect on military-industrial expansion. The emergence of a coffeebased export economy marked another historical cycle of commoditybased economic growth, paralleling the earlier sugar and gold cycles. But the coffee boom carried with it cheap imports of British-manufactured goods, inhibiting the development of a domestic manufacturing base. 5 Political developments also inhibited military-industrial growth. The early years of imperial rule saw the formation and rapid growth of the Guarda Nacional at the expense of the army, which the emperor considered to be politically unreliable. 6 In the early years, the guarda played an important role in establishing imperial control, but it remained a decentralized tool of the rural oligarchy. The central state was not strong enough relative to rural elites to build a professional army for use in further consolidating federal control. 7 Thus the army remained a weak and unprofessional institution, while the militias that eclipsed it lacked the central administrative structure necessary for a meaningful expansion of militaryindustrial capacity. An important military-industrial stimulus came with the War of the Triple Alliance (1865-1870). The war pitted Brazil, Argentina, and Uruguay against Paraguay in a bloody conflict that killed perhaps half of Paraguay's male population, and in particular indigenous peoples. Pressed for an effective means of controlling Paraguayan rivers, Brazil became the second nation (after the United States) to produce warships with reinforced armor plating. A team of European-trained Brazilians designed and built six such craft for the war, using imported machine tools and iron girders. 8 Naval production had reached a relatively advanced technical level, though lacking a broad industrial base. The war forced expansion of army production of cartridges, shells, and powder. More significantly, the war transformed the army, which emerged as an important actor in Brazilian politics. The postwar period found Brazil with an army that was larger, more vocal in its dissatisfaction on a range of issues affecting the military, and painfully aware of the organizational weaknesses exposed during the war.9

The Old Republic In 1889 the empire was overthrown by a coalition that included the army, the coffee barons of Sao Paulo, other segments of the rural elite, and the new urban classes whose growth had been stimulated by war.10 The ensuing four decades, known as the Old Republic, were an uneasy compromise among elite factions with divergent interests.11 During the drafting of the new constitution, for example, the army and rural elites disagreed sharply on the appropriate definition of the army's constitutional duties. 12 Economic disputes

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also emerged. Tariff protection to pay the cost of war with Paraguay did generate a "spurt" of industrialization in the 1870s, but for most of the period exchange-rate policies designed to maximize coffee revenues hindered the development of a domestic manufacturing base. 13 In marked contrast to the war-driven expansion of the 1870s, the Old Republic saw little growth in military-industrial capabilities. Again, the reasons were both economic and political. Naval production stagnated as the advent of steam propulsion and steel hull construction rendered the Rio shipyards obsolete by the early twentieth century. 14 At the same time, the navy's political influence waned as the army's ascended. Elements within the navy opposed the army officers who served as the first two presidents of the Republic, Marshalls Manuel Deodoro da Fonseca (1889-1891) and Floriano Peixoto (1891-1894). An unsuccessful naval revolt was mounted against Floriano's government in 1893 and suppressed by the army, further weakening the navy's position. 15 Declining political fortunes led in turn to a sharp decline in resources available for defense production or technological modernization. The limited number of contracts for naval fleet expansion in this period went to foreign firms. European firms were the chief suppliers before World War I (including two British dreadnoughts in 1910), to be supplanted by the United States after the war. 16 An attempt was made to consolidate naval construction in a new Rio shipyard, beginning with a contract awarded to a French firm in 1910. But arsenal construction was slowed by financial constraints and disrupted by World War I, and navy building programs were further derailed by the financial crises of the 1920s. 17 Unlike the navy, the army played a crucial role in the founding of the Republic and remained a key political actor during the Republic's early years, controlling the presidency until 1894. But the election that year of a civilian Sao Paulo politician, Prudente de Morais, marked a shift in the civil-military balance. Reduced defense expenditures of the post-1894 civilian-led governments further weakened the army's position. Military expenditures, which had peaked at 31.8 percent of the federal budget during Marshall Floriano's last year in office, fell to an average of 13.9 percent between 1898 and 1921.18 These cuts worsened the factionalism within the officer corps that had sharpened during the army's years in power. The budget cuts occurred as the various political crises engulfing successive governments were keeping the army heavily occupied. Beginning with the naval revolt of 1894, the army was used repeatedly to intervene in regional conflicts around the country, to break local resistance to federal authority, and to suppress movements threatening the prevailing order or national integration. Key episodes included the Canudos affair of 1897, a bloody clash between the army and religious separatists in Bahia; the salvagaes campaigns of 1911-1914, launched against local oligarchies in a

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number of states; the Contestado of 1912-1915, a separatist movement in Paraná and Santa Catarina; several clashes with the emerging labor movement in the early 1920s; barracks revolts sparked by junior officers (the "lieutenants' movement") in 1922 and 1924; and the "Prestes column" of 1925-1927, a 15,000-mile guerrilla march and campaign by rebellious troops. A revolt toppled the Old Republic in 1930, but the pattern continued: A failed counterrevolt was mounted in 1932, and a communistinspired barracks revolt in 1935 stimulated a new wave of repression against leftist groups. Although such activities stimulated demand for arms and ammunition, they also repeatedly exposed the army's incompetence as a military unit and the deep political divisions within the organization. 19 The army also suffered a persistent generational gap within the officer corps. This period saw the growth of strongly nationalist, professional, modernizing sentiments within the junior ranks. Although this trend is often traced to the emergence of a Comptean, positivist ideology among the junior officers after the Paraguayan war, organizational changes also played an important role. The officer corps, which was bottom-heavy with lieutenants and captains, grew rapidly during the Old Republic, nearly tripling in size between 1892 and 1927. 20 The higher educational levels of the younger officers subverted the traditional hierarchy, as did the superior training received by a group of junior officers in Germany during 1910-1912. The co-optation of senior officers by political elites, the hardships of army life in the lower ranks, and the perceived incompetence of senior officers all contributed to generational tensions. 21 A series of barracks revolts in the early 1920s reflected this internal tumult, and also foreshadowed the army's growing dissatisfaction with the prevailing political system. 22 Given these political conditions and the same lack of industrial infrastructure that plagued the navy, the army was unable to support or manage an effective expansion of its domestic production capacity; dependence on foreign suppliers remained the norm. Krupp and other German firms were the army's principal suppliers prior to World War I, a link strengthened by the training of a cadre of young Brazilian officers in Germany in the early 1900s. 23 After the war French influence eclipsed German. The French installed a sizable military mission in Brazil and filled the arms supply gap left by Germany's defeat. 24 An independent munitions supply was a higher priority than weapons manufacture during this era, but here too barriers were encountered. At the turn of the century the armed forces maintained three army arsenals, three navy arsenals, and three munitions plants (one for cartridges and two for powder). 25 Attempts to expand met with only limited success: A modern powder factory was built in the state of Sao Paulo in 1908, and the army sought to upgrade its Realengo cartridge facility near Rio de Janeiro. 26 A Department of War Material was formed in 1915 to coordinate activities.

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25

But equipment purchases to establish a new Arsenal de Guerra in Rio de Janeiro and boost output at existing facilities were stymied by a lack of skilled labor and an interruption of machinery imports during World War I.27 After the war, the goal of arms independence attained the status of official policy. By 1930 some progress had been made in increasing output for uniforms, ammunition, and supplies. Some success was achieved in attracting private capital to these productive efforts; Dagnino reports that by 1930 private firms supplied half of the army's munitions. 28 The Sao Paulo revolt of 1932 exposed the continuing inadequacy of domestic munitions production, however, and reliance on foreign suppliers remained the norm for anything beyond ammunition. The ambivalence of private domestic capital exacerbated stifling shortages of financing and skilled labor. In the absence of a strong state guaranteeing a market, private investors were reluctant to enter seemingly unprofitable ventures. For its part, the military remained divided on the role of the private sector in defense production. Hilton identifies military sentiment for a privately owned military industry, and argues that during this period "naval authorities echoed army spokesmen in arguing in favor of civilian predominance in defense production." 29 McCann, however, points out that the influential army journal A Defesa Nacional was calling for a state-owned steel industry to boost arms output. 30

The Vargas Era and the Estado Novo The 1930s marked a turning point for both military politics and industrial development in Brazil, and thus for Brazil's military industries. The global depression, which had a devastating impact on agro-export revenues (and thus foreign exchange), spurred import-substituting industrialization. The state played a lead role in the emergence of basic industries during this period. The National Steel Commission, an organ of the Ministry of War with mixed civilian and military representation, was formed in 1931. Under the commission's guidance, and stimulated by protective tariffs and falling exchange rates, Brazil's small steel industry nearly tripled its output between 1934 and 1940.31 A "Law of National Similars" prohibiting imports of manufactured goods similar to those produced in Brazil stimulated importsubstituting industrialization on a broader scale. 32 The 1930s also marked a political watershed. An armed revolt against the federal government in 1930, sparked by a disputed presidential succession, toppled the uneasy regional balance of the Old Republic. The revolt supplanted the Sao Paulo elite that controlled the presidency in the Republic's final years, installing in its place a coalition led by Getulio Vargas, previously governor of the southern state of Rio Grande do Sul. 33 Vargas is the dominant figure of twentieth-century Brazilian politics. He assumed

26

Manufacturing Insecurity

the presidency in November of 1930 and successfully put down a counterrevolt launched by the Sao Paulo elite in 1932. In 1937 he used military backing to seize essentially dictatorial powers and declare the Estado Novo (New State), remaining in power until being deposed by the military in 1945. Vargas then returned to power via the ballot box, winning the presidential election of 1950 and serving until attempts to force him from office led to his suicide in 1954. During his tenure Vargas consolidated federal control over the regional oligarchies, laying the foundation for state-driven industrial growth. His regime also established a clientelistic pattern of negotiations between elites and the state, bypassing political parties and the legislature. In doing so, Vargas established a pattern of interaction between a dominant state and a divided, state-dependent capitalist class that would last, in its basic outlines, to the present day.34 The result was a new trajectory of economic development and sociopolitical change, marked by what has often been described as conservative, industrializing modernization: industrializing in that it extracted a surplus from the agro-export sector to subsidize industrial growth; modernizing in that it yielded a fundamentally new political terrain, marked by the emergence of urban industrial capitalists, a new middle class, and a strong central state; and conservative in the sense that policymaking continued to be a top-down process of elite definition and negotiation, despite Vargas's frequent manipulation of nationalist sentiment and populist imagery. 35 Although the army eventually removed Vargas from office, the military was a key partner for most of the 1930-1945 period. As Skidmore suggests, the army high command's goal—a "strong army within a strong state"—converged with Vargas's own ambitions. 36 The revolt of 1930 produced an accelerated turnover of the officer corps, with rapid advancement for junior officers who had supported Vargas. Badly polarized by the internal and external disorder of the 1920s, army hierarchy and discipline were restored to some extent after the failed Sao Paulo counterrevolt in 1932 led to expulsion of 10 percent of the officer corps. 37 In 1935, an insurrection triggered by a left-wing National Liberation Alliance (ANL) including the Brazilian Communist Party (PCB) further unified the military and pushed it closer to the Vargas government. 38 The link was cemented with the elevation of two Vargas allies: Generals Goes Monteiro to army chief of staff and General Dutra to minister of war. 39 The insurrection also yielded military-backed revisions to the National Security Law and to the Constitution. A National Security Tribunal was formed, and the constitution was amended to allow the president to declare a state of emergency and purge "subversives" from the ranks of the civilian bureaucracy and the military. 40 These changes proved to be precursors to Vargas's seizure of broader powers with military backing in 1937. As Camargo describes the goals underlying the Estado Novo:

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27

The strategic objective . . . was to strengthen the power of the state and rationalize the decisions of the government, thus reducing the extreme fragmentation of the political system, which was ineffective and formally controlled by the power of the states. . . . It would be difficult to accomplish these goals through the old regional alliances, the parties, the Congress, or the prevailing institutional system. It was necessary to disarticulate the institutional system in order to promote reorganization of the state, and to urge on the process of state-building—rearticulating alliances, redefining actors, inflating the power of some and deflating that of others. 41

The military, and the army in particular, would be among the principal actors thus "inflated." In addition to being the power that guaranteed the continuation of the Estado Novo, the military took on a new and important role in the planning commissions, bureaucracies, and other organs of the state emerging during this period. 42 Along with growing organizational cohesion and bureaucratic involvement, the 1930s saw the military articulating a vision of a modern, industrialized Brazil. The increasingly loud, clear, and unified voice that emerged was a precursor to the so-called security-and-development ideology of the 1950s (discussed below). Three central components stand out in military discourse during this period. The first was a growing self-image of the armed forces as a national institution above partisan politics, with an expansive role to play in the political and social life of the nation. 43 A second, related theme emphasized the inextricable coupling between national security and economic development. Security, given its broad economic, political, social, and even psychological components, was contingent on development; and development in turn required shielding the nation from external threats and internal subversion. The final component was a brand of economic nationalism, emphasizing strong state leadership and the need to implant basic industries. One early articulator of this vision was General Goes Monteiro, military chief of the 1930 revolt and later army chief of staff and minister of war. He described the army as an essentially political organ. . . . General policy, economic policy, industrial and agricultural policy, the system of communications, international policy, all the branches of activity, production, and collective existence, including the instruction and education of the people, the political-social regime—all ultimately affect the military policy of the country. . . . The policy of the Army is war preparation, and this preparation interests and involves all the manifestations and activities of national life, in the material realm . . . and in the moral realm. 44

These expansive notions of security, development, and the armed forces' role in national life were by no means unique to Brazil. And as McCann

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Manufacturing Insecurity

points out, many of these basic ideas had been articulated in Brazilian military circles prior to World War I. 45 The significance of the 1930s was the sociopolitical context within which these ideas flourished. An increasingly cohesive officer corps strengthened its political ties to a restructured civilian elite, representing interests far more compatible with those of the military than had been the case historically. The military's ascendant political influence translated into growing budgets, and the imposed stability of the Estado Novo allowed a shift in attention to reequipment needs. 46 A full-fledged program for nationalization of defense production emerged in this period. But growing industrial capacity and a strengthened political position from which to pursue goals of nationalization did not translate immediately into military-industrial growth. Shortages of financing and skilled personnel continued to plague defense production, and reliance on foreign suppliers remained the norm for heavier equipment in the 1930s. The government concluded agreements with a number of foreign suppliers in the latter part of the decade, including a major purchase of U.S. civilian and military aircraft, a contract for three British destroyers, and a five-year, $100 million arms pact with Germany as part of a reciprocal trade agreement. 47 Some important precursors to expanded domestic production were also being established, however. Three new war materiel plants were initiated in 1933. 48 Army aviation began assembling Brazilian-designed planes featuring U.S. engines, while the navy began assembling Focke Wulf training planes with German technical assistance in 1936.49 The Ministry of Transportation established an aircraft assembly plant at Lagoa Santa in Minas Gerais in the late 1930s; this facility passed to the fledgling Brazilian Air Force with the formation of the Ministry of Aeronautics in 1941. Naval ship construction also resumed during the latter part of the 1930s; the Rio shipyards launched a monitor and six minesweepers, and began to assemble three U.S.-designed destroyers. 50 World War II accelerated the trend toward domestic production, increasing both financial support for, and political pressure on, national industry to respond to surging demand. Assembly of U.S.-manufactured planes (including Fairchild PT-19B Cornell trainers and T-6 Texans) was begun at Lagoa Santa on a cost-plus, profit-guaranteed basis. 51 By the end of the war, planes were being assembled at the rate of one per day. 52 A national engine factory was also established, and output from the war materiel plants reached a new high. 53 American refusal to share sonar technology for tracking German submarines led to a crash development program that marked the onset of collaboration among the navy, the University of Sao Paulo, and Brazil's small but capable physics community. 54 This collaborative effort helped lay the foundation for the navy's subsequent efforts in nuclear technology and microelectronics.

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29

The Return of Competitive Politics In 1945 Vargas, increasingly at odds with his former military backers, was forced from power by the army high command on the eve of a presidential election featuring two military candidates. Vargas's successor, General Eurico Dutra, flirted with orthodox liberalism, but then returned to the proindustrialization policies of his predecessor, including exchange controls, import restrictions, and subsidized credit. 55 These policies were continued for most of the next fifteen years, which included Vargas's elected return to power (1951-1954), a brief period of economic orthodoxy under Vargas's successor Café Filho (1954-1955), and the resumption of aggressively proindustrial policies during the presidency of Juscelino Kubitschek (1956-1960). Not all issues of economic policy enjoyed a broad consensus among elites during this era, as reflected in bitter debates on the role of foreign capital in the petroleum and mineral industries. But the growing economic and political strength of industrial capitalists and urban labor—a coalition first cultivated by Vargas in the 1930s—had produced a definitive shift in the political balance. Policies stimulating the development and expansion of basic industries continued. As part of Brazil's reward for entering World War II, the U.S. ExportImport Bank financed construction of a modern steelworks at Volta Redonda. 56 The mill, which began production in 1946, accounted for 49 percent of the 700,000-ton national output of finished steel by 1951, and provided a new capacity for heavy and specialized steel. 57 The state-owned oil company Petrobras was founded in 1953, and the Brazilian auto industry was established with foreign capital soon thereafter. The petroleum and auto industries in turn stimulated the development and growth of supplier industries in electrical equipment, machine tools, and steel, and also enhanced growth in the engineering and skilled technical-labor force. 58 Another important development during this era was the emergence of planning as a central instrument of economic policy (a trend that would peak during military rule in the 1970s). Key steps included the joint U.S.-Brazil Economic Development Commission (1951-1953), the five-year plan of Finance Minister Horatio Lafer (1951), and formation of the National Bank for Economic Development to coordinate strategic investment (1952). 59 In terms of military politics, the 1950s saw consolidation of the technocratic role that had emerged during the Estado Novo. 60 At the same time, political trends were producing a growing apprehension within the officer corps. The trajectory of conservative, modernizing industrialization took on increasingly populist overtones in Vargas's final years, and by the end of the 1950s a decaying cross-class coalition gave way to accelerating left-right political polarization. 61 These developments were increasingly out

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of step with the elite, nonparticipatory ideology of national progress that held majority sway within the officer corps. The military's increasingly technocratic tendencies and its enduring antipopulist sentiment were both reflected in the Escola Superior de Guerra (ESG). Founded as a war college in 1949, the ESG quickly emerged as the focal point for the development of military doctrine. The main tenets of the ESG's self-labeled discourse on seguranga e desenvolvimento (security and development)—that security and development were mutually determining, that there existed "permanent national objectives" outside the realm of political bargaining, and that adverse material conditions and "cultural delay" were threats to national security properly understood—bore a strong resemblance to earlier trends in military thought. 62 Markoff and Baretta, for example, link security-and-development ideology to the notions of "order and progress" that emerged in the latter part of the nineteenth century: What is Seguranga e Desenvolvimento after all but a variation on Ordem e Progresso [Order and Progress]? The slogan of the ESG is simply an updated version of the old Positivist catch-phrase, another version of the search for a dramatic formula for modernization without mass involvement, with order (or security) enjoying pride of place. 63

The significance of the ESG lies less in what it said than in what it represented: a first attempt at interservice communication on matters of military doctrine, and an effort to engage the civilian elites attending its courses and lectures in dialogue, albeit dialogue on the military's terms. 64 There were some new wrinkles in the ESG discourse, including the Cold War-induced concept of "total war" and greater attention to the notion of strategic planning. One enhanced theme directly relevant to defense production was growing emphasis on the technological variable. While one can only speculate on the source of this heightened emphasis, plausible factors include the experience of the expeditionary force that fought in Italy during World War II, as well as the reinforcing effects of internal lobbying by the growing cadre of technically trained personnel in each service. The air force, for example, formed in the midst of the "victory through air power" mentality of the early 1940s, had a strong technological orientation from its inception, and established a technical school for the training of aeronautical engineers almost immediately. These personnel in turn formed an important lobby for subsequent aeronautics and aerospace development programs. 65 Whatever the impetus, the 1950s marked the beginnings of a national science and technology policy, with the armed forces playing a leading role. The foundations for the modern military R&D system of both the air force and navy were established during this period, and the navy took an

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active lead in stimulating national nuclear-energy and electronics programs after World War II. The National Research Council (CNPq) was founded in 1951, largely through the efforts of Admiral Alvaro Alberto da Mota e Silva, to consolidate state control of nuclear activities. CNPq would later evolve into a broader organ of support for science and technology. 66 Other important developments during this period were the Executive Group for Computer Applications (GEAC) and the Organizing Group for the National Space Activities Commission (GOCNAE). GEAC was a mixed military-civilian group under the direction of Roberto Campos, who would become Planning Minister in the post-1964 military regime, while GOCNAE provided an administrative link between the National Research Council and the fledgling rocketry activities of the air force's Aeronautics Technological Center. Ambitious defense production plans also emerged after the war. The U.S. government transferred production lines for the small arms received during the war through the Lend-Lease Program. 67 With American assistance, the navy established an artillery factory and torpedo factory. 68 By the 1950s the services had adopted policies favoring domestic procurement whenever possible, and postwar contracts with European arms suppliers included technology-transfer provisions meant to increase the nationalization of production. 69 Conditions in the global arms economy would undermine these ambitions, however. American-made weapons systems continued to flow to Brazil under the Military Assistance Program (MAP), undermining the military's plans to invest in domestic production. The famine that followed the feast was equally disruptive: U.S. mobilization for the Korean conflict made it difficult to obtain production machinery and equipment internationally, repeating the pattern established by the two world wars. 70 Domestic barriers also emerged. The goal of importing complete defense factories during this period was largely thwarted; Hilton speculates that the principal obstacle was the reluctance of Brazilian private capital to participate. 71 Military budgets also failed to keep pace with growth in overall spending during this period, falling from 15.1 percent of government expenditures in 1952 to 5.7 percent in 1964. 72 By the early 1960s, Brazil's industrial infrastructure was increasingly in line with what was needed to undertake meaningful defense-sector expansion. The missing ingredients— sustained access to foreign technology and strong state actions to guarantee markets and attract investment—awaited future developments.

Interpreting Military-Industrial History Some enduring barriers to military-industrial expansion can be seen in this brief historical sketch: a chronic lack of investment capital and skilled

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labor, severe infrastructural limits, and the absence of supplier industries. Key twentieth-century economic developments, including the expansion and internationalization of Brazilian industry, the growth of crucial sectors (steel, autos, petrochemicals), and the emergence of an infrastructure for research and development, helped to lessen these barriers. But the historical relationship between defense-sector growth and Brazil's overall industrialization is not a simple correlation; there have been periods when military-industrial expansion moved ahead of the broader pace of industrialization, and other periods when it lagged behind the emergence of civilian production capabilities. Within the long-term secular trend toward greater military-industrial capabilities are significant oscillations between growth and stagnation. Some of the most important factors shaping these swings have been political: the availability of political allies with which the military could unite in pursuing its developmentalist agenda, the willingness or reluctance of the state to intervene in promoting industrial development, and the penetration of the state bureaucracy by the armed forces. In the twentieth century, two developments foreshadowed post-1964 military-industrial expansion. First, as domestic production of major weapons systems became a real possibility, the fate of military-industrial development became increasingly intertwined with the availability of foreign technology and financing. Second, the defense sector's boom-andbust cycles became compressed, as its fortunes became caught up in the deepening political turmoil and rapid economic changes engulfing Brazil.

Notes 1. In recounting this history, I draw heavily on John D. Wirth, The Politics of Brazilian Development 1930-1954 (Stanford, CA: Stanford University Press, 1970); Edmundo Campos Coelho, Em Busca da Identidade: O Exército na Sociedade Brasileira (Rio de Janeiro: Forense Universitária, 1976); Frank D. McCann, "The Brazilian Army and the Pursuit of Arms Independence, 1899-1979," in B.F. Cooling, ed., War, Business and World Military Industrial Complexes (Port Washington, NY: Kennikat Press, 1981); Stanley E. Hilton, "The Armed Forces and Industrialists in Modern Brazil: The Drive for Military Autonomy (1889-1954)," Hispanic American Historical Review 62 no. 4 (November 1982): pp. 629-673; and Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliagáo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 2. Dagnino, A industria de armamentos brasileira, p. 126. 3. Roberto Pereira, "A Natureza Política da Produ$áo de Armamentos no Brasil," in Eliézer Rizzo de Oliveira, ed., Militares: Pensamento e Agáo Política (Campinas, Brazil: Papirus, 1987). 4. Alexandre Barros, "O Modelo da Indùstria Bélica Brasileira: Historia e Imp l i c a r e s , " in Oliveira, ed., Militares: Pensamento e Agáo Política.

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5. Richard Graham, Britain and the Onset of Modernization in Brazil, 1850-1914 (New York: Cambridge University Press, 1968); Riordan Roett, Brazil: Politics in a Patrimonial Society (New York: Praeger, 1984). 6. Roett reports that the Guarda Nacional mobilized some 200,000 "free men" in its early years, at a time when the regular army numbered roughly 5,000. See Roett, Brazil: Politics in a Patrimonial Society, p. 27. See also William S. Dudley, "Professionalization and the Brazilian Military in the Late Nineteenth Century," in Brian Loveman and Thomas Davies Jr., eds., The Politics of Anti-Politics: The Military in Latin America (Lincoln: University of Nebraska Press, 1978). 7. Wilma Peres Costa, "Os militares e a primeira Constituido da República," in J. Quartim de Moraes, W. Peres Costa, and E. Rizzo de Oliveira, A Tutela Militar (Säo Paulo: Vertice, 1987). 8. Dagnino, A industria de armamentos brasileira, p. 243; see also Armando A.F. Vidigal, A Evolugäo do Pensamento Estratégico Naval Brasileiro (Rio de Janeiro: Biblioteca do Exército Editora, 1985). 9. Costa, "Os militares"; Dudley, "Professionalization and the Brazilian Military." 10. Costa, "Os militares." 11. The Old Republic should not be confused with the so-called New Republic, the label given to the civilian regime created in the wake of the military's most recent withdrawal from power in 1985. 12. Costa, "Os militares." 13. Ronald M. Schneider, Order and Progress: A Political History of Brazil (Boulder, CO: Westview Press, 1991): p. 52; Roett, Brazil: Politics in a Patrimonial Society. 14. Vidigal, A Evolugäo do Pensamento; Peter Lock, "Brazil: Arms for Export," in Michael Brzoska and Thomas Ohlson, eds., Arms Production in the Third World (London: Taylor and Francis, 1986). 15. Vidigal, A Evolugäo do Pensamento; Domingos Ferreira, "The Navy of Brazil: An Emerging Power at Sea," Issue Paper No. 83-1, National Defense University, Washington, DC, 1983. 16. Hilton, "The Armed Forces and Industrialists in Modern Brazil"; McCann, "The Brazilian Army." 17. Hilton, "The Armed Forces and Industrialists in Modern Brazil," p. 640. 18. Coelho, Em Busca de Identidade, pp. 52,72. 19. A classic account is provided by Euclides da Cunha in Os Sertöes, a history of the Canudos affair published in English under the title Rebellion in the Backlands (Chicago: University of Chicago Press, 1944). See also the account of the Contestado campaign in Frank D. McCann, "The Formative Period of Twentieth-Century Brazilian Army Thought," Hispanic American Historical Review 64 no. 4 (November 1984): p. 752. 20. The corps grew from 1,904 officers in 1892 to 5,016 in 1927, with captains and first and second lieutenants comprising 87 percent of the total by the end of this period (Coelho, Em Busca de Identidade, p. 73). 21. Coelho, Em Busca de Identidade; Costa, "Os militares"; Schneider, Order and Progress. 22. Glauco Carneiro, Historia das Revolugöes Brasileiras (Rio de Janeiro: Editora Record, 1989). 23. Hilton, "The Armed Forces and Industrialists in Modern Brazil"; Coelho, Em Busca de Identidade. 24. McCann, "The Brazilian Army." 25. Hilton, "The Armed Forces and Industrialists in Modern Brazil," p. 639.

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26. Hilton, "The Armed Forces and Industrialists in Modern Brazil"; McCann, "The Brazilian Army." 27. Hilton reports that production of finished cartridges at the Realengo facility increased from half a million in 1900 to six million in 1914, far short of the goal of 45 million. See Hilton, "The Armed Forces and Industrialists in Modern Brazil," p. 639. 28. Dagnino, A indùstria de armamentos brasileira. 29. Hilton, "The Armed Forces and Industrialists in Modern Brazil," p. 644. 30. McCann, "The Brazilian Army." 31. Wirth, The Politics of Brazilian Development, p. 12. 32. Manuel Castells, Lisa Bornstein, Katharyne Mitchell, Rebecca Skinner, and Jay Stowsky, "The State and High Technology," Working Paper 37, Berkeley Roundtable on the International Economy, University of California, Berkeley, 1988. 33. Thomas Skidmore, Politics in Brazil 1930-1964: An Experiment in Democracy (New York: Oxford University Press, 1967). 34. Eli Diniz, "The Post-1930 Industrial Elite," in Michael Conniff and Frank D. McCann, eds., Modern Brazil: Elites and Masses in Historical Perspective (Lincoln: University of Nebraska Press, 1989). 35. Skidmore, Politics in Brazil 1930-1964; Wirth, The Politics of Brazilian Development; Diniz, "The Post-1930 Industrial Elite"; Aspásia Camargo, Dulce Chaves Pandolfi, Eduardo Rodrigues Gomes, Maria Celina Soares D'Araújo, and Mario Grynszpan, O Golpe Silencioso: As Origens da República Corporativa (Rio de Janeiro: Rio Fundo Editora, 1989). 36. Skidmore, Politics in Brazil 1930-1964, p. 26. 37. José Murilo de Carvalho, "Armed Forces and Politics in Brazil, 19301945," Hispanic American Historical Review 62 no. 2 (May 1982): p. 208. 38. Camargo et al., O Golpe Silencioso. 39. Skidmore, Politics in Brazil 1930-1964, p. 26. 40. Camargo et al., O Golpe Silencioso, p. 58. 41. Ibid., p. 12; my translation. 42. Wirth, The Politics of Brazilian Development; Carvalho, "Armed Forces and Politics in Brazil"; for a dissenting view, see Stanley E. Hilton, "Military Influence on Brazilian Economic Policy, 1930-1945: A Different View," Hispanic American Historical Review 53 no. 1 (February 1973): pp. 71-94. 43. The apparent contradiction between expansive notions of the army's political role and the growing emphasis on military professionalism has been subject to at least two explanations. Coelho cites a widespread historical belief that military abstention from politics produced a subordination to civilian elites, harmful to the military as a professional institution (Coelho, Em Busca de Identidade, pp. 80-81). Carvalho describes an implicit bargain between separate "professional" and "interventionist" wings of the army, preserving elements of both, in what he describes as an emergent ideology of "conservative interventionism." See Carvalho, "Armed Forces and Politics in Brazil." 44. Pedro Aurelio de Goes Monteiro, A Revolugäo de 30 e a Finalidade Política do Exército (Rio de Janeiro: Aderson Editores, 1934): pp. 133, 163; cited in Coelho, Em Busca da Identidade, p. 103; my translation. 45. In 1917, for example, the army journal A Defesa Nacional voiced the idea that the state should establish a national steel industry; see McCann, "The Formative Period," p. 760. 46. Defense spending as a percentage of the federal budget increased from less than 20 percent during 1929-1931 to an average of 27.2 percent during

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1932-1940, and 32.7 percent during 1941-1946. Calculated from Carvalho, "Armed Forces and Politics in Brazil," p. 212. 47. Hilton, "The Armed Forces and Industrialists in Modern Brazil"; McCann, "The Brazilian Army." 48. Hilton, "The Armed Forces and Industrialists in Modern Brazil," p. 654. 49. Ibid., p. 655. 50. Ibid. 51. Hilton, "The Armed Forces and Industrialists in Modern Brazil," pp. 661-662; David Godfrey, "The Rise of Embraer," The Putnam Aeronautical Review (December 1989, reprint). 52. Mario B. de M. Vinagre, "Embraer: A Brazilian Aerospace Success Story," lecture at the National Air and Space Museum, Smithsonian Institution, Washington, DC, October 12, 1989. 53. Hilton, "The Armed Forces and Industrialists in Modern Brazil," pp. 662-663. 54. Simon Schwartzman, "Science and Higher Education in Brazil: An Historical View," Working Paper 8, Wilson Center Latin American Program, Washington, DC, 1979, p. 15. 55. Skidmore, Politics in Brazil 1930-1964. 56. Schneider, Order and Progress, p. 149. 57. U.N. Economic Commission for Latin America, A Study of the Iron and Steel Industry in Latin America (New York: UN Department of Economic Affairs, 1954). 58. Skidmore reports high growth rates for several key industrial sectors over the period 1955-1961: steel, 100 percent; mechanical industries, 125 percent; electrical and communications industries, 380 percent; transportation equipment industries, 600 percent; and overall industrial growth, 80 percent. See Skidmore, Politics in Brazil 1930-1964, p. 164. 59. On these institutions see Skidmore, Politics in Brazil 1930-1964, pp. 93-100. On the historical growth of planning in economic policy, see Roberto Cavalcanti de Albuquerque, "A Experiencia Brasileira de Planejamento," Revista da Escola Superior de Guerra 3 no. 7 (October 1986): pp. 89-100. 60. Wirth, The Politics of Brazilian Development. 61. Paul Cammack, "Redemocratization and the Lessons of Populism," in Geert Banck and Kees Koonings, eds., Social Change in Contemporary Brazil (Providence, RI: FORIS Publications, 1988). 62. Stepan has argued that the 1950s marked an ideological shift within the military to a "new professionalism" of increasing political intervention, caused by changing patterns of professional socialization. He cites the importance of ESG doctrinal activity, as both a reflection of and a contribution to the new professionalism. See Alfred Stepan, The Military in Politics: Changing Patterns in Brazil (Princeton, NJ: Princeton University Press, 1971). Markoff and Baretta reject this view, stressing several considerations: the ambiguity of the role played by the ESG; the continuity between ESG doctrine and earlier currents of military thought; the failure of Stepan's "moderator model" to explain patterns of military intervention; and Stepan's failure to demonstrate the binding nature of ideology in shaping military behavior. They conclude "that there was probably less that was new in the officers' world-view than Stepan believes, that probably less of the ideational structure actually constrained behavior, and that the role of professional socialization (as opposed to the reaction to an immediate sense of crisis) in shaping that view is not obvious." See John Markoff and Silvio R. Duncan Baretta, "Professional Ideology and Military Activism in Brazil: Critique of a Thesis of Alfred

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Manufacturing

Insecurity

Stepan," Comparative Politics 17 (1985): pp. 175-191. McCann shows that many of the basic ideas stressed in later periods were already being articulated prior to World War I; see McCann, "The Formative Period." On continuity between the 1950s and earlier periods, see also Coelho, Em Busca de Identidades Carvalho, "Armed Forces and Politics in Brazil"; Frank D. McCann, "Origins of the 'New Professionalism' of the Brazilian Military," Journal of Interamerican Studies and World Affairs 21 no. 4 (November 1979): pp. 505-522. 63. Markoff and Baretta, "Professional Ideology and Military Activism," p. 181. 64. See Alexandre Barros, "Problemas de transigo democrática na frente militar: a definÌ9ào do papel dos militares, a mudanza da doutrina e a moderniza§ào do país," Politica e Estrategia 6 no. 2 (April-June 1988): pp. 206-214. 65. Eduardo Augusto Guimaraes, José Tavares de Araujo Jr., and Fabio Erber, A Política Científica e Tecnológica (Rio de Janeiro: Jorge Zahar Editor, 1985). 66. Odete Maria de Oliveira, A Questäo Nuclear Brasileira: Um Jogo de Mandos e Desmandos (Florianópolis, Brazil: Editora da Universidade Federal de Santa Catarina, 1989). 67. McCann, "The Brazilian Army," p. 186. 68. Vidigal, A Evolugäo do Pensamento, p. 116. 69. Contracts signed during this period included the purchase of Belgian semiautomatic rifles, Japanese and Dutch shipbuilding contracts, an agreement with Bofors of Sweden to supply antiaircraft guns, and an agreement with Alfa Romeo to supply trucks. See Hilton, "The Armed Forces and Industrialists in Modern Brazil," pp. 665-666. 70. See Hilton, "The Armed Forces and Industrialists in Modern Brazil," p. 665. 71. Hilton, "The Armed Forces and Industrialists in Modern Brazil." 72. Coelho, Em Busca de Identidade, p. 135.

Part 1 : The Rise

3 The Rise of the Modern Military-Industrial Sector

In April of 1964, the Brazilian military seized power in a coup against president Joao Goulart. 1 The coup, which ushered in two decades of military rule, also marked the birth of Brazil's modern military-industrial sector. The 1964 edition of the U.S. Army's area handbook for Brazil, published just before the coup, summarized the state of Brazilian armsproduction capabilities as follows: The army has locally produced small arms; a moderate amount of United States ordnance material of World War II vintage, largely obtained through the Military Assistance Program; and a considerable amount of outmoded European equipment. . . . At present, local production is limited to quantities of small arms and lesser amounts of recoilless rifles, antiaircraft guns and mortars. 2

The contrast between this statement and the level of defense industrialization when the military withdrew from power two decades later is extraordinary. Before turning to the political and economic forces driving growth, this chapter paints a detailed portrait of military-industrial activity at its peak in the late 1980s. 3 The chapter begins with an overview of the military R & D system, and then examines the structure of key military industries. The picture that emerges is of a defense sector with a penchant for state-led growth, limited links to civilian activities, a blurred division of labor between public and private actors, a highly commercial logic governing production choices, and pragmatic but consistently forward-looking choices on the direction of technological development.

Military Research and Development By the mid-1980s, each branch of the armed forces had established a substantial network of research institutes, testing centers, and affiliated firms

39

40

The Rise

for the purposes of military R&D. The preexisting research complexes of the navy and air force were expanded substantially during the 1970s. The army, after decades of inattention, began to organize itself seriously for technology development in the 1980s. The three service branches followed distinct paths in building and organizing an R&D infrastructure. These differences were partly a product of the specific R&D tasks undertaken by each service. For example, the navy and air force pursued different forms of uranium-enrichment technology, implying different infrastructural and organizational requirements. But the differences were also a product of the services' differing political and cultural histories, and the prevailing political and economic conditions when particular organizations were created.

Air Force From its birth in 1941, the Brazilian Air Force placed a consistently high priority on research and development. Two defining features of air force R&D can be traced from the creation of an engineering school after World War II, through the formation of the aircraft firm Embraer in 1969, to the high-tech initiatives in aeronautics and aerospace of the 1980s. These features are emphasis on the development of skilled personnel and a pragmatic technological approach stressing long-term learning and the commercial viability of a domestic aeronautics industry over short-term military needs. Consistent with the latter emphasis is the fact that air force R&D has never been limited to military aeronautics, narrowly defined. It was the air force, for example, that designed the alcohol-burning engine for the government's alternative-fuels program for automobiles in the wake of oil price increases in the 1970s. The cornerstone of this model, the Aeronautics Technological Center (CTA, later renamed the Aerospace Technical Center), was founded in 1954 in Sào José dos Campos. Until a 1990 reorganization, CTA consisted of three core research units. The Research and Development Institute (IPD) served as the locus of a broad range of basic and applied aeronautics research, with divisions of aeronautics, mechanics, electronics, and materials. In the 1960s, IPD designed the Bandeirante, the plane responsible for the initial success of the state-owned aircraft firm Embraer. The Space Activities Institute (IAE) was involved in basic research with potential space applications, and has been responsible for the VLS project, an effort to design and build a satellite-launch vehicle. Saraiva lists the principal areas of IAE activity as aerodynamics, automation, electronics, metallic structures, materials, manufacturing processes, precision mechanics, propulsion, chemistry, applied meteorology, atmospheric physics, and ionospheric studies. 4 The Institute for Advanced Studies (IEAv), founded in 1982, has historically been the most secretive of CTA's research units, with only very

The Modern Military-Industrial Sector

41

general accounts of its activities available publicly. A 1983 IEAv document listed research activities that included the development of lasers, fastreactor technology, a linear accelerator, and laser fusion. 5 Principal efforts appear to have focused on the development of inertial platforms and guidance systems for the rocketry program, and on laser-related research with intended applications for uranium enrichment. The institute also designed a flight simulator for Embraer's military trainer aircraft, the Tucano, and has done work on developing small-scale aeronautic turbines. In 1982 the Brazilian Society for the Advancement of Science (SBPC) made a public denunciation of the IEAv's military nuclear activities, which the air force would not officially acknowledge. 6 But a 1990 meeting of an interministerial working group on nuclear policy implicitly acknowledged IEAv's uranium-enrichment program, recommending that the institute's molecular line of research on uranium enrichment be decommissioned by 1993 and that vapor-atomic research continue. CTA has also been the home of the air force's engineering college, the Aeronautics Technological Institute (ITA). ITA was founded in 1946 and began operation in 1950, only a few years after the formation of the air force itself and more than two decades before the creation of the state aircraft firm Embraer. This reflected both the priority attached to training skilled labor and the long-range time horizon of air force R&D. Patterned after the aeronautical engineering program at the Massachusetts Institute of Technology (MIT), ITA represented the introduction of the North American university system in Brazil, including semesters, annual curriculum revision, curricular control at the university level, and independence from the Ministry of Education. ITA's first four rectors included three professors from MIT and one from the University of Maryland. ITA began as an undergraduate institution, with master's (1961) and doctoral (1968) programs added later. Only about 12 percent of both undergraduate and master's degree recipients in ITA's first three decades were military personnel. The faculty has also been composed of a mix of civilian and military instructors. In addition to their teaching responsibilities, ITA faculty have traditionally taken part in CTA research projects, principally in basic research. ITA's historical influence within the aeronautics industry cannot be overstated. In 1990, when the state aeronautics firm Embraer was at its peak level of employment, ITA graduates represented 40 percent of the firm's 1,200 engineers, more than half of its fifty managers, and five of its six directors. 7 In addition to its R&D and training activities, CTA coordinated technology transfer to the emerging aeronautics industry through its Institute of Industrial Coordination and Promotion (IFI), formed in the early 1970s. Through accords with the National Bank for Economic and Social Development (BNDES), IFI played an important role in forming some of the

42

The Bise

subsidiary firms of the aeronautics sector.8 As Embraer and the aeronautics industry matured, and as import substitution ceased to be the predominant model of economic development, IFI's role shifted in the 1980s to emphasize the certification of Embraer aircraft. These basic elements of the CTA model were retained as the air force shifted its emphasis from aeronautics to space-related R&D in the 1980s. In 1990 two of the three research units, the Research and Development Institute (IPD) and the Space Activities Institute (IAE), were merged to form the Aeronautics and Space Institute (retaining the acronym IAE). ITA also shifted its curriculum to reflect the growing emphasis on rocketry and space applications. Army The army shared the air force's tendency toward organizational centralization in R&D. But the army's technological focus was almost exactly the opposite of the air force's broad emphasis on industrial capacitation. A far narrower view prevailed, stressing the development of immediately useful technological capabilities. The army was also the last service to pay serious attention to technological capacitation. Although it had been training military engineers since the nineteenth century, its technological activities prior to the 1970s consisted principally of equipment specifications testing. In the 1970s, the army began to implement an organizational scheme for R&D activities that followed the basic institutional design developed two decades earlier by the air force. This meant consolidating R&D activities under the auspices of a single institution, the Army Technological Center (CTEx), a CTA-like organ within the army's Department of Teaching and Research. CTEx absorbed the army's Research and Development Institute (IPD), founded in the early 1970s, as well as the Marambaia equipment testing grounds, created after World War II. CTEx also absorbed the Military Engineering Institute (IME), founded in 1928 and previously known as the Army Technical School. As a source of trained engineers, IME's role paralleled that of the air force's ITA. But IME's curriculum has historically been focused quite narrowly on military engineering. As one Brazilian defense-industry executive stated in an interview, "IME is not an engineering school training army personnel—it is a school of army engineering." IME offers engineering degrees in nine undergraduate concentrations. Master's programs are also offered in chemical, mechanical, and nuclear engineering, materials science, systems and computing, informatics, operations research, transportation, and cartography; the doctorate is offered in chemical engineering and materials science.9 Until recently, civilians could be admitted to IME with no military obligation other than a period of

The Modern Military-Industrial Sector

43

reserve duty. In 1988 this policy was changed to require civilians to commit to a period of active-duty service upon graduation.10 IME graduates enter the army's Corps of Engineers, with most historically being assigned to CTEx. Although the formation of CTEx represented an explicit attempt to recreate the air force's successes with CTA, CTEx to this day has generally not even progressed to the point of being able to perform evaluative testing. Current activities consist principally of acceptance testing (essentially, specifications certification). There have been exceptions, including the effort to develop an antitank missile designed by the Italian firm Oto Melara and the army's nuclear research. Navy Unlike its counterparts, the navy evolved a highly decentralized organizational model for R&D. The navy was also unique among the services in its choice to rely on civilian universities to train its engineers and skilled technicians. In terms of technology development and industrial capacitation, the navy steered a middle course between the air force's quite broad definition of "strategic" activities and the army's far narrower vision. Shipbuilding has a venerable history in Brazil. Both the Naval Arsenal, which forms the core of the navy's production base, and the Naval Engineering Directorate (DEN), which controls naval design, trace their roots to this earlier era. Between the 1950s and the early 1980s, the navy added to these design and production capabilities an R&D framework consisting of three principal organs. The Naval Research Institute (IPqM), founded in 1959, developed and produced cannon, mines, propellants, control systems, and simulators. In recent years, IPqM has reduced its earlier emphasis on production, emphasizing instead R&D in conjunction with several defense-sector firms. IPqM also has a long history of basic marine research; the National Institute of Oceanic Studies (INEM), which reportedly conducts only civilian research, was formerly part of IPqM. The Naval Systems Analysis Center (CASNAV) was founded in 1975 to develop military software and information systems. Projects include tactical simulation and control systems, training systems, and electronic countermeasures equipment. CASNAV has also played an advisory role for the other R&D organs on matters related to software and information systems. The Special Projects Coordinating Center (COPESP) was created to oversee the navy's nuclear R&D programs; its principal activities have included efforts to develop a small-scale pressurized-water reactor for submarine propulsion and ultracentrifuge technology for uranium enrichment. COPESP oversees the Aramar experimental center near Ipero in the state of Sao Paulo, where the navy's uranium enrichment facility is located. Unlike the other services, the navy established its R&D centers in physically dispersed locations. The shipbuilding industry is concentrated

44

The Rise

in the state of Rio de Janeiro, with the Naval Arsenal and DEN located in the heart of the city. IPqM is located on Ilha do Governador, several kilometers from the Naval Arsenal. COPESP is located in Sao Paulo. These organs were also dispersed bureaucratically. COPESP and DEN report to the General Directorate of Naval Material (DGMM), which oversees the Naval Arsenal and functions one level of command below the General Staff. IPqM and CASNAV, in contrast, have reported directly to the General Staff. The task of coordination has historically fallen to a Naval Science and Technology Commission, consisting of the heads of the various organs and reporting directly to the General Staff. Given the relatively small number of senior R&D officials, the traditional mechanism for coordinating activity has been, as one senior official described it, simply "picking up the telephone." Unlike the other services, the navy never developed its own undergraduate- and graduate-level technical training school. There appear to be two reasons for this: a conscious choice to draw civilian participation into military R&D through established university connections, and the close historical link between the navy and the University of Sao Paulo, generally recognized as Brazil's leading university. The navy also broke ranks when it began to accept civilian university graduates for officer's training in the 1970s, in an effort to attract civilians with technical backgrounds. 11 One high-ranking officer in naval R&D estimated that 60 percent of navy personnel with university training were educated in Brazil, although most doctorates have been earned in the United States.

Linkages to Civilian R&D One notable feature of the post-1964 period is the dearth of ties between military R&D and Brazil's civilian science and technology establishment. Ties forged between military and civilian R&D during the post-1964 era were limited to a relative handful of private Brazilian firms, some of the large state-owned enterprises, and a few important university connections. Indeed, by the end of two decades of military rule in 1985, Brazil maintained two largely separate structures for science and technology—one civilian and one military, with the latter in turn splintered into the three service branches. Brazilian universities played little role in the growth of military R&D. There were only a few important exceptions, most notably the continuation of the navy's historical link to the University of Sao Paulo. 12 One reason was political: Although military rule saw dramatic expansion of the public university system, it also saw severe tensions between the regime and much of the academic world, including faculty purges, harassment of leftwing intellectuals, and enduring military suspicion of the universities as centers for leftist organizing activities. 13 A second factor was the changing

The Modern Military-Industrial Sector

45

pattern of federal funding. R&D funds increasingly bypassed the universities in the 1970s, in favor of state-run research institutes and the R&D centers of the larger state-owned firms. By 1981 more than two-thirds of total federal funding for science and technology flowed through this second channel. 14 Although it is difficult to reconstruct figures on the military share of R&D expenditures during military rule, it seems likely that in the immediate postmilitary era of the late 1980s this share was perhaps 20 percent of federal R&D funds (see Appendix A). Although this may seem a relatively small share, note that the federal government has been the principal source of R&D funding in Brazil. The CNPq estimates that the federal budget provided two-thirds of total R&D funding during the 1980s, with the rest coming from state-level R&D funding, private firms, and funds generated by state-owned firms. 15 The weight of military R&D is also seen in the number of skilled individuals employed—an estimated 10,000 at the sector's peak (Appendix A). The Brazilian Ministry of Science and Technology estimated the size of Brazil's "scientific community" to be approximately 50,000 persons, of whom roughly 12,000 have postgraduate degrees. 16 Thus the proportion of skilled human resources absorbed by military R&D is roughly proportional to the share of funding. Like the universities, private-sector firms played only a limited role in the growth of the military R&D establishment during military rule. A relative handful of private-sector firms built close ties to military R&D during the 1970s and early 1980s. Many were groomed by the military and were beneficiaries of a predominantly one-way transfer of technology. The issue of control has been a central military concern historically, helping to explain the limited R&D ties to the private sector. With specific regard to technology development, however, it must also be stressed that most civilian firms during this era had relatively little to offer. In part because of industrial policies that favored imported technology over local R&D, Brazilian industry as a whole undertook only minimal investment in technological modernization. 17 This in turn yielded a private sector that was for the most part unable to participate meaningfully in R&D. As a result, whatever learning and innovation did flow from military R&D was not absorbed extensively by civilian sectors of the economy. As Proen?a suggests, there is little doubt that the high-end technological products achieved by [military-industrial] firms benefited others within the [Brazilian arms industry]. . . . There is doubt as to whether there was such a transfer from military to civilian use. There are cases of civilian factories which acquired a given high-technology capability . . . but no corresponding evidence that such capabilities were ever put into civilian use. It would seem that they form a self-sufficient enclave within each firm, which provides for the [arms industry] exclusively. 1 8

46

The Rise

Comparative Aspects of Military R&D Table 3.1 summarizes the post-1964 military R&D programs of the three services. Principal differences include the degree of centralization of R&D; the extent to which technical education and human resource formation were internalized; the extent, nature, and diversity of private-sector links; and the balance among basic research, applied research, and development. These differences should not divert attention from important similarities. Each service evolved a highly personalistic system in which a few individuals have had enormous influence, often for long periods. No service's R&D activities became subject to meaningful oversight from outside the military command structure. Technology transfer from multinational corporations played an important role in each case. And with the exception of close ties to some of the largest state-owned firms, only minimal links were forged with civilian scientific and technological efforts.

Structure of Military Industries During the 1970s R&D became tied more closely to production, as specific industries grew out of or built bridges to this increasingly institutionalized military R&D establishment. By the mid-1980s sizable industries had emerged in five key areas: aeronautics, armored vehicles, shipbuilding, nuclear technology, and aerospace. At the heart of each industry emerged a small cluster of prime contractors with close ties to a specific service branch. These firms were in turn supported by important transnational linkages, as well as a growing network of domestic supplier firms in metallurgy, electronics, electrical equipment, mechanical equipment, chemical products, and transportation equipment. For the most part, these five segments traced distinct paths of technological development, geared to the needs of a particular weapons system and the institutional character of a particular service branch. These distinct technological paths were accompanied by, and reinforced by, distinct patterns of organization and administration. The various segments were overseen separately, and shared research institutes, firms, and bureaucratic patrons only sporadically. There were of course technologies with multisegment applications, such as composite materials or microelectronics; and there were cases of administrative overlap as well, as in the role of the CTA in both aeronautics and aerospace. But even the nuclear and aerospace segments—which came later, and were grounded in technologies that transcended the traditional interservice division of labor—came to be organized around highly distinct technological paths and administrative structures. What follows is a brief overview of the five principal segments, stressing the pathways of technological development and the forms of

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48

The Rise

industrial organization in each segment; the case-study chapters ( 7 - 1 0 ) provide more detailed discussion and documentation of developments in each segment.

Aeronautics The defining act in the aeronautics industry was the formation of the stateowned firm Embraer in 1969. During its first two decades the firm would produce more than 4,000 aircraft, including military trainers, light attack aircraft, reconnaissance aircraft, civilian and military transport planes, and a range of small aircraft for regional aviation, corporate transportation, and agricultural uses (Table 3.2). Although it produced both civilian and military aircraft from the start, Embraer developed under air force tutelage. The air force controls the Aeronautics Ministry, which in turn held a controlling interest in Embraer until its 1994 privatization. Air force procurement made initial production runs feasible for most Embraer aircraft, and an exceedingly close working relationship prevailed between the firm and air force R&D. Aeronautics showed impressive but uneven technological gains in the 1970s and 1980s. Far greater strides were made in airframe manufacture than in avionics, armaments, and engine development. Embraer pursued an incremental strategy of technology development, with production choices linked as much to identified technological goals as to market prospects or military needs. With each succeeding aircraft, the firm emphasized acquiring and internalizing a few specific capabilities, filling the remaining gaps with imported components. A series of licensing and coproduction agreements with U.S. and Italian firms played an important role in the firm's early development. The 1980s saw Embraer embarking on more ambitious projects. As discussed in Chapter 7, the goal was to develop capabilities in advanced manufacturing techniques, new materials, and avionics, and thereby move beyond the prior formula of attaching components to a basic airframe. In 1980 the firm signed an agreement with the Italian firms Aermacchi and Aeritalia to coproduce the AM-X, a NATO-standard ground-attack aircraft, for the Italian and Brazilian Air Forces. This program led to the technological and industrial capacitation of key supplier firms, manufacturing radar, armaments, fuel tanks, engine components, fire-control systems, and flight simulators, and thereby reducing the aeronautics industry's substantial vertical integration. On the civilian side, in 1985 Embraer began producing the Brasilia, a thirty-passenger, pressurized, turboprop aircraft of Brazilian design. The plane proved highly successful in the civilian export market and filled a military need for transport, coastal patrol, and airborne early-warning and communications systems. The Brasilia provided the base for two more

The Modern Military-Industrial Sector

49

Table 3.2 Embraer Aircraft Plane

Description

Year Entering Series Production

Comments

Xavante

military jet trainer

1971 (terminated in 1983)

built under license from Aermacchi of Italy

Bandeirante

19-seat civilian and military transport

1972 (terminated in 1989)

based on CTA design

Xingu

7-8 seat pressurized turboprop passenger transport

1978 (terminated in 1987)

Tucano

military turboprop trainer

1983

advanced version under development

Brasilia

30-seat pressurized passenger transport

1985

military versions adapted for AWACS and ocean patrol

AM-X

subsonic tactical fighter

1989

coproduced with Italian aerospace industry

Vector

19-seat pressurized passenger transport

prototype stage

coproduction agreement with Argentina, later abandoned

EMB-145

45-50 seat pressurized passenger jet

in development

first deliveries anticipated for 1996

Note: Table excludes light aircraft produced by Embraer general-aviation subsidiary Neiva.

advanced civilian projects: the CBA-123 Vector, a nineteen-seat pressurized turboprop passenger aircraft intended for joint production with the state-owned Argentine aircraft industry; and the EMB-145, a stretched version of the Brasilia that would be Embraer's first passenger jet. Both programs were derailed by Embraer's financial difficulties in the early 1990s, as discussed in Chapter 7. Developing the capability to produce engines, avionics, armaments, and other on-board systems lagged behind airframes. Until the AM-X, all engines for Brazilian aircraft were imported (although the manufacture of aircraft engine parts in Brazil began in the 1970s, sponsored by CTA). 19 Under the AM-X coproduction agreement the firm Celma—at that time a state-owned engine maintenance firm serving the Aeronautics Ministry and private airlines—was assigned 22 percent of the AM-X engine. Celma would produce a total of twelve components for the AM-X engine, under license from Rolls Royce. 20

50

The Rise

Exports were a key to Embraer's early success and rapid growth. Excluding its line of one- and two-seat aircraft for the domestic general-aviation market, Embraer manufactured nearly 1,100 aircraft between 1971 and 1988, and exported almost half of them. 21 But the firm's international orientation brought with it a heavy dependence on imported inputs and a tendency toward growing indebtedness. By the late 1980s the combination of mounting debt and the firm's weak capital base created an economic and political crisis, the result of which was the firm's privatization in 1994. Unlike fixed-wing aircraft, helicopter production in Brazil has been a chronic failure. In 1978 the French firm Aerospatiale and the government of the state of Minas Gerais established the joint-venture firm Helibras to assemble French helicopters under license. The armored-vehicle manufacturer Engesa acquired the government's stake in the firm in 1987. In 1988 the firm won a contract to supply the army with fifty-two helicopters for a mobile battalion. 22 But Helibras suffered from low productivity and its inability to assimilate Aerospatiale technology, and never emerged as the anchor firm in a thriving helicopter industry. In the mid-1980s the air force announced plans to form a state-owned helicopter industry comparable to Embraer, but never followed through. 23 By the late 1980s each service had turned to foreign suppliers for its principal helicopter needs. Notably, helicopter production floundered despite several potential advantages, including relatively simple technology requirements and substantial domestic demand in both civilian and military markets. Interservice rivalry and the lack of a clear military patron proved debilitating.

Armored Vehicles Armored-vehicle production also emerged in the 1970s, organized around two privately owned firms, Engesa and Bernardini. Prior to its financial collapse in the early 1990s, Engesa produced a line of armored vehicles that enjoyed great success in international markets. Founded in 1958 as an oil equipment producer and truck remodeler, Engesa turned to military production in the late 1960s. Bernardini, founded in 1912, manufactured office furniture before entering defense production in the 1960s. In the 1970s Bernardini led the effort to retrofit the army's aging fleet of surplus U.S. vehicles. By the mid-1980s the firm was producing a medium battle tank, armored personnel carriers, jeeps, bridge layers, and rescue vehicles. Several other firms have produced military trucks, jeeps, or personnel carriers in Brazil, including the subsidiaries of Ford, Volkswagen, and Mercedes, and the Brazilian-owned firms Motope^as, Jamy, Gurgel, and Biselli. Brazil's sizable auto industry made available a wide range of components and subsystems. Many auto parts suppliers and subcontractors gravitated toward military production in the 1970s.

The Modern Military-Industrial Sector

51

As in aeronautics, production began with simple, durable, locally designed models. But the armored-vehicle segment then split along two distinct technological paths. Bernardini and the team of firms it coordinated in the military refurbishment contracts of the 1970s followed a more incremental path. These firms began with the overhaul and limited redesign of existing vehicles. This built their capacity to adapt transmissions, engines, and suspension systems from the civilian automotive industry, and taught them to mock-produce, retrofit, or add on a range of military components and subsystems. These skills were then incorporated into a new generation of vehicles such as Bernardini's Tamoyo medium battle tank. Engesa followed a less conventional path. Its strategy was to produce uniquely Brazilian vehicles by adding key innovations of Brazilian origin to an auto industry production base. One such innovation was Engesa's "boomerang" transmission-suspension system, originally developed for oilfield equipment. The system combined a rear-wheel transmission and floating suspension, yielding greatly improved maneuverability and traction for heavy equipment. The second key innovation, developed by the metallurgical firm Eletrometal, was a low-cost process for producing lightweight but durable single-sheet armor. Engesa established its reputation, both nationally and internationally, with simple, rugged vehicles such as the Urutu armored personnel carrier and Cascavel armored car. Both relied heavily on standardized auto parts and components, but also incorporated many innovative design features (Table 3.3). The different technological paths of Engesa and Bernardini had one common feature: Both grew from close institutional ties to the army. In its

Table 3.3 Engesa Vehicles Vehicle

Description

EE-11 Urutu

13-ton, wheel-driven armored personnel carrier; turbo-diesel engine; optional 90-mm cannon; command car, ambulance, antiair, urban patrol, combat, and other versions available

EE-9 Cascavel

14-ton, wheel-driven armored reconnaissance vehicle; turbo-diesel engine; 90-mm cannon; crew of 3

EE-17 Sucuri

heavy (18-ton) wheel-driven armored car; 105-mm cannon; turbo-diesel engine

EE-3 Jararaca

lightweight (6-ton) wheel-driven armored reconnaissance car; lightly armored; crew of 3

EE-T4 Ogum

track-driven, 5-ton multipurpose armored vehicle; combat car, ambulance, and reconnaissance versions available

EE-T1 Osório

42-ton main battle tank; advanced suspension and electronic systems; prototype stage only

Source: Adapted from Armas de Guerra do Brasil (Sao Paulo: Editora Nova Cultural Ltda., 1989).

52

The Rise

early stages, each firm relied heavily on army procurement and other forms of support. By the late 1970s, however, Engesa's vehicles were enjoying great success in the international market. This fueled the firm's rapid growth into a diversified industrial group, with investments in aerospace, electronics, and other industries. Success prompted a bold technological leap, as the firm decided to develop the Osorio main battle tank. The result was an armored-vehicle segment with a split institutional personality. Bernardini remained heavily reliant on the army for design, financing, and technical support, while Engesa adopted a far more independent, internationalized posture.

Shipbuilding Naval shipbuilding has been dominated by the Naval Arsenal of Rio de Janeiro, a facility controlled and operated by the navy. Originally founded in the colonial era, the arsenal fell into obsolescence at the turn of the twentieth century, before undergoing a major overhaul and expansion of facilities in the 1920s and early 1930s. At its peak during World War II, the arsenal employed some 10,000 workers. Key ingredients in the navy's technological and industrial capacity were a series of construction programs involving licensed technology and foreign technical assistance. Military shipbuilding received a major boost with construction of two Niteroi-class frigates under license from Britain, a program begun in 1972. The program led to substantial modernization of the arsenal, whose most modern ship had previously been of 1930s-vintage design. Two programs conceived in the mid-1970s—building Braziliandesigned corvettes with German technical assistance, and building submarines under license from Germany—also contributed to arsenal modernization. Both yielded major gains in installed equipment and boosted the navy's technological capabilities in design and construction. The corvette program, divided between the Naval Arsenal and the private shipyard Verolme, involved a 1,900-ton vessel designed in Brazil by the Naval Engineering Directorate with German technical assistance. The submarine program envisioned a total of four IKL-209-1400 submarines, designed by the German firm Ingenieur Kontor Liibeck. The submarine program was conceived to repeat the basic technology-transfer strategy of the earlier British frigate program. The first submarine was built in Germany, with Brazilian personnel trained on site; the remaining three were scheduled to be built at the Naval Arsenal and finished by the mid-1990s. The program was also seen as a first step toward a Brazilian nuclear submarine, planned for some time early in the twenty-first century. As these programs were germinating during the 1970s, Brazilian commercial shipbuilding also experienced rapid growth, fueled by manufacturing

The Modern Military-Industrial Sector

53

trade and petroleum imports. By the early 1980s Brazilian shipyards were turning out commercial ships at an annual rate of tonnage second only to Japan. 2 4 Most of the larger commercial shipyards—including Caneco, Companhia Comércio e Naviga§áo, Só-Ebin, Verolme, and Ishibras (controlled by Ishikawajima of Japan)—became involved in military construction during this period. The construction of corvettes at the Verolme shipyard was the only major shipbuilding activity entrusted to the private sector, however. The navy remained skeptical of private-sector capabilities and leery of ceding hands-on control. Aerospace Unlike the aeronautics, armored-vehicle, and shipbuilding industries, aerospace has never fallen neatly within the purview of a single service. The principal aerospace policy organ during military rule, the Brazilian Space Activities Commission (COBAE), fell under the control of the Armed Forces General Staff (EMFA), giving each service and several other state organs a voice in aerospace policy. The air force emerged as the lead service, but never consolidated full control. Rocketry quickly emerged as the focal point of air force interest in aerospace technology. The Sonda program, which began in the early 1960s, developed four successive generations of sounding rockets, with each attaining substantial gains in lift and payload compared to its predecessor (see Chapter 8). French and American cooperation played a substantial role in the program's advancement. The Sonda program provided a broad range of experience, from rocket design, advanced materials, and propulsion systems to data processing, sensors, and controls. These skills formed the foundation for the subsequent air force effort to develop what was billed as a satellite-launch vehicle. The program, known as the VLS or Veículo Lan§ador de Satélite, was announced in 1979. The VLS was conceived as a small-scale launcher, relying for the most part on relatively proven technologies and designed to meet less demanding technical specifications. Notable design choices included solidfuel propulsion systems for each stage (as opposed to more efficient but complex liquid-fuel systems) and a relatively simple attitude-control guidance system (as opposed to more advanced inertial guidance). Clearly, the air force sought to apply to aerospace the same institutional model used to develop the aeronautics industry. One key difference was that the technology development programs central to this effort were retained within the air force's Aerospace Technical Center. There was no parallel to the state-owned aircraft firm Embraer as a focal point for industrial development. The logical candidate would have been the privatesector firm Avibrás, an early Sonda program participant. But the firm and the air force grew increasingly distant during the 1970s. Avibrás turned its

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The Rise

attention to artillery rockets and missiles, developing a product line that featured short-range (under 10 km) surface-to-surface launchers and rockets, air-to-surface rockets, aerial and cluster bombs, and aircraft rocket and machine-gun pods. 25 The firm's most successful product was the Astros rocket launcher, a three-vehicle system (launcher, supply truck, and firecontrol unit) that fires 30-, 40-, and 60-km solid-fuel rockets. The fire-control unit was developed with technical assistance from the firm Contraves of Switzerland, and the rockets were based on the firm's Sonda program experience. Entering production in 1983, the Astros quickly became a popular seller in the Middle East, largely due to the Iran-Iraq War. In 1983 the Brazilian Army awarded Avibras a $100 million contract to develop and supply the FILA (Fighting Intruders at Low Altitude) antiaircraft defense system, based on an advanced version of Contraves's Skyguard radar system. 26 The firm grew quickly in the mid-1980s, fueled by Iraqi purchases of Astros systems as well as sales of shorter-range rockets, bombs, and other items. But nonpaying investments and a decline in export sales pushed Avibras into bankruptcy in 1990. Engesa and Embraer, the largest firms in the defense sector, also became involved in aerospace activities. In 1987 the two firms formed a joint aerospace venture named Orbita, which picked up Engesa's Leo (antitank) and Piranha (air-to-air) missile projects, and may have begun design work on mobile tactical missiles. 27 Orbita was intended to anchor the emerging military aerospace industry, but the inability of its increasingly indebted parent firms and the military services to support development projects doomed the venture almost from the start. Although the air force was clearly the lead service in aerospace development, the navy and army also supported development programs for shorter-range missile systems and technologies. In 1986 these various military efforts were nominally consolidated under the coordination of the EMFA. The stated goal was to reduce redundancy, overlap, and duplicative inefficiencies. In practice, however, the various activities remained separate and uncoordinated.

Nuclear During military rule Brazil's nuclear efforts proceeded simultaneously along two paths. An "official" program emerged from a massive 1975 nuclear cooperation agreement with West Germany. An unofficial, "parallel" program also emerged—a secretive effort to overcome obstacles encountered in the official program. The parallel program consisted of technology development efforts being carried out by each of the individual service branches, with little coordination or collaboration. The parallel program, which gained political momentum slowly at first and then rapidly in the

The Modern MUitary-Industrial Sector

55

second half of the 1980s, eventually supplanted the official program as the principal focus of technology development. The 1975 German accords envisioned a massive reactor construction program and the growth of a Brazilian nuclear industry fed by German technology. 28 The German agreement committed Brazil to a developmental path based on the enriched-uranium fuel cycle. The agreement included provisions for each major step in that cycle: uranium mining, uranium enrichment, fuel element fabrication, construction and operation of pressurized-water reactors, and reprocessing of spent reactor fuel. To implement the accord, Nuclebras, the Brazilian state-owned nuclear industry, established joint ventures with German firms for each step in the cycle. Both the uranium-enrichment and fuel-reprocessing components of the agreement caused significant international controversy, given their potential application to produce weapons-grade nuclear material and Brazil's unwillingness to sign the Nuclear Nonproliferation Treaty. Although the agreement fell under provisions of the monitoring system of the International Atomic Energy Agency (IAEA), there have been numerous allegations that skills were diverted from the official program to the military's nuclear R&D programs, which did not fall under the IAEA system (see Chapter 10). In the late 1970s elements within the Brazilian military and the civilian nuclear bureaucracy initiated a number of secret militarily controlled nuclear projects. The National Nuclear Energy Commission (CNEN), marginalized by the German-dominated official program, became an important conduit of technical and financial support for these efforts. Within the parallel program, the navy's activities quickly emerged as the most substantial. In 1980 the navy's Special Projects Coordinating Center (COPESP) formed a restricted-access research area within the Institute for Energy and Nuclear Research (IPEN) on the campus of the University of Sao Paulo. 29 Work began on both reactor design and uranium enrichment. The reactor development efforts focused on small-scale, pressurized-water reactors, ostensibly to power the planned nuclear submarine. Efforts to develop ultracentrifuge enrichment technology were apparently based, at least initially, on 1950s-era European designs. In the mid-1980s the focus of enrichment research shifted to the navy's Aramar experimental facility, located at Ipero in the state of Sao Paulo. In 1990, the navy announced that it had succeeded in enriching uranium to 20 percent U-235. The air force also directed its attention to both reactor design and uranium enrichment at its Institute for Advanced Studies (IEAv) within the Aerospace Technical Center (CTA). 30 Its specific technological foci differed, however; enrichment efforts focused on laser technology, and reactor studies concentrated on fast-breeder technology (said to have possible applications in space or as a remotely located source for generating electricity). An early 1990s congressional inquiry into the parallel program revealed only

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The Rise

limited progress in both areas. The work on laser technology appears to have been halted in the mid-1980s due to the combination of a lack of funding and the death of some leading figures in the program, and the breeder-reactor research effort appears never to have proceeded beyond paper studies. Proposals to fund both laser-enrichment research and breeder-reactor development were included in a 1990 interministerial plan to reorganize Brazilian nuclear policy, however. Less is known about the army's nuclear activities, although that service did adopt a somewhat more open posture on nuclear matters in the early 1990s. At that time the army acknowledged that it was trying to develop a natural-uranium gas-graphite reactor at its CTEx facility in Rio de Janeiro. Reportedly, the CTEx team succeeded in developing a subcritical "atomic pile" for parameter studies; the next step, apparently on hold for lack of funding, would be a research-scale (5-megawatt) reactor based on so-called inherently safe design principles.31 As discussed in Chapter 10, Brazilian nuclear policy underwent complex changes in the early 1990s. Brazil signed an agreement with Argentina and the IAEA on the monitoring and inspection of both countries' nuclear facilities, even as the military's nuclear projects were becoming institutionalized at the core of Brazilian nuclear policy. The Second Tier: Small Arms, Equipment, and Supplier Firms In addition to the various prime contractors discussed above, defense-sector growth also produced a network of some 100 to 150 firms producing small arms, ordnance, military equipment, parts, components, and subsystems.32 Given the sparsity of available data, it is difficult to determine the extent to which the prime contractors and major subcontractors have employed second-tier firms as subcontractors or suppliers. The record also varies substantially by industry: Naval production remained strongly concentrated in facilities owned and operated by the navy, whereas the principal aeronautics contractor Embraer came to rely at its peak on some 600 to 1,000 domestic suppliers (mostly routine suppliers of nonmilitary items).33 In general, however, the boundary of the military-industrial sector remained fairly well defined as the sector grew in the 1980s; it appears that, outside of the main contractors and second-tier suppliers listed above, few Brazilian firms came to depend on defense-related business for a significant portion of their income. In an effort to strengthen their position, several of these firms formed the Brazilian Association of Defense-Material Industries (ABIMDE) in the mid-1980s. ABIMDE described itself as "a non-profit civilian association created for the purpose of bringing together Brazilian firms producing defense materials, from combat cars to uniforms, protecting and promoting

The Modern Military-Industrial Sector

57

their common interests, for the socio-economic betterment of the country." 34 One senior official stated that the organization's purpose was to "regularize" what had been highly "personalistic" links between defense firms and the state. By 1990, ABIMDE membership had grown to include sixty-six firms, including the army's munitions complex Imbel and several of the defense sector's key microelectronics firms. Although most ABIMDE members maintained contracts with all three service branches, most were relatively small firms; only a handful have appeared in the annual list of Brazil's 500 largest industrial firms or among the rankings of the largest firms in their industrial sector. Among the leading defense contractors only Avibràs became an ABIMDE member; Engesa and Embraer refused to participate (although their joint subsidiary Orbita did join in 1989). 35 Although ABIMDE was meant to lobby for its members, it refrained from entering Brazil's most powerful industrial association, the Federation of Industries of the State of Sao Paulo (FIESP). ABIMDE's president stated that it remained outside FIESP to avoid provoking the emergence of a parallel arms industry union. 36

Multinationals The list of foreign firms and multinational corporations that played a role in the development of the Brazilian defense sector reads like a "who's who" of global industry. While most of the important emerging defense producers were either state-controlled (Embraer, Imbel, Naval Arsenal) or private national firms (Engesa, Avibràs, Bernardini), the nuclear, shipbuilding, and helicopter industries included a strong foreign presence, as indicated in Table 3.4. Also, a number of the emerging second-tier supplier firms were subsidiaries of multinationals, particularly in the automotive and microelectronics industries. More important than direct ownership, however, was the role of multinationals and foreign firms as sources of advanced technology through licensing and coproduction agreements, as suppliers of components beyond the production capacity of national industry, and as sources of investment capital for new product lines (see Chapter 4).

Organized Labor and the Military-Industrial Sector Although comprehensive data are lacking, the military-industrial sector appears to have been less extensively unionized than comparable civilian industries in Brazil. In 1988, for example, at the height of sector activity, only 10 percent of Engesa and Avibràs workers were members of the Metalworkers' Union of Sào José dos Campos, the home of both firms. The comparable rate of unionization for other factories in the region was 40 percent. 37 Sector reliance on a somewhat greater percentage of highly skilled labor may account for part of this discrepancy. But union officials

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The Rise

Table 3.4 Multinationals and Foreign Firms in the Brazilian Military-Industrial Sector Firm

Home Country

Nature of Participation

Aeritalia

Italy

AM-X aircraft coproduction with Embraer

Aermacchi

Italy

AM-X aircraft coproduction with Embraer; Xavante aircraft license

Aerospatiale

France

minority ownership in Helibras; helicopter kits and technology transfer

Alcatel

France

satellite construction

Bofors

Sweden

naval armaments; air defense systems

Britanite

Britain

chemical explosives and products

British Aerospace

Britain

missile technology

Cockerill

Belgium

cannon technology license

Collins

United States

communications

Contraves

Switzerland

fire-control systems

Cummins

United States

engines

Dassault-Breguet

France

naval patrol craft modernization with Embraer

Detroit Diesel

United States

engines

Diehl

Germany

Brazilian subsidiary supplies tracks for Osorio tank

Dunlop

Britain

Brazilian subsidiary supplies suspension for

Dupont

United States

chemical products

Ericsson

Sweden

radar systems

Ferrante

Britain

defense electronics

Ferrostaahl Fiat

Germany Italy

submarine construction program Brazilian subsidiary supplies aircraft engine components

Ford

United States

Brazilian subsidiary builds military trucks

Garrett

United States

aircraft engines

General Electric

United States

ship engine turbines

General Motors

United States

Brazilian subsidiary builds engines for military vehicles

GIAT

France

supplies cannon for Osorio tank

HowaldtswerkeDeutsche Werft

Germany

submarine construction program

Ishikawajima

Japan

shipyard owner

Marconi

Britain

Osorio tank program submarine design consulting

Osorio tank

Marinetechnik

Germany

Matra

France

satellite construction

MBB

Germany

Cobra missile license

McDonnell-Douglas

United States

aeronautics

Mercedes-Benz

Germany

Brazilian subsidiary builds military trucks (continues)

The Modern Military-Industrial

Sector

59

Table 3.4 continued Firm

Home Country

Nature of Participation

MWM

Germany

Brazilian subsidiary builds engines for Osôrio tank; naval diesel engines

Northrop

United States

F-5 aircraft coproduction with Embraer

Oerlikon

Switzerland

cannon technology

Oto Melara

Italy

missile technology

Philips

Netherlands

defense electronics

Piper

United States

light aircraft production licenses

Pirelli

Italy

avionics

Plessey

Britain

radar and communications systems; Brazilian subsidiary

Pratt & Whitney

Canada

supplies turbines for Embraer engines

Rediffusion

United States

flight simulator technology

Rheinmetall

Germany

Osôrio tank program

Rolls Royce

Britain

engines for AM-X aircraft

Royal British Ordnance

Britain

Brazilian subsidiary involved in Osôrio tank program

Saab-Scania

Sweden

engines for military vehicles

Sharp

Japan

controls electronics firm SID Informâtica

Siemens

Germany

nuclear technology

Sikorsky

United States

composite materials technology

Spar Aerospace

Canada

satellite construction

Thomson-CSF

France

defense electronics

Toyota

Japan

Brazilian subsidiary supplies parts for military vehicles

Vickers

Britain

technology transfer to Verolme for selfpropelled gun system; Osôrio tank program

Volkswagen

Germany

minority ownership share in Embraer

Vosper Thomycroft

Britain

licensed technology for naval construction

Zahnradfabrik Friedrich

Germany

Brazilian subsidiary builds gearbox for Osôrio tank

Note: Table excludes suppliers of routine parts and components.

also described antiunion tactics on the part of some of the leading defense firms. Such tactics are said to have included restrictions on the circulation of union literature, harassment of union members, and targeted layoffs of workers who chose to join the union. 38 The downturn in sector activity in the late 1980s prompted Engesa, Embraer, and Avibrás to lay off large numbers of workers. This in turn provoked increasing conflict between workers and management. Embraer, for example, fired 242 employees with "hostile attitudes" during a two-day

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The Rise

strike in May of 1988, and four separate strikes caused work stoppages at the firm in 1989.39 The Sào José dos Campos metalworkers union, which in 1988 reported a membership of 25,000 (not all of whom work in military industries), emerged as a strong advocate of conversion to nonmilitary production. Its president stated in 1989 that "we demand diversification as the primary way out of the social crisis which the arms industry's crisis has generated." 40 In March of 1988 the union began publishing a newsletter on the arms industry and economic conversion. The issue of military-industrial conversion was also raised in the 1989 presidential campaign by Luiz Inàcio Lula da Silva, the candidate of the Workers' Party (PT). Lula, the second-leading vote getter among twentytwo candidates and the only major candidate to broach the issue, stated that "the people don't need machine guns, tanks and AMX airplanes. . . . I never saw the army invade a factory to force a boss to pay workers' salaries." He also called for a "wide debate" on the arms industry, the nuclear program, and other favored projects of the military. 41 (Lula modified this tone substantially during his unsuccessful 1994 bid for the presidency, in which he sought to forge a nationalist coalition that included factions within the military.)

The Character of the Post-1964 Defense Sector A precise quantitative picture of military-industrial endeavors in Brazil cannot be drawn. Official data are sparse and contradictory, unofficial estimates cannot be confirmed independently, and both sources are highly politicized. Nevertheless, a rough estimate of the scale of sector activity at its peak can be made. Two decades of military rule built a defense sector that by the late 1980s encompassed 100 to 150 firms, including perhaps 50 dedicated principally to arms production. The sector employed perhaps 50,000 workers in production and roughly 10,000 more in the military R&D establishment. Appendix A discusses the basis for these and related estimates of sector activity. Some important qualitative features of the sector can also be identified. The diverse activities making up the post-1964 military-industrial sector shared several general features: • State-led growth: The state used domestic procurement, financial support, and technology transfer from military R&D to bolster industrial enterprises, producing a defense sector with a strong penchant for state-led growth even as it penetrated growing international markets for medium-tech weapons. • Limited links to civilian activities: The extensive participation of a handful of carefully nurtured civilian firms contrasted sharply with

The Modern Military-Industrial

Sector

61

the minimal involvement of Brazilian science, technology, and industry as a whole. • Blurring of public and private realms: The sector evolved an eclectic mixture of state-owned firms, private firms, and military R&D institutes, with nominally public organs often displaying a strongly entrepreneurial character and nominally private entities closely entwined with the military through relationship ties and financial dependence. • Commercialized production logic: Production choices corresponded to a larger strategic vision, but were highly informed by commercial considerations. • Pragmatic technological choices: Technological autonomy was pursued aggressively and consistently, but with pragmatic attention to market dictates and enduring limitations. The result was an expanding defense sector organized around seemingly contradictory features: core activities reflected, and relied upon, the military's institutional control, even as the structure of production came to reflect international patterns of technology development, financing, and demand.

Notes 1. Janio Quadros was elected president of Brazil in October of 1960 with Goulart as his running mate. Quadros's sudden resignation in August of 1961 provoked a crisis as conservative forces sought to block the prolabor Goulart's ascension to the presidency. Goulart did assume the office of president, but with reduced powers under a parliamentary system until 1963. See Thomas Skidmore, The Politics of Military Rule in Brazil, 1964-85 (New York: Oxford University Press, 1988), chapters 6 and 7. 2. U.S. Army, Area Handbook for Brazil (Washington, DC: Department of the Army, 1964): p. 671. 3. This account has been pieced together from interviews, published and unpublished written accounts of sector activity, and archival materials. I rely in particular on a 1989 report prepared for the CNPq, which remains the most detailed account of the Brazilian military's technological and industrial activities published to date. See José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro, CNPq, July 1989). 4. Saraiva, "O Desenvolvimento Industriai Bélico," p. 350. 5. Luiz Pinguelli Rosa, "Da gènese da bomba à politica nuclear brasileira," in Ricardo Arndt, ed., O Armamentismo e o Brasil: A Guerra Deles (Sào Paulo: Editora Brasiliense, 1985). 6. Saraiva, "O Desenvolvimento Industrial Bélico," p. 350. 7. Interviews with Embraer personnel, 1990. 8. BNDES provided funds through its Fund for Financing the Acquisition of Industrial Machinery and Equipment (FINAME) and Fund for Scientific and Technological Development (FUNTEC).

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9. "IME, o mais difícil concurso do Rio," O Globo (September 11, 1990). 10. Ibid. 11. I am grateful to Wendy Hunter for pointing this out to me. 12. Maldifassi and Abetti draw a different conclusion, stressing "the early involvement of local universities, with their external research capabilities." José O. Maldifassi and Pier A. Abetti, Defense Industries in Latin American Countries: Argentina, Brazil, and Chile (Westport, CT: Praeger, 1994). But their only evidence is a reference to "certain laboratories" of the University of Sào Paulo working with the armored-vehicle firm Engesa. 13. In May of 1969, for example, seventy professors were involuntarily retired from the University of Sào Paulo and other leading universities. See Thomas Skidmore, The Politics of Military Rule in Brazil, 1964-85 (New York: Oxford University Press, 1988): p. 83. 14. Renato P. Dagnino, "A Universidade e a pesquisa científica e tecnològica," Ciencia e Cultura 37: pp. 133-154 (reprint, n.d.). 15. Conselho Nacional de Desenvolvimento Científico e Tecnologico, Ciencia e Tecnologia: Recursos do Tesouro da Unido (Rio de Janeiro: CNPq, 1989), cited in Saraiva, "O Desenvolvimento Industrial Bélico," p. 357. Dagnino reports the breakdown of total R&D funding by source for 1982 as follows: federal government, 65.2 percent; state-owned firms, 13.5 percent; state governments, 8.3 percent; private firms, 7.0 percent; foreign sources, 4.7 percent; financial sector, 1.3 percent. Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliagáo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989, p. 443. 16. FBIS, "Study: Country Should Redirect Science Policy," Latin America Daily Report, June 29, 1994. 17. Eduardo Augusto Guimaraes, José Tavares de Araujo Jr., and Fabio Erber, A Política Científica e Tecnològica (Rio de Janeiro: Jorge Zahar Editor, 1985). 18. Domicio Proen§a Jr., "Guns and Butter? Arms Industry, Technology and Democracy in Brazil," Bulletin of Peace Proposals 21 no. 1 (1990): pp. 54-55; emphases in original. 19. Ozires Silva, "O Vóo da Embraer," Revista Brasileira de Tecnologia 13 no. 1 (January-March 1982): pp. 20-30. 20. Julio Eduardo da Silva Menezes, "The Brazilian Aerospace Industry: A Case Study of The Technological Impact of Offset Agreements in a Recipient Industry," master's thesis, Naval Postgraduate School, Monterey, CA, 1989, pp. 253-254. 21. "Special Report: O 20 ano da Embraer," Aviagáo em Revista (September 1989): pp. 23-24. 22. "Choppers a la Carte," Gazeta Mercantil (international edition), October 17, 1988; Menezes, "The Brazilian Aerospace Industry," p. 114. 23. "Brazil Announces Helicopter Venture," Flight International, April 26, 1986. 24. "Brazil's Arms Industry on the Move," Armed Forces Journal International (December 1984). 25. "Avibrás Emerges as Major Exporter for Brazilian Aerospace Industry," Aviation Week and Space Technology, August 17, 1987. 26. Ibid. 27. Robert D. Shuey et al., Missile Proliferation: Survey of Emerging Missile Forces. CRS Report 88-642, Congressional Research Service, Washington, DC, 1989.

The Modern Military-Industrial

Sector

63

28. On the German accords, see Luiz Pinguelli Rosa, A Política Nuclear e o Caminho das Armas Atómicas (Rio de Janeiro: Jorge Zahar Editor, 1985); Etel Solingen, Industrial Policy, Technology and International Bargaining: Designing Nuclear Industries in Argentina and Brazil (Stanford, CA: Stanford University Press, 1996). 29. Centro Ecuménico de Documentaçâo e Informaçôes, De Angra a Aramar: Os Militares A Caminho da Bomba (Rio de Janeiro: CEDI, 1988): pp. 4 5 ^ 6 . 30. Rosa, "Da gênese da bomba"; Rosa, A Política Nuclear, FBIS, "Oversight of Nuclear Programs Examined," Latin America Daily Report, September 18, 1990. 31. FBIS, "Army Reveals Participation in Nuclear Project," Latin America Daily Report, September 17, 1990; FBIS, "Secretary Discusses Army Nuclear Project Details," Latin America Daily Report, September 18, 1990; FBIS, "Commission Visits Army Nuclear Laboratory Complex," Latin America Daily Report, November 13, 1990. 32. This figure excludes the estimated 600 to 1,000 firms that supplied routine parts and components to the state-owned aircraft firm Embraer; see Saraiva, "O Desenvolvimento Industrial Bélico." 33. Saraiva, "O Desenvolvimento Industrial Bélico," p. 72. 34. Associaçâo Brasileira das Indústrias de Materiais de Defesa, Catálogo 1989 (Sâo Paulo: ABIMDE, 1989); my translation. 35. In 1989 Embraer's president was quoted as opposing entry into ABIMDE because of the negative repercussions for international business that could result from a too-close association with the Brazilian defense sector. See FBIS, "Economic Woes of Arms Industry Discussed," Latin America Daily Report, November 22, 1989. 36. FBIS, "Economic Woes." 37. Mauricio Broinizi Pereira, "A industria bélica e os trabalhadores: um panorama da crise," paper presented at the annual meeting of the National Association for Graduate Study and Research in the Social Sciences (ANPOCS), 1988. 38. Pereira, "A indùstria bélica e os trabalhadores"; Sindicato dos Metalúrgicos de Sâo José dos Campos, "Os Trabalhadores e a Industria Bélica," Apoio Sindical 1 (March 1988). 39. "Brasilia Plane Pushes Company Sales Up," Gazeta Mercantil (international edition), May 23, 1988; "Back on the Job," Gazeta Mercantil (international edition), October 23, 1989. 40. "In the Dumps," Gazeta Mercantil (international edition), September 4, 1989. 41. "With a Wary Eye on the Armed Forces, Brazilians Prepare to Vote," New York Times, December 15, 1989; "Brazil Appreciates Its Reintroduction to Democracy," New York Times, November 12, 1989.

4 Brazil in the Global Arms Economy

Structural Change in the Global Arms Economy When the Brazilian military took power in April of 1964, a handful of countries dominated the international arms trade. Arms transfers have always interwoven economic, political, and military considerations. Yet under these particular circumstances, the dominant suppliers were able to privilege strategic considerations in arms transfers to Third World buyers. They were also able to maintain relatively tight control of the production technologies on which supplier status rested. Beginning in the 1970s, however, the arms trade underwent a fundamental restructuring, producing a literal global arms economy. Four trends were central: growth in the number of suppliers, commercialization of the logic governing transactions, elevation of technology as a medium of exchange, and internationalization of production.1 The consistency of these trends from the early 1970s to the end of the Cold War was sometimes masked by wide fluctuations in the annual demand for arms imports in the Third World (Figure 4.1), which is highly sensitive to factors such as the price of oil, foreign debt, economic growth, military procurement cycles of major buyers, and patterns of armed conflict. 2 It was this combination of fluctuating demand and underlying secular change in market structure that formed the context for Brazil's military-industrial expansion.

Proliferation of Suppliers The United States and Great Britain emerged from World War II as the principal suppliers in the arms trade, to be joined in the 1950s by the Soviet Union and, to a lesser extent, France. The formation of N A T O and the Warsaw Pact created a two-tiered market: The superpowers dominated transfers within each bloc, and Britain and France joined them in the competition for Third World markets.

65

66

The Rise

Figure 4.1

Sales of Major Weapons Systems to the Third World, 1971-1990 (in billions of 1985 U.S. dollars)

30 -i

Source: Stockholm International Peace Research Institute, World Armaments and Disarmament: S1PRI Yearbook 1991 (New York: Oxford University Press, 1991), pp. 230-231.

Geopolitical factors heavily influenced the pattern of North-South arms transfers during the 1950s and 1960s. Britain and France retained influence in their former colonies, while the United States and Soviet Union used arms transfers to enlist recruits for the Cold War. Oberg found a pattern of "remarkable concentration" in transfers of major weapons systems to the Third World from 1950 to 1973. 3 Measured in dollar terms, the four major suppliers accounted for 88 percent of the systems transferred during this period. Also, more than two-thirds of recipient countries relied heavily on a single supplier, and less than one-third changed their major supplier during this period (mostly for geopolitical reasons). This pattern began to change as new suppliers emerged in the 1970s. France mounted the first challenge to superpower hegemony. Seeking autonomy within the two-bloc system, the French government found arms exports necessary to sustain the industry. 4 Even if domestic procurement needs made production economically feasible (it generally did not), the cyclical nature of procurement, rising costs for succeeding generations of weapons systems, and cost savings associated with longer production runs all mitigated in favor of aggressive export strategies. 5 The French government began an aggressive export push in the late 1960s, doubling its share of the Third World market between 1970 and 1977. 6

Brazil in the Global Arms Economy

67

In the late 1970s Italy and Germany followed the French lead. Both countries had been the beneficiaries of U.S. technology transfer to promote NATO equipment standardization. 7 By the early 1980s, these European suppliers were joined by emerging arms industries in some of the more industrially advanced Third World countries, including Brazil, South Korea, and Israel. The Stockholm International Peace Research Institute (SIPRI) estimates that exports of major weapons from less developed countries grew by 388 percent from 1973 to 1983. 8 The United States, Soviet Union, and Great Britain saw their collective market share for major weapons exports to the Third World decline from 88 percent in 1970 to 59 percent in 1983 (Figure 4.2). The market share of other European producers expanded from 11 percent to 30 percent, with French suppliers grabbing roughly half of the increase and Italian and German firms accounting for most of the rest.

Commercialization Interwoven with the growth in suppliers was an increasingly commercial logic governing transfers of arms and production technology. One force behind this trend was the emergence of suppliers giving relatively greater

Figure 4.2

Sales of Major Weapons Systems to the Third World, 1950-1990: Market Share by Supplier Group

•

UK, U.S., and USSR

Y//\

Other industrial

Third World suppliers

Source: Compiled from Stockholm International Peace Research Institute, World SIPRI Yearbook, various editions. and Disarmament: Note: Third World category includes China and Israel.

Armaments

68

The Rise

emphasis to commercial considerations. But the response of traditional suppliers to this challenge also contributed substantially to the trend of commercialization. In a 1971 study, the Stockholm International Peace Research Institute defined three arms transfer patterns—"hegemonic," "restrictive," and "industrial." 9 These patterns were said to correspond to supplier goals of strategic advantage (hegemonic), regional stability (restrictive), and economic gain (industrial). Several of the suppliers emerging in the late 1970s adhered most closely to the pattern of behavior SIPRI labelled "industrial." 10 The result was heightened competition for sales, a greater willingness to introduce regionally destabilizing weapons systems, and an increased acceptance of technology transfer as a cost of business. While the superpowers continued to use arms transfers as a geopolitical tool, they were not immune to these commercial pressures; both new and traditional suppliers responded to the heightened competition. Britain, France, and West Germany each relaxed export restrictions in the early 1980s, and the Reagan administration reversed the limited attempts at U.S. restraint that emerged under Carter.11 Even the Soviet Union, historically the most narrowly geopolitical of suppliers, shifted to a more commercially oriented policy, driven by the lure of hard currency and the need to counter European bids for key clients such as Libya, Iraq, and India.12 The parallel demand-side trend was an increasing ability among buyers not only to extract more favorable terms, but also to diversify sources of supply. Diversification first became a serious option in the late 1960s, when several U.S. clients in Latin America purchased French aircraft.13 By the 1980s supply diversification had grown rapidly. Consider the Middle East, which accounted for an estimated 43 percent of major-weapons transfers to the Third World between 1970 and 1989.14 Five of the eight largest importers dramatically reduced their dependence on a single supplier in the 1980s compared to the 1970s (Table 4.1).

Technology as a Medium of Exchange Growing buyer leverage translated into lower prices, trade offsets, concessional financing, and more favorable payment terms.15 Perhaps the most important effect, however, was the acceleration of technology transfer. Beginning in the 1970s, the frequency with which advanced systems were licensed to or coproduced by Third World countries increased greatly. The major reason was buyer leverage in a highly competitive market, but push factors also played a substantial role. Multinationals eager to reduce production costs, recoup R & D expenditures, penetrate local markets, avoid domestic arms export restrictions, and establish regional sales platforms were met by Third World governments eager to gain access to advanced technologies.16 Governments of the industrialized countries, eager to support

Brazil in the Global Arms Economy Table 4.1

Arms Sales to the Middle East, by Supplier, 1970s and 1980s

Recipient Country

Principal Suppliers, 1970s

Percentage Share of Total

Principal Suppliers, 1980s

69

Percentage Share of Total

Egypt

USSR Europe Other United States

87 7 3 3

United States Europe Other

67 22 11

Iran

United States Europe USSR Other

78 20 1 1

Other Europe United States

87 10 3

Iraq

USSR Europe Other

90 8 2

USSR Europe Other United States

53 22 20 5

Israel

United States Other

96 4

United States Other

99 1

Libya

USSR Europe Other United States

74 18 7 1

USSR Europe Other United States

72 21 6 1

Saudi Arabia

United States Europe Other

70 26 4

United States Europe Other

46 36 18

Syria

USSR Other Europe

95 4 1

USSR Other

91 9

Turkey

United States Europe

72 28

Europe United States

60 40

Source: Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1990, Table 7.3, p. 233. Note: Europe includes European members of NATO only. Non-NATO European suppliers are included in "Other."

their defense industries and pursue influence, provided little resistance to this convergence of interests. While coproduction agreements and design assistance were significant conduits for technology transfer during this period, the principle vehicle was licensing. 17 SIPRI data reflect the acceleration in licensing activity: The estimated value of major weapons systems produced under license from 1976 to 1980 was greater than that of the preceding twenty-five years (Figure 4.3). Louscher and Salamone report a total of 124 licenses to twenty-two Third World recipients during the period 1977-1983; these agreements, which involved fifteen different supplier countries, covered twenty-six separate weapons categories, and generated a total of sixty-five different bilateral relationships between suppliers and recipients. 18

Brazil in the Global Arms Economy Table 4.2

71

Third World Recipients of Weapons-System Licenses, 1977-1983

Recipient Country India Argentina South Africa Taiwan Brazil Pakistan Egypt South Korea Israel Philippines Indonesia China Mexico Nigeria North Korea Algeria Colombia Peru Singapore Papua New Guinea Libya Paraguay Venezuela

Number of Weapons Categories Licensed 11 9 8 8 7 7 6 6 5 5 4 3 3 3 3 2 2 2 2 1 1 1 1

Number of Countries from Which Licenses Obtained 5 4 4 2 6 5 4 2 2 4 6 3 3 2 2 2 2 1 2 1 1 1 1

Source: Compiled from David J. Louscher and Michael D. Salamone, eds., Marketing Security Assistance: New Perspectives on Arms Sales (Lexington, MA: D.C. Heath, 1987), Figure 7.2, p. 139.

The principal recipients of this technological largesse were a handful of the more technologically and industrially advanced countries of the Third World. Eleven countries accounted for 76 of the 100 different licensed-production programs established between 1977 and 1983 (Table 4.2). 1 9 The distribution of licenses by type of system also reveals a pattern of relative concentration; of twenty-six categories of licensed systems, only five were licensed to more than five countries. 20 Although this increased outflow of technology is often attributed to the entry of European suppliers, the United States was the most active licenser during this period (Table 4.3). U.S. suppliers struck twenty-seven agreements with nine countries in eleven different weapons categories. According to Klare, U.S. coproduction and licensing agreements in 1978 were limited to eight coproduction programs involving four countries (Taiwan, South Korea, Turkey, and the Philippines), and three or four licenses for light planes and aircraft parts. "By 1982, however, the tally of current or pending coproduction/licensing countries had swelled to include Pakistan, Greece, Egypt, Saudi Arabia, Singapore, and Thailand, and the equipment involved had become steadily more sophisticated." 21

72 Table 4.3

The Rise Suppliers of Weapons-System Licenses to the Third World, 1977-1983

Supplier Country United States France United Kingdom West Germany Italy Soviet Union Israel China Brazil Australia Austria Spain Switzerland Belgium Sweden Joint licenses Totals for suppliers

Total Number of Licenses Issued

Number of Weapons Categories Licensed

Number of Third World Recipient Countries Licensed

27 20 18 15 12 7 6 4 3 2 2 2 2 1 1 2

11 12 10 10 7 5 4 4 2 2 2 2 2 1 1 2

9 9 10 8 8 3 4 2 3 2 1 1 n.a. 1 1 n.a.

124

26

22

Source: Compiled from David J. Louscher and Michael D. Salamone, eds., Marketing Security Assistance: New Perspectives on Arms Sales (Lexington, MA: D.C. Heath, 1987), Table 7.1 and Figure 7.1, pp. 136 and 138. Note: Columns for number of weapons systems licensed and number of recipient countries do not add because of overlap among suppliers.

Internationalization of Production The proliferation of suppliers, the commercialization of decisionmaking, and the stepped-up flow of technology combined to internationalize the structure of production. An example is provided by the EMB-312 Tucano, a two-seat turboprop trainer aircraft produced by the Brazilian firm Embraer. The aircraft was designed in Brazil in the late 1970s, embodying production techniques mastered as part of previous licensing agreements with Italy and the United States. The first version, built in Brazil, used a nationally produced airframe, components imported from the United States and Europe, and a motor built by Pratt & Whitney of Canada. The imported motors cost $230,000 each, nearly 20 percent of the plane's $1.2 million pricetag. 22 Agreements with an Iraqi-Egyptian consortium (1983) and the British Royal Air Force (1985) further internationalized the Tucano, establishing licensed production in Egypt and Northern Ireland. In the British agreement, engines were supplied by the U.S. firm Garrett and assembled in Britain by Rolls Royce, with 30 percent British content, and the plane itself was built from Brazilian kits in Northern Ireland by Short Brothers (later acquired by Canadian interests). 23 The internationalization of production had two important consequences. First, finished weapons systems were no longer the sole or even principal transnational flow associated with most major arms transfers. Tracking arms

Brazil in the Global Arms Economy

73

transfers in the traditional sense became increasingly difficult: Monitoring the flow of items such as blueprints, kits, production machinery, and technical data proved much more difficult than tracking actual weapons systems transferred, as did estimating the value of arms transactions that included these elements. 24 Second, choices were increasingly driven by global-market considerations at every stage of the production process, from technology strategies and product design to financing and marketing. For emerging industries such as Brazil's, this meant a growing reliance on external sources for capital, technology, and markets—in short, increasing integration into the global arms economy at all levels.

Third World Stratification and the Emerging Market Niche Beginning in the 1970s, a number of Third World governments rode this wave of commercialization, competition, and internationalization to establish, expand, or modernize their military industries. Brzoska and Ohlson estimate that the constant-dollar value of production of major weapons systems in the Third World nearly doubled between 1973 and 1984, while arms exports from those countries grew tenfold. 25 An estimated fifty-four Third World countries were involved in some form of military production by the early 1980s, with thirty-six producing major weapons systems. Sixteen were producing in more than one of the four major categories of weapons systems (aircraft, armored vehicles, naval vessels, and missiles), and seven—Argentina, Brazil, Egypt, India, Israel, South Africa, and Taiwan—were producing in all four categories. 26 Some observers of this rapid expansion predicted growing military autonomy for less-developed countries and a restructuring of power relations in the international system. 27 As the 1980s transpired, however, several factors combined to make these dramatic claims seem premature. Third World producers remained heavily dependent on external technology and prone to severe production bottlenecks. 28 Domestic demand, weakened in many cases by foreign-debt burdens, proved inadequate to sustain thriving industries. Even those few countries with consistently large internal demand, such as India and Israel, were forced to turn to exports to support production. But the relatively stable industrial-country market remained off-limits to most producers, and competition for sales in the flagging Third World market grew fierce in the late 1980s. 29 The combination of debt, global recession, and falling oil prices produced an estimated 50 percent real-dollar decrease in Third World arms imports between 1982 and 1986, and the end of the Iran-Iraq War produced an even more precipitous decline at decade's end. 30 While such conditions kept most would-be military industrializers mired in the low-tech, low-value-added end of the arms business, a few

74

The Rise

more industrially advanced Third World countries exploited changing market structure to establish themselves. One key was technology transfer; as indicated in Table 4.2, eleven countries received the bulk of arms technology licenses between 1977 and 1983. This list included five that were already the leading Third World arms producers (Israel, India, Brazil, South Africa, and Taiwan) and three others (South Korea, Egypt, and Argentina) that would join their ranks by the mid-1980s. 31 These eight countries accounted for 87 percent of Third World weapons-system production in 1984.32 In other words, most of the technology flowed to countries whose arms industries were already Third World leaders, plus a few others who were elevated to that status as a result. Although comprehensive data are lacking, other conduits for technology transfer, including coproduction agreements and the establishment of Third World subsidiaries, appear to have followed basically the same pattern of concentration. From the point of view of U.S. and European firms, the more industrially advanced countries of the Third World represented the optimal mix in the tradeoff between cost savings and infrastructural requirements. This was particularly the case for medium-tech systems such as training aircraft, armored vehicles, patrol boats, and short- and mediumrange missile systems. And as sizable importers of arms, most of these countries already had well-established links with multinational firms. The data on Third World arms exports reflect this concentration, and correlate closely with patterns of North-South technology transfer. Excluding China, which is not classified as a Third World nation by SIPRI, four countries—Brazil, Israel, South Korea, and South Africa—accounted for 92 percent of major-weapons-system exports by Third World producers between 1980 and 1984, with a second tier of four (Indonesia, Egypt, Argentina, and India) accounting for virtually all the rest. 33 All eight were among the eleven leading license recipients discussed previously. Schwarz calculated an index of dependence on technology transfer in arms production for five of these countries: 0.47 for Brazil, 0.73 for Israel, 0.82 for India, 0.83 for Egypt, and 0.94 for South Korea. 34 In other words, imported technology was embodied in roughly half of all weapons system production in the least-dependent case, and virtually all in the mostdependent case. Although the specific weapons systems exported differed from country to country, they tended to be relatively simple, durable, inexpensive, and in many cases, battle-tested. This reflects the emergence of a mediumtech market niche in the 1980s, resulting from the increasing cost and sophistication of arms developed in the industrialized countries. 35 While cost factors were paramount, the inability of Third World militaries to integrate the North's increasingly sophisticated weaponry probably also played a role in the emergence of this niche. Changes in the global arms economy in the 1970s and early 1980s thus stratified Third World arms production capabilities. Countries with an

Brazil in the Global Arms Economy

75

already-established arms industry (India, Israel, Brazil, Argentina, Taiwan) or a relatively well-developed industrial infrastructure (South Korea, South Africa) were the principal recipients of the North's arms production technology. By privileging a relatively small number of countries and further stratifying production capabilities, military industrialization thus followed the more general pattern of economic and technological differentiation transforming the Third World during this period.

Brazil in the Global Arms Economy Brazil's fortunes in this changing global arms economy illustrate the links between overall industrial capacity, technology transfer, market niche, and export-led growth. Brazil's fledgling defense sector rode the wave of surging demand, commercialization, and technology dissemination in the 1970s to establish market position. The 1980s saw a continuation of this process of global-market integration, as a series of more technologically ambitious projects were launched and Brazil itself became a source of technology for less-advanced Third World producers. In 1970, the bulk of Brazil's military equipment was of World War II vintage, much of it acquired from the United States in the 1950s and 1960s through the Military Assistance Program. 36 The emergence of European producers made it possible to diversify supply, a step all three services took in the early 1970s. This shift had several important consequences. Links were established or solidified with key foreign firms, including Aerospatiale, Dassault, Thomson, and Matra of France; Oto Melara and Aermacchi of Italy; Vosper Thornycroft and Shorts of the United Kingdom; Messerschmitt-Bolkow-Blohm of Germany; and Northrop and Sikorsky of the United States. These firms would play a prominent role in later military-industrial expansion as suppliers of technology, sources of components, or joint-venture and coproduction partners. Also, several of these imported systems would be partially copied, modified, or combined to form the basis for subsequent Brazilian products. Most importantly, arms imports were a vehicle for technology transfer. Several major purchases in the early and mid-1970s were tied to licensing or coproduction agreements with United States and European firms (Table 4.4). The definitive characteristic of these agreements was Brazilian insistence on technology transfer, exploiting the increased supplier competition and using domestic-market access as a source of leverage. 37 From a technological standpoint, the most important deals were the 1970 agreement to produce Italian Macchi jet trainers, the 1972 license to build British antisubmarine frigates, the 1973 license for West German COBRA antitank missiles, and the 1973 coproduction agreement with Northrop for F-5 aircraft. The latter 1970s was a period of steady defense-sector growth, fueled increasingly by exports. Dagnino estimates that output for the two leading

76

The Rise

Table 4.4

Major Brazilian Licensing and Coproduction Agreements

Licensing or Coproducing Country France

West Germany Italy

Britain United States Austria

System DACTA air-defense system Lama helicopter Ecureuil helicopter SA-315-b helicopter AS-350m Esquilo helicopter SA-315b Gaviâo helicopter SA 330-1 Puma helicopter AS-332 helicopter Magic-2 air-to-air missile COBRA-2000 antitank missile type 209 submarine EMB 326 Xavante counterinsurgency aircraft EMB MB.326K light plane EMB MB.34 light plane AM-X tactical fighter (coproduction) Niteroi-class patrol craft EC-90 90-mm AFV cannon Piper light planes (6 models) F-5 aircraft (coproduction) 155-mm towed howitzer

Year of Agreement n.a. 1977 1977 1977 1978 1978 1980 1984 1988 1973 1982 1970 1975 n.a. 1980 1972 n.a. 1974 1973 c. 1985

Sources: Compiled from David J. Louscher and Michael D. Salamone, eds., Marketing Security Assistance: New Perspectives on Arms Sales (Lexington, MA: D.C. Heath, 1987), Table 6.3, p. 92; Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPR1 Yearbook, various editions.

firms of this period, Engesa and Embraer, doubled between 1975 and 1980, with exports accounting for virtually all of the growth. 38 Prior technological acquisitions played an important role in fueling this growth, particularly in the case of Embraer. 39 Buoyed by this strong performance, both Embraer and Engesa sought to move beyond the simple, durable, and inexpensive systems with which their international reputations were established initially. Embraer signed an agreement in 1980 with the Italian firms Aeritalia and Aermacchi to coproduce the AM-X tactical fighter. And in 1982 Engesa began development of the Osório, a 42-ton battle tank that relied heavily on European components and design features. The main trends in sector development during the mid-1980s were a continuation of this process of global-market integration. Embraer and Engesa were joined as Brazil's leading arms exporters by the privately owned aerospace firm Avibrás. For all three, the entire spectrum of production— investment, design, manufacture, sales, financing, etc.—became increasingly sensitive to, and explicitly geared toward, international markets. Avibrás was the extreme example: Its highly successful Astros II rocketlaunching system was partially financed by Iraq, designed with the needs of the Iraqi military in mind, and marketed aggressively throughout the Middle East.

Brazil in the Global Aims Economy

77

Dagnino's estimates for imports, exports, and production by these three firms reflect this growing global-market integration (Table 4.5). 40 The ratio of exports to total production for both Avibras and Embraer reflect growing dependence on the export market in the 1980s; the third firm, Engesa, was heavily dependent on exports for the entire period. Dagnino's data also reveal a frequently high ratio of imports to exports for both Avibras and Engesa, and a consistently high ratio for Embraer. Trend analysis of the import-export ratio is not possible, because the numerator (imports) includes not only imported components but also imports of production machinery (the value of which should not be lumped in the year of acquisition). But the figures clearly do not indicate a trend of growing indigenization. Instead, the pattern is akin to a treadmill: domestic content of particular products increased over time, but high levels of external dependence for technology and components endured as new products were developed. Another indicator of growing global-market integration was Brazil's emergence as a source of technology for less-advanced Third World producers. Table 4.6 lists cooperative endeavors emerging during this period. Most were linked to government-to-government accords on scientific and industrial cooperation. Clearly, many were useful diplomatic instruments, whether the goal was to promote regional integration (Argentina), lock in oil supplies (Iraq), or cultivate new markets (China). And in the case of China, Brazil's industries probably had more to learn than to offer. But by the late 1980s Brazil found itself in essentially the position of the European suppliers a decade earlier—with little choice but to include technologytransfer provisions in arms export agreements.

Convergent Interests Within the Politicized Market Brazil's military-industrial growth and global-market integration were driven by a strong and generally stable convergence of interests among a heterogeneous group of actors, including Brazilian defense firms, the Brazilian military, multinational firms, and their home governments. Although interests were not always harmonious, basic changes in market structure moved them in the same fundamental direction: in favor of a form of Brazilian military-industrial growth that yielded the increasing transnational technological access of Brazilian firms. Multinational firms gained market access and were able to recoup R&D costs; Brazilian firms gained technology, experience, and access to a state-guaranteed domestic market and a rapidly expanding export market. There are some similarities between this pattern of converging interests and the model of "dependent development" that Peter Evans and others have applied to Brazil and other industrializing countries in the Third World. 41 The most notable similarities include "the central role of the state

78 Table 4.5

The Rise Import and Export Dependence of Leading Military-Industrial Firms, 1975-1988 Ratio of Exports to Production

Ratio of Imports to Exports

Exports (millions of dollars)

Avibrás 3 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

0.00 0.50 0.25 0.33 0.20 0.47 0.12 0.04 0.19 0.10 0.61 0.44 0.82 0.54

Embraer13 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

0.05 0.13 0.00 0.21 0.09 0.53 0.04 0.85 0.70 0.64 1.49 0.66 0.61 0.35

3.51 5.10 1.73 14.86 0.45 0.69 0.97 0.40 0.85 0.82 1.76

3 7 0 16 5 18 2 70 78 71 227 140 160 42

Engesa 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

1.23 0.38 0.80 0.92 0.99 0.66 0.45 0.67 0.78 0.98 0.23 0.50 0.88 0.94

0.07 0.05 0.28 0.08 0.37 0.23 0.15 0.25 0.34 0.24 1.21 0.19 0.13 0.14

27 21 43 65 89 88 34 128 147 185 28 53 87 74

— — — — — —

0.33 4.50 3.71 0.39 0.16 0.69 0.15 0.26

14.70 6.09 —

0 1 1 2 2 7 3 2 7 23 171 81 322 81

Source: Calculated from data in Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliaçâo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989, pp. 366-367. Notes: a. Avibrás imports were negligible before 1981. b. Embraer exports were negligible in 1977. Embraer exports include military aircraft only.

Brazil in the Global Arms Economy Table 4.6 Country Argentina China Egypt Iraq Libya Saudi Arabia

79

Brazilian Military-Industrial Cooperation with Selected Third World Countries Types of Cooperation nuclear cooperation accord; coproduction of small aircraft joint program in satellite design and construction; nuclear cooperation licensed technology for Tucano trainer aircraft construction; nuclear cooperation accord technological assistance provided for Iraq's nuclear and aerospace programs rumored proposals of cooperation in missile development; nuclear minerals surveying assistance broad defense technology and industrialization accord

in fostering accumulation," "the exclusion of the majority of the Brazilian bourgeoisie from participation," and the opportunities to reconcile through bargaining the somewhat different goals of each pole in the "triple alliance" among multinationals, the state, and domestic capital. 42 But despite these general similarities, the pattern of multinational participation in the Brazilian defense sector during its growth phase differed in important respects. One key difference is that, with few exceptions (e.g., the largely failed effort to promote a domestic helicopter industry, and some marginal participation in military shipbuilding), foreign direct investment was limited and did not yield effective multinational control. Instead, technology licensing, coproduction, and offset agreements linked to arms purchases were the normal conduit for both multinational participation and technology transfer. Two examples of French participation in Brazilian aeronautics and aerospace illustrate this difference. In 1970 the Brazilian Air Force agreed to buy Mirage fighters, establishing a link between the Aeronautics Ministry and the French firm Dassault. Dassault would later join with Embraer to modernize the navy's antisubmarine patrol planes, and showed interest in a perpetually stalled proposal to launch a Brazilian supersonic fighter program. A more important relationship, that with the French firm Thomson-CSF, was a byproduct of the Mirage sale. As part of the deal, an agreement was reached by which the Brazilian Aeronautics Ministry would acquire an air-traffic control and air-defense system (CINDACTA) designed by Thomson. 43 This in turn gave Thomson the inside track when a second control system was designed and built in the 1980s. The combination of Thomson technology and Aeronautics Ministry assistance helped to capacitate three key Brazilian electronics firms in the aerospace sector— ABC, Elebra, and Tecnasa—each of which would play an important role in the AM-X tactical fighter program. 44 Thomson's participation illustrates a recurring pattern of the transnational capacitation of selected privately owned defense firms. That significant

80

The Rise

capabilities were acquired reflected the strong bargaining position of the Brazilian Aeronautics Ministry. A second example of this leverage was seen when Arianespace—the European satellite-launching consortium in which France owns a controlling interest—bid to launch Brazil's latest generation of telecommunications satellites. To make the sale, the French government agreed to transfer technology for Viking liquid-fuel rocket engines to Brazil despite intense pressure from the United States, which argued that the transfer violated at least the spirit of the Missile Technology Control Regime. 45 A second major difference between defense-sector expansion and the broader pattern of dependent industrialization in Brazil during this period involved the form of domestic capital. Evans and others have shown that in autos, pharmaceuticals, chemicals, and a number of other key industries, local private capital has been represented in the "triple alliance" by the largest private economic groups. By contrast, in the emerging militaryindustrial sector the involvement of local capital was generally limited to small, capital-scarce firms that either converted into military production during periods of recession or else were grown by the state under military supervision. Avibrâs, Engesa, most of the defense electronics firms, and the key aerospace and aeronautics suppliers all fit this pattern. As discussed in Chapter 5, the form of participation of private capital was strongly influenced by the domestic political structure of military rule.

Growth Through Internationalization The late 1970s and early 1980s were a period of dramatic changes in the global arms economy: intensified competition among a larger number of suppliers, stepped-up technology transfers, the internationalization of arms production, and the commercialization of the arms trade. Brazil's militaryindustrial boom was intimately linked to these trends. Market conditions created access to moderately advanced production technologies and produced a durable convergence of interests among domestic and transnational actors. The result, not surprisingly, was growing global-market integration for the leading Brazilian defense firms. As this process of global-market integration proceeded, the leading firms grew more sensitive to market trends and more inclined to gear choices to the export market. As a result, the pattern of relations among the military, the firms, and the multinationals would become more complex, as the case studies will show. Through the mid-1980s, however, the principal effect of global-market change was to move all of these actors in basically the same direction: toward greater internationalization of the structure of production, under conditions that yielded significant Brazilian bargaining leverage.

Brazil in the Global Arms Economy

81

Evolving global-market structure tells only half the story, however. To say that leverage was available vis-à-vis the multinationals does not explain how or why it was seized upon. Nor do trends in the global arms economy explain how or why state resources were mobilized to pursue available opportunities. Finally, global-market forces alone cannot explain the particular forms of participation by domestic private capital that emerged during sector expansion. To answer these questions, the discussion must turn to domestic politics.

Notes 1. I focus almost exclusively on the arms trade with the Third World, for two reasons: because the North-South flow of arms was larger and more volatile than North-North flows, and thus exerted a greater influence on structural change in the global arms economy during this period; and because the North's markets have remained largely off-limits to emerging Third World producers. 2. The leading sources of data on arms transfers to the Third World are the Stockholm International Peace Research Institute (SIPRI) and the U.S. Arms Control and Disarmament Agency (ACDA). They differ in their definitions of arms transfers, the data they use to track arms transfers, and the way they estimate the value of arms transfers. See Ronald G. Sherwin and Edward J. Laurance, "Arms Transfers and Military Capability," International Studies Quarterly 23 no. 3 (September 1979): pp. 360-379; Michael Brzoska, "Arms Transfer Data Sources," Journal of Conflict Resolution 26 no. 1 (March 1982): pp. 77-108; Edward J. Laurance and Joyce A. Mullen, "Assessing and Analyzing Arms Trade Data," in David J. Louscher and Michael D. Salamone, eds., Marketing Security Assistance: New Perspectives on Arms Sales (Lexington, MA: D.C. Heath, 1987). Brzoska found significant disparities between the two when controlling for these differences. I rely principally on SIPRI data because (1) SIPRI's more restrictive definition of arms transfers (including "major weapons systems" but excluding small arms, support vehicles, and weapons for police forces) is better suited to my concern with industrial development; and (2) SIPRI attempts to include the value of technology licensing transactions. 3. Jan Oberg, "Arms Trade with the Third World as an Aspect of Imperialism," Journal of Peace Research 12 no. 3 (1975): pp. 213-234. 4. Edward A. Kolodziej, Making and Marketing Arms (Princeton, NJ: Princeton University Press, 1987). 5. In a study of five NATO countries, Snider found a strong correlation between arms exports and cost savings in domestic production. See Lewis V. Snider, "Do Arms Exports Contribute to Savings in Defense Spending? A Cross-Sectional Pooled Time Series Analysis," in Louscher and Salamone, eds., Marketing Security Assistance. 6. Kolodziej, Making and Marketing Arms. 7. Michael T. Klare, "The Unnoticed Arms Trade: Exports of Conventional Arms-Making Technology," International Security 8 no. 2 (fall 1983): pp. 68-90; Ulrich Albrecht, "West Germany and Italy: New Strategies," Journal of International Affairs 40 no. 1 (summer 1986): pp. 129-142. 8. Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1990 (New York: Oxford University Press, 1990).

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The Rise

The other leading data source, the U.S. Arms Control and Disarmament Agency, reports that arms exports from less-developed countries increased 543 percent from 1973 to 1983. Michael T. Klare, "The State of the Trade," Journal of International Affairs 40 no. 1 (summer 1986): pp. 1-21. 9. Stockholm International Peace Research Institute, The Arms Trade with the Third World (Stockholm: Almqvist and Wiksell, 1971). 10. William Bajusz and David J. Louscher, Arms Sales and the U.S. Economy: The Impact of Restricting Military Exports (Boulder, CO: Westview Press, 1988); Albrecht, "West Germany and Italy." 11. On Europe, see Klare, "The State of the Trade"; on the United States see Gregory S. Sanjian, "Great Power Arms Transfers: Modeling the Decision-Making Processes of Hegemonic, Industrial, and Restrictive Exporters," International Studies Quarterly 35 no. 2 (June 1991): pp. 173-193; Michael Brzoska and Thomas Ohlson, Arms Transfers to the Third World 1971-1985 (New York: Oxford University Press, 1987). 12. Rajan Menon, "Soviet Arms Transfers to the Third World," Journal of International Affairs 40 no. 1 (summer 1986): pp. 59-76; Ulrich Albrecht, "Soviet Arms Exports," World Armaments and Disarmament: SIPRI Yearbook 1983 (London: Taylor and Francis, 1983); George E. Hudson, "The Economics of Soviet Arms Transfers: A Policy Dilemma," in Louscher and Salamone, eds., Marketing Security Assistance. 13. Michael T. Klare, The American Arms Supermarket (Austin: University of Texas Press, 1984); Kolodziej, Making and Marketing Arms. 14. SIPRI Yearbook 1990, p. 251. 15. Stephanie Neuman, "Coproduction, Barter and Countertrade: Offsets in the International Arms Market," Orbis 29 no. 1 (spring 1985): pp. 183-214; Klare, "The State of the Trade"; Bajusz and Louscher, Arms Sales and the U.S. Economy, Tracy E. DeCourcy, "Countertrade and the Arms Trade in the 1980s," in Louscher and Salamone, Marketing Security Assistance. 16. David J. Louscher and Michael D. Salamone, eds., Technology Transfer and U.S. Security Assistance: The Impact of Licensed Production (Boulder, CO: Westview Press, 1986); Louscher and Salamone, eds., Marketing Security Assistance. 17. Michael Brzoska and Thomas Ohlson, eds., Arms Production in the Third World (London: Taylor and Francis, 1986); Louscher and Salamone, eds., Marketing Security Assistance. 18. David J. Louscher and Michael D. Salamone, "Brazil and South Korea: Two Cases of Security Assistance and Indigenous Production Development," in Louscher and Salamone, eds., Marketing Security Assistance. 19. Ibid. The authors report 124 separate license agreements, but their breakdown excludes multiple licenses to a single country in a particular weapons category. There were 24 such cases, yielding a total of 100 license-based programs resulting from the 124 separate license agreements. 20. Ibid., p. 141. The five were trainer aircraft, fighter aircraft, helicopters, light planes, and fast-attack naval vessels. 21. Klare, "The Unnoticed Arms Trade," p. 80. 22. "Nos ceus da Inglaterra," Veja, March 27, 1985. 23. "RAF Trainer Choice," Aviation Week and Space Technology, March 25, 1985. 24. Klare, "The State of the Trade," pp. 11-12. 25. Brzoska and Ohlson, Arms Production in the Third World, pp. 8, 30. 26. Compiled from Brzoska and Ohlson, Arms Production in the Third World, Table 2.3, p. 16. The authors do not include China as a Third World country.

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27. See Steven E. Miller, "Arms and the Third World: Indigenous Weapons Production," PSIS Occasional Paper no. 3 (University of Geneva Programme for Strategic and International Studies, December 1980); Andrew Ross, "World Order and Arms Production in the Third World," in James E. Katz, ed., The Implications of Third World Military Industrialization: Sowing the Serpents' Teeth (Lexington, MA: D.C. Heath, 1986); Gerald M. Steinberg, "Technological Transfer and the Future of the Center-Periphery System: A Realist Perspective," Jerusalem Journal of International Relations 11 no. 2 (1989): pp. 96-117; Robert M. Rosh, "Third World Arms Production and the Evolving Interstate System," Journal of Conflict Resolution 34 no. 1 (March 1990): pp. 57-73. 28. Klare, "The State of the Trade"; Stephanie Neuman, "International Stratification and Third World Military Industries," International Organization 38 no.l (winter 1984): pp. 167-197. 29. SIPRI estimated that exports to the developed countries accounted for 29 to 34 percent annually of Third World exports of major weapons systems over 1982-1986. Over the same period, only four of the ten leading Third World exporters sold major weapons systems to industrial countries. See Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1986 (London: Taylor and Francis, 1986). 30. Richard F. Grimmett, "Trends in Conventional Arms Transfers to the Third World by Major Supplier, 1979-1986," CRS Report 87-418, Congressional Research Service, Washington, DC, 1987. 31. In 1975 the five aforementioned countries plus North Korea accounted for 94 percent of the value of major weapons systems produced in the Third World (Brzoska and Ohlson, Arms Production in the Third World). Because the authors use SIPRI data, they follow the SIPRI definition that excludes China from the Third World. 32. Brzoska and Ohlson, Arms Production in the Third World. 33. Ibid., p. 31. The data exclude re-exports of finished, imported weapons systems. ACDA data for this period show a similar concentration of exports among a somewhat different group of countries, with six (Brazil, China, Israel, Yugoslavia, and North and South Korea) accounting for 66 percent of arms exports by developing countries over 1980-1984. See U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1990 (Washington, DC: ACDA, 1990). 34. Anne Naylor Schwarz, "Arms Transfers and the Development of SecondLevel Arms Industries," in Louscher and Salamone, eds., Marketing Security Assistance. As discussed below, in the case of Brazil Schwarz's assumptions as to which systems are based on foreign technology led her to underestimate the degree of foreign technological dependence. 35. Mary Kaldor, The Baroque Arsenal (New York: Hill and Wang, 1981); Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativo de avaliagào, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 36. According to SIPRI data on Brazilian arms imports during this period, the United States provided all 340 armored fighting vehicles imported, 531 of 884 aircraft, and almost half (21 of 44) of imported naval vessels. See Stockholm International Peace Research Institute, Arms Trade Registers: The Arms Trade with the Third World (Cambridge, MA: MIT Press, 1975): pp. 107-111. 37. Renato P. Dagnino, "Industria de armamentos: o Estado e a tecnologia," Revista Brasileira de Tecnologia 14 no. 3 (May-June 1983): pp. 5-17; Maria Carlotta de Souza Paula, "Aeronaves: os rumos da indùstria brasileira," Revista

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Brasileira de Tecnologia 16 no. 3 (May-June 1985): pp. 48-56; Patrice FrankoJones, "Public-Private Partnership: Lessons from the Brazilian Armaments Industry," Journal of Interamerican Studies and World Affairs 29 no. 4 (winter 19871988): pp. 41-68. 38. Dagnino, A indùstria de armamentos brasileira, p. 368. This and all subsequent estimates presented from Dagnino's work exclude exports of civilian aircraft by Embraer. 39. Schwarz calculates an index of dependency on foreign technology for the Brazilian arms industry of 0.47—in other words, that 47 percent of production (by value) could be traced directly to prior technology licensing and coproduction agreements. Schwarz's method, however, understates the role of external sources in technological learning. Indirect connections, such as learning from imports of complete weapons systems or the subsequent activities of personnel trained via technology-transfer agreements, are not included. Also, the author explains Brazil's relatively low index (when compared to other countries in the study) by citing the "indigenous" design of Engesa armored vehicles, a leading export item. As discussed in Chapter 9, however, the motor and drive train for these vehicles originated with foreign multinationals in the Brazilian auto industry, while the cannon was based on a Belgian design (from the firm Cockerill) that Schwarz does not include in her technology-transfer data base. Adjusting for these factors would yield a far higher index of dependence given the large share of Engesa activity in overall defense production during this period. See Schwarz, "Arms Transfers." 40. Dagnino, A industria de armamentos brasileira. Given the lack of reliable public information surrounding the activities of these firms, Dagnino's estimates must be interpreted with caution. None of the three firms had released data on the dollar value of military exports at the time of Dagnino's study, and comprehensive data on exports are still unavailable. Figures on the value of military production (domestic plus exports) released subsequently by Embraer indicated a value of $745 million for the period 1985-1988, where Dagnino had estimated $572 million. See "Embraer—Background Information," Embraer press release no. 059/90, September 2, 1990. 41. Peter B. Evans, Dependent Development: The Alliance of Multinational, State and Local Capital in Brazil (Princeton, NJ: Princeton University Press, 1979). 42. Ibid., pp. 276-283. 43. Kaldor, The Baroque Arsenal, p. 150. 44. ABC was formed in 1984 by a colonel in the Brazilian Air Force reserve; it used Thomson technology to build flight simulators for Embraer's AM-X tactical fighter and Tucano trainer. Tecnasa and Elebra were small, preexisting electronics firms that became involved in military activities, also via a link with Thomson; they produced radar, fire-control, communications, and electronic-countermeasures systems for the AM-X tactical fighter, and later became involved in the Brazilian space program. 45. "U.S. Seeks to Stop Brazil Deal to Gain Missile Technology," New York Times, October 19, 1989; "Franga garante a cessào ao Brasil de tecnologia espacial," O Globo, October 6, 1989.

5 The Domestic Politics of Military Industrialization

The Politics of Military Rule The 1964 military coup was a watershed event in Brazil's militaryindustrial development. The coup produced a regime with both the intent and the autonomy to launch Brazil on a dramatically different economic and political course, with the expansion of strategic industries playing a central role. One on level, understanding how politics shaped militaryindustrial development means focusing on the specific policy tools used by the state to stimulate defense-sector expansion. But more fundamentally, it means focusing on three distinct sets of relations: the military's interaction with industrialists and other economic elites, the military's relations with the bureaucratic apparatus of the state, and the various political cleavages within the military itself. These relationships created the context for policy in that they determined who controlled the defense sector. They established who could define the sector's most fundamental goals, impose or inhibit major changes of direction, and declare exceptions to prevailing practices. The postcoup military regime that ruled Brazil for two decades enjoyed substantial political autonomy from civil society, particularly in its early years. Its autonomy derived from several sources: the polarization of pre-1964 politics, the military's monopoly of coercive power, the statedependent nature of Brazil's entrepreneurial class, and strong support from the United States. The military regime also benefited from the historical concentration of state power in the executive branch. The regime would extend Vargas's legacy of a strong presidency, implementing a series of "national security" laws, constitutional "reforms," and unilaterally declared "institutional acts." 1 Autonomy was tempered, however, by a second feature of military rule: the regime's dependence on a largely civilian and increasingly technocratic bureaucracy. The growing complexity of the economy forced the army high command, which dominated the regime, to delegate many

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aspects of policy formulation and implementation—meaning that the regime never exerted full control over some important aspects of economic policy.2 The regime's own policies, which stimulated increasing economic penetration by multinational corporations in the 1960s and dramatic growth in the size and number of state-owned firms in the 1970s, exacerbated this lack of control.3 A third important political dimension was internal to the military, in the form of divisions within and among the individual service branches. The longstanding pattern of minimal interservice cooperation exerted a powerful shaping influence on defense-sector development. The army, which dominated the regime, controlled the flow of funds to the other services, including funds for techno-industrial programs. But the entrenched tradition of minimal interservice coordination meant that the air force and navy enjoyed substantial lateral autonomy; the army exercised little additional influence over the scope of their programs. 4 As one interview subject stated, "If it flies, it is controlled exclusively by the air force. If it floats, it belongs to the navy. If it goes on land, it's the army's." This tradition of separateness helps explain the different patterns of R&D organization and private-sector linkages among the three services. As a structural feature of military rule, service autonomy also meant that political and economic changes over time could generate significant divergence in structure, goals, and strategies among the sector's various service-specific segments. Technology development goals may have led important elements in both the navy and air force to favor a transition to civilian rule.5 Intraservice politics also shaped sector development. The shift in power from moderates to hard-liners within the army elite in the late 1960s would provide an important stimulus to strategic programs of technology development. And each service struggled with the universal debate between those favoring defense industrialization and those favoring more sophisticated imported equipment. These three dimensions of military rule—the military's political autonomy, technocratic dependence, and internal fragmentation—formed the political backdrop for post-1964 military-industrial expansion. In doing so, they not only drove defense-sector growth but strongly shaped its resulting institutional character.

Industrial Mobilization for Military Production When the military took power in 1964, all three services perceived pressing reequipment needs. But the prevailing economic crisis and a chronic shortage of foreign exchange precluded arms imports. At the same time, recession had produced an alarming level of idle industrial capacity. The result was a military-industrial policy that united economic and strategic

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goals, with equipment modernization viewed as a means to absorb idle capacity and generate a Keynsian stimulus. The Permanent Group for Industrial Mobilization (GPMI) was organized to bring together military and industrial representatives. GPMI's directorate included one representative from each service and a representative of Brazil's leading industrial association, the Federation of Industries of the State of Sao Paulo (FIESP). GPMI commissions were created for military vehicles, aeronautics, naval equipment, electronics and communications, munitions and armaments, hospital and pharmaceutical products, food, and textiles, again bringing together the service branches and industrialists. 6 The GPMI served as a twoway channel: Firms obtained information on opportunities to convert into defense production, while the regime obtained information on the capabilities of domestic industry (which had changed greatly in the rapid industrial growth of the late 1950s and early 1960s).7 GPMI influence was at its peak between 1964 and 1967; although the organization continued to exist and function after that period, the return of economic growth reduced the attractiveness of defense production for many industrialists. The lasting impact of GPMI activities for defense-sector structure were twofold. The organization played an important role in facilitating the first of several phases of military-industrial "spin-in," in which civilian firms entered defense production. Second, GPMI established the initial pattern of civil-military relations in the defense sector. As Silberfield points out, GPMI succeeded in boosting collaboration between military and industry, but largely failed in its broader purpose of indoctrinating industrialists on the links among technological modernization, industrial mobilization, and national security: To this day, this idea has not been assimilated adequately by its own basic component, industry. From our point of view, it remains restricted . . . to those civilians and military who took courses at the ESG [Escola Superior de Guerra] or the Command and General Staff schools of each Armed Force, or who were involved with . . . the National Security Council. 8

The GPMI thus reflected not only the concepts of the Escola Superior de Guerra, but also the pattern of civil-military relations that marked the escola in the 1950s: a dialogue, in the military's language and on the military's terms, with selected civilian elites.

The Ascendant Hard-line The late 1960s saw growing influence within the regime of the so-called linha dura (hard-line) faction, with stronger right-wing nationalistic tendencies than the Castellistas, the so-called moderate faction led by the

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regime's first president, General Castello Branco. The hard-liners' ascension began under Castello Branco's successor, General Arthur da Costa e Silva, and peaked when General Emilio Garrastazu Mèdici succeeded Costa e Silva in 1969. The rise of the hard-liners to power, sometimes referred to as a "coup within the coup," was reflected in a series of "institutional acts" granting the regime increasingly repressive powers. 9 Beyond ushering in an era of more explicit and extensive repression, the changing internal dynamics of military rule held important consequences for economic policy. Most important was a move away from the anti-inflationary austerity of the original post-1964 leadership, and in favor of a less orthodox model of state-led growth. 10 This shift helped unleash a period of rapid, uneven, income-concentrating economic growth sometimes dubbed "the Brazilian miracle." Between 1967 and 1973, the average annual growth rate was 12.9 percent per year. 11 Rapid economic growth, with its buoyant optimism over Brazil's future as an industrial power, produced an important shift in military-industrial policy. By the early 1970s, the prior emphasis on the sector as a shortterm Keynsian stimulus had given way to a vision of military industries, along with other strategic sectors, as an engine of longer-term technological development and industrial growth. As with steel in the 1930s and oil in the 1950s, state-driven development of the nuclear, aerospace, and microelectronics industries came to be seen as a springboard for broader economic development. Defense industries figured prominently, though by no means exclusively, in this calculus. In technological terms, the army's hard-liners were sympathetic to longstanding sentiment within the air force and navy that the defense industries were crucial components of national technological autonomy. And in industrial terms, the less-orthodox economic planners holding influence during this period saw these industries as part of a general drive to promote deepened industrialization, economic expansion, and export-led growth. This broad convergence of strategic and economic goals provided a crucial base of political and financial support for military-industrial ventures in the 1970s. Several enduring features of military-industrial policy crystallized during this period. The first was a strategy of state-led growth, emphasizing the state's role in stimulating investment (or itself investing) and guaranteeing markets. Key policy instruments included direct and indirect subsidies, generous tax treatment, state-sponsored R&D, supportive procurement policies, and domestic-market protection of related commercial industries. The implantation and nurturing of the state-controlled aircraft firm Embraer provides the leading example of the coordinated application of such policy tools in this era. 12

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A second aspect of military-industrial policy to emerge during this period was a strategy of assimilating and adapting foreign technologies; gradual learning and absorption were stressed over more immediate production requirements. As discussed in Chapter 4, this approach was made possible by the emergence of European technology suppliers, lessening the control of the United States and Soviet Union in matters of technology transfer. Licensing and coproduction agreements negotiated with European suppliers during this period consistently stressed technology-transfer provisions. These policy initiatives were in marked contrast to broader government policies for industrial and technological development during the 1970s; the tendency of military-industrial policy to insulate the defense sector from the larger economy was becoming clearer and more explicit. Science and technology policy provides one clear example. Despite highprofile pronouncements of "basic plans" for scientific and technological development in 1973 and 1976, national S&T policy remained characterized by false starts, inconsistent support, and contradictory incentives. Explicit S&T policies frequently clashed with policy in other areas (including macroeconomic, fiscal, industrial, and educational) having direct consequences for S&T activities. 13 Attempts to stimulate private-sector technology development through state-funded activities were undermined by industrial policies and fiscal incentives that made it cheaper for firms to import technology packages. 14 The emergence of the National Security Council (CSN) as the principal policy organ for strategic sectors helped shield the defense sector from the frequent contradictions of economic policy. 15 Whereas bureaucratic divisions, most notably between the Planning Secretariat and the Finance Ministry, continued to plague the formulation of broader economic, industrial, and technology policies, the CSN was able to impose a measure of uniformity and stability in the narrower confines of the defense sector. The diffusion of military reservists into important bureaucratic and industrial positions also facilitated coordination and control. By 1979, military officers filled an estimated one-third of the top bureaucratic posts within the federal government; these included active-duty officials in the CSN, the military ministries, and the upper reaches of the executive branch, as well as reserve officers who obtained posts in the larger state-owned firms such as Petrobras (the national oil company). 16 But the security council's emergence did not eliminate the longstanding pattern of minimal interservice interaction. The council defined sectorwide privileges and set the general policy tone, but specific programmatic choices remained in the hands of the service branches and their industrial affiliates. This division of labor would become apparent later in the decade of the 1970s, when sector-wide policies to promote arms exports would further enhance the military-industrial autonomy of the separate services.

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The mid-1970s saw an end to the so-called economic miracle. The economy faltered under the weight of inflation, debt, spiraling oil prices, and sluggish growth. By the end of 1976, inflation was approaching 50 percent, and the foreign debt had risen to $25 billion.17 Ironically, the defense sector met the end of rapid growth with a military-industrial "miracle" of its own. As it had in the early years of military rule, recession again triggered a phase of spin-in in which civilian firms entered defense production, boosted by domestic procurement initiatives. And the same oil price increases that helped curtail overall economic growth created a surging international demand for arms, stimulating export-led growth. This period also saw the selection of General Ernesto Geisel (19741979) to succeed President Mèdici. The choice of Geisel marked a resurgence of the more moderate faction within the army high command, although Geisel himself enjoyed close ties to both hard-liners and moderates. The waning hard-line influence meant a reduction in the dictatorship's most repressive practices and a greater measure of political openness. But there was no break with the hard-liners' emphasis on technologically autonomous strategic sectors. If anything, such policies were strengthened as part of Geisel's emphasis on an independent foreign policy, reflected in a dramatic nuclear-cooperation accord with West Germany (1975), termination of a longstanding military-cooperation agreement with the United States (1977), and increasingly independent diplomatic initiatives in Africa, Latin America, and the Middle East. 18 During this period, export-led growth joined the now-entrenched policy themes of state-led growth and technology assimilation. As discussed in the previous chapter, global-market conditions logically dictated such a strategy as a means of sector expansion and technological capacitation. But the shift also had important domestic political roots: The economic downturn made it increasingly difficult for the regime to sustain sector development through supportive procurement policies alone, particularly in light of growing indebtedness. Later, during the heyday of Brazilian arms exports, many observers and international press accounts would suggest that an export-sustained defense sector allowed the armed forces to reduce domestic procurement, since they could rely on the exporting firms for surge capacity in a crisis. 19 From the vantage point of the mid-1970s, however, this interpretation reverses cause and effect: It was the growing inability to procure that helped make an export-sustained sector a policy priority. Military exports were also attractive in international terms, as economic difficulties forced the regime to seek new policy instruments in the international realm. Arms exports met these needs on several levels: as a potential source of foreign exchange through international trade, as a diplomatic instrument to woo oil-supplying states in the Middle East and

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Africa, and as a vehicle for stimulating multinational participation in defense-sector development. 20 From 1965 to 1979 Brazilian military industries exported an estimated one-third of their total production; the corresponding figure for 1980-1984 was 80 percent. 21 Thus, by the early 1980s, reliance on exports had become both a fact of life for the leading Brazilian defense firms and an explicit strategy for sector development. The policy foundation for this strategy was laid down in the 1976 National Export Policy for Materials of Military Use (PNEMEM). As Dagnino suggests, PNEMEM was not simply an arms-export policy, but rather a set of policies for the sector as a whole in the context of a strategy of export-led growth. 22 PNEMEM was the foundation for the sector's aggressive marketing, high-level policy coordination, strong support services, and cultivation of a reputation for Brazilian firms as reliable suppliers motivated by commercial rather than political considerations. Although ultimate responsibility for approving arms exports fell to the president and the CSN, PNEMEM gave a broad array of responsibilities to the three military ministries: linking exporting firms to the relevant governmental organs, coordinating diplomatic activities related to arms sales, regulating the manufacture and shipment of exported materials, and maintaining a registry of Brazilian firms with defense production potential. The Finance Ministry and Planning Secretariat were authorized to mobilize financial resources, including R&D funding, investment, and credit lines for defense-sector firms; exporting firms were also given exemptions on import tariffs. 23 The shift to export-led growth would ultimately introduce significant tensions between the military's strategic rationale for sector development and the increasingly commercial logic that would come to govern firm decisions and policies. But there is no evidence of a perceived conflict of this nature when PNEMEM was adopted. Rather, the dominant view was that strategic priorities were best served through commercially oriented expansion—in short, that a commercial logic was strategic. This view, seen in the military's willingness to subordinate equipment needs to market dictates in new product development, made it much easier to harmonize military and industrial interests. 24 PNEMEM thus managed, at least in the short run, to consolidate the traditional patterns of state-led growth, service autonomy, and military control, while reorienting the sector toward the export market.

A Resurgent Private Sector? In the early 1980s recession again revealed the countercyclical nature of military-industrial expansion. By 1983 idle industrial capacity had reached

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25 percent, generating yet another wave of civilian firms converting to defense production. 25 As in the past, conversion was stimulated by favorable military procurement policies, which remained an important instrument in spite of the sector's growing emphasis on exports. 26 Tariff exemptions on imported components, already available to exporting firms, were extended to any defense firms working on programs linked to the military ministries. 27 The timing of this round of procurement initiatives, soon after the Malvinas (Falklands) conflict between Argentina and Great Britain, raises the issue of external-security considerations in defense-sector policy. Hilton assigns great weight to the conflict in promoting what he sees as a reorientation of the Brazilian military from internal security to external defense. 28 Certainly the military did draw technological lessons from the conflict, particularly in defense electronics. But the services' force modernization programs were being developed before the conflict began, and revealed no major break with the past. The army rejected shifting to a rapid-deployment posture, preserving the territorially distributed deployment that supported its political influence. 29 For the air force and navy, the conflict's main message—the unsuitability of Brazil's army-dominated defense posture—was political, not technological, and may even have strengthened support within those services for civilian rule. The main effect of the Malvinas conflict was not a réévaluation of the military's defense posture or industrial strategies, but rather a public justification for already-planned programs of expansion and modernization. Along with domestic procurement, the growing export sales of firms such as Embraer, Engesa, and Avibrâs stimulated conversion of idle industrial capacity to defense production. The acceleration of export-led growth also generated tensions between the military and industrialists. Complaints emerged about the overly bureaucratic procedures linked to PNEMEM export approval, and about contradictory signals from different organs of the state. 30 Reports that Brazil was selling arms to both sides in the Iran-Iraq War revealed a split between the aggressive export strategies of the services and calls for restraint from some quarters of the influential (and largely civilian) diplomatic corps. 31 For the most part, however, growth meant that potential contradictions between commercial and military goals were not difficult to avoid or resolve. The same was not true, however, of broader tensions in civil-military relations. In the coalition supporting military rule, Brazilian industrialists had from the outset been junior partners to the state technocracy, multinational interests, large landowners, and the armed forces themselves. The industrialists' lesser status was exacerbated when, after an early period of fairly orthodox economic liberalism, the 1970s saw an aggressive expansion of the state. The number and size of the estatais, or state-owned enterprises, increased dramatically; public-sector enterprises accounted for

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over 70 percent of capital formation by the late 1970s. 32 By 1980, twentyeight of the thirty largest nonfinancial firms in Brazil were state-owned. 33 Economic expansion of the state stimulated private-sector protest as early as 1974; by decade's end the tenuous balance between the regime and civilian elites was under increasing strain. 34 Interestingly, the growing challenge to the state's economic expansion had only limited repercussions in the defense sector. Engesa and Avibràs, privately owned firms with an increasingly independent posture, did emerge as sector leaders in the late 1970s. And the 1982 reorganization of the army's munitions complex, Imbel, installed a civilian president, Engesa's José Whitaker. But these changes are more readily explained by the sector's growing internationalization than by the larger pattern of privatesector contestation. In the decision to reorganize Imbel, for example, the goal was to boost efficiency and consolidate Imbel's role as coordinator of technology assimilation and export promotion. The army retained control of Imbel's administrative council and veto power over policy changes. 35 Two factors were crucial to relative stability in relations between the military and defense industrialists at a time of increasing general tensions between the regime and the private sector. These were the sector's insulation from larger trends in Brazil's industrial political economy, and the regime's ability to sustain the flow of resources needed to promote countercyclical growth in military industries. Franko-Jones and others have described the defense sector's development during this period as a "publicprivate partnership" based on "an effective division of labor between state and firm." 3 6 The point to stress is that this partnership was a political relationship, and one that differed in important respects from the overall pattern of civil-military relations taking shape at that time.

The Withdrawal from Power By the late 1970s, dissatisfaction with the consequences of prolonged military rule was beginning to lay the groundwork for the military regime's withdrawal from power. 37 Whether Geisel came to power in 1974 planning liberalization remains unclear. But by the end of his tenure political opening was clearly in progress. 3 8 Using the authoritarian tools already in place, Geisel engineered a controlled relaxation of the regime's more explicitly repressive tactics; a plan for gradual, controlled withdrawal from power took form. Liberalization accelerated under Geisel's successor, General Joao Figueiredo (1979-1985); the regime agreed to negotiations with the emerging autonomous labor movement (1979) and allowed formation of new political parties (1980). 39 Though caught between eroding business-sector support and the rumblings of the weakened but still-vocal hard-liners, the regime enjoyed

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substantial bargaining leverage in negotiating its withdrawal. Its economic performance had produced net gains for politically important sectors, and its human rights record had been less dismal than that of its neighbors. Leverage was further enhanced by divisions within the opposition. Conservative opponents of military rule (principally business and middle-class groups) favored a narrow agenda of liberalization and transition to a civilian regime; the progressive opposition (including labor, human rights advocates, and the progressive wing of the Catholic Church) sought political reform as a component of broader social change. 40 As the economy worsened in the early 1980s, however, gradual liberalization gave way to a less controllable process of political change, and the ranks of the centrist opposition swelled with support that had formerly belonged (at least tacitly) to the regime. The result was threefold: The opposition movement gained strength; the opposition as a whole took on a more conservative character; and the main venues of negotiation shifted from the churches, factories, and other traditional focal points of opposition to centrist channels such as the media, professional associations, and the tolerated opposition in Congress known as the Brazilian Democratic Movement. These changes within the opposition had important repercussions for the military-industrial sector. As the transition proceeded, it became apparent that one of the military's goals was -to retain effective control of strategic activities, which included the military industries and defense technology programs. Most of the resistance to these activities lay with the more radical, and increasingly marginalized, sectors of the opposition. It has been widely reported that negotiations between the Figueiredo regime and centrist opposition leaders produced an explicit transition agreement, including a guarantee that the military's technological programs and industrial activities would remain adequately funded and under military control. 41 Though this widely reported bargain cannot be proven, it is clear that the centrist opposition did not press for change in the existing structure of control over military-industrial activity. As Dagnino suggested, there seems to be a tactical consensus that, although important, particularly for what it represents in terms of use of scarce resources that could be directed to social ends, [the defense sector] does not justify the opening of a combat front with the regime. . . . It seems to be considered a "necessary evil" . . . that does not deserve greater attention. 42

This relative lack of concern may have been strengthened by a belief in some quarters that a thriving military-industrial sector could hasten the exit of the military regime from power. 43 Even if there had been an effort to assert civilian oversight of defensesector activities, it would have faced substantial barriers. Political points of entry were limited given the sector's enclave structure and the limited

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participation of organized labor and academia in sector activities. And the military mounted a well-organized campaign to retain control. Beginning in the late 1970s, when increased liberalization first threatened interference, several programs were reorganized to shield the sector from encroaching civilian oversight. The 1979 reorganization of the informatics sector strengthened the policy influence of the CSN and the intelligence community, and placed the newly created Special Secretariat for Informatics under security council authority. The Institute for Energy and Nuclear Research (IPEN), locus of the navy's nuclear R&D program, was transferred from state to federal authority in 1982, in anticipation of an opposition victory in the Sao Paulo gubernatorial campaign. 44

The Political Foundations of Growth Chapter 3 described a defense sector with a penchant for state-led growth, limited links to civilian activities, an aggressive but pragmatic approach to technology development, a highly commercial production logic, and enduring military control of policies and decisions. Although these features can be understood as an outgrowth of the changing structure of the global arms economy, they are also an extension of the politics of military rule. One notable feature of military rule was the broad political autonomy enjoyed by the military regime for most of its tenure. The weak, statedependent nature of Brazil's entrepreneurial class meant that the initiative and incentives for military-industrial expansion would have to come from the state itself. The state in the hands of the military was both willing and able to play this role: The regime actively steered resources, selected winners and losers from among potential producers, and shielded the sector from inconsistent or contradictory technological, macroeconomic, and industrial policies that applied on a broader scale. A second important dimension of military rule was the military's dependence on civilian technocratic support. Such dependence may have helped preserve some space for the market-oriented, commercial logic that has guided the sector's economic and technological development. A more important contributor, however, was the widespread belief within military circles that a commercial approach was also strategic: Linking the defense sector to an expanding global arms economy was seen as the best way to promote military-industrial development. Because this commercial logic was purely tactical, and not a fundamental expression of political power on the part of Brazilian industrialists, the defense sector evolved as a technological and industrial enclave. The sector's isolation from the civilian economy and civil society were reinforced by its access to economic resources and protective policies that the regime could not have extended universally to Brazilian industry.

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Cleavages within the military also left their mark. The army had a long tradition of supporting state-led industrial development, dating back at least to the modernizing impulses of the Estado Novo period. The ascendance of a hard-line faction within the army command strengthened these tendencies, given the importance the hard-liners assigned to technological autonomy and great-power status. Moreover, as is often the case, the army proved to be the most technologically conservative service branch. Combined with a longstanding Brazilian tradition of minimal interservice cooperation, the army's technological conservatism helped prevent the emergence of interservice rivalries around technological and industrial programs. Turf battles and inefficient duplications of effort were for the most part avoided, and the main military-industrial segments came to be organized separately around each service's core weapons systems. The services each went their own way, but within a broadly favorable political context. A serious challenge to this pattern would not emerge until the 1980s, when cross-cutting technological programs such as nuclear and aerospace began to flourish. In short, the period following the 1964 coup saw a growing convergence between the military's defense-sector policy goals and the domestic conditions enabling effective pursuit of those goals. The result was an expanding defense sector organized around military control, state-led growth, highly selective private-sector linkages, and commercial and technological pragmatism. As the case studies will show, individual segments varied, and changing conditions caused some adjustments to the model over time. But for the most part, expanding global-market opportunities allowed these basic features to remain intact even as the sector came to be characterized by an increasingly internationalized, commercial logic.

Notes 1. Thomas Skidmore, The Politics of Military Rule in Brazil, 1964-85 (New York: Oxford University Press, 1988). 2. Luiz Bresser Pereira, Development and Crisis in Brazil, 1930-1983 (Boulder, CO: Westview Press, 1984). 3. Peter B. Evans, Dependent Development: The Alliance of Multinational, State and Local Capital in Brazil (Princeton, NJ: Princeton University Press, 1979); Peter Flynn, Brazil: A Political Analysis (Boulder, CO: Westview Press, 1978). 4. On the concept of bureaucratic autonomy, see Etel Solingen, Industrial Policy, Technology and International Bargaining: Designing Nuclear Industries in Argentina and Brazil (Stanford, CA: Stanford University Press, 1996). 5. I am grateful to Wendy Hunter for this observation. 6. "Mobilizada industria nacional para suprir as Forças Armadas," O Globo, August 28, 1967. 7. Jean-Claude Eduardo Silberfield, "Mobilizaçâo Industrial," Politica e Estratégia 5 (1987): pp. 584-606.

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8. Silberfield, "Mobilizaçâo Industrial," pp. 586-587; my translation. 9. Skidmore, The Politics of Military Rule; Ronald M. Schneider, Order and Progress: A Political History of Brazil (Boulder, CO: Westview Press, 1991). Though less brutal than its neighbors in the Southern Cone, the regime did amass a substantial record of human rights violations, including arbitrary arrest and detention, torture, bombings, and murder; Joan Dassin, ed., Torture in Brazil: A Report by the Archdiocese ofSâo Paulo (New York: Random House, 1986). 10. Pereira, Development and Crisis; Skidmore, The Politics of Military Rule. 11. Riordan Roett, Brazil: Politics in a Patrimonial Society (New York: Praeger, 1984): p. 167. 12. Renato P. Dagnino, "Indùstria de armamentos: o Estado e a tecnologia," Revista Brasileira de Tecnologia 14 no. 3 (May-June 1983): pp. 5-17; Rexford A. Hudson, "The Brazilian Way to Technological Independence: Foreign Joint Ventures and the Aircraft Industry," Inter-American Economic Affairs 37 no. 2 (autumn 1983): pp. 23—44; Patrice Franko-Jones, "Public-Private Partnership: Lessons from the Brazilian Armaments Industry," Journal of Interamerican Studies and World Affairs 29 no. 4 (winter 1987-1988): pp. 41-68. 13. Eduardo Augusto Guimaraes, José Tavares de Araujo Jr., and Fabio Erber, A Política Científica e Tecnológica (Rio de Janeiro: Jorge Zahar Editor, 1985). 14. Dagnino, "Industria de armamentos"; Pereira, Development and Crisis. 15. On the National Security Council see Neil C. Ronning and Henry H. Keith, "Shrinking Political Arena: Military Government Since 1964," in Henry H. Keith and Robert A. Hayes, eds., Perspectives on Armed Politics in Brazil (Tempe, AZ: Center for Latin American Studies, 1976). 16. A 1979 survey by Walder de Goes estimated that military officers occupied 28 percent (101 of 360) of the most important federal posts. Goes found that the military's presence was strongest in infrastructural organs such as the Communications Ministry and Federal Railroad Network, and weakest in economic agencies. Walder de Goes, "O novo regime militar no Brasil," Dados: Revista de Ciencias Sociais 27 no. 3 (1984): pp. 361-375. In a survey of ninetyseven senior civil servants and public enterprise managers, Martins found that 23.4 percent of the latter held military academy degrees (though none of the former did). See Luciano Martins, Pouvoir et Développement Économique: Formation et Evolution des Structures Politiques au Brésil (Paris: Anthropos, 1976). 17. Flynn, Brazil: A Political Analysis, p. 477. 18. Alexandre Barros, "The Formulation and Implementation of Brazilian Foreign Policy: Itamaraty and the New Actors," in Heraldo Muñoz and Joseph S. Tulchin, eds., Latin American Nations in World Politics (Boulder, CO: Westview Press, 1984). 19. See, for example, Frank D. McCann, "The Brazilian Army and the Pursuit of Arms Independence, 1899-1979," in B.F. Cooling, ed., War, Business and World Military Industrial Complexes (Port Washington, NY: Kennikat Press, 1981). 20. Ethan Kapstein, "The Brazilian Defense Industry and the International System," Political Science Quarterly 105 no. 4 (1990-1991): pp. 579-596. Tollefson, in contrast, sees arms sales less as a diplomatic instrument than as a means to consolidate arms-sector autonomy vis-à-vis the traditional suppliers. Scott D. Tollefson, Brazilian Arms Transfers, Ballistic Missiles, and Foreign Policy: The Search for Autonomy, doctoral dissertation, Johns Hopkins University, Baltimore, MD, 1990. 21. Michael Brzoska and Thomas Ohlson, eds., Arms Production in the Third World (London: Taylor and Francis, 1986): p. 31.

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22. Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliaçâo, p. 199, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 23. For a summary of the principal provisions of PNEMEM, see the appendix to Chapter 4 of Dagnino, A indùstria de armamentos brasileira. 24. Dagnino, A indùstria de armamentos brasileira. 25. "Embraer promete encomendas," O Estado de Sáo Paulo, September 6, 1983. 26. "Exército nacional acelera reequipamento," Folha de Sao Paulo, October 17, 1982. 27. "Indùstria de armas tem isençâo," O Estado de Sáo Paulo, June 25, 1982. The decree extended to the entire defense sector the exemption that had been granted in 1981 to Imbel, the army's munitions complex (see "Governo isenta a Imbel das taxas de importaçâo," O Estado de Sáo Paulo, April 29, 1981; FrankoJones, The Brazilian Defense Industry). 28. Stanley E. Hilton, "The Brazilian Military: Changing Strategic Perceptions and the Question of Mission," Armed Forces and Society 13 no. 3 (spring 1987): pp. 329-351. 29. "Exército escolheu modernizaçâo que preserva sua força política," Jornal do Brasil, September 7, 1987. 30. "Exportaçâo de material bélico receberá mais incentivos fiscais," Jornal do Brasil, December 3, 1979. 31. "Brasil vende armas indiretamente porque 'precisa dolares,'" O Estado de Sao Paulo, June 13, 1984. 32. "O Estado abre espaço," Veja, July 22, 1981. 33. At the federal level, eighty-eight new public enterprises were created between 1970 and 1975, as opposed to a total of sixty-four in the previous thirty years. See Thomas J. Trebat, Brazil's State-Owned Enterprises: A Case Study of the State as Entrepreneur (Cambridge: Cambridge University Press, 1983): p. 37. 34. Fernando Henrique Cardoso, "O papel dos empresários no proceso de transiçâo: o caso brasileiro," Dados: Revista de Ciencias Sociais 26 no. 1 (1983): pp. 9-27; Pereira, Development and Crisis. 35. "Mudando de áreas," Visâo, January 31, 1983; Franko-Jones, The Brazilian Defense Industry. 36. Franko-Jones, "Public-Private Partnership," p. 104. 37. This section summarizes an argument presented in greater detail in Ken Conca, "Technology, the Military, and Democracy in Brazil," Journal of Interamerican Studies and World Affairs 34 no. 1 (spring 1992): pp. 141-177. 38. For a range of perspectives on this question see Skidmore, The Politics of Military Rule; Stepan, Rethinking Military Politics; and Eliézer Rizzo de Oliveira, "Constituente, Forças Armadas, e Autonomia Militar," in E. Rizzo de Oliveira, G.L. Cavagnari Filho, J. Quartim de Moraes, and R.A. Dreifuss, Ai Forças Armadas no Brasil (Rio de Janeiro: Espaço e Tempo, 1987). 39. As with the origins of liberalization under Geisel, observers have differed on the coherency and goals of the Figueiredo regime's actions toward the transition. See Skidmore, The Politics of Military Rule; Wayne A. Selcher, "Contradictions, Dilemmas and Actors in Brazil's Abertura, 1979-1985," in Wayne A. Selcher, ed., Political Liberalization in Brazil: Dynamics, Dilemmas, and Future Prospects (Boulder, CO: Westview Press, 1986); and E. Baloyra, "From Moment to Moment: The Political Transition in Brazil 1977-1981," in Selcher, eds., Political Liberalization.

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40. Maria Helena Moreira Alves, State and Opposition in Military Brazil (Austin: University of Texas Press, 1985); Skidmore, The Politics of Military Rule; Michael M. Hall and Marcio Aurelio Garcia, "Urban Labor," in Frank McCann and Michael Conniff, eds., Modern Brazil: Elites and Masses in Historical Perspective (Lincoln: University of Nebraska Press, 1989). 41. The deal is also said to have preserved military doctrinal autonomy, ruled out any prosecution for acts of political repression and torture, and guaranteed the military's role in preserving law and order. See Oliveira "Constituente, Forgas Armadas, e Autonomia Militar," pp. 174-175; see also coverage in the weekly magazine Veja on negotiations between the military and the opposition ("Trajetoria certeira," November 28, 1984; "Os segredos da vitória da oposifào," January 16, 1985; and "Tancredo: apoio militar veio no Ano-novo," May 14, 1986). 42. Renato P. Dagnino, "A indùstria de armamentos brasileira: desenvolvimento e perspectivas," in Ricardo Arndt, ed., O Armamentismo e o Brasil: A guerra deles (Sào Paulo: Brasiliense, 1985): p. 102; my translation. 43. See for example Paulo Kramer, "Complexo industrial militar e exportagào de armamentos no Brasil," Brasil Perspectivas Internacionais (November-December 1984): p. 8 . 1 return to this theme in Chapter 12. 44. On the informatics reorganization, see Domicio Proenga Jr., Tecnologia Militar e Os Militares na Tecnologia: O Caso da Politica Nacional de Informàtica, master's thesis, Graduate Engineering Program (COPPE), Federal University of Rio de Janeiro, Brazil, 1987. On IPEN, see Centro Ecumènico de Documenta§ào e Informagòes, De Angra a Aramar: Os Militares A Caminho da Bomba (Rio de Janeiro: CEDI, 1988).

Part 2 : The Fall

6

Diverging Structures and Dilemmas of Adjustment

Brazil's military-industrial growth was the product of a convergence of favorable global-market and domestic-political conditions. Military rule added important new elements to longstanding conditions of military autonomy and service independence: the enhanced abilities to steer resources preferentially to the defense sector, to guarantee the existence of a domestic market, to implement supportive export policies, and to shield key programs and firms from the larger vagaries of inconsistent economic policy and the buffeting forces of dependent development. Although the post1964 military regime had neither the ability nor the inclination to apply these capacities to Brazilian industry as a whole, it could and did apply them to the defense sector, with tangible results. These political conditions emerged as structural change in the global arms economy was extending military industrialization to the Third World. A reliably expanding niche emerged for medium-tech weapons systems. The Brazilian defense sector grew into this niche; favorable conditions surrounding global demand, the transnationalization of production, and international financing injected revenues into the sector, shaped the developmental trajectory of several key weapons systems, and strengthened Brazil's negotiating position with the multinationals. The intertwining of these favorable domestic and global conditions did more than just drive rapid military-industrial expansion. It also produced the sector's core institutions, features that would play a crucial role in the sector's growth. The institutionalization of roles and rules accounts for the notable features of Brazilian military industrialization sketched in Chapter 3: the sector's penchant for state-led growth; the limited involvement of civilian science, technology, and industry; the blurring of public and private realms and civilian and military roles; the highly commercialized logic governing production choices; and pragmatic but consistently forward-looking choices on the direction of technology development initiatives. These descriptive characteristics are the product of institutions

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The Fall

governing the sector's external boundary, internal divisions of labor and authority, and developmental norms. One key institutional feature was a well-defined external boundary, which carefully shaped and limited ties to civilian science, technology, and production. This clear and relatively impermeable boundary made it possible to shield the sector from the buffeting forces of Brazil's dependent development, and for the state to play a developmental role that it could not play for Brazilian industry as a whole. A second key institution was a complex set of internal boundaries within the military-industrial sector. On the one hand, the main militaryindustrial segments overlapped little; individual industries either fell under the orbit of a particular service branch or were fragmented at the programmatic level when multiple services were involved. The differences among the three service branches produced predictable organizational differences among the various military-industrial segments. But far from being historical accidents or local peculiarities, these differences point to a larger consistency marking the sector as a whole: A clearly defined division of labor among the services made it possible for individual programs to satisfy, simultaneously, specific market imperatives, particular technological demands, political interests, and the constraints and requirements of organizational culture within a particular service branch. Intrasegment boundaries were as fuzzy as intersegment boundaries were sharp. Within each of the key military industries, the boundaries separating public and private realms, or civilian and military roles, were fuzzy, permeable, and flexible. This created unusually close and flexible working relationships among a particular service branch, military R&D, the relevant nonmilitary organs of the state, and a select group of privatesector firms. Indeed, distinguishing "public" and "private" in the traditional sense was a difficult task, given the entrepreneurial behavior of state-owned firms and military R&D on the one hand and the close, dependent service ties of nominally private firms on the other. Accompanying this flexible division of labor was a clear hierarchy of authority—one that decentralized instrumental choices about production, technology, and markets without sacrificing the military's path-defining control. The military's overall political autonomy and influence made it possible to cede a wide range of more immediate instrumental decisions to individual firms, organs, and institutes within the specific military-industrial segments without jeopardizing overall military control of the sector's developmental path. This complex but stable division of authority was facilitated by a fourth key institution: an actively fostered set of developmental norms, providing a vision of the links among commercial considerations, strategic goals, and technological initiatives. A durable consensus emerged that the

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strategic goals of military industrialization were best fostered by a marketsensitive approach. Far from trading off strategic and commercial considerations, the sector embraced the commercial successes as strategic gains. As a result, production choices were tuned to meet the requirements of the emerging international market niche, even as they fulfilled identified needs of the Brazilian military. A closely related norm was a consistent technological pragmatism. This vision made it possible to balance the long-term needs of technological learning with short-term market pragmatism. The technological trajectories of the main segments navigated between the extremes of dependency and autarky: Immediate procurement needs and goals, which have so often starved Third World military-technological initiatives, did not dominate, but neither did a rigid technological nationalism that could bury developmental initiatives under the weight of their own expectations. Table 6.1 summarizes the global-market and domestic-political structures, military-industrial institutions, and observed characteristics of the defense sector. The climate of domestic politics was critical: Without the military's institutional autonomy, longstanding developmental orientation, and political power, it would have been impossible to insulate the sector, break down internal barriers, or stabilize long-term plans for technology development. But the changing structure of the global arms economy was also a necessary condition, in that none of these key institutions could have formed without consistently strong international demand, favorable conditions for technology transfer and assimilation, and the ready availability of international financing. In other words, sector growth and development did not occur simply because constraints on historical goals were relaxed, or because domestic and international conditions were passively favorable. Those conditions Table 6.1

Global Markets, Local Politics, and Military-Industrial Institutions

Global-Market Structures proliferation of suppliers commercialization of the arms trade technology as medium of exchange internationalization of production

Domestic-Political Structures military's political autonomy technocratic military regime interservice divisions state-dependent domestic capital

Military-Industrial Institutions Observed Defense-Sector Characteristics sharp external boundary state-led growth sharp boundaries between segments limited ties to civilian science, flexible role definitions within segments technology, and industry path-defining military control blurred distinction between public and private developmental norm of "commercial-ascommercialized production choices "climbing the technological ladder" strategic" developmental norm of technological pragmatism

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were actively favorable, in the sense that they not only allowed for rapid growth but also laid down the institutional character through which growth and development were achieved. Structural convergence fostered a set of institutions that helped seize upon emergent opportunities and reconcile longstanding global and local constraints. The result was a seeming paradox: an increasingly transnationalized set of industries and R & D initiatives that could and did co-exist with extensive military control of decisions about products and technologies.

Sustaining Expansion Sustaining this rapid expansion did require adjustments over time. The early strategy of drawing the largest industrial groups into defense production, through the Permanent Group for Industrial Mobilization (GPMI), gave way to a strategy of targeting a relatively small number of firms for military-industrial patronage. PNEMEM emerged as a revised policy foundation for the sector in the mid-to-late-1970s. And in several cases exportled growth supplanted domestic procurement as the principal mechanism with which to attract foreign technology. But such adjustments were for the most part incremental when compared to the continuity of the main institutional features of the defense sector. The hallmarks of military-industrial expansion—state-led growth, limited ties to civilian activities, technological pragmatism, commercialized production choices, and military control—endured. The sector did adjust successfully to modest changes in global markets and local politics, but its full capacity to adjust remained untested given the substantial structural continuity on both of these levels during the 1970s and much of the 1980s. This combination of structural stability and successful implementation of modest institutional adjustments propelled Brazil's military industries toward a series of ambitious new efforts in the early 1980s. Foremost among these new ventures were the programs discussed in the ensuing case-study chapters: the A M - X tactical fighter, the Osório battle tank, the V L S satellite launcher and ballistic missile, and the navy's submarine program. Each was a substantial, but seemingly attainable, step upward from previous ventures in its industrial segment, and each placed Brazil at the forefront of military-industrial ventures in the Third World. Advocates and critics alike embraced this general sense of a sector moving onward and upward for the foreseeable future. Even Clovis Brigagào, a vocal Brazilian critic of military-industrial secrecy and the militarization of Brazil's international commerce and diplomacy, characterized the defense sector in 1986 as "the most robust sector of domestic industry." For Brigagào, "It is no overstatement to suggest that in many respects the new Brazilian industrialization—the Brazilian 'economic miracle'—has been led by military production and technology." 1

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One question often posed in the wake of Brazil's military-industrial expansion is why that country succeeded where so many potential Third World producers failed. The question is valid even if, as I will argue, the main legacy of the stepped-up programs of the 1980s is one of failed ambitions. The defense sector did realize almost two decades of development and expansion before its crisis and collapse. The mere fact that Brazil could even launch the ambitious programs of the 1980s separated it from most would-be military industrializers. What made Brazil different? The opportunities stemming from the changing structure of the global arms economy in the 1970s were limited to a handful of countries—those already possessing relatively advanced industrial sectors, some capacity for technological absorption, and at least rudimentary military industries. And Brazil's experience shows that, even for this limited set of potential military industrializers, the mere existence of a military regime or an elite consensus in favor of sector development were not sufficient. The political capacity to steer resources, shield the sector from economic uncertainty, and to choose from among civilian firms was also a necessary condition. Clearly, not all regimes (military or otherwise) possess such capabilities to the same extent. A broad domestic political consensus, perhaps stemming from a consistent external military threat, would not automatically create such capabilities; nor would military rule by itself guarantee their existence. Not all military regimes have displayed a military-industrializing character, just as Third World states in which power is centralized have not always shown a "developmental" orientation. 2 Thus, while further comparative analysis is needed, the Brazilian experience suggests that such work should be undertaken with two qualifiers in mind: the limited set of countries for which export-driven expansion was ever a meaningful possibility, and the stringent domestic-political conditions required. Seen in this light, the question is not why Brazil succeeded in stimulating a measure of rapid sector expansion. Given the broad convergence of the requisite domestic and international conditions, Brazilian failure would have been more puzzling than success. Rather, the questions are, first, whether there were other similarly positioned Third World countries when global-market opportunities arose, and second, whether nascent military industries in those countries were positioned politically to take advantage of those conditions. This theme is taken up in greater detail in the final chapter, in which the experiences of the South Korean and Indian defense sectors are compared to that of Brazil.

The Onset of Crisis Brazil's military industries entered the 1980s riding a wave of buoyant optimism. Yet by decade's end they were mired in severe difficulties from

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which they have yet to recover. The initial manifestations of the crisis were financial. The combined debt of Engesa, Avibras, and Embraer reached an estimated $1 billion by 1990.3 Avibras exports plummeted with the end of the Iran-Iraq War, and the firm filed for bankruptcy relief in January of 1990.4 Engesa, lacking buyers for the Osorio tank and unable to recoup its heavy investments, soon followed suit.5 The state-owned aircraft producer Embraer was plagued with crippling cost overruns in the AM-X program at a time when heavy investments in new civilian products had yet to bear fruit. 6 The firm laid off almost one-third of its labor force in 1990, announced a severe cost-cutting plan, and postponed its most important new civilian project, the EMB-145. 7 More layoffs followed in 1991; only infusions of federal cash saved the firm from following Avibras and Engesa into bankruptcy. The financial crunch was not limited to these three key firms. Their difficulties coincided with a sharp downturn in the international demand for arms, triggered initially by the end of the Iran-Iraq War and continuing into the post-Cold War era. By the early 1990s, arms exports had fallen off dramatically in each of the sector's principal segments, and many firms were converting to civilian production for survival. The military R&D system was also plunged into crisis. Large governmental budget deficits had severely reduced available funding for military R&D and arms procurement. At the same time, Brazil's massive foreign debt made it increasingly difficult to finance military-technological ventures through external sources. By the early 1990s, the R&D institutes of all three services were struggling just to keep their teams of personnel more or less intact. The symptoms of sector-wide crisis were seen in the four major nextgeneration programs of the 1980s. The Osorio tank program collapsed completely, never passing the prototype stage. The VLS space-launch vehicle, plagued by a lack of funds and technical difficulties, was nowhere near the launch pad by its 1989 target date; despite several public revisions of the anticipated launch date, the program settled into a status of indefinite postponement. Embraer managed to deliver its first AM-X aircraft in 1989, but delays and cost overruns forced the air force to stretch out procurement, a decision that helped plunge the firm into financial chaos. And the navy, despite technical progress in both its submarine and nuclear programs, was forced to scale back its submarine construction plans substantially, leaving the ultimate goal of a nuclear submarine an open question for some unspecified future date. The convergence of so many symptoms of crisis was partly a function of timing. Financing difficulties, reduced domestic procurement, and a shrinking Third World export market hit just as several programs were undertaking ambitious steps up the technological ladder. The resulting strains emerged at a time when the services' managerial capacities were already being tested. The scale and complexity of its techno-industrial activities

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had already strained the managerial capabilities of the air force severely. Embarking simultaneously on the nuclear and shipbuilding precursors to a nuclear-submarine program had a similar effect on the navy. And the army, which never seized the technological initiative, was already operating with little managerial capability for high-tech enterprises. Bad luck or bad timing notwithstanding, the sector's sudden collapse was the manifestation of a deeper structural dilemma. The period in which the symptoms of crisis flared was one of rapid change in both international and domestic conditions. Previously convergent global-market and domestic-political structures were increasingly pushing and pulling in different directions, creating substantial dilemmas of adjustment. The sector's fundamental problem lay not in a less favorable global-market or domesticpolitical context, but rather in the inability of deeply institutionalized activities to adapt to rapid change on both of these levels.

Intensifying Global-Market Pressures By the late 1970s, the trends of commercialization, internationalization, accelerated innovation, and rapid technological diffusion had fundamentally transformed the global arms economy. As these trends continued through the 1980s, however, they destabilized the rapidly expanding global market that had made them possible. By the early 1990s, the global arms economy was marked by ever more intense competition among a growing number of suppliers in the face of chronically weak demand. Moreover, new political constraints on technology transfer and market constraints on external financing emerged, undermining the already difficult position of new suppliers such as Brazil. In order to see the collective impact of these changes, it is useful to consider three terms in the military-industrial equation—markets, financing, and technology—recognizing that they remain inextricably intertwined in practice. The Third World market for major weapons systems shrank appreciably during the latter half of the 1980s. SIPRI estimates that imports fell more than 20 percent in real dollars between 1985 and 1989; nine of the fifteen leading importers purchased less in 1989 than in 1985 (Table 6.2). Four important Brazilian customers—Iraq, Saudi Arabia, Libya, and Egypt—cut their imports of major weapons by two-thirds (from nearly $6.6 billion in 1985 to less than $2.3 billion in 1989, measured in 1985 U.S. dollars). There were only a handful of new opportunities to offset these losses. But the three countries that increased imports substantially during this period (India and the two Koreas) had not been major Brazilian customers. As demand weakened, the new suppliers ceased to make inroads into the market share of the traditional suppliers. The five leading exporters of

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major weapons systems to the Third World (USSR, the United States, France, China, and Britain) saw their collective sales fall by 21 percent from 1985 to 1989, as overall demand fell 20 percent (Table 6.3). As the big suppliers began to reverse the trend of eroding market share, secondtier suppliers had to fight for the few opportunities available to them. As access to markets became less certain, so too did financing, the second term in the military-industrial equation. By the mid-1980s, Brazil's debt crisis, and its periodic refusals to undertake the structural adjustments called for by the International Monetary Fund, had severely reduced the flow of capital into the country. 8 The general reduction in investment capital did not initially inhibit strong export-led growth in military industries. But by decade's end, the arms market collapse had a dampening effect on the availability of foreign financing. Beyond exacerbating the short-term credit crunch facing the leading defense contractors, financing difficulties curtailed investment in next-generation technological programs. As the case-study chapters will discuss, the rapid technological upscaling of the Brazilian defense sector in the early 1980s was fueled significantly by foreign financing. The emerging financial constraints of the late 1980s crippled some ventures; in other cases, the constraints took hold just when a new round of intensive R&D investments was due. The third key term in the military-industrial equation is technology. Here a fundamental shift in market structure is less readily identifiable during the 1980s. On the one hand, there was a discernible move by decade's end toward tougher technology-transfer restrictions, including the 1987 Missile Technology Control Regime and renewed nonproliferation initiatives. But as the case studies will show, the impact of heightened restrictions has varied widely across specific weapons-system programs, and has not been the limiting factor in the cases examined. What is clear is the changing form of technology transfer. The era of transfers via licensed production had by the early 1990s given way to more intensive forms of internationalization—what Bitzinger describes as "the development of less ad hoc and more formal and more integrative transnational industrial linkages at the firm level, such as the creation of international joint venture companies and even crossborder acquisitions and mergers."9 Bitzinger cites four key trends: (1) significant growth in international arms collaboration; (2) geographic expansion of the globalization process to the developing world; (3) more "formal, integrative, and permanent" forms of international collaboration; and (4) a tendency for industry, as opposed to government, to take the initiative in promoting the process of internationalization. While the first two represent a continuation of earlier trends discussed in Chapter 4, the latter two represent both a deepening and a qualitative shift in internationalization. The trend can be seen most clearly in the shift from licensing to coproduction and codevelopment. According

Diverging Structures and Dilemmas of Adjustment Table 6.2

111

The Leading Third World Importers of Major Weapons Systems, 1985-1989 (in millions of 1985 U.S. dollars)

Importing Country

1985

1986

1987

1988

1989

19851989

1. India 2. Iraq 3. Saudi Arabia 4. Syria 5. Egypt 6. North Korea 7. Afghanistan 8. Angola 9. Libya 10. Taiwan 11. Iran 12. Pakistan 13. South Korea 14. Israel 15. Thailand Others

1,876 2,871 1,447 1,690 1,282 977 82 694 969 664 710 675 388 193 305 5,753

3,683 2,447 2,395 1,508 1,665 876 611 975 1,359 866 746 616 267 446 74 5,026

4,585 4,247 1,956 1,169 2,347 487 687 1,135 294 640 685 467 597 1,629 644 4,601

3,383 2,005 1,770 1,172 348 1,383 939 890 65 513 538 467 934 327 510 4,012

3,819 418 1,196 336 152 1,553 2,289 24 499 263 261 694 607 93 330 3,893

17,346 11,988 8,764 5,875 5,794 5,276 4,608 3,718 3,186 2,946 2,940 2,919 2,793 2,688 1,863 23,285

20,576

23,560

26,170

19,256

16,427

105,989

Total

Source: Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1990 (New York: Oxford University Press, 1990), Table 7.2, p. 228.

Table 6.3

The Leading Exporters of Major Weapons to the Third World, 1985- 1989 (in millions of 1985 U.S. dollars)

Exporting Country

1985

1986

1. Soviet Union 2. United States 3. France 4. China 5. Britain 6. West Germany 7. Italy 8. Netherlands 9. Brazil 10. Israel 11. Czechoslovakia 12. Sweden 13. Spain 14. Egypt 15. North Korea Others

8,563 4,024 3,588 1,017 903 395 578 38 172 160 124 35 139 124 95 621 20,576

Total

19851989

1987

1988

1989

10,327 4,925 3,355 1,193 1,020 649 398 132 134 242 124 141 185 159 48 528

10,759 6,270 2,518 1,960 1,530 252 319 263 491 273 198 298 160 194 98 587

8,238 3,649 1,312 1,781 1,165 480 360 402 338 117 176 240 206 232 123 437

8,515 2,528 1,527 718 993 149 30 572 182 216 287 134 143 62 371

46,402 21,396 12,300 6,669 5,611 1,925 1,685 1,407 1,317 1,008 909 848 833 771 364 2,544

23,560

26,170

19,256

16,427

105,989

—

Source: Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1990 (New York: Oxford University Press, 1990), Table 7.1, pp. 220-221.

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to the Globalization Database of the Defense Budget Project, the number of international coproduction and codevelopment projects has expanded dramatically since the early 1980s, even as the number of international licensing arrangements has declined substantially from its peak in the late 1970s.10 Unlike licensing, coproduction and codevelopment typically entail the internationalization not only of production but also of research and development, corporate planning, capital formation, and marketing strategies. By 1990, the net effect of these changes in markets, financing, and technology was clear. A niche still existed for the more technologically advanced Third World producers, but exploiting that niche required responsiveness to the rigorous demands of the market and constant attention to competitive position. This meant product designs and technological choices driven by market preferences; it also implied a growing conformity to the logic governing the availability of international financing, technology, and markets, at a time when access to each was growing less assured. Successful endeavors in this new era would be those that could take on a transnationalized character free of domestic constraints, or at least satisfy domestic constraints in ways consistent with these market imperatives.

The Changing Politics of Military Industrialization Complex domestic political changes paralleled these global-market shifts. 11 Inevitably, the end of military rule changed the political context of military industrialization. The long, complex transition to civilian government altered the role of the military in national political and economic life, and changed the specific levers the armed forces could pull in pursuing their interests. Shifting from final arbiter to powerful interest group, the military sought to define a new role, while preserving wherever possible the influence it held under the old system. The defense sector was caught in the middle of this role transition. As the military relinquished direct political power, new institutional interests regarding technology development began to emerge within the armed forces. Though the process was halting and uneven, the navy and air force began to display a more externally oriented perspective on security matters, with important ramifications for reequipment and weapons development. More importantly, from the vantage point of transition politics, the defense sector promised to be an important instrument for political influence on matters as diverse as foreign trade, diplomacy, education, science and technology policy, and the federal budget. For these reasons, "back to the barracks" did not automatically mean "out of the factories and laboratories." Given the defense sector's place among Brazil's most technologically advanced endeavors and the importance attached to it by the armed forces, it was not surprising that the military undertook a concerted effort to retain

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sector control during the political transition. But the onset of civilian rule changed the terms of the debate. The military enjoyed considerable influence during the transitional New Republic presidency of civilian politician José Sarney (1985-1990). 12 But transition agreements on military-industrial control were not guaranteed to survive the adoption of a new constitution (1988) and the direct popular election of a civilian president (1989). The military's political intervention to reorganize military-industrial activities thus carried over into the New Republic. For example, when the National Security Council (CSN) was disbanded in 1988, the Armed Forces General Staff retained control of the Brazilian Space Activities Commission, the CSN organ that defined policy for the space program. The reorganization of nuclear activities that same year, which created the interministerial Superior Council for Nuclear Policy (CSPN), also revealed the hand of military influence (see Chapter 10). The armed forces also undertook an intensive effort to shape the postauthoritarian environment by influencing the deliberations of the Constituent Assembly, charged with drafting a new constitution. Technological and industrial interests, though a lesser concern for the military than the basic question of its role in postauthoritarian Brazil, were successfully defended whenever threatened during the assembly's deliberations. The navy and air force retained constitutional authority over the nation's seaports and airports (the latter including air-traffic control, which is integrated with air-defense systems). A provision that would have banned the import, transport, storage, or manufacture of nuclear explosives was replaced by a far less restrictive statement on peaceful uses of nuclear energy—prompting one legislator to conclude that this could be a loophole for developing nuclear weapons, in that their alleged deterrent value gave them a peaceful purpose. 13 More importantly, the military proved able to shape the constitutional definition of its role in a way that would provide leverage for the continued defense of military interests under the new system. The Constituent Assembly bowed to military pressure in preserving the armed forces' constitutional role as guarantor of law and order, a tool used historically to justify a broad range of political interventions in the name of national security or public order. Efforts to define the function of the armed forces solely in terms of external defense were defeated, as were attempts to reorganize command of the separate services under a unified Defense Ministry. Even the one clear failure of the military lobbying effort—elimination of the CSN—was effectively countered by a last-minute decree of President Sarney, forming a Secretariat of National Defense (SADEN) with Security-Council powers. 14 Given these conditions, asserting civilian control of military-industrial development would have been difficult under the best of political circumstances, a phrase not often associated with Sarney's tenure. As the initial

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euphoria of the transition faded in the light of economic difficulties, Sarney became ever more reliant on the military for political support. Several scholars have used the concept of "military tutelage" to describe the resulting pattern of civil-military interaction. 15 Dreifuss makes an even stronger claim, describing the armed forces during this period as a type of "armed political society," in which the military in effect maintained its own state (the CSN and intelligence apparatus), its own productive structure (the defense sector), and an internally generated behavioral rationale, largely independent from civil society. 16 On military-industrial matters specifically, the combination of military autonomy and the weakness of civilian political institutions meant a continuation of earlier patterns. Policies continued to be defined, and resources allocated, without public discussion of broader social concerns such as spending priorities, social needs, employment, or environmental consequences. 17 And the same bureaucratic organs that defined defensesector policies under military rule retained broad discretionary powers in overseeing sector activities. The Sarney era also illustrated that military control of the defense sector under civilian rule could yield significant influence in other policy realms. In science and technology policy, the dual structure of the military years endured. Strategic programs such as nuclear and aerospace continued to receive disproportionate R&D funding. And within those programs, which many civilian scientists would otherwise defend as being in the nation's scientific and technological interest, efforts remained heavily skewed toward military applications. Budgetary policy was also affected. Subsidies and funds for economic development continued to flow to the defense sector in spite of a deteriorating national economy, a deepening budgetary crisis, and the sector's growing indebtedness. In 1987 the National Bank for Economic and Social Development (BNDES) provided a loan of $48 million to Engesa, its largest private-sector loan that year. The loan, prompted by an army request for support, was crucial in averting a cash-flow crisis engendered by the firm's heavy investment in the Osorio tank. Embraer, heavily indebted from the AM-X program, also received BNDES support, including a $150 million loan in 1989. And it was revealed in 1987 that over $100 million in receipts from the National Development Fund, a special tax intended to "eliminate absolute misery and regional inequality" by investing in health, education, and social services, had been earmarked for diversion to the AM-X program. 18 The military's nuclear R&D programs also received an unknown amount of off-budget funding, including funds channeled through secret bank accounts later exposed by Brazilian journalists. The state-run nuclear-power industry, which had generated debts in excess of $4 billion, saw its debt absorbed by the Federal Treasury as part of the 1988 nuclear reorganization. 19

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Perhaps the biggest spillover of influence was in foreign policy. Where arms sales had once been an active instrument of Brazilian diplomacy, the sector's economic difficulties reversed the relationship: Arms sales became an end in themselves rather than a means of conducting foreign policy. The leading example of this was the persistent but failed efforts of both the Sarney and Collor governments to conclude a long-stalled agreement to sell Osorio tanks to Saudi Arabia (see Chapter 9). Military-technological ventures also emerged as a major point of contention with the United States, with tensions surrounding the ballistic-missile potential of the VLS, proposed arms sales to Libya, Brazil's military-technological connection to Iraq, and the ongoing controversies surrounding the nuclear program. Thus, the armed forces negotiated the transition with their militaryindustrial control not only intact but, in some ways, strengthened. In some cases this was accomplished through programmatic reorganization, in others through the military's enduring political influence and its ability to shape the emerging structure of postauthoritarian politics in Brazil. Along with these aspects of continuity, however, came two important changes. First, as the traditional organs of military influence—in particular the CSN and the National Intelligence Service (SNI)—waned in power and influence, military industries and technological programs grew in relative importance as a potential lever for the military to exert political influence in the postauthoritarian era. Second, while the political transition did not eliminate military control of explicit defense-sector policies, there was an inevitable weakening of control of implicit sector policy, that is, policies such as those governing interest rates or federal spending, which had indirect but important repercussions for defense-sector performance. 20 The military's institutionalized ability to influence executive-branch policy was still in place. And an effective lobby had been developed during the Constituent Assembly's deliberations, suggesting an enhanced ability to deal with the constitutionally strengthened Congress. Leaving power, however, inevitably meant greater uncertainty about the future capacity to shape the larger economic and political context of these activities, and to recreate the political conditions that had proven necessary for militaryindustrial growth.

A Victim of Past Success? How and why did these changes make the balancing act between global markets and local politics increasingly difficult to maintain? Why was it no longer possible to identify a single technological path satisfying both the demands of a competitive, transnationalized market context and those of the domestic coalition supporting military-industrial development? And why the failure to adjust?

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The answers lie in understanding how prior successes deeply institutionalized what came to be increasingly contradictory organizing principles for military-industrial activity. Although the four case studies to be examined each tell a different story, they are variations on a theme. Change drove a wedge between internationalization and military control, which had previously been mutually reinforcing and complimentary features. But despite their growing inconsistency, both internationalization and military control were strengthened in the period preceding crisis and collapse. The military emerged from the transition with their control actually enhanced in many parts of the sector, even as intensifying market pressures accelerated the process of internationalization for the leading defense-sector firms. The problem was not merely that the world had changed, implying the need to adapt a basically successful model. Rather, the early successes sowed the seeds of their own destruction by deepening the institutionalization of features that would prove destructively contradictory in the new domestic and international climate.

Notes 1. Clovis Brigagao, "The Brazilian Arms Industry," Journal of International Affairs 40 no. 1 (summer 1986): p. 101. 2. Peter B. Evans, "The State as Problem and Solution: Predation, Embedded Autonomy, and Structural Change," in Stephan Haggard and Robert R. Kaufman, eds., The Politics of Economic Adjustment: International Constraints, Distributive Conflicts, and the State (Princeton, NJ: Princeton University Press, 1992). 3. "Divida da industria bélica supera US$ 1 bi," Folha de Sao Paulo, January 21, 1990. 4. "Sales Halved," Gazeta Mercantil (international edition), January 30, 1989; "Filing for Concordata," Gazeta Mercantil (international edition), January 15, 1990; "Concordata da Avibrás foi surpresa," Folha de Sao Paulo, January 21, 1990. 5. "Tank Fatigue," Gazeta Mercantil (international edition), August 21, 1989; "Collor participa de exercício de tiro e elogia novo tanque," Jornal do Brasil, June 21, 1990. 6. "Huge Sums Needed for New Aircraft," Gazeta Mercantil (international edition), August 28, 1989; "Turbuléncia no ar," Veja, June 14, 1989. 7. "Brazilian Plane Maker Embraer, Once a Symbol of Third-World Strength, Puts Its Hopes on Hold," Wall Street Journal, November 13, 1990. 8. Net long-term capital flows into Brazil declined from $11.6 billion in 1981 to $1.1 billion in 1985, followed by net outflows of $265 million in 1986 and $995 million in 1987; World Bank, World Tables 1991 (Washington, DC: World Bank, 1991): p. 147. 9. Richard A. Bitzinger, "The Globalization of the Arms Industry," International Security 19 no. 2 (fall 1994): pp. 170-171. 10. Ibid., p. 176. 11. This section draws upon Ken Conca, "Technology, the Military, and Democracy in Brazil," Journal of Interamerican Studies and World Affairs 34 no. 1 (spring 1992): pp. 141-177.

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12. When Congress chose a replacement for General Figueiredo, the last military president, opposition leader Tancredo Neves narrowly outpolled the military's favored candidate. Sarney, a former president of the proregime PDS party, headed a group of proregime politicians who threw their support to the opposition before the election, and became Neves's running mate as a result. Sarney assumed the presidency when Neves fell ill on the eve of taking office; he was sworn in when Neves died shortly thereafter. 13. Centro Ecumènico de Documentaçâo e Informaçôes, De Angra a Aramar: Os Militares A Caminho da Bomba (Rio de Janeiro: CEDI, 1988): pp. 60-62. 14. René Dreifuss, O Jogo da Direita (Petrópolis, Brazil: Editora Vozes, 1989): p. 247. The secretariat created by Sarney's decree was disbanded in 1990 by his successor, Fernando Collor de Mello, with some of its staff and many of its duties passing to a newly formed Secretariat for Strategic Issues. 15. Eliézer Rizzo de Oliveira, "O aparelho militar: papel tutelar na Nova República," in J. Quartim de Moraes, W. Peres Costa, and E. Rizzo de Oliveira, A Tutela Militar (Sao Paulo: Vertice, 1987); Walder de Goes, "O novo regime militar no Brasil," Dados: Revista de Ciencias Sociais 27 no. 3 (1984): pp. 361-375; José Murilo de Carvalho, "Militares e Civis: Um Debate para além da Constituente," in Aspásia Camargo and Eli Diniz, eds., Continuidade e Mudança no Brasil da Nova República (Sao Paulo: Vertice, 1989). 16. René Dreifuss, "Sociedade Política Armada ou Força Armada Societària?" in E. Rizzo de Oliveira, G. L. Cavagnari Filho, J. Quartim de Moraes, and R. A. Dreifuss, Ai Forças Armadas no Brasil (Rio de Janeiro: Espaço e Tempo, 1987). 17. Sarney's final budget proposal to Congress called for a higher level of government investment in military programs than in investments related to health, education, and welfare combined ("Seplan preve em 45% do PIB gasto com divida interna," Jornal do Brasil, October 3, 1989; see also "Arms Build-up Continues Despite Budget Cuts," Gazeta Mercantil [international edition], January 2, 1989). 18. "Fundo falso," Veja, August 12, 1987; "O projeto do AMX custara 36 bilhoes," O Estado de Sâo Paulo, August 25, 1987; "Big Loan Approved," Gazeta Mercantil (international edition), May 22, 1989. 19. "Nuclear Program Refueled," Gazeta Mercantil (international edition), September 5, 1988; "Governo modifica política do uranio," O Estado de Sâo Paulo, September 2, 1988. 20. My use of the term "implicit" follows that of Eduardo Augusto Guimaraes, José Tavares de Araujo Jr., and Fabio Erber, A Política Científica e Tecnològica (Rio de Janeiro: Jorge Zahar Editor, 1985).

7 The AM-X Tactical Fighter

We are acquiring technology and industrial capacity, and this is not obtained for free. —Brigadier Octavio Moreira Lima, responding to reports that the Aeronautics Ministry would be forced to spend an additional $2.5 billion on Embraer's AM-X tactical fighter1

The Origins and Nurturing of Embraer According to the first chairman of Embraer, Ozires Silva, the firm's roots can be traced to the technical wing of the Brazilian Air Force. 2 Led by Silva and French designer Max Holste, engineers within the Aeronautics Technological Center ( C T A ) designed and built a twin-engine plane in the mid-1960s. The plane, dubbed the Bandeirante, had a successful test flight in October 1968. Shortly thereafter, the Ministry of Aeronautics proposed capitalizing a state-owned aircraft manufacturing firm. Silva and others have said that a state-owned enterprise was created because private capital could not be attracted to the venture.3 The military high command approved the proposal in 1969, and Empresa Brasileira de Aeronautica, or Embraer, began operations in 1970. Embraer's emergence was the culmination of a Brazilian aviation tradition spanning the twentieth century since the 1906 flight of aviation pioneer Santos Dumont in Paris. There have been numerous attempts to build aircraft in Brazil, beginning with a 45-horsepower monoplane made of wood and fabric in 1910.4 Many of these projects flew successful prototypes, and a few were mass-produced.5 But most attempts to commercialize production fell victim to weak demand, high costs, infrastructural limitations, and shortages of skilled labor. Several factors explain Embraer's ability to gain a foothold where prior initiatives failed. The broadening national industrial base helped

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eliminate earlier bottlenecks and barriers. The air force's decision to begin training aeronautical engineers in the early 1950s provided a critical mass of skilled personnel. Individuals associated with Embraer were also quick to credit the firm's "international orientation" and "entrepreneurial spirit."6 Most importantly, however, the new firm benefited from a diverse array of supportive state policies, applied at three distinct levels: in the links between Embraer and air force R&D, in dealings between the firm and the air force as a whole, and in the broader macroeconomic and fiscal support the young firm received from the military regime. 7 The young Embraer benefited from an extremely close relationship with air force R&D. CTA provided the new firm's first aircraft design and virtually all of Embraer's management team and technical staff. CTA's Institute of Industrial Coordination and Promotion (IFI) coordinated technology transfer and promoted the development of supplier firms for Embraer. Silva described the CTA-Embraer relationship in a 1977 interview: Embraer and CTA work interactively. In spite of being completely separate institutions, they have a very close channel of communication at the level of execution. Precisely because we are almost completely derivative of CTA, we know CTA like the palm of our hand. At times we are even a little mistreated by CTA, because we are children: CTA is stern with us as a parent is stern with a child. But we are certain that we can always count on CTA, because the child can always count on the parent. In this way, we always work together. We are a family. 8

While CTA provided technical support and coordinated segment growth, air force procurement power guaranteed the production lines for early Embraer aircraft. 9 The importance of domestic procurement is often overlooked in analyses of the firm's growth. Although exports would later absorb much of Embraer's production, the firm existed for more than five years before exporting its first plane and for nearly a decade before gaining a solid foothold in the international market. A series of sector-specific fiscal and tariff policies also boosted the young firm. A tax subsidy scheme attracted private capital, which had initially showed little enthusiasm. Brazilian corporations were allowed to deduct 1 percent of their income tax to purchase Embraer stock. The firm also benefited from tariff protection of the sizable domestic market for small aircraft, subsidized export financing by Brazilian banks, and tariff exemptions on imported foreign parts and components. 10 The effect of these policies can be seen in Embraer's first major success, a nineteen-seat twin-engine turboprop aircraft known as the Bandeirante. The plane consisted of a nationally built fuselage fitted with imported engines, avionics, and other components and systems. CTA designed the plane in the mid-1960s—the first prototype flew more than a year before Embraer was formed—and transferred the design to Embraer

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at no cost. An air force purchase of eighty planes guaranteed the production line for eight years. 11 When production ceased in 1989, 500 Bandeirantes had been built, with more than 240 exported to civilian and military clients in thirty-six countries. The Bandeirante was conceived as a way to address problems in both military and civilian transport. The air force was ready to replace its U.S. Beech D-18s, a twin-engine turboprop used for transport. At the same time, the advent of jet transportation had opened a lacuna in civilian transport; as a result of inadequate infrastructure, sparse demand, and higher jet operational costs, the number of Brazilian cities served by air fell from 360 in the prejet era to 120 to 130 by the early to mid-1960s. 12 The regional airlines created to overcome this problem needed a plane suitable for regional transport and feeder lines. Foreign-exchange concerns were also an important stimulus: Brazil spent $150 million on imports of 1,900 small- and medium-capacity civilian aircraft between 1970 and 1974 (excluding large aircraft, helicopters, military planes, and gliders). 13 Thus, although the idea that Embraer "thought internationally" from its inception was an article of faith among firm officials, the Bandeirante was conceived to address domestic needs, and its international success was largely fortuitous. The plane's fuel efficiency and low operating costs made it attractive in the wake of the largely unforeseen oil price increases of the early 1970s. More generally, its low price, durability, and capabilities for short takeoff and landing were well suited to an emerging international market niche. 14 Once the plane's export potential became clear, the air force agreed to delay delivery of its Bandeirantes, freeing Embraer to manufacture planes for export and domestic civilian clients. 15 Another important early program was the Xavante, a single-engine Italian military jet of late-1950s design (Italian designation Macchi MB326) used primarily for training, ground attack, and tactical support. Embraer signed an agreement in 1970 with the Italian firm Aermacchi to produce the plane under license. Together with the Bandeirante, the Xavante program established what would be a recurring pattern: The decision to produce a particular plane was made with a well-defined technological goal in mind; foreign technological dependence, though inevitable, was negotiated on favorable terms; and an initial air force purchase (in this case, 112 planes) was enough to make production feasible. For the Xavante, the principal goals were to build the firm's know-how in production-line organization and obtain experience with light military aircraft. 16

Climbing the Technological Ladder Dagnino and Proen§a describe the technology strategy emerging from this protective, supportive environment in terms of three principles: (1) "beginning

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at the beginning," or stressing full absorption of even relatively simple technologies before undertaking more ambitious efforts; (2) "climbing the technological ladder," or defining pathways of technological growth rather than recreating the entire field of aeronautics within the firm; and (3) stressing "technological offspring," or selecting areas of technological emphasis that offered particularly fertile future prospects. 17 The result was a pragmatic, incremental learning strategy that sought a middle course between dependency and autonomy. With each succeeding generation of aircraft, the firm emphasized acquiring a few specific new production capabilities, filling the remaining gaps with imported components or licensed production. Embraer stressed the design and manufacture of airframes, rather than spreading itself too thinly by also attempting to master avionics, engine production, and on-board systems. This strategy worked well in the market conditions of the 1970s. Real skills were acquired with each step, and the domestic content of Embraer aircraft invariably increased over time. 18 The size and potential of the Brazilian domestic market made international firms eager to establish supplier links. The decision not to produce aircraft engines domestically created important sales opportunities for the multinational engine producers, thereby boosting Embraer's access to aeronautics technology. 19 The firm's first decade reflected this pragmatic, incrementalist strategy. With the Bandeirante and Xavante projects yielding basic know-how in the areas of fuselage production, component assembly, and productionline organization, Embraer negotiated two more agreements with foreign producers. A 1973 coproduction deal was signed with the U.S. firm Northrop, as part of an offset when the Brazilian Air Force purchased 42 F-5E fighters. To make the sale, Northrop agreed to subcontract the vertical tail assemblies and wing pylons to Embraer, and the aircraft's controls and bomb rack to the metallurgical firm Metal Leve. 20 Embraer also signed a series of licensing agreements with the U.S. firm Piper in 1974 and 1975 to produce one- and two-seat general-aviation aircraft. Both the Northrop and Piper agreements reflected Embraer's ability to use supplier competition and domestic-market access to its advantage—or more accurately, the ability of the firm, the air force, and the government to use these tools in a coordinated fashion. Both agreements yielded tangible benefits: the Northrop connection provided important technological gains, particularly in chemical welding, and the Piper agreements added a thriving general-aviation division, export networks, and marketing skills. 21 By 1979, the end of Embraer's first decade, 65 percent of Brazilian Air Force planes were Brazilian-built. 22 At the same time, the firm was gaining international recognition in both civilian and military markets as a supplier of simple, durable aircraft. The Tucano, a two-seat turboprop trainer entering production in 1982, typified this dual domestic-international niche. As usual, the Tucano joined a Brazilian-built airframe with

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imported components (including a Canadian Pratt & Whitney engine imported at a cost of nearly 20 percent of the plane's $1.2 million sales price). 23 Embraer designed the Tucano to meet the air force's needs for a primary training aircraft, but also to fit an emerging international niche for an inexpensive trainer that could simulate jet conditions and serve in a light-attack role. 2 4 These features plus a low price, high fuel efficiency, simple design, easy maintenance, and durability made the Tucano a popular export. 25 By the time sales slowed in the late 1980s, over 600 had been exported to a dozen countries. 26 The plane also marked Embraer's first venture as a technology licenser; export agreements with an Egyptian-Iraqi consortium in 1983 and with Britain in 1985 established local assembly of Embraer kits. 27 During Embraer's first decade, two key organizational features emerged. One was the firm's vertical integration. Firm officials and industry observers often stressed the importance of national industry in supplying parts and components for Embraer. Saraiva, however, points out that most of this activity consisted of the supply of routine parts by preestablished firms that relied on Embraer for only a small portion of their business. 28 The firm concentrated design, engineering, production, assembly, and testing within its Sào José dos Campos industrial complex, importing most of the major components and subsystems that Embraer itself could not produce. A second notable feature was Embraer's blurred civilian-military character. The firm's civilian planes had dual-use capabilities, and opportunities in both civilian and military markets were used to build Embraer's technological base. The strategy of incremental learning and pragmatic dependency made it relatively easy to develop production capabilities and know-how with dual applications; the emphasis on general-purpose airframes fitted with specialized components and subsystems meant that new production skills could be transferred readily between civil and military applications. Indeed, the firm itself was in a sense "dual-use"—it supplied civilian aircraft for domestic regional transportation needs as it helped the Brazilian Air Force build a national industrial base in aeronautics. Several observers have attributed Embraer's rapid growth and successful market penetration to the firm's effective technological strategy, dual exploitation of civilian and military markets, and adept public-private division of labor. As a result, it has often been suggested that the firm represented a potential model for effective national technology development on a broader scale. 29 What such claims overlook is that the firm's effective technology strategy, and the industrial structure that made the strategy feasible, were both contingent on a favorable convergence of global-market and domestic-political conditions. The growing segmentation of the international aeronautics market and the increasing sophistication of topend aircraft (both civilian and military) led the major U.S. and European

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producers to virtually abandon efforts to innovate for regional aviation markets. 30 Without this, there would have been no niche for Embraer to target. Moreover, the policies of market creation, market protection, subsidization, and coordination could never have been extended wholesale to Brazilian industry as a means of stimulating technological development. Embraer relied on preferential relationships and a level of access to scarce resources that, by definition, did not apply to Brazilian industry as a whole. Favorable global-market and domestic-political conditions were not a sufficient condition for Embraer's success, but they were necessary. The changing context of the 1980s would test severely the adaptability of the firm, the air force, and the development programs they jointly pursued.

The AM-X Program From this platform of supportive state policies, an expanding international market, and an effective technological strategy Embraer launched several ambitious new ventures in the 1980s. These included a line of advanced civilian airliners in the under-fifty-seat size range, the production of aircraft components for export, and a series of forays into Brazil's fledgling missile and space programs. The firm's most ambitious undertaking, however, and the program that would define the problems of military aircraft production in Brazil, was the AM-X tactical fighter. The AM-X is an advanced, subsonic aircraft designed to fill the combat role of close interdiction against ground forces. Its design stresses lowaltitude maneuverability and high survivability, differentiating it from the multipurpose fighter/interceptors that many air forces deploy in groundattack roles. The AM-X is a far more advanced weapons system than anything built previously by Embraer; it features a Rolls Royce turbofan jet engine rated at over 11,000-lb thrust, advanced avionics and structural materials, an 8,500-lb external-load capacity, and a diverse array of armaments. 3 1 Modified versions have been developed for training, electronic combat, antiship, and night operations. For Embraer, the AM-X was not only a plane of unprecedented sophistication and complexity, but also a totally new approach to building aircraft. The program was based on a 1980 coproduction agreement with the Italian firms Aermacchi and Aeritalia. 3 2 Embraer was allocated 29.7 percent of the total workshare, with Aeritalia responsible for 46.7 percent and Aermacchi 23.6 percent. 3 3 All three firms produced a fixed portion of each plane, regardless of whether the buyer was the Italian Air Force, the Brazilian Air Force, or a third party. Embraer's share included the wings, engine air intakes, pylons, landing gear, reconnaissance pallets, and jettisonable fuel tanks. The accord called for Embraer to assemble all the AM-X planes purchased by the Brazilian Air Force, receiving components

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and subsystems from the Italian firms and shipping to Italy its portions of the planes assembled there. The decision to build the AM-X reflected a convergence of strategic, technological, and industrial goals. The program first took shape in the mid-1970s, when the air force perceived the need to replace the Xavante trainers pressed into a ground-attack role. 34 As these goals were being formulated in Brazil, the Italian Air Force was exploring development of a broadly similar aircraft. To the Italians, Brazilian collaboration seemed logical: It afforded opportunities to share costs, spread risk, and increase the scale of the program. 3 5 And the Italian firm Aermacchi had previous experience with Embraer, having licensed the 1970s Xavante program. Within the Brazilian Air Force, a faction emerged in favor of importing American F-16s—a more advanced plane that might well have been cheaper to acquire, in terms of life-cycle costs. 36 But those favoring the AM-X as a way to promote industrial capacitation prevailed. To promote such capacitation would clearly require extensive foreign participation; Embraer had grown increasingly competent in attaching components to a basic fuselage, but lacked vital capacities in avionics, engine manufacture, and advanced materials. The Italians were attractive partners—advanced enough to learn from, but not so advanced as to dominate the program and inhibit technological absorption. The plane's design also fit the air force's perceived mission needs, broadly defined, while offering the prospect of a significant export-market niche for a sophisticated ground-strike aircraft with some intercept capabilities. Thus, while the decision process of the Brazilian Air Force started with a tangible mission, the program's technological and industrial priorities were not defined solely, or even principally, by equipment needs. Rather, the program is a clear illustration of how intertwined technological, industrial, and procurement goals drove military-industrial planning. According to an interview with one senior air force official involved in defining the program, several goals were being pursued at once: (1) accomplishing a "technological leap"; (2) promoting the industrial capacitation of Embraer; (3) gaining experience with international consortia (both for learning purposes and because this was seen as the wave of the future in the aeronautics industry); and (4) giving the Brazilian Air Force a meaningful ground-strike capability. When asked whether these goals could be ranked in order of importance, he replied that "nothing in life happens for one reason—there was a convergence of goals." The decision to build the AM-X also illustrated the changing relationship between Embraer and the air force. Both air force and firm officials stressed that the full initiative for the program lay with the air force. By the time negotiations between the two began in earnest, the firm's overall marketing strategy was growing increasingly linked to global-market conditions. Within this context, Embraer officials held the growing conviction

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that the pragmatic, incrementalist strategy of the 1970s had run its course. International competitiveness was felt to require a major, nonincremental upgrading of the firm's technological capabilities. The A M - X program was not the only way to gain such capabilities, but it was one way to do so, and an attractive one given the air force's willingness to provide the necessary resources and guarantee the market.

The Political Economy of Technological Capacitation The first A M - X prototype flew in 1984, and the Italian and Brazilian Air Forces took delivery of their first planes in 1988 and 1989, respectively. The Italians placed orders for a total of 238 planes, and the Brazilians 79. For Embraer, the program clearly did not proceed as smoothly as anticipated. By the late 1980s there were persistent reports of technical difficulties—perhaps not surprising given the ambitiousness of the venture— and of Italian dissatisfaction with the pace of Embraer progress.37 A more serious problem was the plane's spiraling cost. The start-up costs to meet Brazil's share of the program were initially estimated at $600 million. 38 If the planes themselves could be built at the projected unit cost of $10 million, this would have meant a total outlay of roughly $1.4 billion for the seventy-nine planes the Brazilian Air Force planned to acquire.39 By the end of 1989 the revised forecast for total outlays was approximately double this figure, at $2.85 billion. 40 Although design changes and equipment requirements imposed by the air force drove some of the cost increases, industrial capacitation also proved to be substantially more costly than expected.41 Meeting such costs under the difficult budgetary circumstances of the 1980s became an enormous strain for the air force. Beginning in 1990, the air force was forced to stretch out its acquisition schedule. As costs exploded, the projected booming international market for ground-strike aircraft failed to materialize. The resulting dilemma was clear: Cost increases made exports more difficult, at the same time that the number of exports necessary to reach the break-even point increased with spiraling costs. The head of the A M - X program, Brigadier Ajax Barros de Melo, stated in 1989 that the original break-even point was roughly 250 units, but that cost increases had raised this to 500 to 600.42 Although the exact figure is not available, the plane's unit cost had ballooned to an estimated $16 million by the early 1990s (with the cost of a fully loaded, combat-ready vehicle on the order of $20 million). 43 This pushed the plane beyond the upper bound of a competitive international price, considering that the far more capable U.S.-made F-16 could be acquired for under $30 million. In spite of these difficulties, the A M - X program had many of the developmental consequences expected of it. First and foremost was the

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technological and industrial capacitation of Embraer itself. While neither the firm nor the air force disclosed details of the specific capabilities acquired, the firm's principal process technology gains appeared to be in the areas of computer-aided design (notably, computational aerodynamics), computer-aided manufacturing (notably, numerically controlled milling), and composite-materials technology. 44 A second gain was in the organization of production. The AM-X program meant an unprecedented step upward for the firm in programmatic scale and complexity of organization. The engineering department more than doubled in size (from 800 to 2,000 employees) and the addition of a 1,500-worker production line raised production-department employment to 6,000 workers. 4 5 A new 600-worker equipment division was also established, given the inability of existing Brazilian subcontractors to meet required specifications for items such as antiskid wheels and brakes, hydraulic and fuel system valves, and ordnance-ejection units. 46 As part of this expansion, and in order to tighten security, the firm installed a separate military hangar at its production facility in Sao José dos Campos. A third major result was the emergence of a cluster of technologically advanced supplier firms. Franko-Jones reports that, primarily as a result of the technological capacitation of these firms, the proportion of nationally produced material incorporated into the AM-X increased from 21 percent by value in 1986 to 51 percent in 1988. 47 The Ministry of Aeronautics established a Complementary Industries Program (PIC) which targeted seven carefully chosen firms for technological development. 4 8 These included five electronics firms (ABC, Aeromot, Elebra, Engetrónica, and Microlab) brought in to produce a range of on-board and support systems (including radar, fire-control systems, reconnaissance packs, and flight simulators); the subsidiary of an Italian multinational (Pirelli), to manufacture the jettisonable fuel tanks; and a new Embraer equipment subsidiary (EDE Systems). Three other firms emerged as important suppliers without participating in the PIC program: Tecnasa, which developed the radar system for the Brazilian version of the AM-X in conjunction with Italian technical assistance; the armored-vehicle firm Bernardini, manufacturing cannon for the plane; and Celma, the state-owned engine parts producer and engine maintenance firm. 49 Thus the AM-X represented a sharp discontinuity in the aeronautics industry's path of technological development. To be sure, the larger philosophy of promoting technological autonomy still informed the decision to undertake the program and the major choices within it. In both product and process terms, however, the emphasis on airframe development, and the pragmatic acceptance of extensive component dependency, shifted substantially. At the same time that this technological shift was occurring, and in part because of it, the AM-X program had complex organizational consequences

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for Embraer and for the aeronautics industry as a whole. Within the firm, the main effect was to impose a more pronounced distinction between civilian and military programs. The distinction was physical; construction of a new military hangar separated the AM-X program from the rest of the firm's activities, and Embraer imposed strict controls on access to the area and participation in the program. 5 0 The distinction was also organizational, in that Embraer was developing a split managerial personality. The firm retained broad decisionmaking autonomy where its emerging line of civilian transport aircraft were concerned, but followed a clear lead from the Ministry of Aeronautics in military programs. This schism was closely linked to the distinction drawn earlier between technological paths. While the civilian product line of the 1980s was essentially a continuation of the earlier path, the internationalization implicit in the AM-X program meant that the firm ceded much of its decisionmaking autonomy, for a price, to the larger logic of government-to-government agreements and the needs of the international consortium. The capacitation of technologically advanced suppliers also had important organizational consequences for the aeronautics industry. Unlike CTA's earlier effort to build a national supplier industry for Embraer, the emerging AM-X suppliers were for the most part not tied to Brazil's largest industrial groups. Of the ten key AM-X supplier firms listed above, only two (Elebra and Pirelli) were among the five hundred largest industrial firms in Brazil. 51 Of the rest, Tecnasa, Microlab, and Aeroeletronica (an Aermot subsidiary) were small microelectronics firms that entered the industry as part of the 1970s effort to create an aeronautics supplier base; Embraer-subsidiary EDE and Celma were part of the state-owned aeronautics complex (until Celma was privatized in 1991); ABC was a newly created firm that emerged after the start of the AM-X program; and Engetronica and Bernardini were from the armored-vehicle industry. 52 The emergence of these technologically advanced supplier firms altered not only the vertical structure of the Brazilian aeronautics industry, but also the pattern of foreign linkages. Several of these firms established, or were themselves the product of, connections with multinational technology suppliers outside the context of the AM-X program. 5 3 This broadened the segment's technological base and shifted the locus of technological inflow from Embraer to the supplier firms. These organizational changes—a decrease in the industry's vertical integration, a broadening of the industry's technological base and international linkages, and polarization of Embraer's civilian and military activities—did not appear, at the time, to inhibit the air force's ability to exert path-defining control. Most of the important new suppliers either were already involved in the defense sector or were start-up firms with air force connections. And while the emerging civil-military "split personality" would be a source of increasing tensions as the agenda for the 1990s began

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to take shape, the AM-X program itself had the opposite effect, binding the firm more tightly to the air force. As one former air force and firm official commented in an interview, "The AM-X program usefully bound Embraer's hands. The firm had to comply with its international agreements. They had to do it, so they just did it."

A Springboard to What? As the AM-X program transformed Embraer's military wing, important changes were also underway on the firm's civilian side. The civilian product line expanded, Embraer emerged as a supplier of components and production technology on the international market, and the firm diversified into Brazil's fledgling space industry. Capabilities built through the AM-X helped open these doors. But the changes exacerbated civil-military divisions within the firm and with the air force, greatly complicating the air force's twin goals of promoting technological development and retaining path-defining control. The new cornerstone on Embraer's civilian side was the Brasilia, a thirty-passenger pressurized turboprop aircraft first flown in 1983. Though the Brasilia was essentially a civilian passenger aircraft, the air force again launched the production line with an initial purchase for cargo, transport, and (in modified versions) ocean-patrol and Airborne Warning and Control System (AWACS) functions. The civilian version of the Brasilia, priced at just over $5 million, was highly successful in the international market. The plane featured the lightest takeoff weight, fastest cruise speed, and lowest operating costs of any plane in its class. 54 By 1990 there were more than 400 international orders, the majority from U.S. regional and commuter airlines. Embraer's share of the U.S. regional-transport market grew to 44 percent. 55 Based largely on the strength of these sales, revenue from civilian sales surpassed the firm's military sales beginning in 1987 (see Table 7.1). Boosted by the Brasilia, Embraer announced two ambitious new civilian projects in the late 1980s. In 1987 the firm signed a coproduction Table 7.1

Embraer Sales in Civilian and Military Markets, 1985-1989 (in millions of current U.S. dollars)

Market

1985

1986

1987

1988

1989

Growth, 1985-1989

Civil Military

106.6 112.0

180.2 197.4

260.2 214.3

302.3 221.0

418.6 281.9

393 percent 252 percent

Source: Embraer, "Embraer—Background Information," press release no. 059/90, September 2, 1990.

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agreement with the state-owned Argentine aircraft industry, FAMA. The agreement, hailed as a symbol of improving bilateral relations and a harbinger of economic integration in the Southern Cone, called for joint production of the Embraer-designed CBA-123 Vector, a nineteen-passenger turboprop with a pressurized cabin. Embraer then announced plans to build its first passenger jet, a forty-five-seat "stretched" version of the Brasilia dubbed EMB-145. 56 Both new projects incorporated many of the Brasilia's basic design features (both planes share the Brasilia's cross-section). Embraer was planning to tap the growth of regional transport fueled by airline deregulation in the United States, market growth in Asia, and the development of highly efficient small engines. Both projects carried heavy development costs: an estimated $200 million for the EMB-145, and $300 million for the Brazilian share of the Vector program. 57 A second form of diversification was Embraer's emergence as an international supplier of components and technology. Embraer licensed the Tucano as part of sales to the British Royal Air Force (1983) and the Arab Organization for Industrialization (1985), and entered into discussions with the Iranian government in 1991 to transfer the recently discontinued Bandeirante production line. 58 More important was the firm's emergence as a supplier of advanced components to the world's leading commercial jet producers. In 1987 Embraer concluded a $120 million agreement to supply composite-material outboard flaps to McDonnell-Douglas. The flaps, larger than the entire wing of the AM-X, were for the MD-11 widebodied jet. Embraer also signed a contract with Boeing to supply milled wing and fuselage parts, submitted a bid for similar work to Airbus, and reportedly received proposals from Bell-Textron and the Canadian aerospace firm Spar. 59 One Embraer official suggested in an interview that the market for composite-material components was such that the firm could "survive on that business alone" if its aircraft ventures failed. Embraer's entry into such relationships reflected a trend in the production of civilian aircraft, marked by increasing internationalization of production and greater risk-sharing between prime contractors and suppliers. 60 A third form of diversification moved beyond fixed-wing aircraft entirely, as the firm ventured into the fledgling Brazilian aerospace industry. In 1986 Embraer and the armored-vehicle firm Engesa agreed to form the joint-venture aerospace firm Orbita. In addition to projects of interest to Engesa and the army, Orbita planned to develop the Piranha, an air-to-air missile designed by CTA and intended as an armament for the AM-X. There were also indications that Orbita would become involved in the VLS space-launch program, which by the mid-1980s had become the principal focus of CTA efforts. Embraer also manufactured the composite-material frame for the remote-sensing satellite being built by the Space Research Institute (INPE) as part of the Brazilian Complete Space Mission (MECB).

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In 1989 INPE contracted with Embraer to undertake a survey of potential suppliers for the fledgling national space industry. 61 Embraer officials and industry observers attest that technological capacitation from the AM-X program made these civilian ventures possible. Clearly, the new equipment and expansion of the firm's engineering and design capabilities were major enhancements. But the relationship between the firm's new capabilities and its diversification was more complex. The new line of civilian aircraft did incorporate composite-material components. 62 But much of the firm's composite-material skills appear to have come not from the AM-X but rather from a 1983 technology-transfer agreement with the U.S. helicopter manufacturer Sikorsky, at a time when Embraer was positioning itself to enter the national market for military helicopter production. 63 Similarly, the AM-X program upgraded the firm's installed machine-tool capacity dramatically, but 90 percent of this capacity was occupied by the AM-X itself. 64 Embraer contracted in the United States for machining on both the Brasilia and Vector lines. Engineering was the same story: The AM-X occupied only 22 percent of Embraer's productive capacity in 1989, but reportedly absorbed twice as many engineering hours as the Brasilia. 65

The Mounting Crisis As Embraer diversified, so did the air force. Whereas the 1970s were clearly the aeronautics decade, the 1980s saw aeronautics competing with two other ambitious techno-industrial endeavors: modernization and expansion of Brazil's integrated air-defense and air-traffic-control system, and the rapidly emerging space program. One senior air force official, commenting in 1987 on this dispersion of focus, stated that "We were given two priority projects, each costing $1.5 billion. . . . One was the AMX, the other was the modernization of the air-traffic-control system. The two of them together was just too much." 6 6 As discussed in Chapter 6, the air force survived the transition to civilian rule with control of the Aeronautics Ministry, and hence both civil and military aviation, intact. The proliferation of priorities, however, strained air force managerial capabilities. And their cost plus the budgetary burden of the AM-X program reduced funds available for investment in Embraer. After major infusions of capital tied to the AM-X program in the latter 1980s, the Aeronautics Ministry essentially stopped investing. 67 During the transitional Sarney government (1985-1989), the air force was able to steer funds toward Embraer from other sources. In 1987 the press discovered that over $100 million from the National Development Fund—a special tax intended to "eliminate absolute misery and regional

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inequality" by investing in health, education, and social services—was earmarked for diversion to the AM-X program. 68 Embraer received a $150 million loan from the BNDES; though not specifically for military programs, the loan came at a crucial time, when the firm was seeking to stabilize its capital base through a debt-equity swap with foreign banks. 69 Embraer completed a $100 million debt-equity swap in late 1989, in which foreign banks acquired 48.9 percent of equity. 70 Embraer also explored creative financing for its new civilian programs. For the EMB-145, Embraer sought to enlist the plane's principal suppliers in an investment fund that would pay a return based on sales of the plane. 71 By 1990, however, Embraer's financial problems had reached critical proportions. By late that year the firm's debt burden had reached $680 million. 72 The causes were several: the heavy cost of the AM-X, the drying up of investment by the state, the heavy investments associated with new civilian programs, and decreasing export revenues. Sales of the Tucano had begun to fall off, and a U.S. threat of trade sanctions against Brazil hurt Brasilia sales from 1987 to 1989 in Embraer's single most important market for civilian aircraft. 7 3 Embraer continued to rely heavily on imported parts and components; in 1988 the firm imported an estimated $247 million in parts, components, and equipment to export an estimated $385 million in aircraft and parts. 74 Caught in this convergence of pressures, Embraer announced a severe cost-cutting plan in late 1990. 75 The firm laid off nearly one-third of its labor force, adopted severe cost-cutting measures, delayed the start of production for the Vector, and postponed the EMB-145 indefinitely. A second major layoff plan was announced in November of 1991. 76 Embraer officials also began to call publicly for the firm's privatization. As one interview subject reported, "It is great to be a state firm when the state is investing—but that is the only advantage, and it comes at a cost of flexibility."

The Underlying Dilemmas Embraer's financial crisis revealed deeper structural tensions surrounding issues of control and the firm's split civil-military character. When Embraer officials first raised the idea of privatization publicly, the reaction of the Ministry of Aeronautics was guarded at best. Aeronautics Minister Moreira Lima stressed that while a larger share of ownership could be offered to the private sector, privatization was a question for the long-term only. 77 Debt-equity conversions and stock issues were acceptable to raise new capital, but not to reduce the ministry's voting share below 51 percent (the minimum level allowed in the law that founded Embraer). But as Embraer President Ozilio Carlos da Silva stressed, "One cannot seek funds on

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capital markets without giving some voting power to new stockholders." He went on to state that "either the government invests, or it relinquishes control and privatizes. . . . It doesn't matter who owns the company. What the company needs is administrative flexibility and access to funds in order to invest. A company that doesn't invest dies." 7 8 The aeronautics minister of the newly elected Collor administration, Brigadier Socrates Monteiro, signaled a more flexible air force position on privatization. Monteiro stated publicly that "Embraer is a privatizable firm," although he cautioned that its strategic importance demanded caution in defining how privatization would be carried out. 7 9 At the 1990 Farnborough Air Show, Embraer announced that privatization plans would go forward. 80 In June of 1991, the Aeronautics Ministry announced that it would seek up to 4 0 percent foreign investment in the firm, with an additional 30 percent transferred to private domestic holders. 81 The intent was for the air force to retain some type of "golden share" giving it veto power over the restructured Embraer. 8 2 In 1991 funds were injected to shore up the firm's capital base, including a $ 1 0 0 million advance on the A M - X program and a $ 1 5 0 million relending operation, followed by congressional approval of a $407 million relending operation on the firm's government debt. 8 3 Clearly, there remained resistance inside and outside the air force to the privatization of strategic firms. 8 4 Nevertheless, President Collor signed the act designating Embraer for privatization in January of 1992. According to Brigadier Monteiro, "In the entire world, military planes are built by private firms, except for the extinct Soviet bloc and Brazil. What is important is that the military technology be preserved, and this is possible through contractual accords." 8 5 Public offering of Embraer shares was postponed several times in 1993 and 1994, due in part to difficulties in attracting foreign interest. Embraer was finally privatized in late 1994: Brazilian pension funds acquired a controlling interest, with foreign investors, the government, and Embraer employees retaining minority ownership shares. 86 What remains to be seen is whether it is possible to attract foreign investment without losing the desired "contractual accords" or "golden share" provisions binding the firm to military production. Clearly, the firm's brightest prospects lie on the civilian side of the market; one international survey of regional airlines revealed an estimated demand for 6,780 aircraft worth $84 billion for the period 1 9 9 0 - 2 0 0 5 , with turboprops in the fifteen to forty seat size range representing the single largest segment. 8 7 But Embraer's civilian production was derailed by the firm's financial difficulties and privatization controversies. The Vector never moved past the prototype stage, and the coproduction agreement with Argentina collapsed. 8 8 Lack of development funds repeatedly delayed the E M B - 1 4 5 despite several foreign orders. 89

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On the military side, the future involves stark choices. The AM-X was meant to be a step on the path to a supersonic fighter. As early as 1987, however, Embraer officials acknowledged that a supersonic program would be too costly and difficult following the AM-X. 90 An alternative path began to take shape, based on an advanced military trainer. Nextgeneration combat aircraft such as the European Fighter were at that time expected to create a substantial market for training aircraft, and an advanced trainer could also serve as the basis for a light fighter. 91 In the late 1980s, the firm began negotiations with the air force to develop an advanced trainer.92 The plane is essentially a Tucano trainer with a reinforced airframe, larger engine, and more advanced cockpit. In 1995 the Aeronautics Ministry announced an agreement with Embraer to purchase this "Super Tucano" adapted as a light attack aircraft. 93 But a joint bid with Northrop Grumman failed to win the intense competition for the lucrative Joint Primary Aircraft Training System (JPATS) contract with the U.S. Navy and Air Force. This leaves the Super Tucano without a foreign technological partner, and with the limited purchasing power of the Brazilian Air Force as its only guaranteed market. The Super Tucano will keep Embraer alive in the military aircraft business, but it represents a step sideways on the ladder of technological and industrial capacitation. Even if a restructured Embraer can regain its financial footing and reestablish itself in civilian and military markets, sustaining the split civilmilitary character acquired in the 1980s will be problematic. Not only do civilian and military programs compete for scarce resources in tough economic times, they also represent very different forms of organization and internationalization for the firm itself. Both the military and civilian paths available to Embraer imply greater internationalization. But for the military path this means AM-X-style consortia supported by government-togovernment agreements, whereas for the civilian path it means nothing less than calling into question the Brazilian character of the firm itself. According to firm officials, not one of the major supplier firms initially lined up to finance the EMB-145 was Brazilian. By weight, the firm's civilian planes are 90 percent imported. As one firm official stated shortly before the firm's financial collapse, "Sure, we had on our Brazilian T-shirt. . . but our contribution to the country today is principally economic." When Embraer's dual tasks of producing marketable civilian aircraft and supplying the Brazilian Air Force were compatible, the firm thrived. Clearly this was so in the 1970s, when the distinction between its civilian and military activities was blurry at best. But the upscaling of the 1980s introduced new tensions, revealing the differences between civilian and military production for the aeronautics segment's industrial organization, financial posture, technological path, and public-private relations. Under such circumstances, a formula for the air force's increasingly conflicting goals—to promote Embraer's military-technological development, maintain

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the firm's financial soundness, and retain the military's path-defining control—has proved elusive.

Notes 1. "Turbuléncia no ar," Veja, June 14, 1989; my translation. 2. Ozires Silva, "O Vóo da Embraer," Revista Brasileira de Tecnologia 13 no. 1 (January-March 1982): pp. 20-30. 3. Silva, "O Vòo da Embraer"; Siliva Helena, "A Decolagem Segura da Embraer," Dados e Ideias 3 no. 2 (October-November 1977): pp. 13-21. 4. Roberto Pereira de Andrade and Antonio Ermete Piochi, História da Construgào Aeronàutica no Brasil (Sào Paulo: Aquarius, 1982); Silva, "O Vóo da Embraer"; Mario B. de M. Vinagre, "Embraer: A Brazilian Aerospace Success Story," lecture by Embraer press officer at the National Air and Space Museum, Smithsonian Institution, Washington, DC, October 12, 1989. 5. One senior air force officer estimated that the history of Brazilian aircraft production prior to Embraer included development of more than 1,300 prototypes. As discussed in Chapter 2, the army and navy began licensed assembly of U.S. and German planes in the 1930s. The firm Companhia Aeronàutica Paulista began building the Paulistinha, a two-seat monoplane, in 1943, producing a total of 780 planes between 1943 and 1948. The firm Neiva (acquired by Embraer in 1980) enjoyed great success producing general-aviation planes in the 1950s and 1960s. On these activities, see David Godfrey, "The Rise of Embraer," The Putnam Aeronautical Review (December 1989, reprint); Vinagre, "Embraer." 6. See, for example, Silva, "O Vóo da Embraer." 7. Silva, "O Vóo da Embraer"; Helena, "A Decolagem Segura;" Renato P. Dagnino, "Industria de armamentos: o Estado e a tecnologia," Revista Brasileira de Tecnologia 14 no. 3 (May-June 1983): pp. 5-17; Rexford A. Hudson, "The Brazilian Way to Technological Independence: Foreign Joint Ventures and the Aircraft Industry," Inter-American Economic Affairs 37 no. 2 (autumn 1983): pp. 23—44; Patrice Franko-Jones, The Brazilian Defense Industry (Boulder, CO: Westview Press, 1992). 8. Helena, "A Decolagem Segura"; my translation. 9. Hudson, "The Brazilian Way"; "Brazil's Air Force Purchases Linked to Embraer Pacts," Aviation Week and Space Technology, June 25, 1984. 10. Dagnino, "Industria de armamentos"; Hudson, "The Brazilian Way." 11. Dagnino, "Industria de armamentos." 12. Helena, "A Decolagem Segura"; Vinagre, "Embraer." 13. Silva, "O Vòo da Embraer." 14. Maria Carlotta de Souza Paula, "Aeronaves: os rumos da indùstria brasileira," Revista Brasileira de Tecnologia 16 no. 3 (May-June 1985): pp. 48-56; Dagnino, "Industria de armamentos." 15. Vinagre, "Embraer." 16. Silva, "O Vóo da Embraer." 17. Renato P. Dagnino and Domicio Proenfa Jr., "Brazilian Aeronautics Industry" (manuscript, 1988). See also Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativo de avaliagào, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 18. Hudson reports increases in the domestic content of Embraer aircraft for the period 1978-1981 as follows: Bandeirante, from 57 percent to 75 percent;

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Xavante, from 40 percent to 50 percent; and Piper models, from 40-45 percent to 45-50 percent. Two other models, the Ipanema (an agricultural plane) and the Xingu (a nine-seat pressurized turboprop), remained constant at 80 percent and 70 percent, respectively. See Hudson, "The Brazilian Way," p. 39. 19. Paula, "Aeronaves." 20. Hudson, "The Brazilian way," pp. 39-40. 21. Silva, "O Vòo da Embraer." 22. "Urna nova trincheira," Veja, October 17, 1979. The principal exceptions were the service's French Mirage-III interceptors and American F-5 fighters. 23. "Nos céus da Inglaterra," Veja, March 27, 1985. 24. The plane's single control stick simulates the flying conditions of jet aircraft, and its wings feature hard points for mounting external weapons. 25. Paula, "Aeronaves"; "Nos céus da Inglaterra." 26. Godfrey, "The Rise of Embraer." 27. FBIS, "Government Sells T-27 Tucanos to Egypt," Latin America Daily Report, December 21, 1983; "RAF Trainer Choice," Aviation Week and Space Technology, March 25, 1985. 28. José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro: CNPq, July 1989). 29. Tercio Pacitti, "Tecnologías de ponta: urna proposta de longo prazo," Dados e Ideias 4 (February-March 1978); Marco A.G. Cecchini, "Tecnologia de Ponta—Um Exemplo Bem Sucedido," A Defesa Nacional 695 (May-June 1981): pp. 159-163; Hudson, "The Brazilian Way"; Dagnino, "Industria de armamentos"; Paula, "Aeronaves"; Franko-Jones, The Brazilian Defense Industry. 30. Paula, "Aeronaves." 31. "AMX Fills Air-to-Ground Role with Room for Mission Growth," Aviation Week and Space Technology, July 15, 1991. 32. The agreement consisted of a government-to-government accord; a series of memoranda of understanding on definition of the plane, development, industrialization, production, and logistic adaptation; and firm-to-firm agreements on the division of labor and division of the global market, profit sharing, risk sharing, and financing. 33. "Embraer AMX Prototype Makes First Flight in Brazil in Preparation for Test Program," Aviation Week and Space Technology, November 4, 1985; "AM-X— Historical Background," Embraer press release no. 060/90, September 2, 1990. 34. Godfrey, "The Rise of Embraer"; "Brazil's Air Force Purchases." 35. Julio Eduardo da Silva Menezes, "The Brazilian Aerospace Industry: A Case Study of the Technological Impact of Offset Agreements in a Recipient Industry," p. 258, master's thesis, Naval Postgraduate School, Monterey, CA, 1989. 36. I am indebted to Domicio Proenga Jr. for the following interpretation of the Brazilian decision to participate in the AM-X program. 37. "Na barreira do som," Isto E, May 11, 1988; "Future Uncertain for AMX Project," Gazeta Mercantil (international edition), October 23, 1989. 38. Menezes, "The Brazilian Aerospace Industry," p. 254. 39. The $10 million figure is from "Embraer quer aviào militar," Jornal do Brasil, July 16, 1980. 40. Menezes, "The Brazilian Aerospace Industry," p. 254. See also "Huge Sums Needed for New Aircraft," Gazeta Mercantil (international edition), August 28, 1989. 41. Menezes, "The Brazilian Aerospace Industry." 42. "Turbuléncia no ar."

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43. Figures in the Brazilian and international press ranged from $12 million to more than $20 million. See "Sales Halved," Gazeta Mercantil (international edition), January 30, 1989; "Future Uncertain for AMX Project," Gazeta Mercantil (international edition), October 23, 1989; FBIS, "Budget Cut Curtails AM-X," Latin America Daily Report, December 19, 1989; FBIS, "Embraer Tests Prototype of Two-Seater Aircraft," Latin America Daily Report, June 18, 1991; "AMX Fills Air-to-Ground Role with Room for Mission Growth," Aviation Week and Space Technology, July 15, 1991. Such reports rarely distinguish between costs and sale price or indicate whether the figure refers to a fully loaded, combat-ready vehicle. Lopes reports air force figures of as much as $21 million fully loaded; see Roberto Lopes, Rede de Intrigas: Os Bastidores do Fracasso da Indùstria Bélica no Brasil (Rio de Janeiro: Editora Record, 1994): p. 313. 44. Menezes, "The Brazilian Aerospace Industry," p. 257; Saraiva, "O Desenvolvimiento Industrial Bélico," p. 91. 45. Menezes, "The Brazilian Aerospace Industry," p. 265; "Reinforcement for Exports Coming," Gazeta Mercantil (international edition), February 29, 1988; Godfrey, "The Rise of Embraer," p. 227. 46. Godfrey, "The Rise of Embraer," p. 228. 47. Franko-Jones, The Brazilian Defense Industry, p. 116. 48. Ibid., p. 115. 49. On Tecnasa, see "AMX Fills Air-to-Ground Role." Before its privatization in 1991, Celma was owned by the Aeronautics Ministry, with the multinational firm Pratt & Whitney holding a minority share. Prior to the AM-X program, Celma's principal business was engine repair, overhaul, and maintenance for the Aeronautics Ministry and for private air-transport firms. Celma entered the AM-X program as a producer of components for the engine turbine, under license from Rolls Royce. 50. Sindicato dos Metalúrgicos de Sào José dos Campos, Apoio Sindical 3 (March 1990). 51. Melhores e Maiores 1989, special edition of Exame (Sào Paulo: Editora Abril, 1989). 52. "A Filosofía do Desenvolvimento Tecnológico na Aeronáutica," Aerovisáo no. 177 (n.d.). 53. Such links included Philips' 40 percent ownership share in Engetrónica; Engetrónica's technology accord with the U.S. firm Collins; Pratt & Whitney's minority ownership share of Celma; Pirelli's status as an Italian subsidiary; ABC's flight-simulator technology agreements, first with the U.S. firm Rediffusion and later with Thomson of France; and Aeromot's coproduction of components with Italian and U.S. firms. In 1991 the U.S. firm Digital announced its intention to acquire a 30 percent ownership share in Elebra. 54. Vinagre, "Embraer." 55. FBIS, "Embraer Head Foresees Firm's Recovery," Latin America Daily Report, July 10, 1991. 56. "Embraer Developing Stretched Brasilia for Regional Market," Aviation Week and Space Technology, June 19, 1989. 57. "Commuter Jet," Gazeta Mercantil (international edition), June 19, 1989; FBIS, "Budget Cut." 58. FBIS, "Aeronautics Company to Build Planes in Iran," Latin America Daily Report, July 10, 1991. 59. "Plugging into Big Jets," Gazeta Mercantil (international edition), June 13, 1988; "Carbon Fiber Bids to Boeing, Airbus, Spar," Gazeta Mercantil (international edition), January 9, 1989; "Embraer: 'Sale in Six Months,'" Gazeta Mercantil (international edition), January 20, 1992.

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60. "Sub-Contractors Play New Strategic Roles," Interavia 46 no. 7 (July 1991): pp. 30-38. 61. "Embraer entra em programa de satelite," Folha de Sáo Paulo, December 3, 1989. 62. Ten percent by weight in the Brasilia and 15 percent by weight in the Vector; see Godfrey, "The Rise of Embraer." 63. "Embraer Expands Its Facilities for Two New Aircraft," Aviation Week and Space Technology, August 22, 1983; Menezes, "The Brazilian Aerospace Industry." 64. Godfrey, "The Rise of Embraer." 65. The estimated share of production capacity is from "Brazilian Air Force to Accept First Production AMX in August," Aviation Week and Space Technology, March 20, 1989; the estimate of engineering hours is from Menezes, "The Brazilian Aerospace Industry," p. 265. 66. "Brazil's Goal of Self-Sufficiency in Arms Impeded by Inflation, Record High Indebtedness," Aviation Week and Space Technology, August 24, 1987. On air traffic control, see also "Tráfego aereo poderá estar integrado em 1992," O Estado de Sáo Paulo, September 8, 1989; Menezes, "The Brazilian Aerospace Industry." 67. As a result of this capital infusion, the Aeronautics Ministry's share of holdings in the firm increased from less than 10 percent in 1985 to 83.6 percent by February of 1989. The ministry had always retained a majority share of voting stock. Embraer data cited in Centro Ecumènico de Documentalo e Informafòes, "A Indùstria Bélica Brasileira" (manuscript, n.d.). 68. "Fundo falso," Veja, August 12, 1987. 69. "Big Loan Approved," Gazeta Mercantil (international edition), May 22, 1989. 70. On the debt swap, see "Embraer anuncia hoje emissào de 119 milhòes de agòes preferenciais," Folha de Sao Paulo, November 24, 1989. Banks involved included U.S. Continental, Tokyo Bank, Bank of America, Foreign Trade French Bank, and the Arab Bank Corporation. Embraer lined up a second, $150 million swap in 1990, but the government suspended such transactions as part of its antiinflation measures; "Brazilian Plane Maker Embraer, Once a Symbol of ThirdWorld Strength, Puts Its Hopes on Hold," Wall Street Journal, November 13, 1990. 71. "Huge Sums Needed for New Aircraft," Gazeta Mercantil (international edition), August 28, 1989; "Turbuléncia no ar." 72. FBIS, "Guidelines for Embraer Recovery Plan Announced," Latin America Daily Report, November 5, 1990; "Brazilian Plane Maker Embraer." 73. "Embraer prepara defesa contra sangoes norte-americanas," Folha de Sáo Paulo, November 14, 1987; "Multinacionais defendem Brasil contra sanijoes," Jornal do Brasil, December 17, 1987; "Embraer Kept Waiting," Gazeta Mercantil (international edition), January 18, 1988; "EUA encerram processo contra informática brasileira," Jornal do Brasil, October 7, 1989; FBIS, "Budget Cut." 74. Dagnino, A industria de armamentos brasileira, p. 347. 75. "Brazilian Plane Maker Embraer"; FBIS, "Embraer to Dismiss Workers to Reduce Budget," Latin America Daily Report, October 31, 1990; FBIS, "Project to Build First Jet Aircraft Delayed," Latin America Daily Report, November 2, 1990; "Aircraft Industry: Cutbacks at Embraer," Gazeta Mercantil (international edition), November 5, 1990. 76. FBIS, "Embraer Seeks to Reduce Personnel by 2,500," Latin America Daily Report, December 17, 1991. 77. "Huge Sums Needed." 78. Ibid.

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79. "Veja a integra da primeira entrevista dos futuro ministros militares," Folha de Sao Paulo, January 18, 1990. 80. FBIS, "Embraer to begin privatization; plans received," Latin America Daily Report, September 6, 1990. 81. "40 Percent of Embraer for Sale," Gaieta Mercantil (international edition), June 24, 1991. 82. FBIS, "Embraer Head"; "Relending Approved," Gazeta Mercantil (international edition), July 8, 1991. 83. "De volta para casa," Veja, July 3, 1991; "Relending Approved," Gazeta Mercantil (international edition), July 8, 1991; FBIS, "Collor to Assign Millions to Embraer Recovery," Latin America Daily Report, August 5, 1991; FBIS, "Embraer's U.S. Subsidiary to Market Aircraft," Latin America Daily Report, August 8, 1991. 84. The 1991 privatization of the state-owned firm Celma, an AM-X supplier, illustrated this resistance. See "Privatization Campaign in Brazil Is Stalled Again," Wall Street Journal, October 30, 1991; "Calm Privatization of Celma," Gazeta Mercantil (international edition), November 4, 1991. 85. "Collor assina hoje ato para leilao da Embraer," O Estado de Sao Paulo, January 14, 1992; my translation. 86. "EMB-145 to Test Embraer's Mettle," Aviation Week and Space Technology, August 28, 1995. 87. FBIS, "Embraer Forced to Delay Projects One Year," Latin America Daily Report, July 3, 1991; "Surveys Show Demand for Shelved Vector," Gazeta Mercantil (international edition), February 11, 1991. 88. Difficulties on the Argentine side led first to a reduced Argentine share of the program, and then the effective collapse of the agreement in 1990. See FBIS, "Embraer to Break Plane Accord with Argentina," Latin America Daily Report, January 5, 1990; "Collor e Menem juntos para ver o voo da CBA-123 no Vale do Paraiba," Gazeta Mercantil, July 24, 1990. 89. "Embraer Meets Challenges of EMB-145 Development," Aviation Week and Space Technology, June 7, 1993; "First EMB-145 Wings Shipped to Embraer," Aviation Week and Space Technology, February 27, 1995. 90. "Embraer Moves to Solidify Role as Leading Aircraft Manufacturer," Aviation Week and Space Technology, August 17, 1987; "Brazil's Goal of SelfSufficiency." 91. "Na barreira do som." 92. "Embraer ja tem projetos para 2 novos avioes," Folha de Sao Paulo, November 12, 1987. 93. The adapted version has been dubbed ALX (FBIS, "Minister Unveils Plans for New Fighter Plane," Latin America Daily Report, January 24, 1995).

8

The VLS Program

After all, we had a satellite on our hands. . . . Why not put it into space? —Marco Antonio Raupp, explaining why as director of the civilian Space Research Institute (INPE) he had sought a foreign launcher for the first Brazilian-built satellite 1

Raupp . . . [is] sabotaging the Brazilian space program—you can write that in your newspaper. —Air Force Brigadier Paulo Roberto Camarinha, head of the Brazilian Space Activities Commission 2

From Aeronautics to Aerospace By the 1980s rocketry had supplanted aeronautics as the air force's leading R&D priority. The central goal became to design and build a multistage rocket capable of transporting a payload weighing several hundred kilograms a distance of several hundred kilometers. The programmatic expression of this goal is known as the VLS, for veículo langador de satélite (satellite-launch vehicle). In principle, such a rocket could launch a satellite into low earth orbit or deliver a military payload to a surface target. 3 Air force officials recognized this dual-use capability; the VLS was neither a thinly veiled disguise for a ballistic missile program (as some critics have claimed) nor a spacelaunch program with purely civilian applications (as its name was meant to imply). Rather, the program sought to master a core technology with multiple military and civilian applications. The goal did not change in the shift from aeronautics to aerospace, i.e., creating a sustained, indigenous capacity for production and technological innovation. It is no surprise, therefore, that the means to that end 141

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conjured earlier successes: the air force applied in aerospace the same recipe of state support, military leadership, long-range planning, and technological pragmatism that previously breathed life into the aeronautics industry. The belief was that the basic elements of the growth model could be maintained as the substantive focus shifted. The 1971 decision to rename CTA was symbolic of both change and continuity: the name changed from Aeronautics Technological Center to Aerospace Technical Center, but the acronym CTA remained. The VLS program was formalized in 1979, one year before the AM-X coproduction agreement with Italy. The target date for the first VLS launch was 1989, the same year the first AM-X rolled off the production line. Given this overlap, the VLS has been conditioned by many of the same factors that have influenced the AM-X program. Each effort reflected a fundamental ambitiousness rooted in the organizational culture of air force R&D. Each was hampered by the service's growing budget problems. In the end, each reflected the basic pattern of a soaring ambition brought to earth by changing fortunes. Despite the chronological overlap, the two programs were embedded in fundamentally different global-market and domestic-political contexts. As different weapons systems, they inevitably faced different international market dynamics for technology, financing, and demand, and their development affected different groups in different ways at the domestic level. More importantly, though roughly coterminous in a chronological sense, the industrial foundations from which they were launched were at very different developmental stages. Embraer had been building planes for more than fifteen years when it started the AM-X production line. The VLS was the prototype for an entirely new type of system, with only a few small, experimental sounding rockets as precursors. A second key difference was organizational: Unlike aeronautics, aerospace never fell under the jurisdiction of a single service branch. The policy organ for space-related programs, the Brazilian Space Activities Commission (COBAE), was chaired by the Armed Forces General Staff (EMFA). EMFA nominally coordinated interservice activities. But the traditional limits on such coordination and weakness of EMFA meant that COBAE also proved ineffective as a coordinating body. The result was proliferation of missile-development programs among the services. The air force asserted control of the national space program and clearly took the lead in aerospace technology development—but the navy and army became involved in separate efforts to develop missile technology. Indeed, the army emerged in the 1980s as the leading patron of Avibras, the private firm that would compete with and hinder air force efforts. Thus, while the AM-X program was the pinnacle for an aeronautics industry consolidated a decade earlier under conditions of market expansion and political autonomy, the VLS was a first step toward consolidation

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of an aerospace industry under the very different conditions of the 1980s. These differences guided aerospace along a far different, and much less successful, trajectory.

The Origins of Brazilian Aerospace The first administrative structure for Brazil's space program emerged not from the military but rather the fledgling national science bureaucracy. 4 The CNPq took an interest in space science during the 1950s. In 1961 President Quadros, on the recommendation of a science advisory group, issued a decree that led to creation of the National Space Activities Commission (CNAE) as a branch of the CNPq. 5 Although applied space technology would dominate the agenda in the 1970s and 1980s, the commission emphasized basic science in its early days. There were early efforts to develop space applications technology, including a cooperative satellite-tracking project with Stanford University and the U.S. space agency NASA. But these were an offshoot of the scientific agenda, which focused on studying the equatorial ionosphere. 6 As these scientific ventures unfolded, the air force showed a parallel interest in rocketry. CTA formed a study group on rocket technology in 1954. In the early 1960s, CTA launched the Sonda program, with the goal of developing a series of increasingly sophisticated sounding rockets. The first Sonda rocket—which carried a 4-kilogram payload to an altitude of 64 kilometers—was launched in 1965 from the air force's recently constructed Barreira do Inferno test cite. An R&D plan adopted in 1967 defined the air force's top developmental priorities as construction of an airplane and continued progress in the Sonda program. Table 8.1 tracks the growth of the Sonda program over the ensuing two decades. The Sonda program provided a useful foundation for the VLS. CTA's rocketry group gained experience in rocket design, propulsion, control Table 8.1 Characteristics of Brazilian Rockets in the Sonda Program

Number of stages Propulsion Payload (kg) Launch weight (kg) Altitude (km) First launch

Sonda I

Sonda II

Sonda III/IIIM

SondaIV

1 solid fuel 4 59 64 1965

1 solid fuel 44 361 88 n.a.

2 solid fuel 59/141 1,584/1,523 595/249 1976

2 solid fuel 500 7273 644 1984

Source: Adapted from Robert Shuey et al., Missile Proliferation: Survey of Emerging Missile Forces, CRS Report 88-642, Congressional Research Service, Washington, DC, 1989, p. 91. Note: Figures converted from English units presented in original source.

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systems, data processing, and related technologies, generating a cadre of skilled personnel in the process. 7 The design for the individual stages of the four-stage VLS would draw heavily on Sonda rocket design. Foreign equipment, services, and technical assistance played an important role in the Sonda program, with the United States and France as the principal sources. The Sonda I rocket was essentially imported from the United States, although the Brazilian firm Avibràs did work on its casing and propellant in conjunction with CTA. 8 Graham reports that U.S.Brazilian space cooperation in this era followed parallel tracks, with NASA tied to civilian science endeavors and the U.S. Air Force collaborating with CTA in the Sonda program. 9 The United States supplied the principal raw materials for solid rocket fuel until domestic production began in 1977. 10 France was also a source for technology, materials, knowhow, and advice, boosted by the larger French-Brazilian relationship in aeronautics and aerospace that emerged in the 1970s (see Chapter 4). The air force officer who would later direct the VLS program trained in the French ballistic-missile program for ten years, until 1969. 11 The aerospace segment took on a more permanent institutional character in the early 1970s. CTA took advantage of a late-1960s organizational restructuring within the air force to institutionalize its rocketry group as a formal research unit called the Space Activities Institute (IAE). The civilian National Space Activities Commission (CNAE) attained permanent status in 1972, when it was renamed the Space Research Institute (INPE). INPE remained subordinated to the CNPq. The early 1970s also saw the first attempt to establish an overarching administrative umbrella for these diverse activities. A 1971 decree by President Mèdici formed the Brazilian Space Activities Commission (COBAE) as an adjunct body of the CSN. COBAE was charged with coordinating national space policy. COBAE would prove to be a weak, ineffective body. The Armed Forces General Staff (EMFA), which controlled COBAE's chairmanship, was unable to constrain the autonomy of the individual military services. The presence of multiple civilian and military ministries on the commission, each with its own agenda for the space program, made COBAE divided and ineffectual. Staffing and resource constraints also limited its ability to take the policy initiative. 12 COBAE's fragmentation and weakness had important consequences for the organization of space-related activities. First, the de facto bifurcation of space-related activities between the air force's CTA and the civilian INPE was reinforced; CTA pursued rocket technology, while INPE took the lead in space science and the rapidly growing area of civilian space applications. This division of labor was later formalized in the 1979 pronouncement of the Brazilian Complete Space Mission, which set the boundaries of space policy for the 1980s.

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COBAE's weakness also splintered missile technology development. In the short run, the main effect was to insulate air force rocketry from the other services and from civilian bureaucratic organs. But the absence of a central authority also meant that the air force could not recreate in aerospace the monopoly it enjoyed in aeronautics. The 1970s saw a proliferation of missile technology programs involving all three military research institutes and half-dozen firms.

The Brazilian Complete Space Mission COBAE announced the VLS program in 1979, as part of a long-range plan known as the Brazilian Complete Space Mission (Missao Espacial Completa Brasileira, or MECB). The central goal was stated clearly: Within a decade, Brazil would use national means to launch three nationally built satellites. 13 The MECB defined a clear division of labor between the civilian and military elements of the space program: INPE would build the satellites, while the air force developed the launch vehicle in CTA's Space Activities Institute. The plan called for COBAE to administer a $900 million budget, with two-thirds slated for the air force. 14 The plan also envisioned a new launch cite at Alcantara in the state of Maranhao. Developed with French technical assistance and located just 2.2 degrees south of the equator, the Alcantara space center would be patterned after the world's only other equatorial launch cite, the Kourou facility in French Guiana. INPE's plan was for the first two satellites to retransmit meteorological and environmental data collected by earth-based data collection platforms; the third and fourth satellites would be for remote sensing, using a multispectral scanner. 15 The satellites were of simple design, with passive systems for attitude and orbit control. They were designed to be small payloads (150 kg) placed into a low earth orbit at roughly 750 kilometers. These payload and boost requirements were consistent with the plan to make the VLS a small-scale launcher, using simpler technologies and meeting less-demanding technical specifications. The propulsion system incorporated solid-fuel technology from the earlier Sonda program, rather than seeking to develop more powerful but more complex liquid-fuel rocket engines. 16 Three of the four VLS stages were closely based upon the design of the Sonda IV rocket. 17 And the VLS design did not incorporate an inertial guidance system. 18 In other words, VLS design choices built on the medium-tech trajectory of the Sonda program, rejecting more sophisticated alternatives that would require greater international support and assistance. Substantial foreign technical assistance would still be necessary, but had been forthcoming thus far in the Sonda program and seemed likely to continue. The VLS

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thus reflected a continuation of the fundamentally pragmatic technology strategy of the air force, a legacy of the earlier aeronautics era. From the perspective of the late 1970s, the MECB plan embodied ambitious but seemingly attainable goals. Progress with Sonda and access to foreign technical aid made the project seem technically feasible, and markets for both civilian and military applications looked promising. Note that the plan was announced in 1979, just prior to the onset of the debt-based economic difficulties that curtailed state investment dramatically in the 1980s. As such, the MECB was very much a product of the 1970s and the military regime's penchant for grandiose schemes. Following the 1975 nuclear accord with West Germany, a plan to build the world's largest hydroelectric facility (the Itaipu Dam), and extensive road-building and colonization projects in the Amazon, the MECB was in a sense the last gesture of an era. The MECB failed to meet its anticipated 1989 launch schedule. Of the plan's three components, only the INPE satellite came in more or less on schedule. The Alcantara launch site missed the 1989 deadline; after suffering delays and substantial cost overruns, the site was inaugurated in 1990 (before it was operationally ready). 19 And the air force announced in 1988 that the VLS would not be ready until 1992. Shortly thereafter the target was pushed back to 1993 or 1994, and then again to 1996.20 Clearly, funding difficulties hurt progress on the VLS. Tollefson reports that as of July 1989, a decade after COBAE earmarked $600 million for the VLS, CTA had received only $170 million. 21 The Sarney government's decision to freeze government salaries as part of its cruzado stabilization plan led to an attrition of skilled CTA personnel—many to higherpaying jobs in the private sector. 22 Technical difficulties also delayed the development of the precursor Sonda IV rocket. 23 The principal technical barriers in the VLS program have been in propulsion, guidance, and stage separation. The choice of solid-fuel engines represented a technology with which Brazilian aerospace engineers were familiar as a result of the Sonda program. But the multiple-engine solid-fuel design created a weight problem, given the quantity of maraging steel required for each stage. Stage separation has also been a problem: a Sonda IV test failed in-flight in 1988, apparently because of failed stage separation. 24 Finally, although its rudimentary guidance system should be adequate for launching small data satellites such as those of INPE, the lack of inertial guidance technology has been the biggest barrier to translating the VLS into a useful military system. These difficulties were in part a reflection of changing international conditions; as discussed below, the 1980s saw major changes in the international aerospace technology market, in the form of growing technologytransfer constraints. But the delays also reflected deep tensions within the Brazilian aerospace segment. The air force's inability to assert monopolistic control meant a proliferation of programs and wasteful duplication of

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effort. Several potential allies in the effort to build a national space capability—including INPE, the private sector, and the other services—would instead pursue courses that complicated the VLS effort.

Avibras: From Partner to Competitor Although the VLS program was formally announced in 1979, a crucial organizational decision had already been made. In the mid-1970s, as the program was being conceptualized, the air force decided to retain VLS development within CTA's Space Activities Institute. The alternative of making the private-sector firm Avibras the focal point of VLS development was rejected. 25 This decision had substantial repercussions for the VLS, the air force, and Avibras, which emerged in the 1980s as the most important prime contractor for short-range rocket and missile systems. Before losing the VLS, Avibras's initial involvement in the Sonda program led to a close working relationship with CTA. Founded in 1961 as an aircraft manufacturer by graduates of the air force's engineering school, ITA, Avibras was one of the first private firms to become involved in the rocketry program, in 1962. In cooperation with CTA, Avibras built the casing and solid propellant for Brazil's first sounding rocket. 26 The firm continued to work closely with CTA's Space Activities Institute, playing a role in the development of all four Sonda rockets. The firm also began to produce satellite antennae and earth stations as a result of its space program participation. The decision not to grant the VLS to Avibras created a rupture between the firm and the air force. Although it remained involved in Sonda projects, Avibras turned its attention to short-range military rockets and missiles. Sonda experience provided the basis for Avibras to develop the SBAT family of air-to-surface rockets for the air force and for export. 27 This in turn led to the "SS" series of surface-to-surface rockets, a project originated by the army's IPD and later joined by CTA and Avibras. 28 By the mid-1980s the firm's product line included a diverse array of surface-to-surface rockets with ranges from under 10 km to 60 km, air-tosurface rockets, aerial and cluster bombs, and aircraft rocket and machinegun pods. 29 The firm's most successful product was the Astros II rocketlaunching system, which entered development in the late 1970s and production in 1983. The Astros II is a three-vehicle system (fire-control unit, supply vehicle, and launcher) that can fire 30-, 40-, and 60-km solidfuel rockets of the firm's SS series, all from the same launcher. The firecontrol system was developed in conjunction with the Swiss firm Contraves. Iraq reportedly contributed development funds to the Astros program, and the system was designed with the specific needs of the Iraqi military in mind. 30

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With major sales in Iraq and lesser deals with Saudi Arabia and other buyers (rumored to include Libya), the Astros II propelled Avibrás on a trajectory of rapid export-led growth. Dagnino estimates that the value of the firm's annual production increased from $6 million in 1978 to $391 million in 1987. 31 According to the firm, exports keyed this growth, accounting for 90 percent of total revenues between 1982 and 1984. 32 Employment also grew rapidly, from 250 workers in 1978 to more than 6,000 in 1986.33 The success of the Astros II stimulated investment in several ambitious new development projects. Though one eye was clearly trained on the export market, the other focused on the Brazilian military. Firm officials stated in 1984 that domestic sales would likely grow more rapidly than exports in coming years, eventually reaching a rough balance. 34 Toward that end, several new projects emerged: the FILA low-altitude antiaircraft system based on technology from the Swiss firm Contraves; the FOG-M antitank/antihelicopter missile featuring a fiber-optic guidance system; and the Barracuda mobile missile system for antiship coastal defense. By the mid-1980s, Avibrás was no longer dependent on air force contracts. The firm had evolved into both a leading exporter and a developer of ambitious projects targeted at the Brazilian Army and Navy. The army provided a $100 million development contract for the FILA system, including a guaranteed purchase of the first thirteen units. 35 It is unclear whether the army supported the FOG-M antitank missile, which was a competitor to an antitank missile being developed for the army by Engesa. 36 The firm also announced that it was developing the Barracuda coastal-defense missile system with an advance order from the navy, although the navy later professed to have no interest in the $300 million project. 37 Although new endeavors eliminated dependence on the air force, Avibrás did not abandon ballistic-missile development. The firm initiated several ventures that competed, at least indirectly, with the VLS program. Avibrás invested a reported $800 million in development of a family of longer-range missiles. 38 And in 1989 the firm formed the space-launch subsidiary Inscom, a joint venture with China's Great Wall Industries. 39 The plan was to join China's experience in satellite launching with Avibrás's marketing experience and technical skills in satellite tracking. The Chinese joint venture may have been a quest for Chinese guidance and propulsion technology, a chance to diversify into a civilian venture during a down period in the arms trade, or both. Although based on the far larger Chinese Long March missile and hence not a direct competitor to the VLS, the Inscom joint venture served as a visible irritant to air force officials and a further dispersion of increasingly scarce resources within the aerospace industry. 40

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Avibras's missile development activities created a wasteful duplication of effort and a destructive competition for scarce human resources within the aerospace industry. Also, the association with China increased international suspicions that Brazil was seeking to circumvent the Missile Technology Control Regime (MTCR) and acquire restricted technologies. A firm that at one point had been the logical choice to emerge as the Embraer of the aerospace segment became, from the point of view of the VLS program, something between an irritant and a serious obstacle. 41

The Creation of Orbita Avibras's diversification was part of a more general dispersion and proliferation of missile-related activities in the 1970s and early 1980s. The army, which had formed a Central Commission for Missiles in the 1960s, acquired technology for the Cobra antitank missile from the West German firm MBB in 1973.42 Although it never entered mass production, some 300 units were produced at a pilot facility. This was followed in the 1980s by the Leo antitank missile (later renamed MFA), a laser-guided missile with a 3-km range, developed with assistance from the Italian firm Oto Melara. 43 The army also developed at least a prototype surface-to-air missile along the lines of the German-French Roland. 44 In 1987 the army began exploring foreign assistance for a hand-held antiaircraft missile.45 The navy also became involved in missile development through its research institute, IPqM. The air force contributed to this process of dispersion: It repeatedly reorganized the effort to develop the Piranha, a heat-seeking air-to-air missile similar to the U.S. Sidewinder. Designed by CTA in the late 1970s and based on a mix of imported and domestic components, the Piranha was postponed for lack of funds in 1979, passed to the firm D.F. Vasconcellos for prototype development and testing in 1982, later transferred to Engesa, and passed to the newly created firm Orbita in 1987.46 It languished there until 1994, when the Aeronautics Ministry announced its intention to revive the project. 47 Dagnino cites the proliferation of missile programs as one cause of the relatively slow progress of missile production in Brazil. 48 By the mid1980s, growing concerns were being voiced that redundancy and overlap were barriers to effective development of missile-related technologies. In May of 1986 EMFA organized a meeting among the military R&D centers (the air force's CTA, the army's CTEx, and the navy's IPqM) and halfdozen firms involved in missile development activities (Engesa, Embraer, Avibras, D.F. Vasconcellos, Britanite, and Imbel), from which emerged a decision to consolidate oversight of the far-flung missile-development programs under EMFA. In the future, contracts would be awarded only after EMFA evaluated proposals submitted by the firms. 49

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Shortly thereafter, the army and air force made a joint bid to consolidate missile development activities. Embraer and Engesa formed an aerospace joint-venture firm named Orbita. 5 0 Orbita picked up two existing projects, the Leo antitank missile (previously under development by Engesa in conjunction with the Italian firm Oto Melara) and the Piranha airto-air missile (which the air force had contracted to Engesa). Orbita also entered discussions with British Aerospace to produce the Thunderbolt surface-to-air missile for the Brazilian Army, and indicated its intention to work with naval R&D. 5 1 There were also unconfirmed reports of connections established with the French and German aerospace industries. 5 2 At its formation, there were conflicting reports on Orbita's participation in the VLS program or other efforts to develop long-range ballistic missiles. 5 3 A 1989 report to the U.S. Congress claimed that Orbita was developing the MB/EE-150, a mobile tactical missile previously under development by Engesa's subsidiary, Engemissil. 5 4 As an attempt to consolidate the proliferation of missile development activities, Orbita's formation called attention to a critical difference between aerospace and Brazil's more traditional military-industrial segments. In the traditional segments, redundancy and dispersion were not a problem, given that there was very little overlap in the systems of developmental interest to each service. W h e r e potential interservice rivalries or conflicts of interest did exist, as in the competing interests of the air force and navy in controlling naval air operations, political control by one service (in this case the air force) made the point moot. The differences in the emerging aerospace segment were twofold. First, core missile-related technologies (guidance, propulsion, heat-resistant materials) cut across the interests of the individual services. Second, the interest in missile technology emerged after each service's R & D structure and key firms were already in place, making it more difficult for a single service to become paramount. Thus, while the formation of Orbita effectively shut Avibras out of the military's principal missile development programs, the firm continued its own efforts and the redundancy continued. Avibras would go on to sink over $1 billion into the development of nonpaying products such as the SS-300 and the Barracuda, leading directly to the firm's bankruptcy in 1990.

Changing Global Markets: Technological Access and the Missile Technology Control Regime The global-market context for the VLS program shifted abruptly in April of 1987 when, after years of complex secret negotiations, the Group of Seven (G-7) industrialized nations announced formation of the Missile Technology Control Regime ( M T C R ) . The purpose of the regime was to enable the G-7 nations to jointly restrict the international flow of missiles,

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missile-related technology, and production know-how. The new regime contained two major provisions: It prohibited the transfer of missile systems capable of delivering a 500-kg payload at a range of 300 kilometers or production facilities for such systems, and it established a "strong presumption" against the transfer of sensitive technologies, components, and subsystems. 55 The regime was not presented as a formal treaty or otherwise binding agreement, but rather as a stated commitment by the seven nations to implement identical guidelines for restricting missile and missile technology exports. The regime explicitly acknowledged the legitimacy of national space programs, allowing for the provision of spacelaunch services and satellite technology transfer. But the dual-use nature of so much of the technology involved and the regime's "strong presumption" against potential missile technologies have meant that, in practice, the regime inhibits both civilian and military programs. Many Brazilian observers, including critics of the military-industrial sector, have criticized the MTCR as discriminatory; some see fear of Brazil's emergence as a low-cost competitor for civilian space launches as the motivation for such pressures. 56 The long-term impact of the MTCR as an international arms-control regime remains unclear. Not all potential suppliers are regime members, and members differ in the strictness with which they interpret the regime's provisions. 57 Compliance by regime members is voluntary, and sensitive transfers are permissible if accompanied by "binding government-togovernment assurances" on ultimate use of the technology. 58 Moreover, while the stated purpose of the regime is to limit the spread of ballistic missiles, such strategic considerations cannot be separated from the commercial context. Although the adoption of identical national policies was meant to eliminate potential commercial advantages for individual regime members, the regime is essentially a supplier cartel. As such, its individual members face strong commercial pressures to either circumvent the agreement or interpret it loosely enough to weaken its barriers. Despite these potential limitations, the regime greatly complicated the VLS development effort by changing the international market for missilerelated technology. The United States, Brazil's leading aerospace supplier prior to the regime, began to apply a strict interpretation of regime rules to Brazilian export requests. This inhibited the program's development where alternative suppliers could not be tapped, and raised costs even where alternatives were available. 59 U.S. restrictions blocked access not only to components and subsystems, but also to services and technical assistance. In 1990 the U.S. government blocked the return to Brazil of rocket-engine combustion tubes being thermally treated by a U.S. firm (the tubes were later released, but the thermal-treatment permit suspended). 60 Requests related to telemetry, inertial guidance, stage separation, fuel components, and atmospheric reentry technologies were also denied. 61 The U.S. government repeatedly

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blocked the sale of a supercomputer to Embraer, arguing that it could be used for missile and nuclear-weapons design. The Brazilian Air Force adopted a two-pronged response to the MTCR and the strict U.S. interpretation of Brazilian requests. CTA placed greater emphasis on indigenous technology development. Although international concerns and attention focused on critical technologies such as guidance systems and liquid-fuel rocket engines, the MTCR restrictions also complicated efforts to acquire lower-profile inputs, including stage-separation equipment, sensors, and engineering services. In the words of CTA director Brigadier Sergio Xavier Ferolla: "Each step is blockaded, item by item, in the area of materials, chemistry, electronics. This means we must do everything by ourselves. Almost nothing has been acquired abroad." 6 2 The air force also sought to work around the regime. The looser regime interpretation of some members, notably France, afforded opportunities. When the Brazilian government in 1989 accepted foreign bids to launch two telecommunications satellites, the $98 million bid of the French-led consortium Arianespace included extensive technology-transfer provisions. 6 3 French willingness to do so, and in particular to transfer technology for Viking liquid-fuel rocket engines, highlighted the M T C R ' s ambiguities. The U.S. and British governments considered the French bid (which defeated the U.S. firm McDonnell-Douglas) to exceed the MTCR limits, given that "solid- or liquid-fuel rocket engines" are listed explicitly as prohibited Category I technologies. 6 4 The French pointed to the MTCR regime's provisions for case-by-case evaluation and the clause permitting transfers covered by government-to-government assurances. 65 Attempts were also made to strengthen technology cooperation links with China and Russia, which were not parties to the MTCR agreement. Discussions with the Chinese apparently failed to procure significant technological gains. In keeping with its traditionally cautious attitude toward technology transfer, the Soviet Union respected the MTCR provisions without joining the regime formally. The post-Soviet Russian regime initially adopted the same stance, although later agreeing to transfer sensitive carbon fiber technology to Brazil. In both the Chinese and Russian cases, the U.S. government exerted pressure to block the transfer of particularly sensitive technologies. Moreover, as discussed below, these attempts to cultivate new suppliers became ensnared in domestic-political complications related to Brazil's civilian space program.

Civil-Military Tensions and the Struggle for Control of the Space Research Institute (INPE) By the late 1980s, the VLS was being seriously retarded by the twin weights of MTCR restrictions and the air force's inability to concentrate

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all the domestic resources potentially available for ballistic-missile development. The response was to increase the program's indigenous-development component, which raised costs as resources were dwindling and prompted questionable design choices.66 Delays and spiraling costs in turn provoked conflict with the civilian component of the space program. Tensions flared into open civil-military conflict in 1988 and 1989. The match that lit this fuse was the increasingly obvious fact that the V L S delay would prevent the scheduled launch of INPE's first data satellite. The resulting civil-military tensions must be considered in the context of changing patterns of military influence over the civilian portion of the space program. After the announcement of the MECB plan in 1979, INPE became strongly oriented toward space-applications technology. INPE's satellite design capabilities received a substantial boost when the Brazilian government commissioned the Canadian firm Spar Aerospace to build Brazil's first telecommunications satellites (launched by Arianespace in 1985 and 1986). But INPE remained dependent on the MECB for funding, enabling the military to retain a substantial degree of control over INPE activities through COBAE, the policymaking organ for space matters. The military retained control of C O B A E when the CSN was eliminated in 1988. But the 1985 decision of the Sarney government to form a new Ministry of Science and Technology weakened COBAE's control over INPE. INPE was subordinated to the new ministry, a move that doubled its roughly $30 million annual budget and hence reduced its dependence on C O B A E funds. This bureaucratic shift meant more than simply a loss of C O B A E influence over INPE; it meant that INPE was poised to emerge as yet another competitor to the V L S program for resources and high-level policy attention. Ironically, one vehicle for INPE's newfound autonomy was a technological link with China—a connection that had originally been cultivated by the air force itself as a possible source of guidance and propulsion technology. In 1988, INPE and the Chinese Academy of Science and Technology ( C A S T ) signed an agreement to jointly design and build two remotesensing satellites, as part of a government-to-government accord on space cooperation. The agreement assigned to INPE Brazil's 30 percent share of the $150 million project, which originally foresaw launching the two satellites in 1992 and 1994.67 The air force strongly opposed the Chinese agreement, fearing that its scale threatened to undermine the MECB. 6 8 But the perceived economic and diplomatic benefits of closer links with China prevailed within the Sarney administration, and the air force was unable to prevent the deal. As the impending Chinese agreement threatened to undermine support for the MECB, a more explicit threat to the V L S program was brewing within INPE. When it became apparent that the V L S would not be ready on time, senior officials at INPE and within the Ministry of Science and

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Technology worried about a multi-year delay in launching the first INPEbuilt satellite. The minister of science and technology provisionally endorsed a proposal to hire a foreign launcher. The proposal had been raised by INPE Director Marco Antonio Raupp, an advocate of clearer differentiation between the civilian and military aspects of the Brazilian space program. 69 The prospect of a foreign launch alarmed CTA, COBAE, and air force officials. It threatened to split the MECB program in two and overturn the commitment to technological development guiding Brazilian space policy for the past decade. At this point the air force moved to reassert control of INPE. Through the intervention of the head of COBAE, Brigadier Paulo Roberto Camarinha, Raupp was dismissed as INPE director in early 1989. Marcio Nogueira Barbosa—an INPE employee with close links to senior COBAE officials, and the son of a colonel in the Intelligence Service— was named Raupp's successor. Barbosa assumed the post with concentrated powers, and senior officials close to Raupp were reassigned. 70 At the time of Raupp's dismissal, COBAE chief Camarinha also raised a thinly veiled threat to transfer INPE to the Ministry of Aeronautics if necessary. 71 Under its new director, INPE began charting a far more cooperative course. In a statement that sought to defuse criticism of CTA for the VLS delays, new INPE director Barbosa enraged INPE scientists by criticizing the agency's satellite construction program publicly, saying it was based on imported "black boxes" that did little to boost national technological capabilities. 7 2 Barbosa also deemphasized INPE's cooperative venture with China, which had become bogged down in technical delays and Brazilian demands for a larger share of the program. 7 3 The shake-up left INPE under greater air force influence. Also, the repeated reorganization of the science and technology bureaucracy—beginning in the latter stages of Sarney's administration, and including the eventual loss of ministerial status—undermined INPE autonomy. Not only did this rein in INPE criticism, but the traditionally clear civil-military distinction in the space program also became blurred. INPE emerged as a focal point for coordination of the emerging aerospace supplier industry, which cut across civilian and military applications. Late in 1989 INPE contracted Embraer to undertake a detailed survey of Brazilian firms capable of participating in satellite construction, in much the same way that CTA oversaw the emergence of an aeronautics supplier industry for Embraer two decades earlier. 74 Virtually all of the firms that emerged as leading INPE contractors in the satellite construction program already had important defense-sector links. 75 Growing INPE links to the military-industrial sector were in some form inevitable as INPE satellite construction activities grew more sophisticated; the skills required in electronics, fine mechanics, and composite materials were largely concentrated in the hands of firms linked to the military. But a more direct link emerged in 1989, when it was discovered that

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INPE had agreed to build a military observation satellite for Iraq based on the MECB design. 76 INPE director Barbosa publicly supported the proposal, saying it represented a good opportunity for national industry to develop space-products technology. Wary of a U.S. backlash, however, the Brazilian Foreign Ministry banned the agreement on the grounds of its potential military applications. 77 Brazilian press accounts later revealed that INPE technicians remained in Iraq for two months after the ban, providing consulting services with the Brazilian defense electronics firm Esca. 78

Renewed Internationalization Through Accommodation? Although a one-third scale model was successfully tested in May of 1989, the VLS program slowed to a standstill by the early 1990s. Continued delays eventually forced the air force to drop its opposition to a foreign launcher for INPE's satellite. The picture was equally bleak for the leading aerospace firms. Orbita, the Embraer-Engesa joint venture meant to unify missile development projects, never got off the ground. Engesa soon abandoned the venture, and in 1991 Embraer announced that it was closing the firm and transferring its one remaining project (the MFA antitank missile) to the private-sector aerospace firm Aeromot. 79 For Avibras, meanwhile, the end of the Iran-Iraq War meant a rapid decline in exports, beginning in 1988. The downturn came as the firm was heavily in debt from nonpaying investments. Its Chinese space-launch venture never materialized, and attempts to diversify into civilian production proved to be too little, too late. 80 Caught in a cash-flow crisis and with debt of some $450 million, Avibras filed for relief from creditors under Brazilian bankruptcy law in January of 1990.81 Early in the Collor presidency (1990-1992), Brazilian aerospace began to chart a new course. Policymakers began to envision a scenario in which Brazil would use a combination of policy concessions and access to its growing domestic aerospace market to boost access to international missile technology. The policy concessions, seeking to make technological cooperation more palatable in the face of international criticism, would include "civilianization" of the space bureaucracy and promises to restrict exports of sensitive technologies and systems. Leverage would come from contracts to launch Brazilian satellites, access to Brazil's new equatorial launch cite, and, most importantly, a billion-dollar plan to construct a radar monitoring system for the Amazon region. Senior air force officials publicly endorsed financing VLS development by leasing the Alcantara launch cite, and President Collor approved the idea in 1990. 82 An interministerial commission was created in late 1991 to design a civilian agency to oversee Brazil's space-related activities. This reorganization, clearly intended to lower the military profile, was

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approved by Congress in 1994. It created a new civilian space agency formally detached from the Armed Forces General Staff. Brazil also announced its willingness to adhere to the export guidelines of the MTCR in 1994, and a year later announced plans to join the regime formally. It remains unclear whether this strategy of coordinating concessions and incentives will work in the long run. The Alcantara launch cite has drawn international interest and may prove to be an asset in the emerging market for launching low-orbital satellites. 83 But it is unclear whether bureaucratic reorganization will legitimize international technological cooperation. Although the military command structure of the space program was formally dismantled, its essence remained largely intact within the new agency. The new agency's first director general, Brigadier Ajax Barros de Melo, previously headed the AM-X program for the Aeronautics Ministry. 84 The air force, through its control of the Aeronautics Ministry, retained control of the Alcantara launch site and funds earned from leasing it internationally. 85 The first test of the new strategy revealed the extensive and enduring market leverage accruing to the United States through the MTCR restrictions. The U.S. government successfully blocked a Brazilian-Soviet space agreement that would have included Soviet launching of the first two INPE satellites. The choice for a foreign launcher came down to the United States and the Soviet Union. The U.S. proposal was a straight payment-for-services agreement, but the Soviet proposal contained a larger plan for space-program cooperation, including technology-transfer provisions and Soviet use of the Alcantara launching center in return for launch services. Both CTA and COBAE reportedly favored the Soviet proposal on technological grounds, but the air force ultimately came down on the side of the U.S. bid. Press accounts indicated that Aeronautics Minister Socrates Monteiro was skeptical of meaningful technology transfer, suspecting that the Soviets were on the verge of joining the MTCR. 86 After protracted negotiations a U.S. firm, Orbital Science Corporation, was contracted in August of 1992 to launch the satellites. 87 More recently, Brazil was successful in obtaining carbon fiber technology, useful for rocket motor casings, from Russia. 88 Brazilian Air Force officials have also claimed that an effective guidance mechanism, necessary if the VLS is to be turned into a functional ballistic missile, has been developed. Although the United States has successfully blocked the transfer of inertial platforms, Brazilian press accounts quote military officials who claim that key parts and components have been obtained surreptitiously from Russia and elsewhere. 89 The willingness of the United States to accept Brazilian-Russian technological cooperation may be explained in part by Brazil's 1995 decision to award its $1.4 billion SIVAM program for Amazonian radar, air defense, and air traffic control to a consortium

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headed by the U.S. firm Raytheon. 90 One interpretation is that this episode reflects exactly what the strategy of coordinated concessions and incentives has sought to obtain. But the main message is that legitimizing the transfer of sensitive technologies to Brazil still carries an enormous price tag, one Brazil is unlikely to be able to pay consistently. And the new strategy does nothing to address the principal lesson of the Brazilian aerospace experience—that the obstacles to effective military-industrial development have been domestic as much as international, and institutional as much as technological.

Comparing Aeronautics and Aerospace Clearly, the aeronautics experience shaped the approach to aerospace. The goal of technological capacitation, the pragmatic technological strategy, and the CTA-dominated organizational structure each recalled the air force's successes in aeronautics. One difference was the choice to retain the VLS program within CTA itself, rather than making Avibras or another firm the focal point, as Embraer had been. The importance of this difference should not be overstated; in aeronautics CTA retained a definitive, guiding influence over Embraer for many years. But the emergence of the VLS as an essentially artisanal program within CTA was consistent with some important global-market and domestic-political differences between aeronautics and aerospace. The existence of a sizable market made industrialization viable in aeronautics, and the rapid obsolescence marking technological evolution in the industry exerted strong pressures for a commercial, market-based logic of segment growth. These pressures and opportunities did not apply in aerospace. Nor was the air force able to recreate its aeronautics monopoly in aerospace, resulting in the proliferation of programs, scattering of resources, and conflict of bureaucratic interests that proved so destructive. In spite of these differences, access to international technology, strong military support, and a pragmatic strategy powered advancement in rocketry during the 1970s, much as a similar confluence had fueled aeronautics growth. The strains introduced by global-market and domestic-political changes in the 1980s were also broadly similar. Both the aeronautics and aerospace segments saw growing tensions between civilian and military interests. Both segments revealed limits to the military's ability to guarantee the flow of resources indefinitely and to control the larger economic and political context that impinged upon programmatic developments. Finally, both segments reflected the continuing obstacles to technological autonomy in a world of rapid international-market changes and an increasingly pluralized domestic politics.

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Notes 1. "O espago deve ser civil," Veja, February 8, 1989; my translation. 2. "Camarinha diz que INPE quer sabotar programa espacial," Folha de Sao Paulo, May 27, 1988; my translation. 3. The principal difference between a satellite-launch vehicle and a ballistic missile is in the latter's more precise guidance system. Ballistic missiles also require a reentry vehicle, but this is not a major technological obstacle. See Robert D. Shuey et al., Missile Proliferation: Survey of Emerging Missile Forces, CRS Report 88-642, Congressional Research Service, Washington, DC, 1989. 4. The following history draws heavily on Ronaldo Rogerio de Freitas Morao, "A Pesquisa Espacial no Brasil," in Mario Guimaraes Ferri and Shozo Motoyama, eds., Historia das Ciéncias no Brasil, volume 3 (Sao Paulo: Editora Pedagógica e Universitária Ltda., 1981), as well as interviews with current and former officials. 5. The decree itself formed a precursor body known as the Organizing Group for the National Space Activities Commission, or GOCNAE. 6. "Brazil to Launch First Sounding Rocket," Aviation Week and Space Technology, July 6, 1964. 7. Morao, "A Pesquisa Espacial." 8. Scott D. Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," research report, Naval Postgraduate School, Monterey, California, March 1990. 9. Clifford P. Graham, "The Brazilian Space Program and U.S. Foreign Policy Challenges," unpublished report, Department of Geography, U.S. Military Academy, West Point, New York, October 1989; cited in Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," p. 30. 10. "Trajetoria certeira," Veja, November 28, 1984. 11. FBIS, "Obstacles to VLS Development Reviewed," Latin America Daily Report, August 15, 1989. 12. "NASA brasileira nao tem o hábito de exercer seu poder político," Folha de Sao Paulo, May 29, 1988. 13. The plan was later revised to include four satellites, to be launched between 1989 and 1993. 14. "Construction Slows Down," Gazeta Mercantil (international edition), April 3, 1989. 15. "Brazil Plans to Launch Its Own Satellite," Aviation Week and Space Technology, July 9, 1984; Pierre Condom, "Brazil Aims for Self-Sufficiency in Space," Interavia 41 no. 1 (January 1986): pp. 99-101; A.B. Carleial, "O Programa de Satelites da Missao Espacial Completa Brasileira," ITA Engenharia 8 no. 11 (March-April 1988): pp. 24-26. 16. Liquid fuels are more difficult to handle and use, and require a system of pumps, valves, and injectors to mix the fuel with an oxidizer in-flight. See Shuey, Missile Proliferation, pp. 14-16. 17. See Condom, "Brazil Aims for Self-Sufficiency." 18. Condom, "Brazil Aims for Self-Sufficiency"; Shuey, Missile Proliferation, p. 91. As a self-adjusting, internal system, inertial guidance eliminates the vulnerability inherent in relying on external information, which can be blocked with electronic countermeasures. The concept and basic design of inertial guidance are broadly understood; the principal barriers are the complex materials and great precision required in manufacturing system components. 19. "Brasil terá seu espagoporto em 1991," O Globo, September 11, 1989; "Rocket Launching: Center Inaugurated," Gazeta Mercantil (international edition),

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February 26, 1990; FBIS, "Rocket Launched from Alcantara Launching Center," Latin America Daily Report, December 10, 1990. There are conflicting estimates of the total cost of Alcantara. The figure reported by the Brazilian press at the time of the base's inauguration was $215 million, but Tollefson estimates $470 million (Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," p. 31). 20. "Foguete lanzador vai atrasar programa espacial," Folha de Sao Paulo, May 15, 1988; FBIS, "Rocket Launched"; FBIS, "Second Stage of Satellite Launcher Tested," Latin America Daily Report, December 26, 1990. 21. Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," p. 55. 22. By one account, the IAE had lost 465 of 700 engineers and technicians by 1988; see "Foguete lanzador vai atrasar programa espacial." The director of the VLS program stated in 1989 that CTA as a whole had lost 150 of 4,000 employees (FBIS, "Obstacles to VLS"). 23. Condom, "Brazil Aims for Self-Sufficiency." 24. "Diretor do CTA diz que Sonda 4 nào explodiu," Folha de Sao Paulo, May 27, 1988. 25. "Avibrás Emerges as Major Exporter for Brazilian Aerospace Industry," Aviation Week and Space Technology, August 17, 1987. 26. "Brazil to Launch First Sounding Rocket." 27. Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliaqáo, p. 272, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 28. Ibid., p. 273. 29. "Avibrás Emerges as Major Exporter." 30. Dagnino, A indùstria de armamentos brasileira, p. 274; FBIS, "Iraq Said to Finance Weapons Development," Latin America Daily Report, June 18, 1984. 31. Dagnino, A indùstria de armamentos brasileira, p. 356. 32. "Avibrás Emerges as Major Exporter." Dagnino estimates a much smaller proportion of Avibrás revenues from exports in this period: 5 percent in 1982, 18 percent in 1983, and 10 percent in 1984. According to Dagnino's estimates, the firm realized the bulk of its revenues from exports only in 1985 and subsequent years, and never reached the 90 percent level claimed publicly by Avibrás officials (peaking at an estimated 82 percent in 1987). See Dagnino, A indùstria de armamentos brasileira, p. 356. 33. "Avibrás Emerges as Major Exporter"; Dagnino, A indùstria de armamentos brasileira, p. 423. 34. "Brazil's Air Force Purchases Linked to Embraer Pacts," Aviation Week and Space Technology, June 25, 1984. 35. "Avibrás Emerges as Major Exporter"; "Avibrás entrega ao Exército 12 sistemas Fila antiaéreos," O Globo, January 7, 1987. 36. FBIS, "Anti-tank Missiles Testing Set for Nov-Jan," Latin America Daily Report, September 6, 1989. 37. Patrice Franko-Jones, The Brazilian Defense Industry (Boulder, CO: Westview Press, 1992): p. 196; "Industria de armamentos acusa queda de vendas em 87," Folha de Sao Paulo, December 27, 1987. 38. Franko-Jones, The Brazilian Defense Industry, p. 196. See also Shuey, Missile Proliferation, pp. 89-90; Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," p. 44. 39. "The Long March," Gazeta Mercantil (international edition), April 24, 1989; "Brazil, China Form Space Launch Venture," Aviation Week and Space Technology,

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May 29, 1989; "Brasileiros e Chineses fazem joint venture," Folha de Sao Paulo, June 16, 1989. 40. Dagnino, A indùstria de armamentos brasileira, p. 278. 41. Franko-Jones attributes poor relations to "personal animosity" between Avibrás president Joào Verdi Carvalho Leite and Brigadier Hugo de Oliveira Piva, a key aerospace figure (Franko-Jones, The Brazilian Defense Industry, p. 26). Dagnino cites the firm's unwillingness to credit the air force for its technical successes (Dagnino, A indùstria de armamentos brasileira, p. 277). An account of personality conflicts in the aerospace sector is provided by Roberto Lopes, a Brazilian journalist at one time employed by Avibrás, in Rede de Intrigas: Os Bastidores do Fracasso da Indùstria Bélica no Brasil (Rio de Janeiro: Editora Record, 1994). 42. Dagnino, A indùstria de armamentos brasileira, p. 271. 43. "Exército vai comprar misseis italianos," Folha de Sao Paulo, January 6, 1987; FBIS, "Anti-tank Missiles." 44. Dagnino, A indùstria de armamentos brasileira, p. 276. 45. "Brazilian Army Opens Up New Missile Requirement," Jane's Defense Weekly, February 21, 1987. 46. "DFV farà missil Piranha," O Globo, April 7, 1982; "Veja se associa a outras empresas para produzir armas," O Estado de Sao Paulo, December 23, 1986; "Fund-seeking Missiles," Gazeta Mercantil (international edition), May 23, 1988. 47. FBIS, "Aeronautics Minister Confirms Piranha Missile Project," Latin America Daily Report, January 31, 1994. 48. Dagnino, A indùstria de armamentos brasileira, p. 272. 49. "Programa brasileiro de misseis será unificado," O Globo, June 2, 1986; Tollefson, "Brazil, the United States, and the Missile Technology Control Regime." 50. "Veja se associa a outras empresas"; "Brazil Forms High-Technology Venture to Develop Advanced Weapons Systems," Aviation Week and Space Technology, August 17, 1987. Engesa and Embraer each retained a 40 percent share in Órbita; the remaining 20 percent was divided among Imbel (the army-owned munitions complex), Esca (a private software engineering firm), and a group of consulting engineers. 51. "Brazilian Army Opens Up New Missile Requirement"; Dagnino, A indùstria de armamentos brasileira, p. 276; "Brazil Forms High-Technology Venture." 52. "Greenpeace estuda potencial bélico do Brasil," Folha de Sao Paulo, May 31, 1988. 53. "Brazil Forms High-Technology Venture"; "Veja se associa a outras empresas." 54. Shuey, Missile Proliferation, pp. 88-89. The MB/EE-150 is thought to be a solid-fuel rocket based on Sonda technology, capable of delivering a 500-kg payload to a range of 150 km. 55. The regime drew a distinction between so-called Category I and Category II items. The former include complete rocket systems capable of delivering a 500kg payload to a range of 300 km; the production facilities for such systems; and complete subsystems for such systems, including individual rocket stages, solid- or liquid-fuel rocket engines, guidance sets, thrust vector controls, and warhead safing, arming, fusing, and firing mechanisms. Category II includes items such as propulsion components, propellants, structural materials, flight control systems, software, and related electronic equipment. The regime's original guidelines established a "strong presumption" against the transfer of Category I items, and called for case-by-case analysis of Category II items. The Category I guidelines were extended in 1993 to include any missile intended to carry "any weapon of mass destruction" ("Missile Technology Controls Expanded," International Defense

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Review [February 1993]: p. 90). On the MTCR, see Frederick J. Hollinger, "The Missile Technology Control Regime: A Major New Arms Control Achievement," in U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1987 (Washington, DC: ACDA, 1988); Aaron Karp, "Ballistic Missile Proliferation in the Third World," in Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1989 (London: Oxford University Press, 1989). 56. Dagnino, A indùstria de armamentos brasileira, p. 275; José Monserrat Filho, "A Crise da Nossa Politica Espacial," Ciència Hoje 11 no. 63 (April-May 1990): p. 72. 57. India has not committed itself to meeting the regime's provisions on the grounds that it is discriminatory, but as an exporter has observed its provisions in practice. Although Russia agreed to abide by the regime's provisions following a controversial technology transfer to India in 1993, subsequent Russian sales of carbon fiber technology to Brazil may have violated the regime's provisions. China also appears to have transferred items prohibited by the regime. 58. Shuey, Missile Proliferation, p. 105. 59. "Brazil Fumes at Washington's Refusal to Allow Export of Certain Technologies," Wall Street Journal, April 27, 1989; Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," p. 54. 60. "EUA vetam licenza de foguetes" and "EUA embargam pegas de foguetes brasileiros," both in O Estado de Sào Paulo, August 24, 1990; "EUA retem motores do foguete brasileiro," Folha de Sào Paulo, August 24, 1990; "Ban on Rocket Parts," Gazeta Mercantil (international edition), September 3, 1990. 61. Tollefson, "Brazil, the United States, and the Missile Technology Control Regime," pp. 51-52. 62. "Bloqueios internacionais afetam o Pais, afirma a CTA," Gazeta Mercantil, November 24, 1989; my translation. 63. The U.S. firm Hughes won the competition to build these satellites, defeating a Canadian-French consortium. Arianespace and the state-owned telecommunications firm Embratel signed the final launch agreement in late 1990 (FBIS, "French Co-signs Satellite Launch Contract," Latin America Daily Report, September 4, 1990; "Satelites," Jornal do Brasil, September 4, 1990). The weight of the satellites (700 kg) put them beyond VLS payload capabilities. 64. "Rockets Become Touchier Issue," Gazeta Mercantil (international edition), July 24, 1989. 65. "Franfa reage a pressào sobre misseis," O Estado de Sào Paulo, October 6, 1989; "Franfa garante a cessào ao Brasil de tecnologia espacial," O Globo, October 6, 1989; "U.S. Seeks to Stop Brazil Deal to Gain Missile Technology," New York Times, October 19, 1989. Whethei Brazil obtained anything of use for the VLS program from this arrangement is unclear: see Péricles Gasparini Alves, "Brazilian Missile and Rocket Production and Export," in William C. Potter and Harlan W. Jencks, eds., The International Missile Bazaar: The New Suppliers' Network (Boulder, CO: Westview Press, 1994): p. 119. 66. Some former participants in the program criticized the four-engine configuration of the first stage, which reportedly requires triple the steel of a singleengine system and thereby increases weight and fuel requirements. The director of the program indicated that the engine configuration was a function of limitations on the size of the engine turbines that Brazil could manufacture. See FBIS, "Obstacles to VLS." 67. "China Venture Starts," Gazeta Mercantil (international edition), May 15, 1989; FBIS, "Remote-Sensing Satellite with PRC Outlined," Latin America Daily

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Report, January 31, 1991. The target launch date was subsequently postponed to 1996. 68. "Novo diretor do INPE ainda sente as disputas anteriores á nomeasào," Folha de Sào Paulo, April 7, 1989; "Embraer entra em programa de satelite," Folha de Sao Paulo, December 3, 1989. 69. "Diretor do INPE cai aos Estados Unidos e causa confusào no MCT," Folha de Sào Paulo, May 26, 1988; "Falha no computador central causou acidente do Sonda 4," Folha de Sào Paulo, May 28, 1988; "Camarinha diz que INPE." 70. "Novo diretor do INPE." 71. "O espago deve ser civil." 72. "Técnicos do INPE protestam contra afirmafoes do diretor e de Robertào," Folha de Sao Paulo, February 24, 1989. 73. The Chinese venture was delayed for three years by funding shortages, scientific disagreements, and Brazilian demands for a larger role in satellite manufacturing and a share in controlling the satellite during orbit. The Brazilian government withheld funds and refused to sign a launch contract until the dispute was resolved in October of 1991. See FBIS, "Dispute Hinders PRC-Brazilian Satellite Program," Latin America Daily Report, December 27, 1990; "Satellite Project with China Resumed," Gazeta Mercantil (international edition), October 21, 1991. One interview subject familiar with INPE suggested that Barbosa used relatively minor technical disputes to slow the program's progress. 74. "Embraer entra em programa de satelite." 75. These firms include Composite, a supplier in the AM-X program; INB, the state-owned nuclear industry (formerly Nuclebras); Elebra, a computer firm with substantial involvement in the military-industrial sector; defense electronics firms Esca, Tecnasa, and Aeroeletrónica (formerly the Engesa subsidiary Engetrónica, until it was acquired by the private aerospace firm Moddata in 1989); COPESP, the naval R&D institute in charge of the navy's nuclear program; and Embraer itself, which built the composite-material frame for the MECB satellite. See FBIS, "INPE Lets Contracts for Satellites," Latin America Daily Report, July 30, 1991; "Empresas querem investir em projeto," Folha de Sao Paulo, April 7, 1989. 76. FBIS, "Iraq to Purchase INPE Satellite, Technology," Latin America Daily Report, March 7, 1989; "Construction Slows Down," Gazeta Mercantil (international edition), April 3, 1989; "Brazil quer vender satelite ao Iraque," Folha de Sao Paulo, June 19, 1989. The Iraqi satellite proposal appears to have emerged before Barbosa replaced Raupp as INPE director. Newspaper accounts of the agreement suggested that the deal was in the works as early as October of 1988, months before Raupp's departure. 77. "Itamaraty barra constru9ào de satelite para o Iraque," Folha de Sao Paulo, April 7, 1989. 78. FBIS, "Goldemberg Deems Inpe Project with Iraq Legal," Latin America Daily Report, March 27, 1991. 79. FBIS, "Órbita to Close on Completing Current Project," Latin America Daily Report, June 4, 1991; FBIS, "Embraer Wants to Privatize Missile Project," Latin America Daily Report, August 29, 1991; "Embraer Back in the Missile Business," Gazeta Mercantil (international edition), December 23, 1991. 80. Franko-Jones, The Brazilian Defense Industry, p. 205; Dagnino, A indùstria de armamentos brasileira, p. 279; FBIS, "Avibrás Obtains Funds for Fiber Optics Project," Latin America Daily Report, January 5, 1990. 81. "Filing for Concordata," Gazeta Mercantil (international edition), January 15, 1990; "Concordata da Avibrás foi surpresa," Folha de Sào Paulo, January 21, 1990; Franko-Jones, The Brazilian Defense Industry, p. 214.

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82. FBIS, "Use of Launch Cite by Other Countries Approved," Latin America Daily Report, October 17, 1990; "U.S. Pressure Against Soviet Partnership," Gazeta Mercantil (international edition), May 6, 1991. 83. FBIS, "Progress of Space Program Viewed," Latin America Daily Report, September 28, 1995. 84. FBIS, "Demilitarization of Space Program Discussed," Latin America Daily Report, January 10, 1992; FBIS, "Space Agency Head on U.S. Proliferation Concerns, MTCR," Latin America Daily Report, April 12, 1994. 85. FBIS, "VLS, Nuclear, Missile Projects Viewed," Latin America Daily Report, November 3, 1995. 86. FBIS, "Government to Choose Foreign Satellite Launcher," Latin America Daily Report, March 8, 1991; FBIS, "Satellite Launch Vehicle Bidding Heats Up," Latin America Daily Report, May 15, 1991; FBIS, "U.S. Company to Launch Brazilian Satellite," Latin America Daily Report, July 16, 1991. 87. FBIS, "Contract Signed for Launching Satellite," Latin America Daily Report, August 21, 1992. 88. "U.S. Waives Objection to Russian Missile Technology Sale to Brazil," Washington Post, June 8, 1995. 89. FBIS, "Rocket Technology Purchased from Russia, Black Market," Latin America Daily Report, May 2, 1995. 90. Such a link has been denied by U.S. officials; see "U.S. Waives Objection."

9 The Osório Battle Tank

Swimming against the tide of the government's plan to privatize one state enterprise per month, once again a company is being nationalized in order to socialize the losses. It's an old movie, and Engesa has been starring in it for some time. —Brazilian press account of efforts to restructure Engesa's debt and attract foreign investment 1

Enigmas of Armored-Vehicle Production in Brazil Perhaps more closely than any other industry, armored-vehicle production traced the fluctuating fortunes of Brazil's defense sector. Engesa, the industry's most important firm, rode the export-led boom of the late 1970s and early 1980s to greater heights than any other enterprise—and fell further as well. At its peak, Engesa was a sprawling conglomerate with investments in aerospace, electronics, helicopter production, and several other ventures beyond its staple of armored vehicles. But a few years later Engesa was bankrupt, trapped under a mountain of debt from risky acquisitions and nonperforming products. The firm's crowning achievement, the Osorio battle tank, never passed the prototype stage. The firm that symbolized the bold confidence of Brazilian military-industrial expansion was an equally apt symbol of its demise. In 1990 a senior Foreign Ministry official, commenting on the Collor government's tougher arms-export policies, stated simply, "The Engesa era is over." 2 But to see in Engesa a symbol of the larger fortunes of the defense sector leaves several puzzling questions unanswered—questions involving the structure of the armored-vehicle industry, the nature of the army's participation in supporting the industry's growth and expansion, and the resulting balance of power and control between the army and the private sector. One puzzle is the army's posture toward technology development. Despite the service's historical role in promoting Brazil's industrial development, the 165

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army was the last service to take a serious interest in military R&D and force modernization. The army was also last to consolidate a militarytechnological infrastructure, forming its Science and Technology Secretariat in 1984. And the army defined its technological concerns far more narrowly than the other services, stressing pursuits with immediate operational implications. Why would the service branch most consistently viewing itself as a modernizing, nation-building force be least inclined to reflect that view in its own military-industrial policies? 3 The decision of the navy and air force to undertake ambitious technology development programs was by no means unusual or exceptional among Third World (or for that matter, First World) militaries during the period in question. What demands explanation is not the aggressive technological posture of the navy or air force, but rather the army's slowness in seizing upon the technological variable. A second puzzle: Engesa flourished as a privately owned firm, and its interaction with the military reflected the firm's substantial autonomy. Although Engesa relied on army support at critical junctures, the firm followed a consistently independent, market-driven logic in making crucial choices about production, technology, and markets. Why did the army, which had proven itself comfortable with an expansive economic role for the state, allow seemingly greater private-sector autonomy than any other segment of Brazil's defense industries? A final puzzle involves the chosen means of support for the nascent armored-vehicle industry. Throughout modern Brazilian history the army has been the most politically powerful of the services, and one of the most consistently powerful actors in Brazilian politics. The army high command dominated the military regime of 1964-1985, and allocated for itself budgets roughly equal to those of the air force and navy combined. Why then did the dominant service branch provide the least consistent support through domestic procurement for its principal client firm? The answers to these questions lie in the complex web of interconnections between nationalism, technology, modernization, and control. To untangle that web, it becomes necessary to consider several features of the global-market and domestic-political context at the time when key choices structuring the armored-vehicle industry were made. It also becomes necessary to consider several aspects of the organizational character of the army itself during military rule.

Origins of the Armored-Vehicle Industry Prior to the 1970s, the army's armored-vehicle fleet consisted primarily of U.S. surplus equipment of World War II vintage. Although Brazil possessed a sizable auto industry, the result of heavy multinational investment since the 1950s, the barriers to defense production and the ready availability

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of foreign equipment inhibited domestic production. 4 By the late 1960s, however, several convergent factors stimulated efforts to create a national armored-vehicle industry. The perceived need emerged for a small, lightweight vehicle that could quickly cover great distances along continentalscale Brazil's growing highway system. This stimulated an effort to adapt civilian automotive technology. At roughly the same time, the perceived obsolescence of existing equipment, the high cost of replacement parts, and the chronic shortage of foreign exchange prompted an effort to refurbish the army's existing stock of heavier vehicles. Both efforts drew surplus auto industry capacity into defense production. The key to the effort to build simple, lightweight, wheeled armored vehicles was Engesa. Formed in 1958 under private ownership, Engesa produced equipment for the national oil industry and adapted trucks for off-road use. In the 1960s, the firm developed the "boomerang" suspension, combining a rear-wheel transmission with a floating suspension to give heavy equipment greatly improved off-road traction and maneuverability. This innovation made the firm's off-road vehicles attractive for military use. Building on what Franko-Jones describes as "good personal relations between people in the firm and those in the army," Engesa obtained a commission to build the prototype for a wheel-driven armored vehicle to replace the army's aging reconnaissance and amphibious-transport equipment. 5 Lock reports that as of 1970 only 28 of 240 Engesa employees were classified as engineers, suggesting that army engineers played an important role in prototype development. 6 Engesa began to produce two vehicles in the early 1970s: the Urutu, a lightweight armored personnel carrier adaptable to a wide range of functions; and the Cascavel, a threeperson armored reconnaissance car with a U.S.-built 37-mm gun. Both vehicles featured the boomerang suspension with a simple chassis driven by a turbo-diesel engine; both were durable, lightweight (13 to 14 ton) vehicles capable of high road speeds (100 km/hr) and long ranges between refuelings (750 km); and both relied on standardized, broadly available auto parts. 7 Engesa's early vehicles are classic examples of what is often referred to as "add-up" engineering, in which generally available technologies and components are integrated to produce a unique system. 8 The army purchased an initial lot of several hundred Urutu and Cascavel vehicles. The navy also acquired the Urutu for use by its marines. The role of these purchases was similar to air force acquisition of the Bandeirante aircraft, bolstering the firm financially before it had penetrated the export market. The demonstration effect of the system's performance with the Brazilian armed forces would prove valuable in gaining export sales later in the decade. 9 The army also stimulated domestic capacity through projects to refurbish its existing stock of tracked armored vehicles. This process began with a 1973 project to retrofit the fleet of aging Stuart M3A1 combat

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vehicles. The M3A1 was a lightweight (12-ton) armored vehicle built in the United States prior to World War II and acquired by the Brazilian Army in the early 1950s. The goal was to improve capabilities and extend the life of the vehicle, stressing nationally produced replacement parts and components. The Stuart's retrofit package included reinforced armor, a new turret, a French-made 90-mm cannon, and a diesel engine to replace its inefficient gasoline engine. 1 0 Later modifications included an improved suspension, a new gearbox, and an Engesa-built 90-mm cannon. The army designated the Sao Paulo firm Bernardini as the project's principal contractor. Founded in 1912 under private ownership, Bernardini produced strongboxes and metal office furniture before shifting to defense. The firm first entered military production during the recession of the 1960s, converting its idle industrial capacity to produce truck bodies for the army and navy. 11 Several other Sao Paulo firms also participated, including truck producer Biselli, auto-parts firms Motope?as and Novatra^ao, metallurgical firm Eletrometal, and the Brazilian subsidiaries of Mercedes-Benz and Saab-Scania. 1 2 The success of the Stuart refurbishment led the army to contract Bernardini in 1978 to retrofit its fleet of M-41 "Walker Bulldog" armored vehicles, an early-1950s design acquired from the United States in the early 1960s. 13 Modifications included a new suspension, modified wheels and tracks, a more efficient diesel engine, a refurbished gearbox, a new and larger (90-mm) gun, reinforced armor, and nationally produced optical equipment. 1 4 Then, in 1981, the army contracted with Motopegas—an established producer of transmissions and participant in the earlier Stuart project—to overhaul its early-1960s-vintage M-113 amphibious armored troop carriers. 15 Modifications included a more efficient diesel engine (in this case, a locally built Mercedes-Benz engine), rebuilding the gearbox, modifying the air-intake system, replacing the electrical system with national components, and redesigning the control panel. 1 6 These refurbishing projects extended the life and upgraded the capabilities of the army's vehicles, while also replacing imported parts and components with local manufactures. Together with Engesa's emerging line of wheeled vehicles, they created the beginnings of a significant defense-industrial base. Notably, building that base did not involve the largest industrial groups in Brazil directly in arms production. The army's efforts in the 1970s thus parted company with the 1960s approach of the Permanent Group for Industrial Mobilization. Instead, the army enlisted small and specialized civilian firms as prime contractors; these firms built backward linkages to the national auto industry, drawing preexisting civilian firms into military production (including, but not limited to, local subsidiaries of U.S. and European multinational auto producers). The connections thus established—and the growing dependence of the key prime contractors on military production—laid the groundwork for a new and

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more ambitious generation of Brazilian-built military vehicles in the early 1980s.

Origins in Political and Economic Context This pattern of segment expansion is consistent with the larger pattern of domestic-political autonomy and expanding global-market opportunities sketched in earlier chapters. The army had broad latitude to steer resources, choose winners, and define goals in ways that stimulated industrial expansion. Wielding these tools effectively, the army helped to create conditions that later enabled Engesa to find a lucrative niche for its products in the expanding Third World arms market. But these general observations say little about the specific puzzles raised earlier. Why an armoredvehicle industry placing relatively low priority on a sustained capacity for technological innovation? Why one organized around private-sector firms? Why the reliance on exports to sustain the bulk of its industrial capacity? In domestic-political terms, the army's dominant position may have made ambitious technological programs possible, but it also mitigated against just such undertakings. First, the army's more extensive political involvement during military rule was a heavy drain on the service's managerial and financial resources. Its position as the "party in power" appears to have made the army reluctant to commit greater resources to a sustained technological effort given the demands of the regime's economic program. 17 Also, the army had a substantially greater political interest in maintaining the status quo force posture, under which it received the bulk of defense resources and maintained a large, widely dispersed, and politically influential force that was the ultimate guarantor of military rule. To the extent that programs of technological modernization would have the effect of shifting the prevailing force posture, they were by no means an unmixed blessing. In other words, the army's position as both the dominant political force and the ultimate guarantor of military rule created political goals and tasks that steered it away from a high-tech emphasis. At the same time, global-market forces exerted less pressure in the direction of technological modernization. The global pace of innovation in armored-vehicle technology was notably slower in the 1960s and early 1970s than for those weapon systems around which the navy and air force were organized. Comparing the pace of key innovations in tank technology prior to and after World War II, Harkavy concludes that "a comparison . . . between periods is difficult due to the varied dimensions involved, but it appears that the rate of technological change was at least as great in the 1930s as in the period 1950 to 1970." 18 Table 9.1 illustrates the relatively slow pace of change for selected tank characteristics during the period in question.

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Table 9.1 Evolution of Selected Tank Characteristics, 1950-1970

1950 Pershing Charioteer Centurion I Soviet T-10 Soviet JS-2 AMX-13 1960 US M-60 US M-48 Centurion IV Soviet T-54 1970 Chieftain Leopard Soviet T-62 AMX-30 STRV-103

Armament (main gun)

Speed (mph)

Weight (tons)

Range (miles)

90-120 mm

30-40

30-50

130-150

90-120 mm

30-40

35-50

200-250

105-120 mm

30-45

32-52

230-380

Source: Robert E. Harkavy, The Arms Trade and International Ballinger, 1975), p. 45.

Systems (Cambridge, MA:

Presumably, this relatively slow pace lessened the perceived importance of the technological variable. 19 At the same time, the industrialized countries viewed the transfer of armored vehicles, components, and associated production technologies as far less sensitive and destabilizing than combat aircraft, missiles, or nuclear technology. Engesa, for example, was readily able to acquire a license for a 90-mm cannon from the Belgian firm Cockerill, and the participation of General Motors and Mercedes-Benz through their Brazilian auto-industry subsidiaries made the necessary engine technology readily available to both Engesa and Bernardini. This availability of foreign technology undercut domestic technology development efforts. If global-market and domestic-political forces steered the army away from an aggressive technology development model, they also resonated with prevailing army doctrine and ideology during this period. The army was by no means a unified, monolithic entity prior to or during military rule (as seen in the split between the so-called hard-liners and so-called moderates discussed previously). Several doctrinal points that do not appear to have been in contention, however, bore directly upon the technological question. The doctrine of segurança e desenvolvimento broadly embraced by the military regime defined the principal short-term security problem as that of suppressing internal dissent. Such a task, which in practice fell largely to the army, did not call for a more technologically ambitious

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effort; if anything, it called for exactly the sort of lightweight, highly mobile, wheeled vehicles that Engesa set about producing in the early 1970s. To the extent that external security was a consideration, there was a strong perception within the service that Brazil's superior size and industrial base would allow it the time needed to mobilize resources in the face of external aggression. The result, as one retired senior officer described it, was that where the arms industry was concerned, "the army's vision was industrial, but not technological." Not until the demonstration effect of the 1982 Malvinas (Falklands) war would there be meaningful change in this perspective. 20 But even if the army's slowness to emphasize technological innovation can be thus explained, why was the industry that did emerge organized around the private-sector firms Engesa and Bernardini? Why did the structure of production not recreate the patterns of the air force and navy, in which the state-owned firm Embraer and the navy's Rio de Janeiro Arsenal predominated? If anything, the lack of pressures for technological innovation and the sector's timing, emerging during a decade of rapid growth in state-owned enterprises, would seem to make a militarycontrolled enclave more feasible rather than less so. Certainly, the existence of an already sizable Brazilian auto industry— a condition not matched in aeronautics or naval construction in the early 1970s—helps explain the choice to organize the segment around privatesector involvement. So too does the existence of chronic excess capacity in the auto parts, metalworking, and petrochemical industries during the period in question. One interview subject suggested, for example, that the choice of Bernardini to head up the refurbishing efforts of the 1970s was made in part to rescue that firm from financial difficulties. More importantly, the apparent conflict between private ownership and state control is once again a false distinction. Engesa and Bernardini were small firms with close links to the military, strengthened by the substantial involvement of army engineers in the firm's early programs. Both firms also grew heavily dependent on military contracts in the 1970s. Under these circumstances, the risk of the army losing control must have seemed minimal. Engesa did obtain a substantial measure of independence and autonomy, as discussed below, but only after a sustained period of exceedingly rapid export-driven growth later in the decade. The final puzzle associated with the segment's emergence and institutionalization has to do with reliance on a model of export-led growth. Again, the army's position in power may have made it reluctant to steer resources away from its economic program, which would have been required to support greater domestic procurement of armored vehicles. Maintaining a manpower-intensive, regionally distributed force posture—seen as essential for political reasons—also absorbed funds that might otherwise have gone to equipment procurement and force modernization. More generally, however, the key to the army's willingness to embrace a model of

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export-led growth was linked to the idea of industrial mobilization alluded to earlier. Given the core goal of maintaining the industrial capacity required for surge production during wartime, there were three possible sources of support during peacetime: military procurement, civilian production that could be readily converted, or arms exports. The option of sustained military procurement would have required a major commitment of chronically scarce resources. The option of relying on rapid conversion of civilian production was reasonable for military trucks, general-purpose vehicles, and even light armored vehicles, but not for the more ambitious programs that emerged in the 1970s and early 1980s. In the context of a booming global arms economy, the choice was not surprising: If the army were to develop a sustained military-industrial base, it would have to do so by relying on the export market to support the bulk of production.

The Divergent Paths of Bernardini and Engesa By the beginning of the 1980s, tank production was a realistic possibility in Brazil. Bernardini's refurbishing projects and Engesa's demand for domestic inputs had attracted several automotive, metallurgical, mechanical, and petrochemical firms to defense production as suppliers of parts and components. Most were well-established firms that depended on military contracts for only a small portion of their business.21 The same was not true for Engesa and Bernardini, however; the two leading prime contractors had shifted the bulk of their efforts to the military market by decade's end. Aided by the Army Technological Center (CTEx), Bernardini launched a project in 1979 to develop a nationally designed, nationally built tank. This medium-weight (30-ton) battle tank, known as the Tamoyo, was to be built by Bernardini in conjunction with Biselli, Novatra?ao, and other firms involved in the refurbishing projects of the 1970s. The tank's components were fully Brazilian, including Engesa's nationally-produced 90-mm cannon, an engine from the Brazilian subsidiary of Swedish multinational Saab-Scania, and a gearbox built by the Brazilian subsidiary of General Electric. 22 The Tamoyo was a logical extension of the army's emphasis on import substitution, development of immediately applicable military technologies, and sustaining the emerging militaryindustrial base. Although the design was consistent with the growing international market niche for medium-tech weaponry, the original plan was for army procurement to be the main source of demand; firm officials originally anticipated that only 20 percent of total production would be for export.23 Bernardini officials later acknowledged that the tank was not a state-of-the-art competitor in the international market, blaming the army's lack of resources to support the project. 24

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From the vantage point of the late 1970s, Bernardini was the logical choice to be prime contractor for the first Brazilian tank. 25 The Stuart and Walker Bulldog retrofit projects gave the firm substantial experience with track-driven vehicles. Equally importantly, the firm was tightly linked to the army. Close operational ties emerged between the firm and CTEx during the refurbishing projects, and the firm itself lacked a significant autonomous capacity for innovation. 26 While Bernardini evolved into a firm under effective army control, Engesa began to plot a more independent course. Army financial support, design assistance, and procurement had been crucial in launching Engesa's line of light armored vehicles. Once the firm established a foothold in the international market, however, it grew far less dependent on the military for such support. Engesa closed major sales agreements with Libya, Iraq, and Chile during 1977-1979. Sales to several Middle Eastern, African, and Latin American countries followed (Table 9.2). Dagnino estimates that exports accounted for 90 percent of the vehicles produced by Engesa through 1982.27 Engesa vehicles were attractive on the international market for several reasons. They proved to be inexpensive, rugged, durable, and relatively simple to operate and maintain, with spare parts widely available in the international civilian auto market. The firm also cultivated a reputation as a supplier unrestricted by political considerations. The effective performance of the Urutu and Cascavel in the hands of clients further bolstered Engesa's reputation. A 1977 Egypt-Libya border skirmish, which demonstrated the mobility of Libya's Cascavel vehicles, provided an important boost to export sales. 28 The army actively supported Engesa's export-led growth during this period. In 1975 the firm received a major infusion from the National Bank for Economic and Social Development (BNDES), yielding a 400 percent increase in its working capital. In 1979 the ministry of the army arranged for arms-producing firms to receive special credits from BNDES through the Planning Secretariat (SEPLAN). In early 1981, the firm received a special three-year income-tax exemption. 29 A cash-flow crisis later that same year was stemmed with finance credits from the Department of Foreign Commerce of the Bank of Brazil (CACEX). 30 The firm also benefited from more general military-industrial subsidies, including exemptions from the Industrial Products Tax (IPI) and from tariffs on imported components. 31 The army also provided diplomatic support with potential clients through its foreign military attachés—an important factor given the government-to-government character of major international arms sales. Many of Engesa's sales in the Middle East, for example, were part of larger agreements involving petroleum, commodities, and construction contracts—deals requiring commitments that Engesa alone could not arrange.

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Table 9.2

E n g e s a Sales of Armored Vehicles, 1 9 7 5 - 1 9 8 5

Recipient Country Exports of EE-9 Cascavel Argentina Bolivia Burkina Faso Chile Colombia Cyprus Egypt Gabon Iraq Iraq Libya Qatar Thailand Togo Tunisia Zimbabwe Exports of EE-11 Urutu Bolivia Chile Chile Colombia Egypt Gabon Guyana Iraq Iraq Libya Saudi Arabia Surinam Tunisia United Arab Emirates United Arab Emirates Venezuela Exports of EE-3 Jararaca Gabon Iraq Exports of EE-17 Sucuri Iraq

Total Ordered

Year of Order

Total Delivered

Year(s) of Delivery

n.a. (50) n.a. 200 200 20 1 16 n.a. 26 300 20 56 (36) (18) 90

1982 (1979) (1981) 1978 1982 1982 (1983) 1981 (1979) (1984) 1977 1977 1982 (1982) 1982 1983

(10) (50) (10) (200) (200) 24 1 16 (750) 26 (300) 20 (56) (36) (18) (90)

1982 1979-1980 (1983) (1978-1979) (1982-1983) 1984 (1983) 1981 1979-1982 1985 1978-1979 1979 1984-1985 (1983) (1983) (1983-1984)

(24) (50) 200 (15) 1 (16) n.a. n.a. (180) (100) 30 (10) n.a. 66 30 30

(1979) 1978 1981 1982 (1983) (1983) 1982 (1979) (1983) 1978 (1982) (1983) 1982 1980 (1983) 1983

(24) (50) (200) (15) 1 (16) (30) (200) (180) (100) 30 (10) (18) (66) 30 30

1979-1980 (1979) (1981-1982) (1983) 1983 (1983-1984) (1984) (1979-1982) 1984 (1979-1980) 1985 (1984) 1983 (1982-1983) 1985 1984

12 (300)

1983 1982

(12) (300)

1984 (1984-1985)

n.a.

1979

(300)

(1979-1982)

Sources: Compiled from José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no. Século XXI: Ciència e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro: CNPq, July 1989), Appendix 2. Note: n.a. indicates figure not available; figures in parentheses are SIPRI estimates.

This active support notwithstanding, Engesa's rapid growth c h a n g e d t h e f i r m ' s r e l a t i o n s h i p w i t h t h e army. Criteria f o r d e s i g n , i n v e s t m e n t , a n d m a r k e t i n g c a m e to f o c u s principally o n the e x p o r t market. In the late 1 9 7 0 s E n g e s a introduced t w o n e w v e h i c l e s targeted primarily for export: t h e S u c u r i (a h e a v y a r m o r e d car c o m b i n i n g t h e

flexibility

and m o b i l i t y o f

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a wheeled vehicle with many capabilities of a light tank) and the Jararaca (a high-speed, lightweight armored reconnaissance vehicle). 32 The firm also proved willing and able to incorporate design changes to accommodate market demands. One early obstacle to export sales of the Cascavel was its small (37-mm) gun. Engesa adapted the vehicle to include a French-built 90-mm cannon. 33 This raised the cost of the vehicle significantly, however, prompting the firm to negotiate a production license from the Belgian firm Cockerill for a 90-mm cannon, which Engesa began to build in Brazil with the metallurgical firm Eletrometal. 34 The 1982 appointment of Engesa president José Luiz Whitaker Ribeiro to head the army's munitions complex Imbel underscored the firm's growing influence and autonomy. 35 The army formed Imbel in 1975 by consolidating its small-arms and munitions plants under a single administrative structure. The stated purpose was to coordinate defense-sector expansion, promote technology transfer, and improve the efficiency of army-owned factories producing small arms, munitions, explosives, and other items. 36 By 1982 it was clear that Imbel had not attained these goals: Inefficiencies endured, innovation remained elusive, and production continued to lose money. The appointment of Engesa's president to head Imbel signaled the army's intent to boost Imbel's efficiency, promote exports, and strengthen the overall commercial orientation of its holdings. Although the army retained an effective veto power over Imbel activities, Whitaker's appointment reflected Engesa's rapidly growing influence.

The Osorio Battle Tank Shortly after Bernardini began work on the Tamoyo, Engesa also began exploring the possibility of building a tank. In 1982 the firm presented the army with a proposal to build the Osorio. As indicated in Table 9.3, the Osorio is a larger and significantly more advanced tank than the Tamoyo, with greater firepower, a better propulsion and suspension system, superior armor, and more advanced electronics. Beyond these technical differences, the two tanks reflected the increasingly divergent paths followed by the two firms: Bernardini's was an army-directed, medium-tech effort to extend national production capabilities incrementally, while Engesa's plan was exactly the opposite—an independent-minded, export-driven attempt to incorporate state-of-the-art technology into a world-class battle tank. Design work on the Osorio began in 1982, with the first two prototypes ready by the end of 1984. Several design features (low profile, advanced electronics, hydropneumatic suspension) reflected Engesa's attempt to target what it saw as an emerging market niche driven by changes in tank technology. In the tradeoff among firepower, maneuverability, and protection that traditionally confronts tank designers, improvements in

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Table 9.3 Technical Specifications oí the Tamoyo and Osório Tanks MB-3 Tamoyo Producer Weight Maximum velocity Acceleration Range Motor Speed Suspension Frontal ramp capability Lateral ramp capability: Frontal obstacle clearance: Armor

Bernardini 30 tons 67 km/h n.a. 550 km 8-cylinder Saab-Scania 3 forward, 1 reverse torsion-bar 60 percent 30 percent 0.75 meters conventional

Fire-control system

vision amplification; laser telemetry; panoramic view

Cannon

90 mm or 105 mm

EE-T1 Osorio Engesa 40-41 tons 70 km/h 0 - 3 0 km/h in 8 seconds 550 km 12-cylinder MWM 4 forward, 2 reverse hydropneumatic 65 percent 40 percent 1.15 meters aluminum/steel alloys and composites of carbon fiber and ceramic materials laser telemetry; panoramic view; night-vision amplification; gyro-stabilized periscopes; panoramic thermal camera 105 mm or 120 mm

Source: Armas de Guerra do Brasil (Sao Paulo: Editora Nova Cultural Ltda., 1989).

antitank munitions appeared to have shifted the balance in favor of more maneuverable, detection-resistant tanks. 37 To further expand its market opportunities, Engesa planned to offer two versions of the Osorio—one stressing ease of operation, the other featuring a more complex fire-control system for multiple targeting and greater precision of fire while moving. Buyers would also have the option of choosing between 105-mm and 120mm cannon. As indicated in Table 9.4, the Osorio design relied heavily on components produced by the Brazilian subsidiaries of European multinationals. CTEx engineers apparently played little or no role in the project; by now the firm's design capabilities had surpassed those of the army, and the principal knowledge transfers flowed directly from the supplier firms to Engesa. Engesa's Osorio was also a proposal to end the de facto division of labor in the armored-vehicle segment, by which Engesa had developed wheeled vehicles and Bernardini, tracked vehicles. The proposal presented the army with a dilemma: whether to concentrate scarce resources in a single tank program or explore both paths. Clearly, there was some interest in a larger, more advanced battle tank; prior to Engesa's proposal, the army considered acquiring Leopard tanks from West Germany—a possibility that effectively froze Bernardini's Tamoyo project for two years. 38 The army opted to support both programs. Dagnino argues that this decision was consistent with the goal of promoting greater competence

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Table 9.4 Multinational Contributions to the Osório Tank Firm

Nationality of Parent Company

Component

Dunlop Zahnradfabrik Friedrich MWM Vickers RBO/Vickers GIAT Philips Marconi Airscrew Howden Diehl

Britain Germany Germany Britain Britain France Netherlands Britain Britain Germany

hydropneumatic suspension transmission diesel engine turret 105-mm gun 120-mm gun fire-control system fire-control system cooling system tracks

within the armored-vehicle segment. 39 In other words, supporting developmental work on both tanks would keep the army's procurement options open. The heavy commitment that even prototype development imposed upon Engesa suggests a different interpretation, however: either the army had already decided to support series production, or, more likely, expected the export market to do so. Indeed, the arrangement between the firm and the service called for Engesa to give the army one tank for every twenty exported, in return for army assistance in promoting foreign sales. 40

Engesa in the 1980s: Expansion, Diversification, and Crisis Franko-Jones reports that Engesa invested a total of $100 million in the Osorio program, although press reports have put the figure as high as $250 million. 41 The program marked the beginning of an ambitious expansion effort; over the next five years Engesa acquired or established several new subsidiaries and greatly increased the scale of its R&D programs. In three years the total employment of the Engesa group (including subsidiaries) more than doubled, from a reported 4,097 workers in 1983 to 9,033 in 1986. 42 Initially, the firm's expansion was directly linked to the Osorio project. In 1982 Engesa acquired FNV, a railway equipment producer whose plant was to be used to make tank components and parts, and established its Engetronica subsidiary to develop electronic systems for the Osorio and other Engesa products. Engetronica was a joint venture with the Dutch microelectronics firm Philips, which held a 40 percent ownership share. As the decade progressed, Engesa embarked on an increasingly diversified expansion program: In 1987 the firm joined with Embraer to establish the joint-venture aerospace firm Orbita and acquired a stake in Helibras, a

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f i r m m a n u f a c t u r i n g c i v i l i a n a n d m i l i t a r y h e l i c o p t e r s in c o n j u n c t i o n w i t h t h e F r e n c h f i r m A e r o s p a t i a l e . T a b l e 9 . 5 t r a c k s t h e g r o w t h o f E n g e s a ' s industrial e m p i r e . T o s u s t a i n t h e s e i n v e s t m e n t s a n d m e e t o b l i g a t i o n s to s u p p l i e r s , E n g e s a t o o k o n a g r o w i n g d e b t b u r d e n . S a r a i v a r e p o r t s that t h e f i r m ' s t o t a l d e b t i n c r e a s e d f r o m $ 1 8 8 m i l l i o n to $ 4 0 0 m i l l i o n ( i n c u r r e n t d o l l a r s ) b e t w e e n 1 9 8 3 a n d 1 9 8 8 . 4 3 E x p o r t c r e d i t s and l o a n s f r o m p u b l i c - s e c t o r i n s t i t u t i o n s ( i n c l u d i n g B N D E S a n d F I N E P ) a c c o u n t e d f o r n e a r l y all o f t h e l o n g - t e r m

Table 9 . 5

The Expansion of E n g e s a

Firm/Subsidiary

Year Formed or Acquired

Activities

Engesa

1958

manufactures armored vehicles, trucks, tractors, and jeeps

Engesa Equipamentos Elétricos

1956

manufactures electric motors and equipment

Engex

1972

manufactures cannon and miscellaneous parts/components

Engexco

1976

trading company; coordinates Engesa exports

FNV

founded 1943; acquired by Engesa 1982

manufactures railway equipment and armoredvehicle parts/components

Engetrónica

1982 (Joint venture with Philips)

develops and manufactures microelectronics, avionics, and related equipment

Engesa Química

1984

manufactures munitions and explosives

Órbita

1987 (Joint venture with Embraer)

development of missile and other aerospace systems

Heiibras

founded 1980; minority interest acquired by Engesa 1987

manufactures helicopters under license from the French firm Aerospatiale

Engevideo

n.a.

develops video training material for Engesa products

Aerobrasil

n.a.

air cargo transport of Engesa equipment

Axial

n.a.

insures companies in Engesa group

Viaturas

n.a.

manufactures turrets, tractors, and other equipment

Engepeq

n.a.

engineering R&D and testing

Sources: Compiled from Patrice Franko-Jones, The Brazilian Defense Industry (Boulder, CO: Westview Press, 1992), p. 23; José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro: CNPq, July 1989), pp. 100-101; Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliagáo, doctoral dissertation, Instituto de Economia Universidade Estadual de Campinas, Brazil, 1989, pp. 210-211; FBIS, "Engesa to Build Helicopters with Aerospa tiale," Latin America Daily Report, April 23, 1987.

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debt and a significant fraction of short-term debt taken on during this period. This financing carried subsidized interest rates of 6 to 10 percent above inflation. 44 Engesa's heavy investments came as its main revenue source, the company's line of wheeled armored vehicles, was beginning to yield decreasing returns in the export market. Saraiva calculates that Engesa's billings peaked at roughly $200 million in 1984, the last year in which the firm posted a profit. The combination of heavy investments in nonpaying endeavors and declining export earnings produced a cash-flow crisis. In early 1987 the army appealed to the BNDES; the resulting $48 million loan was the largest one granted to a private firm by BNDES that year. 45 Under these circumstances, landing a major contract for the Osorio became the key element in averting the firm's growing financial crisis. But the army lacked funds to acquire the tank or even partially support a production run. The absence of domestic procurement hurt the drive to export the tank, to the point that Engesa offered highly concessional rates and leasing alternatives in a failed effort to convince the army to acquire the tank. 46 From the start, Engesa's principal hope for Osorio sales lay in the Middle East, where Iraq, Libya, and Saudi Arabia had each expressed interest. 47 The Saudi option held the most promise; in October of 1984 Brazil and Saudi Arabia signed a major military-industrial cooperation accord, holding out the possibility of vastly expanded Brazilian arms sales. 48 In 1987 Engesa demonstrated the Osorio prototype for the Saudi government, which was looking to acquire a main battle tank. The demonstration, part of a series that included the French GIAT AMX-40, British Vickers Challenger, and U.S. General Dynamics M-1A1 Abrams, produced a highly favorable evaluation of the Osorio against its competitors. This success led several Brazilian and international press sources to report, incorrectly, that the Saudis had decided to purchase the Osorio. Engesa made no effort to dispel this notion; over the next six years the firm would repeatedly announce (and the Brazilian press duly report) that it was on the verge of finalizing a Saudi deal. 49 The agreement never materialized, and the Saudis eventually decided to acquire the U.S.-made M-1A1 Abrams. Failure to sell the Osorio at home or abroad coincided with the costly nonperformance of several Engesa subsidiaries. The subsidiaries reportedly drained the firm of $100 million without significant returns, prompting one former Engesa executive to describe them as "regular bloodsuckers." 50 As its financial crisis mounted, Engesa began selling off its healthiest subsidiaries to raise funds. 51 In March of 1990, Engesa filed for protection from its creditors under Brazilian bankruptcy law.52 Press accounts during this period put the firm's debt burden at $150 million to $300 million, although one estimate ran as high as $450 million. 53 Much of this debt was held by the National Treasury and other public-sector organs. 54

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Soon after the bankruptcy filing, the army and the Collor administration's newly created Secretariat for Strategic Issues (SAE) began preparing the firm for possible acquisition by a foreign buyer. As part of these preparations Imbel, the army-owned munitions complex, was designated to hold a minority share in a restructured Engesa. Engesa also sold its "technological assets" (essentially blueprints for vehicle design) to Imbel for $5 million, with the option of later reacquiring them. 55 Placing Imbel in control was an ironic and telling reversal of roles: Whereas Engesa had assumed control of the failing state enterprise in 1982 to promote reorganization, efficiency, and export-led growth, the state was stepping in a decade later to salvage what remained of Engesa. The bid to restructure Engesa with foreign capital ultimately failed, as did an attempt by domestic investors to acquire the firm and an army effort to revive Engesa through a leasing arrangement with Imbel. 56 In 1995 the army was reduced to trying to obtain some twenty partially completed Urutu armored vehicles from among Engesa's bankruptcy-frozen assets— a portion of the reported 1,000-plus vehicles paid for by the army but never delivered by Engesa. 57

Losing Control Like the air force, the army was able to stimulate rapid military-industrial growth in the 1970s. In both the aeronautics and armored-vehicles segments, the military's capacity to steer resources and shield the fledgling industry from the vagaries of dependent development combined with booming export opportunities to drive industrial expansion. While the young aeronautics and armored-vehicles industries differed in the degree of vertical integration and the relative participation of the private sector, both remained under effective military guidance and control. The two industries showed some important similarities in the 1980s as well. Both Embraer, with the AM-X tactical fighter, and Engesa, with the Osorio tank, started the decade with an ambitious technological leap. Both programs suffered as export opportunities failed to materialize and as their respective services struggled to provide the necessary resources and support. By the early 1990s, both firms were forced to scramble for foreign investment just to remain viable in a dramatically changed domestic and international climate. One important difference from the aeronautics case is that the army never seized the technological initiative. The slowness of army doctrine to stress the technological variable—and the political barriers to a changing army force posture—created a vacuum within the armored-vehicles segment. Engesa moved to fill that vacuum, with an internationally oriented product line. In the same way that industrial restructuring led autoindustry analysts to speak of a "world car" in the 1980s, Engesa's Osorio

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represented a type of world tank. While the firm continued to rely on the army for diplomatic and political support and occasional financial interventions, its commercial, industrial, and technological strategies were increasingly geared to global-market developments. In stimulating a defense-industrial base supported by arms exports rather than domestic procurement or civilian production, the army lost control. Because the army lost control, some of the tensions identified in the cases of aeronautics and aerospace—market niche versus service need, ambiguity of technological autonomy, competing civil and military demands— are less dramatic in this case. The failure to sell the Osorio tank to Saudi Arabia, however, illustrated one of the central dilemmas facing the militaryindustrial sector as a whole. A single export sale for a major weapons system such as the Osorio could have guaranteed the industry and its supplier base for years. On the other hand, buying a main battle tank meant buying a relationship, in a way that buying lesser systems such as armored cars, rocket launchers, or training aircraft did not. By the early 1990s, this political gap, between the medium-tech niche in which the Brazilian defense-sector emerged and the high-tech niche it sought to occupy, had become the dominant fact of life in the intensely competitive international arms trade.

Notes 1. FBIS, "Engesa to Receive New Treasury Funding," Latin America Daily Report, December 13, 1991. 2. '"The Engesa Era Is Over,'" Gazeta Mercantil (international edition), September 10, 1990. 3. I am indebted to Renato Dagnino for posing this question. 4. Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliagào, doctoral dissertation, Institute de Economia, Universidade Estadual de Campinas, Brazil, 1989. 5. Patrice Franko-Jones, The Brazilian Defense Industry (Boulder, CO: Westview Press, 1992): p. 125. 6. Peter Lock, "Brazil: Arms for Export," in Michael Brzoska and Thomas Ohlson, eds., Arms Production in the Third World (London: Taylor and Francis, 1986): p. 91. A 1965 article in the army publication A Defesa Nacional set out the rationale for producing a wheeled, armored combat car. The car sketched in the article resembles the prototype developed by Engesa; Dagnino cites this as evidence of early army involvement in Engesa's entry into military production. See Dagnino, A indùstria de armamentos brasileira. 7. For the technical specifications of these and other Engesa vehicles, see Armas de Guerra do Brasil (Sào Paulo: Editora Nova Cultural Ltda., 1989). 8. Engesa's early vehicles did contain two notable technologies that were not simply "added up." These were the boomerang suspension and the process of armor production developed in conjunction with the metallurgical firm Eletrometal. The firms developed a single-sheet armor that made it possible to provide the same degree of protection afforded by earlier, multiple-sheet alloys, reportedly at half the weight and lower cost ("Urna nova trincheira," Veja, October 17, 1979).

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9. In public statements, Engesa head José Luiz Whitaker Ribeiro downplayed the early support the firm received from the army; see for example "Brazil's Fledgling Arms Industry Making a Hit with Weapons-Hungry Third World Armies," Wall Street Journal, January 4, 1985; Dagnino, A indùstria de armamentos brasileira, pp. 161-163. 10. Armas de Guerra do Brasil; "Nos velhos tanques, as armas modernas," O Estado de Sâo Paulo, August 27, 1983. 11. Dagnino, A indùstria de armamentos brasileira, p. 180; Franko-Jones, The Brazilian Defense Industry, p. 25. 12. "Exército nacional acelera reequipamento," Folha de Sâo Paulo, October 17, 1982. 13. Stockholm International Peace Research Institute, Arms Trade Registers: The Arms Trade with the Third World (Cambridge, MA: MIT Press, 1975): p. 111. 14. Brazilian Defence Directory 1987 (Sâo Paulo: Aviaçâo em Revista Editora Ltda., 1987); Armas de Guerra do Brasil. 15. Tecnologia e Defesa no. 9 (November 1983). 16. Armas de Guerra do Brasil. 17. The Brazilian newsweekly Veja attributed this sentiment to Minister of the Army Walter Pires shortly after the Malvinas (Falklands) conflict; see "O choque da guerra," Veja, June 30, 1982, p. 75. 18. Robert E. Harkavy, The Arms Trade and International Systems (Cambridge, MA: Ballinger, 1975): p. 45. 19. The pace of innovation picked up substantially in the 1970s. Improved warheads able to penetrate rolled homogenous armor led to development of laminated, spaced armor and active-explosive armor, which in turn triggered improvements in antiarmor firepower, led by the Soviet Union. 20. Theo Basto, "Malvinas, Urna Guerra para Reflexâo," A Defesa Nacional no. 712 (March-April 1984); Luiz Paulo Macedo Carvalho, "Intéressés e Responsibilidades do Brasil no Atlàntico Sul," A Defesa Nacional no. 711 (JanuaryFebruary 1984): pp. 75-80; Stanley E. Hilton, "The Brazilian Military: Changing Strategie Perceptions and the Question of Mission," Armed Forces and Society 13 no. 3 (spring 1987): pp. 329-351. 21. José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro: CNPq, July 1989): p. 128. Saraiva lists Engesa's principal Brazilian suppliers as Eletrometal, Usiminas, Engex, Braseixos, Mercedes-Benz do Brasil, Albarus, General Motors do Brasil, Borlem, Eaton, Cummins do Brasil, Cosipa, Pirelli, and Firestone. 22. Bernardini would also offer an export version of the Tamoyo, featuring either the Saab-Scania engine or a Detroit Diesel engine and either the Engesa 90mm cannon or a British-made, NATO-standard 105-mm gun produced by Vickers. See Armas de Guerra do Brasil. 23. "Industria opera mesmo que sua fábrica seja totalmente destruida ou ocupada," Jornal do Brasil, June 13, 1984, cited in Franko-Jones, The Brazilian Defense Industry, p. 25. 24. "Forças Armadas operam com falta de recursos e equipamento obsoleto," Folha de Sâo Paulo, October 26, 1986. 25. I am indebted to Domicio Proença Jr. for this observation. 26. Dagnino, A indùstria de armamentos brasileira, p. 182. 27. Ibid., p. 168. 28. "Urna nova trincheira"; Lock, "Brazil"; Dagnino, A industria de armamentos brasileira, p. 167.

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183

29. "Engesa nao pagará IR por 3 anos," Jornal do Brasil, January 24, 1981. 30. Dagnino, A indùstria de armamentos brasileira, p. 209. 31. "Isentos de IPI 74 produtos de uso das Forças Armadas," O Estado de Sâo Paulo, January 6, 1979; "Indùstria de armas tem isençâo," O Estado de Sâo Paulo, June 25, 1982; Franko-Jones, The Brazilian Defense Industry, pp. 85-86. The tariff exemption on imported components, granted to the entire defense sector in 1982, had been granted in 1981 to the army's munitions complex Imbel ("Governo isenta a Imbel das taxas de importaçâo," O Estado de Sâo Paulo, April 29, 1981). 32. The Jararaca was exported to at least two countries, Iraq and Gabon; due to technical problems, the Sucuri never entered into series production, although a later, modified version was sold to Iraq. 33. Armas de Guerra do Brasil. 34. See "Exército nacional acelera reequipamento." Engesa's president Whitaker claimed in 1983 that Engesa could mill the cannon's breech in 55 minutes, whereas the original Cockerill process required 25 hours. Whitaker also claimed that Engesa sold more than 1,500 units of the cannon, at a profit, for a unit price of $55,000, while Cockerill sold only 40, at a loss, for $125,000. See Saraiva, "O Desenvolvimento Industrial Bélico," p. 129. 35. On Whitaker's appointment, see "Urna boa estrela," Veja, October 27, 1982; "Uma administraçâo nos moldes da empresa privada," O Globo, October 28, 1982; "Mudando de áreas," Visâo, January 31, 1983. 36. "Geisel cria empresa para produzir material bélico," O Estado de Sâo Paulo, April 25, 1975; Franko-Jones, The Brazilian Defense Industry, pp. 79-83. 37. Chris Bellamy, The Future of Land Warfare (New York: St. Martin's Press, 1987): pp. 192-202. 38. Dagnino, A indùstria de armamentos brasileira, pp. 182-183. 39. Ibid., pp. 183-184. 40. "Forças Armadas operam com falta." 41. Franko-Jones, The Brazilian Defense Industry, p. 196. The higher figure is presented in "Um tiro no escuro," Veja, July 13, 1988. 42. Dagnino, A indùstria de armamentos brasileira, p. 423. 43. Saraiva, "O Desenvolvimento Industrial Bélico," pp. 165-167. 44. Ibid., p. 163. 45. "Fundo falso," Veja, August 12, 1987. The Brazilian newspaper Folha de Sâo Paulo reported that Engesa received a total of $165 million from BNDES in 1987 to meet its debts and maintain its investments: "Industria de armamentos acusa queda de vendas em 87," Folha de Sâo Paulo, December 27, 1987. This figure conflicts, however, with Saraiva's report that Engesa's combined short- and long-term debt to BNDES was $66 million in 1987 (exact date unspecified) and $80 million in 1988. See Saraiva, "O Desenvolvimento Industrial Bélico," p. 165. 46. "Engesa propôe alugar tanques Osório ao Exército," O Globo, November 12, 1985. 47. "Saudi Shortlists Abrams, Osório MBTs," Jane's Defense Weekly, February 6, 1988. 48. FBIS, "Arms Agreement Signed with Saudi Arabia," Latin America Daily Report, October 2, 1984; FBIS, "Saudi Arabia Seeks Arms, Technology Transfer," Latin America Daily Report, October 2, 1984. 49. See for example "Deal Hangs on Financing," Gazeta Mercantil (international edition), February 1, 1988; "A guerra em marcha à ré," Veja, November 27, 1989; FBIS, "Weapons Sales to Mideast Estimated at $3 billion," Latin America Daily Report, November 5, 1990. 50. FBIS, "Engesa to Receive New Treasury Funding."

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51. Engesa sold its Engetrónica subsidiary to the privately owned Brazilian telecommunications firm Moddata in August of 1989, and its FNV subsidiary to a group of Arab investors in January of 1990. See "Moddata Acquires Engesa Subsidiary," Gazeta Mercantil (international edition), August 28, 1989; "Arab Group Buys FNV from Engesa," Gazeta Mercantil (international edition), January 22, 1990. 52. "Engesa Files for Concordata," Gazeta Mercantil (international edition), March 26, 1990. 53. "Divida da industria bélica supera US$ 1 bi," Folha de Sao Paulo, January 21, 1990; "Engesa Files for Concordata," Gazeta Mercantil (international edition), March 26, 1990; "Engesa: BAe a Possible Buyer," Gazeta Mercantil (international edition), October 29, 1990; "Em segredo," Veja, March 6, 1991; "Brazil: Engesa on Sale," Latin American Weekly Report WR-91-12, March 28, 1991; FBIS, "Engesa to Receive New Treasury Funding." 54. Among the firm's liabilities, it reportedly owed $81 million to the National Treasury, $80 million in back taxes, $30 million to BNDES, $14 million to former employees, and $10 million to the Bank of Brazil. See FBIS, "Engesa to Receive New Treasury Funding." 55. FBIS, "Engesa to Receive New Treasury Funding." 56. FBIS, "Efforts to Reactivate Engesa Unsuccessful," Latin America Daily Report, April 19, 1995. The foreign investor sought most aggressively was the British firm Royal Ordnance. On the bid by domestic investors, see FBIS, "Bankrupt Engesa Becomes Takeover Target," Latin America Daily Report, November 19, 1993. 57. FBIS, "Efforts to Reactivate."

10

The Nuclear Submarine Program

Our plan is to fill a vacuum in the Brazilian nuclear program. . . . It is the army's contribution to the development of nuclear energy. . . . The army has no specific objectives in nuclear research. There are no tanks moved by nuclear fuel.

— General Romero Lepesqueur,

of the Army Secretariat for Science and Technology 1

We must not forget that nuclear energy and [political] power are inseparable terms of the same equation, whether the equation is that of foreign policy, domestic policy, or the policy of groups that flail away at each other in maneuvers designed to build up influence. —Newspaper editorial criticizing opponents of Brazil's "autonomous" nuclear program 2

T h e navy's quest for a nuclear submarine is presently at an earlier stage than the air force and army programs discussed in previous chapters. B e cause of the commitment to nuclear propulsion, the program involves two separate lines of development: submarine construction and nuclear fuelcycle technology. The two lines will merge when a prototype nuclear submarine is designed and built, an event more than a decade away under the most optimistic scenario. 3 Indeed, the navy's position has long been that the decision to deploy a nuclear submarine is an issue to be settled in the political sphere at some future date; navy activities are described as merely keeping future options open. In practice, however, the program became the navy's top R & D priority during the 1980s, with an enduring commitment at the highest levels to development and deployment. The quest for a nuclear submarine bears many similarities to the military-industrial ventures of the other services. The goal was conceived at a time when the notion of "great-power" Brazil was increasingly influential in military circles. The cornerstones were to be the assimilation of foreign technology and the nurturing of domestic industrial capacity. At the heart was a set of strategic technologies with both commercial and military

185

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The Fall

applications. Success would give the navy a techno-industrial capability as advanced as any in the Third World. The navy's emphasis has consistently been on building a nuclear submarine. Yet the choice is not an obvious one when balancing economic and military considerations. Conventional submarines, powered by a combination of diesel fuel and electric batteries, are less complex to manufacture and operate; they cost one-half to one-third what nuclear submarines cost, in the experience of countries producing both. Conventional submarines also have an important operational advantage: the ability to operate with effectively total silence for short periods of time (when running on battery power). Weighed against these considerations are the acknowledged advantages of nuclear propulsion: vastly greater range, the capacity to submerge for longer periods, and the ability to sustain higher velocities for longer periods. The navy's official rationale for a nuclear submarine has been to articulate a mission that demands the advantages of nuclear propulsion. Conventionally powered submarines are acknowledged to be adequate for coastal defense and other operations within territorial waters. But nuclear propulsion is said to be necessary to project power into the South Atlantic and interfere with an enemy's ability to operate in "distant waters." 4 Not surprisingly, the capacity to project power applies to domestic political waters as well. Although the desire for more effective military hardware is genuine, it is inseparable from the navy's longstanding and controversial quest to be at the center of Brazilian nuclear politics.

Naval Construction The history of naval construction in Brazil reveals recurring cycles of expansion and contraction, driven by changing patterns of industrial development, periods of technological innovation and stagnation, and the waxing and waning political fortunes of the navy itself. Prior to the 1964 coup, the twentieth century had been a long trough in the most recent cycle. The United States emerged as the most important supplier for the Brazilian Navy after World War I, and the U.S.-Brazilian naval relationship intensified after World War II. Not surprisingly, acquisition of surplus U.S. ships through the Military Assistance Program undermined domestic naval construction. But as Vidigal points out, this dependent relationship was not limited to the supply of equipment; it was part of a larger strategic dependence in which doctrine, mission, and force posture were oriented toward North American conceptions of hemispheric defense against Soviet aggression. 5 World War II played a key role in cementing the relationship:

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187

Under American command, we learned to make war at sea in modern fashion, we came in contact with equipment of recent and sophisticated design, such as sonar and radar, we came to think more in global than in regional terms, we awoke, once again, to our Atlantic vocation. But to total material dependency we added an intellectual subordination that would have a sterilizing effect in subsequent years. 6

Under this U.S. tutelage, the navy's strategic concepts came to focus almost exclusively on antisubmarine warfare. Brazil's growing dependence on maritime trade and fear of disruption by submarines during wartime reinforced this orientation. Other potential missions—for example, patrol of Brazil's 4,600-plus miles of coastline—were subordinated. The navy's force posture and mission orientation were further constrained by the loss of control of naval air operations to the air force in 1965, after a long and bitter bureaucratic struggle between the two services. It was in the context of this narrow strategic orientation that fleet modernization decisions stimulated a new wave of naval construction. The 1967 fleet renovation program had two consequences: Several private shipyards and the Rio de Janeiro Naval Arsenal began to construct coastalpatrol boats and other small craft, and foreign acquisitions took the same turn from U.S. to European suppliers documented in the previous case studies. The navy acquired Schultz-class minesweepers from West Germany, and Oberon-class submarines from Britain. 7 Most importantly, the navy concluded an agreement with the British producer Vosper Thornycroft for six 3,600-ton antisubmarine frigates, with two to be built in Brazil. These frigates, designated Niteroi-class, embraced the prevailing focus on antisubmarine warfare; only two of the six were outfitted with surface-to-surface missiles, and none had modern antiaircraft capabilities. 8 The enduring strategic subordination notwithstanding, the frigates marked a turning point for naval construction. Considering that the last ship built in the Rio de Janeiro Arsenal had been a 1930s-vintage design, construction of the frigates (begun in 1972) was a significant achievement. At least one reviewer rated the performance of the Brazilian-built frigates superior to that of their British-built counterparts. 9 The program also led to the substantial modernization of the Rio Arsenal, with new machinery and equipment, an upgrade of design capabilities in the Naval Engineering Directorate (DEN), and new quality-control techniques and standards. 10 In the wake of the frigate construction program, the naval high command made two crucial decisions in the mid-1970s: to build a fully Brazilian-designed line of 1,900-ton corvettes, drawing on the experience and capacitation of the frigate program; and to seek foreign-licensed technology to build small, conventionally powered submarines. These two programs formed the core of an ambitious late-1970s plan for fleet modernization. Among the plan's many provisions was a call for the navy to build and deploy sixteen corvettes and fourteen submarines. The submarines

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would be of three types: four based on German-licensed technology, followed by six conventional submarines of Brazilian design (designated NAC-1), and, eventually, four nuclear submarines (NAC-2). 1 1 Such heady plans reflected both the navy's expanding production capabilities and its increasingly independent strategic orientation. The new independence was reflected in a set of Basic Policies and Directives adopted in 1977, which turned away from the prior U.S.-subordinated posture. 1 2 The corvette program drew heavily on the technological capacitation and learning generated in the frigate program, while at the same time seeking to extend design and construction capabilities. While much of the weaponry and other equipment outfitting the corvettes was imported, the design was 100 percent Brazilian, albeit with the consulting assistance of the German firm Marinetechnik. 1 3 For the submarine program, the choice to deal with West German suppliers was made in 1976, after exploring French, British, and Italian alternatives. 1 4 The agreement called for a total of four IKL-209-1400 submarines (designed by the German firm Ingenieur Kontor Liibeck, and designated Tupi-class). The terms of the technology-transfer agreement followed the basic structure of the earlier British frigate deal. A team of Brazilian technicians would train in the German Howaldtswerke shipyard during construction of the first vessel; the remaining three submarines would then be built in Brazil with German technical assistance. The experience thus gained would serve as the basis for building a Braziliandesigned conventional submarine and, ultimately, a nuclear submarine. Of the four Tupi-class submarines called for in the German agreement, the lone German-built craft was delivered in mid-1989. The program was originally scheduled for completion by 1995, and the first Brazilian craft was finished in 1992. 15 The official navy position remained that no final decision had been made to go ahead with the nuclear submarine, and that such a decision would be made in the political sphere. 1 6 Both the Tupiclass submarines and the anticipated NAC-1, however, were clearly seen as steppingstones on the path to the nuclear NAC-2. Reports of plans to build a nuclear submarine appeared in the Brazilian press as early as the late 1970s, even though the agreement with Germany on the Tupi-class submarines was not finalized until 1984. 17 And negotiations with the German firm IKL, to provide technical support for the NAC-1 design project, were begun by the DEN in 1983. 18 This was six years before delivery of the initial German-built Tupi-class submarine, and a decade before the expected delivery of the first Brazilian-built Tupi. Shortly after assuming his post in early 1990, Navy Minister Admiral Mario Cesar Flores made clear that the NAC-1 program was contingent on its usefulness to the NAC-2. In a highly influential article on the navy's strategy, doctrine, mission, and equipment needs for the 1990s, Flores defined two conditions under which the NAC-1 would be "indispensable":

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189

(1) if the program were "technically necessary in order for us to arrive at the [nuclear submarine]," or (2) if political economic conditions made it impossible to build a nuclear submarine. 19 Flores did endorse the NAC-1 as a militarily useful system, but the implication was clear—the navy high command conceived of it principally as a steppingstone on the nuclear path.

Scale, Barriers to Nationalization, and Control The experience gained in building the Niteroi frigates and the anticipated gains from the German submarine agreement created momentum for an expanded program of naval construction in the 1980s. Brazil's domestic shipbuilding industry was expanding rapidly, driven by growth in foreign trade and the resulting demand for merchant vessels. 20 By 1981, Brazil's merchant shipbuilding industry took orders for 9.3 million tons of new construction, and ranked second only to Japan in tonnage produced. 21 In 1982 the navy created an organ known as Engepron to coordinate its interaction with the private sector. From the vantage point of the early 1980s, several factors pointed to a substantial role for the private sector in naval shipbuilding: the rapid growth of the domestic shipbuilding industry, the presence of naval reserve officers in key managerial posts among the major shipyards, the role of state subsidies in expanding production capacity, and the crucial role of government procurement in sustaining the private yards (particularly by the state-owned oil industry, Petrobras). The 1980s were not the growth decade they were expected to be, however, and the anticipated private-sector role in naval construction did not materialize. The reasons for this reveal the type of political and economic constraints within which the NAC-2 program was emerging. Some of these constraints were grounded in the economics of naval production. In general technological and industrial terms, the navy faced perhaps the most challenging continuity problem among the three services; its basic weapons system, the fighting ship, is by far the most costly on a unit basis. As one Brazilian naval officer pointed out, "A modern frigate may cost $180 million, while an updated fighter aircraft goes for $18 million, and a late-generation tank may be in the range of $1.8 million. This ratio of 100:10:1 clearly demonstrates the dilemma of smaller navies such as the Brazilian, whose entire budget does not cover the price of a handful of medium-size warships." 22 To a certain extent, the problem of limited resources fed upon itself in the 1980s: The navy's limited procurement ability, combined with bleak export prospects, inhibited the realization of significant economies of scale. High costs and low quantities also made it difficult to ensure an orderly succession of production programs. Five years passed between the conclusion of the frigate program in 1978 and the laying of the first

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corvette keel in the n a v y ' s Rio Arsenal, resulting in a significant loss of skilled personnel. 2 3 Also, limited production runs made it difficult to increase domestic content. The Inhauma-class corvettes, though fully Brazilian in design and assembly, had an index of nationalization of only 47 percent. Radar, sonar, missiles, cannon, and other subsystems were imported. 2 4 For the Tupi-class submarines, the index of nationalization was less than 30 percent; of the major subsystems and components, only the batteries were produced in Brazil. In both cases, naval officials acknowledged little possibility of increasing domestic content without significant increases in scale. 2 5 Given the limited resources, f e w export opportunities, and short, costly production runs, foreign financing proved crucial in making production viable. One interview subject stated that foreign financing was a necessary condition for the Niteroi frigate program. And in 1982 the navy signed a technical assistance accord with France, on the heels of a $500 million government-to-government loan for industrial development. 2 6 As long as minimum funding levels and supplemental foreign financing were available, gaining access to and assimilating foreign technology via licensed production was a viable strategy for industrial capacitation. But with the deepening of the foreign-debt and domestic-budget crises as the 1980s wore on, it became increasingly difficult to assemble such packages. By the early 1990s, the increasingly problematic role of the private sector had emerged as an important contextual factor for submarine construction. Optimistic projections notwithstanding, the role of the private shipyards had become severely circumscribed, and the results of their limited participation often fell below navy standards. The private yards fell on hard times during the second half of the 1980s: D e m a n d for merchant ships fell dramatically, and by decade's end several of the yards were essentially at a standstill, with little but the orders of the state-owned oil industry Petrobras to sustain them. 2 7 The bankruptcy of the private shipyard Verolme in 1990 delayed production of the two Inhauma-class corvettes contracted to it. As a result only one of the four corvettes that should have been completed by 1991 was in fact ready, and the original target of producing sixteen by 1995 was abandoned. 2 8 The navy also reported problems with work done in several of the private yards. As Navy Minister Flores told the Brazilian Congress in 1991: In fact, our shipyards, built under the protection of subsidies and adjustments that the society can no longer pay, have not been striving to seek efficiency and profitability, which are dispensable in the subsidized universe in which they have lived for 10 to 15 years. Hence, we have reluctantly opted to construct in Brazil only at our own arsenal, at least until the performance of the civilian shipyards becomes reliable. 29

The problems were more complex than simply delays and quality control, however. The relatively small volume of production meant that

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programs had to remain within the Rio Arsenal to keep production staff, and the body of skills and learning they represented, intact. The navy was also concerned with the financial instability and weak capital base of the private sector, and the potential loss of control that would accompany a greater private-sector role. One senior naval officer at the production complex in the Rio Arsenal stressed two themes. First, the navy must "avoid the army's mistake" of transferring production to the private sector and then "losing everything" when firms fail during the next economic downturn—an obvious reference to the collapse of armored-vehicle manufacturer Engesa. Second, the navy must avoid the "monopoly power" that would result if production were concentrated in private-sector hands. The corvette program struck a compromise: Of the first four ships, two were detailed to the Rio Arsenal, and two to the private-sector shipyard Verolme. It was inconceivable, however, that the submarine program would end up being carried out anywhere but in the Rio Arsenal. The dynamics of the issue of control can be seen in the contrast between the navy's resistance to the private shipyards and the more substantial private-sector role that emerged in naval armaments production and naval electronics. In each of the latter cases a more diversified industrial structure existed, with more substantial participation by private-sector firms. Such participation remained on the navy's terms, however: Firms could be carefully selected and groomed, and as long as the main technological flows were from the navy to the firms the threat of loss of control was minimal.

The Multiple Goals of Nuclear Technology Development If the shipbuilding term in the nuclear-submarine equation followed a fairly typical path of foreign-assisted development, the same cannot be said of the effort to develop the requisite nuclear technology. Here, programs have been embedded in and buffeted by a series of larger controversies: the struggle over Brazil's energy future, the military's search for political influence in postauthoritarian Brazil, and controversy over whether the intent of the military's nuclear programs was to develop nuclear weapons. By the late 1970s it had become necessary to refer to Brazil's nuclear programs, in the plural. Dissatisfaction with the "official" nuclear program led a group of military officers and selected civilians to undertake a socalled parallel program of nuclear R&D. This parallel track itself consisted of multiple, largely uncoordinated, and even redundant projects pursued by each service branch. 30 In the ensuing years it would be alleged repeatedly—first by international observers and civilian Brazilian scientists, and eventually by a civilian Brazilian government itself—that the parallel program was an integrated, coordinated military scheme to develop nuclear

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weapons. While this may have been the original intent, nuclear activities have not been an exception to the larger military-industrial tradition of each service going its own way. In practice, the nuclear endeavors of the three services evolved independently. In the pursuit of nuclear technology, the navy quickly emerged as the most ambitious and advanced service. Two principal technological goals came to define navy nuclear R&D: to develop the capacity to enrich uranium, and to design and build a small pressurized-water reactor. Both projects emerged ostensibly for the purpose of producing a nuclear submarine in Brazil. Yet the navy's involvement in nuclear technology development substantially predated any plans to build a nuclear submarine. When Brazil's nuclear program first took shape after World War II, the key figure was a naval officer, Admiral Alvaro Alberto da Mota e Silva. And a nuclear submarine was still only a distant dream in the late 1970s, when disillusionment with the progress of the official nuclear program provoked the navy to pursue an independent, parallel line of nuclear R&D. This does not mean that the nuclear submarine was simply a smokescreen. But neither can it be said that the navy's various nuclear projects were undertaken solely for the purpose of developing a functioning submarine reactor. As in the case of aeronautics and aerospace, nuclear fission was seen from the start as a strategic technology with multiple military and civilian applications. 31 This view, prevalent among the navy's nuclear elite long before the 1964 coup, survived two decades of military rule and remains in force today.

The Origins of Brazilian Nuclear Policy Unlike the rest of Brazil's military-industrial sector, the nuclear program already had a well-established bureaucratic structure when the military took power in 1964. From its founding in 1951 until 1956, the National Research Council (CNPq) was the focal point for nuclear policy. Admiral Alvaro Alberto, the driving force behind early nuclear research, was the council's first president. A series of highly charged debates on foreign investment and economic nationalism marked Brazilian politics in the 1950s. President Vargas's 1951 proposal to form the state-owned oil company Petrobras provoked stiff domestic and U.S.-based opposition, and triggered a politically charged national debate. 32 Nuclear policy followed a similarly contentious path; from the start, CNPq was subjected to what would prove to be a recurring tension between the quest for national technological autonomy and the immediate benefits of foreign technology acquisition. During the presidency of Café Filho (who took office on Vargas's suicide in 1954), nuclear policy tilted noticeably toward the United States, complicating the ongoing efforts of Admiral Alvaro Alberto to gain access to European

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nuclear technology. In return for preferential access in nuclear-minerals exploration and extraction, the United States provided a fuel-supply guarantee and two research reactors. 33 Allegations of undue U.S. influence in the nuclear program soon emerged, however, provoking a series of dramatic congressional hearings and ultimately prompting Brazil's next president, Juscelino Kubitschek, to reorganize nuclear policy in 1956. Control shifted from CNPq to a newly created organ, the National Nuclear Energy Commission (CNEN). During the four decades of its existence, CNEN's influence on nuclear policy has waxed and waned several times. In its early years CNEN maintained substantial influence and autonomy, in part because it reported directly to the president for most of that period. 34 In the late 1950s and early 1960s CNEN policy took on a strongly nationalist orientation, stressing development of Brazil's nuclear-minerals industry and the study of reactor technologies based on natural-uranium and thorium fuel cycles. These fuel cycles had nationalist appeal because they did not require imports of enriched uranium. 35 This basic orientation changed little during the first few years of the military regime. A 1965 CNEN strategy for nuclear industry development urged consideration of heavy-water and gas-graphite reactor technology as well as the light-water technology favored by the United States, again for reasons including autonomy of fuel supply. 36 But a 1967 bureaucratic reorganization reduced CNEN's influence and autonomy greatly, transferring it to the Ministry of Mines and Energy. The result was twofold: The electric-power bureaucracy came to play a greater role in nuclear policy decisions, and emphasis in nuclear policy shifted from long-term technology development to rapid upscaling for power generation. Given these changes, and because industrial development in the Center-South region of Brazil was the pillar of the military regime's economic program, energy demand projections for that region became the principal criterion for nuclear policy. 37 This led to a 1968 decision committing the nuclear program to light-water reactor technology and a 1971 decision to purchase a commercial-scale (626-megawatt) light-water reactor from the U.S. firm Westinghouse. Constructed at Angra dos Reis in the state of Rio de Janeiro (and referred to as Angra I to distinguish it from subsequent reactors planned for that site) the reactor was essentially a turnkey deal. It generated little effective technology transfer or stimulus for a domestic supplier industry. A 1982 Senate inquiry determined that the index of nationalization for the Angra I project had been 8 percent, and this only in "civil works." 38

The German Accord and the Quest for Nuclear Autonomy 1975 was a watershed for Brazilian nuclear policy. In June of that year the Brazilian government concluded a nuclear-cooperation accord of unprecedented

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scale with West Germany. The accord contained agreements on three levels: an intergovernmental accord on the peaceful uses of nuclear energy; an industrial protocol between the Brazilian Ministry of Mines and Energy and the West German Ministry of Research and Technology; and joint-venture contracts between various German firms and subsidiaries of the stateowned Brazilian firm Nuclebras. 39 By effectively severing the nuclear relationship with the United States, the accord represented a major change of direction for Brazilian nuclear policy (and indeed, for Brazilian foreign policy). But the accord also sealed the prior commitment of Brazil's nuclear program to light-water technology. The accord called for construction of eight 1,300-megawatt reactors by 1990 (at a total cost of $10 billion), and up to fifty-eight by the year 2000. With this massive construction program, the accord envisioned the creation of a full-fledged Brazilian nuclear industry. Together, the Nuclebras subsidiaries constituted a vertically integrated structure for mineral exploration, reactor design and construction, uranium enrichment, fuel fabrication, and spent-fuel reprocessing. One notable feature of this scheme was the effective exclusion of Brazil's sizable capital-goods industries. 40 The accord thus reflected several features of the politics of military rule: It was negotiated secretly by a small group of high-level officials, and it imposed major commitments on Brazilian diplomacy, energy policy, and economic policy without public discussion or meaningful interest group representation. 41 Why the sudden change of direction? In retrospect, it is clear that access to uranium fuel-cycle technology was the fundamental aim of the Geisel regime. Future growth in Brazilian electricity demand was the official justification for the massive reactor construction plans. But it is no exaggeration to say that the construction program was the price the Brazilian government had to pay for access to German fuel-cycle technology. In 1973 the U.S. Atomic Energy Commission had announced that, given projected domestic demand, it could no longer guarantee exports of enriched uranium. 42 According to a 1977 official report explaining the agreements, a factor which had to be considered was the vulnerability of supply of the fuel required to carry out the program. Recent historical developments had demonstrated the dangers of relying heavily on external sources for the satisfaction of the basic input needs of the economy. In order to avoid what had happened in the case of oil, it was imperative that the solution in the case of nuclear energy was one which enabled the country to reach the indispensable autarky in the medium term. Therefore, in exercising the technical option it was also necessary to take into account the need to ensure the full transfer to Brazil of the technologies involved in each of the areas of the fuel cycle corresponding to the type of reactor adopted. In other words, it was not acceptable to replace one form of dependence by another. 43

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This view was confirmed by Admiral Othon Luiz Pinheiro da Silva, a key figure in the navy's nuclear program, in a 1995 newspaper editorial: "What we actually wanted from the accord was to quickly master the nuclear fuel cycle thanks to a technology transfer from Germany." 4 4 The accord contained extensive technology-transfer provisions, involving both reactor construction and fuel-cycle activities. A pilot enrichment plant was established at Resende in the state of Rio de Janeiro, based on jet-nozzle centrifuge technology. The Brazilian government wanted ultracentrifuge enrichment technology, but the West German government vetoed the transfer. The Germans offered instead the jet-nozzle method, which was at that time unproven on a commercial scale. The accord also included provisions for the transfer of reprocessing technology for spent reactor fuel.

Launching the Parallel Program From the start, the ambitious goals of the German accord were impossible to meet. Electricity demand forecasts used to justify the massive construction plans proved to be wildly high, and construction was plagued by technical problems and cost overruns. 45 B y 1981 cost estimates for the first eight reactors had swollen from the original $10 billion to $ 2 5 - 3 6 billion, and in 1983 the construction program was scaled back to include only the two reactors already in progress. 4 6 The government's cost estimate at the time of the accord was 4 0 cents per watt of generating capacity installed; by 1985 this figure had risen to an estimated $3 per watt installed. 47 The anticipated mastery of fuel-cycle technology also failed to occur. The jet-nozzle enrichment technology proved to be both uneconomical and riddled with technical problems. After spending some $ 4 0 0 million on a pilot facility, enrichment levels of only about 0.85 percent were attained— well below the roughly 3 percent required for power generation. 48 The extent to which the transfer of reprocessing technology even occurred remains disputed. 49 The starting point for the military's parallel program of nuclear R & D is generally fixed at 1979, although some military figures have suggested that such activity may have begun earlier in the decade. 5 0 In any event, it is clear that military interest in nuclear R & D grew in the late 1970s, as dissatisfaction mounted over the pace and scope of technology assimilation within the official program. Calls began to emerge for a reorientation of nuclear policy. Criticism was broadly based and by no means limited to elements within the military. Brazil's civilian scientific community was also a source of vocal criticism, arguing that the accord failed to consider energy alternatives, bypassed Brazil's existing nuclear-research community,

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made undue concessions to German industrial interests, and deemphasized health and safety concerns. 51 The official program also lacked support in private industry, given the minimal participation of Brazilian firms. Critics of the accord gained an important public forum when the Brazilian Senate initiated hearings on the nuclear program in 1978. The hearings, responding to German press allegations of irregularities, soon evolved into a forum for debating the merits of the accord itself. The hearings concluded with the recommendation that an independent national R&D effort be initiated. 52 While no official policy reorientation was forthcoming, a second, parallel program of nuclear-development efforts did emerge soon thereafter. CNEN initiated an isotope-reactor project with substantial participation from the civilian scientific community, including some of the most vocal critics of the German accord. Projects under strict military control and with a much narrower base of participation soon came to represent the bulk of parallel nuclear research, however. In 1980 a restricted-access research area was formed within the Institute for Energy and Nuclear Research (IPEN) at the University of Sao Paulo. This unit, under the control of the navy's Special Projects Coordinating Center (COPESP), was created following discussions among high-ranking officials from the navy, the CNEN, the National Security Council, and the National Intelligence Service. 53 CNEN, which had seen its role in nuclear-sector policy cut back in the late 1960s and further reduced by the formation of Nuclebras in the 1970s, emerged as the focal point for channeling resources to the parallel program. As discussed below, those resources apparently included not only funding but also the diversion of skilled technicians and know-how developed in the context of the allegedly "safeguarded" official program. All three services began internal projects of nuclear R&D during this period, but only the navy's evolved rapidly into a full-fledged program involving both fuel-cycle and reactor-design efforts. The research unit at IPEN began work on a design for small-scale reactors. The group's first research reactor, acquired from the United States, had been installed in the early 1960s; development of a second reactor began in the early 1980s. IPEN also began work on the ultracentrifuge technique of uranium enrichment, which involves the repeated processing of uranium hexafluoride gas in centrifuges to gradually increase the relative concentration of the desired U-235 isotope. In late 1982 the IPEN group first succeeded in producing slightly enriched uranium. 5 4 In 1985 the navy transferred the enrichment program from IPEN to its Aramar experimental facility, located in the interior of the state of Sao Paulo. The navy began to build and install centrifuges at the Aramar facility to expand both the volume of enriched uranium produced and the degree of enrichment possible. In 1987 the navy officially acknowledged the existence of the Aramar facility. The plant's stated purpose was to supply 3 percent-enriched uranium

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for Brazil's nuclear power program, 20 percent-enriched uranium for research reactors that produce radioisotopes for industrial and medical uses, and the 20 percent-enriched uranium that would be required for the nuclear-submarine program. In August of 1990, it was announced that the plant had reached the 20 percent threshold. 55 By mid-1991 some 650 centrifuges had reportedly been installed, and the navy minister testified before Congress that the ultimate goal was some 5,000 centrifuges. 56 Though far short of the scale required to supply the volume of 3 percent-enriched uranium required by Brazil's one current and two planned power-generating reactors, this would be more than enough to meet Brazil's demand for 20 percent-enriched uranium, even assuming several functioning nuclear submarines. 57 According to the Brazilian Physics Society an enrichment plant on this scale would be capable, with some modifications, of producing up to 75 kg of weapons-grade uranium per year, enough for roughly three Hiroshima-scale nuclear weapons. 58 Through the 1980s, as the navy's portion of the parallel program continued to generate technological gains, naval (and overall military) interest in Brazil's official nuclear program waned appreciably. Nevertheless, the official program played a crucial role in parallel-program development, in that it appears to have been raided effectively for both skilled technicians and general nuclear know-how. Although Brazil was (and remains) a nonsignatory of the Non-Proliferation Treaty (NPT), the German government insisted that Brazil reach a separate agreement with the International Atomic Energy Agency (IAEA) covering the 1975 accord. This agreement, signed in early 1976, brought all facilities linked to the German accord under the IAEA safeguards system. 59 By the mid-1980s, however, the German government and nonproliferation advocates were growing increasingly concerned that technicians and know-how were being siphoned off to boost the parallel program. Suspicions were aroused when it was announced in 1986 that Nuclep, the heavy-components subsidiary of Nuclebras, had signed a series of contracts with the navy in the previous year to work on hull construction for the submarine program. 60 The German government privately lodged a complaint over diversions from the official program with Brazilian officials in 1987; German intelligence reports, later leaked to the media, had concluded that a diversion was in fact occurring. 61 The technologies under development in the official and parallel programs were quite different. Nevertheless, as Albright points out, "the technicians could have been helpful in developing the sophisticated quality assurance methods essential to build and operate an enrichment plant, and in improving methods of handling the highly corrosive uranium hexafluoride gas used in enrichment plants." 62 Because ultracentrifuge technology was not included in the German accord, however, it remains unclear exactly where or how the navy gained the ability to produce the centrifuges themselves. Based on the partial descriptions of the centrifuges made

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public by the navy, they appear to be similar to early-generation (1950s) European designs.63 Admiral Alvaro Alberto, the first head of the CNPq, attempted to import ultracentrifuges from Germany in the early 1950s.64 Although the United States blocked the transfer, Brazil apparently succeeded in acquiring German centrifuges in the late 1950s.65 While it is unlikely that IPEN pursued centrifuge development based on this particular design, the German equipment no doubt proved useful in testing and development. 66 The navy's ability to enrich uranium thus appeared to be the result of a combination of inputs: early-generation centrifuges, publicly available information on centrifuge design, a substantial measure of indigenous development and testing in Brazil, and skilled technicians trained in the official program or educated abroad.67

Retaining Control and Building Legitimacy The parallel program thus grew out of military dissatisfaction with the official program, and its quest for technological autonomy continued the pursuit of an unattained goal of the official program. But the parallel program also represented a reorientation of strategy, deemphasizing rapid development of nuclear electric-power technology in favor of longer-term technological development. Along with this reorientation came a new political goal: that the parallel program supplant the official program as the main focus of national nuclear policy. This would require eliminating those parts of the official program that competed for scarce resources, while at the same time wresting control of those parts that were useful for the purposes of the parallel program. These goals would in turn require that the military retain effective control of nuclear policy as a whole during and after the transition to civilian rule. During the 1980s, Brazilian nuclear policy and the structure of bureaucratic control of nuclear programs underwent a series of changes, the principal effect of which was to strengthen the parallel program at the expense of the official program. The military essentially launched a twopronged campaign: to put the parallel program at the heart of Brazilian nuclear policy, while preserving military control of the activities that constituted the program itself. The effort began in the early 1980s in the form of programmatic reorganization to shield military programs from civilian encroachment during the political transition. The effort continued under civilian rule, with attempts to legitimize the military's nuclear research during the transitional New Republic regime of José Sarney (1985-1990). And the effort continued during the term of Sarney's successor Fernando Collor de Mello, whose government struggled to define a nuclear policy that would meet conflicting domestic and international pressures.

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As discussed in Chapter 5, promises that the military would retain control of "strategic activities" are widely rumored to have been part of a deal between the regime and the centrist opposition during the final stages of military rule. But the effort to preserve military control actually began with the gubernatorial elections of 1982, some three years before the transfer of the presidency to civilian hands. IPEN, the navy's research unit linked to the University of Sao Paulo, fell under the formal jurisdiction of the state of Sao Paulo. This posed no problem as long as governors were elected indirectly by regime-dominated state legislatures, but the prospect of open gubernatorial elections in 1982 put military control at risk. IPEN was transferred to the CNEN two weeks before the election, in anticipation of an opposition victory. 68 CNEN activities themselves came under closer oversight by the CSN after the 1985 transfer of the presidency to civilian hands. 69 Given the tight military control of specific projects, the central administrative role of CNEN, and the survival of the CSN in reorganized form after its elimination by the Constituent Assembly in 1988, the transition to civilian rule did not immediately undermine military control of parallel-program activities. Along with this enduring control, the second notable feature of nuclear policy during the transitional Sarney government was the increasingly public posture of the military with regard to its nuclear activities. Until the mid-1980s these activities had existed in the public sphere only as unconfirmed rumors and occasional, vague public references. With the active assistance of the Sarney government, the navy began to position its nuclear activities politically, drawing increasingly public comparisons between the costly fiasco of the official program and the relatively inexpensive technical successes enjoyed by the navy's efforts. The instrument of legitimation for the navy's activities was its uranium-enrichment program. With growing technological success came a series of increasingly open acknowledgments. In mid-1986 the navy minister, Admiral Henrique Saboia, made a series of statements in which he acknowledged preliminary studies of nuclear-submarine technology, though denying that the Aramar facility was meant for uranium enrichment. 70 In September of 1987 President Sarney announced that Brazil had "mastered" the nuclear fuel cycle, by virtue of the navy's ability to enrich uranium to the 3 percent level required for electricity generation (at that time, in very small quantities). 71 In April of 1988 the Aramar facility was officially inaugurated in a highly publicized ceremony attended by Sarney and Argentine President Alfonsin. Notably, the army and air force did not match the navy's increasingly public posture. Unlike the navy, these services had little in the way of technological accomplishments to show for their efforts, and thus less to gain from calling public attention to their activities. 72 With the growing public momentum of the navy program serving as backdrop, the Sarney government announced a major overhaul of nuclear

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policy in August of 19 8 8. 73 The ostensible purpose was to forge a single, unified national program in which "nuclear energy ceases to be a sevenheaded beast and is transformed into a subject of 140 million citizens." 74 The reorganization established a new Superior Council for Nuclear Policy (CSPN) to set policy for both the official and parallel programs. The council consisted of nineteen government ministers, three representatives of the Brazilian scientific community, and the heads of CNEN, Nuclebras, and the state-owned electric-power industry. More importantly, CNEN gained day-to-day operational control of all nuclear-sector activities. The new policy also restructured Nuclebras, the state-owned cornerstone of the official program (renamed Industrias Nucleares do Brasil, or INB). The Nuclebras empire was dismantled: Several subsidiaries were designated for extinction or privatization, and the surviving components were reorganized and subordinated to CNEN. Other changes included the transfer of control of the still-incomplete Angra II and Angra III power plants to the stateowned electric-power industry, a plan to phase out the jet-centrifuge enrichment program that grew out of the German accord, and assumption by the Federal Treasury of the more than $4 billion in Nuclebras debts. 75 CSPN proved to be an ineffective body, exerting no meaningful oversight of nuclear policy. 76 But the reorganization did have several important consequences, the net effect of which was to strengthen the parallel program at the expense of the official program. The military's ally, CNEN, gained oversight of official-program activities. The call to phase out Nuclebras' jet-centrifuge enrichment program weakened the principal competitor to the navy's enrichment program at Aramar. And the absorption of nuclear-sector debt by the Treasury eliminated the debt burden on those parts of the official nuclear-power industry that were of potential value to the navy program. Chief among these was Nuclep, the Nuclebras heavycomponents subsidiary that was under contract to build the hulls for the submarines being produced under German license.

Navigating Between Local Control and International Cooperation Attempting to legitimize the military program and elevate it to the status of official policy created a new set of obstacles. Chief among these was heightened international concern about nuclear weapons proliferation. While the official program had itself stimulated proliferation concerns, it did operate within the IAEA safeguards system. The growing role of the parallel program as the new official policy elevated international pressures accordingly. The Collor administration, which took office early in 1990, sought to chart a course that would defuse international pressures without abandoning

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the navy's quest to develop nuclear technology. An interministerial working group was established shortly after Collor took office; its task was to formulate policies and define budgetary priorities for the nuclear sector. The working group included representatives of the military ministries, several civilian ministries, the newly formed Secretariat for Strategic Affairs (SAE), and the Secretariat for Science and Technology. The military, in keeping with its growing influence on nuclear matters, played the lead role in the group's deliberations, setting the agenda and controlling the meetings. But in a reflection of the continued quest for legitimacy, the working group made a concerted effort to reach out to domestic critics of the military's nuclear activities. Representatives of the Brazilian Physics Society (SBF)—a group of prominent civilian scientists who were vocal critics of both the parallel program and the government's nuclear policy in general—were allowed to attend a private briefing on the working-group proposals. The working group recommended major expansion of the military's nuclear activities.77 It called for $2 billion in expenditures over five years, with most of the funds earmarked for the military's programs, considerably more than the parallel program appears to have spent in the previous decade. 78 Each service was to share in the expansion of resources, with a total of seven reactor projects earmarked for funding. 79 The navy's share included an 11-megawatt prototype of a light-water reactor for submarine propulsion and a 100-megawatt reactor based on similar design principles; the latter was apparently seen as an alternative for electricity generation. 80 As one Brazilian nuclear physicist observed in an interview, even if this level of funding proved inadequate for the projects proposed, it would be enough to render the military's presence in the nuclear program "irreversible." The working group did not propose abandoning the German accord, which had been renewed automatically in 1989 when neither country's legislature voted to overturn it. The recommendation was to honor the accord, but only to the extent required to prevent damage in relations with Germany. In practice, this meant honoring the program's debt and maintaining the public position that the two power plants already under construction at Angra dos Reis would be completed. The working group also proposed a reorganized administrative structure for the nuclear program, eliminating the two-year-old Superior Council for Nuclear Policy (CSPN). Instead, a fourteen-member oversight board was proposed, divided into two sevenmember panels for nuclear safety and nuclear R&D. Finally, the report recommended against privatizing Nuclep (the Nuclebras subsidiary under contract with the navy to build submarine hulls), suggesting instead that the navy-controlled enterprise Engepron acquire a stake in the firm. President Collor agreed to the group's recommendations, although there was some discussion of adjusting the proposed spending figures downward. Before the government was able to announce the new nuclear

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policy, however, Iraq invaded Kuwait. Soon thereafter, a series of highly damaging revelations emerged on Brazil's military-technological relationship with Iraq, including Brazilian transfer of enriched uranium, consulting services, and lab equipment for Iraq's nuclear program. 8 1 Given the Collor government's emphasis on improved relations with the United States, these revelations made it impossible to announce what would clearly be seen as a major expansion of the Brazilian military's nuclear programs. The damage done by the revealed Iraqi connection, and pressures from the United States and Germany when those governments learned the gist of the working-group recommendations, made it clear that a new set of initiatives would be needed to allay international concerns. 8 2 A new set of initiatives was indeed forthcoming soon thereafter, seeking to reduce fears about Brazil's nuclear intentions. On September 24, 1990, Collor told the UN General Assembly that Brazil formally rejected development of atomic weapons. 8 3 Two weeks later, Secretary of Science and Technology José Goldemberg—a respected civilian nuclear physicist whose appointment by the Collor government had been intended to reassure the international community—announced that a longstanding and "secret" military plan to develop atomic weapons had been uncovered. 8 4 The report explaining exactly what had been uncovered was not made public, and the announcement consisted mostly of "revelations" that were not in themselves new. The apparent nuclear test site installed by the air force at the weapons-testing range at Serra do Cachimbo, for example, had been known to exist since it was uncovered by the Brazilian media in 1986. 85 The significance was not that the government had suddenly discovered activities long known to exist, but that it chose to acknowledge them and to present them as a coordinated military attempt to build the bomb. 8 6 In doing so, the Collor government clearly sought to convince international opinion that such efforts were a thing of the past. While still rejecting international inspections, Collor and Goldemberg did propose some form of civilian oversight, including access to nuclear facilities for civilian scientists and the media. 8 7 An even more dramatic announcement came one month later. Brazil and Argentina announced plans to create a bilateral nuclear monitoring regime. The plan had several components: information exchange and inspections for the countries' nuclear facilities; negotiations with the IAEA on an international safeguards regime; and ratification, with modifications, of the 1967 Treaty of Tlatelolco banning nuclear weapons in Latin America. 88 In December of 1991, a four-way agreement on nuclear safeguards was concluded between Brazil, Argentina, the IAEA, and a new BrazilianArgentine Agency for Accounting and Control of Nuclear Materials. The two governments presented the new monitoring regime as a logical extension of improved relations between the two countries, and as a strengthening of a 1987 nuclear-cooperation agreement. 8 9 But it was also

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clearly meant to defuse international pressure and, as acknowledged by Secretary of Science and Technology Goldemberg, eliminate barriers to U.S. technology transfer erected by proliferation concerns. 90

Trading the Bomb for Military Control? Once the parallel program began to realize meaningful technological gains, the navy sought to legitimize its nuclear activities and move them to the center of Brazilian nuclear policy. Initially this was not difficult, given the fiasco of the official program. With the continued expansion of the navy program and the mounting concern (domestic and international) over the nuclear activities of all three services, however, it became increasingly difficult to simultaneously consolidate military control of the nuclear program, pursue technological advances, and keep open the nuclear-weapons option. Thus the willingness to foreswear the bomb option can be seen as a concession intended to protect core interests in technology development and political control. Some observers have concluded that a democratic regime backed by international pressures forced open the nuclear program. 91 It is difficult to reconcile this interpretation with evidence of the military's continuing influence. When the Argentine accord was announced, military pressures prompted senior government officials to state that dealings with both Argentina and the IAEA would be limited to materials-accounting and -control, and would exclude "intrusive inspections" that jeopardize "industrial secrets." 92 The December 1991 IAEA agreement provided for international monitoring, but contained a clause protecting Argentine and Brazilian "technological secrets" and naval nuclearpropulsion programs. 93 The president of CNEN stated that in practice this would mean blocking inspections to the navy's Aramar enrichment plant and the air force's CTA complex. 94 The military's nuclear activities also retained strong support in Congress. A congressional commission of inquiry, reporting in the wake of the dramatic Collor-Goldemberg revelations of late 1990, concluded that the parallel program had achieved technological gains that would have been impossible if the safeguard clauses of the German and other international agreements had been respected. The hearings at times assumed a strongly nationalist tone; though criticizing the parallel program for evading civilian oversight, the commission called not for the program's elimination but rather for the institutionalization of oversight. 95 Enduring influence and domestic political support thus rule out simplistic claims about democratization as the cause of the dramatic policy shift under Collor. Others suggest the opposite—that Brazil continues to pursue nuclear weapons and has simply foresworn the option of weaponizing its

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nuclear program. While the nonproliferation community has generally lauded the new monitoring regime, some observers offer a more cautionary view. Krasno, for example, argues that Brazil and Argentina "may now be collaborating in such a way as to satisfy their mutual desire for a nuclear capability, without antagonizing the leaders of the NPT regime on whom they depend for capital, technology, and trade. So long as the last step—a nuclear breakout—can be averted, Brazil and Argentina may have their cake, and eat it too." 9 6 Though an accurate description of what has and has not occurred, this too understates the importance of domestic political considerations, particularly for the navy, the most influential service branch on nuclear matters. The implicit quid pro quo for accepting international inspections, safeguards, and materials-accounting was the legitimation of the navy's efforts at the heart of Brazilian nuclear policy, and the expanded resources and policy influence such legitimation would entail. Sacrificed was the freedom to maintain an explicit nuclear-weapons program—an option in which the navy, of the three services, had historically shown the least interest. But gained was the navy's very real programmatic autonomy, and a legitimate place at the center of Brazilian nuclear policy.

Autonomy—But from Whom, and for What? Given its early stage of development, a systematic comparison of the nuclear-submarine program to the other cases is premature. Beyond the various tensions and barriers sketched above, the navy also faces the challenge of integrating what have until now been separate initiatives in submarine construction and nuclear technology. A 1994 audit by the navy's General Directorate of Naval Material (DGMM) is reported to have uncovered substantial technical difficulties and management problems. According to the Brazilian press, the DGMM report was critical of the management of naval nuclear R&D under longtime director Admiral Othon Luis Pinheiro da Silva, who soon thereafter retired from active duty. The report also pointed to technical difficulties in compressing the reactor design sufficiently to meet the submarine's space constraints, a problem that could force major design changes. 97 The navy also faces the program's formidable cost, which one observer put at $2.5 billion over twenty years. 98 Conclusions are possible, however, on the forces conditioning military-industrial growth and decline in the nuclear submarine program. In the case of naval construction, the navy shunned the sort of export-led growth model embraced by the army and air force, tailoring production more closely to procurement needs than did the other services. Although foreign financing and technology remained key ingredients, the navy chose not to ride the export-linked treadmill; instead, the service accepted

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the diseconomies of scale inherent in producing for a very small domestic market and lived with its inability to increase the domestic content or technological sophistication of production. This, combined with the navy's tight control of production within the Naval Arsenal at the expense of the private shipyards, lessened the sort of complex civil-military and international-domestic tensions described in previous chapters. But it has also placed the program's sizable financial burden solely upon the navy. In late 1995 the navy announced that an additional $900 million would be required to construct the submarine, not including an additional $500 million for the reactor prototype." The nuclear term in the nuclear-submarine equation is more complex. During the 1970s, the pathway defined by the German accord was able, for a time, to reconcile domestic political conditions with the quest for international technology. The irony of accepting present dependence in the search for future autonomy was not seen as a contradiction, and the internationalized trajectory of technology-development efforts was not seen to conflict with the regime's ability to control and guide nuclear policy. When the German program proved problematic in both technological and political terms, cleaving off the parallel program was an effective adjustment. Technologically, the parallel program quickly outstripped the moribund initiatives of the German accord, and politically it allowed the navy to retain path-defining control and gradually maneuver to legitimize the program as the foundation of overall Brazilian nuclear policy. But the nuclear case is unique in that the international political pressures brought to bear went far beyond mere constraints on technology acquisition. As a result, moving the parallel program to the center of Brazilian nuclear policy solved a domestic problem for the navy, but at the cost of exacerbating an international one. This made a second adjustment necessary—essentially, foreswearing the bomb option in return for establishing the navy's nuclear initiatives as the core of Brazilian nuclear policy. Whether this proves to have been a successful adjustment remains to be seen, and will depend on the navy's ability to sustain the flow of resources and prevent the international inspections regime from inhibiting the continued development of its enrichment and reactor programs. More clearly than any other military-industrial segment, the nuclear program illustrates the complexity and ambiguity of the concept of technological autonomy. With the 1975 German accord, Brazil embarked upon a quest for technological autonomy along a highly dependent pathway. Subsequent adjustments showed that the "autonomy" being sought was in fact a complex mixture of technological capabilities, production capacity, and decisionmaking freedom. Those adjustments also showed that the perceived threat to autonomy came not only from international systemic pressures but also from domestic political encroachment in the postauthoritarian era.

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Notes 1. FBIS, "Army Reveals Participation in Nuclear Project," Latin America Daily Report, September 17, 1990. 2. O Estado de Sao Paulo, October 21, 1990; cited in FBIS, "Campaign Against Nuclear Program Scored," Latin America Daily Report, November 15, 1990. 3. FBIS, "Navy Seeks Funds to Launch Nuclear Submarine," Latin America Daily Report, November 13, 1995. 4. The navy position was presented in a 1988 editorial in the service publication Revista Marítima Brasileira, entitled "Submarino de Propulsáo Nuclear." The editorial defines its audience as "civil society . . . , the other military services, and the younger naval officers who some day will direct a navy consistent with Brazil's future" (my translation). Naval officers and others interviewed invariably pointed to this editorial as the official rationale for the program. 5. Armando A.F. Vidigal, A Evoluqáo do Pensamento Estratégico Naval Brasileiro (Rio de Janeiro: Biblioteca do Exército Editora, 1985). See also Domingos Ferreira, "The Navy of Brazil: An Emerging Power at Sea," Issue Paper No. 83-1, National Defense University, Washington, DC, 1983. 6. Vidigal, A Evoluqáo do Pensamento, p. 89; my translation. 7. In their Brazilian designation, the submarines are referred to as Humaitáclass, and the sweepers as Aratu-class. 8. Vidigal, A Evoluqáo do Pensamento, p. 101. 9. Eduardo Italo Pesce, "The Brazilian MK-10 Frigates," United States Naval Institute Proceedings 107 no. 3 (March 1981): pp. 127-129. 10. Elcio de Sá Freitas and Elcio Leite, "Garantia de Qualidade na ConstruÍ9ao de Navios de Guerra," ABEM: Associaqáo Brasileira de Engenharia Militar no. 92 (January 1989): pp. 20-27. 11. FBIS, "Budget Alters Plans in Armed Forces Services," Latin America Daily Report, December 17, 1990. 12. Vidigal, A Evoluqáo do Pensamento, pp. 103-104. 13. "Brazil's Arms Industry on the Move," Armed Forces Journal International (December 1984). 14. Odete Maria de Oliveira, A Questdo Nuclear Brasileira: Um Jogo de Mandos e Desmandos (Florianópolis, Brazil: Editora da Universidade Federal de Santa Catarina, 1989): p. 91. 15. FBIS, "Plans for Navy Reequipment Program Discussed," Latin America Daily Report, September 20, 1991. Inadequate resources subsequently forced delays in the program; see "Cuts Delay Brazilian Naval Programs," International Defense Review (June 1993). 16. Mario Cesar Flores, "O Preparo da Marinha nos Anos 90" (reprint, n.d.). 17. "Urna nova trincheira," Veja, October 17, 1979; FBIS, "Joint Submarine Contract with FRG Outlined," Latin America Daily Report, February 8, 1984. 18. Freitas and Leite, "Garantia de Qualidade," p. 23. 19. Flores, "O Preparo da Marinha," sec. 4.1; my translation. 20. Merchandise exports increased 5.3 percent annually from 1960 to 1970, and 8.8 percent annually from 1970 to 1982; World Bank, World Development Report 1984 (Washington, DC: World Bank, 1984). 21. "Brazil's Arms Industry on the Move." 22. Ferreira, "The Navy of Brazil," p. 33. The author attributes this idea to Armando A.F. Vidigal, "A Industria Naval Militar no Brasil Através do Tempo," Revista Marítima Brasileira (1981): p. 84.

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23. Freitas and Leite, "Garantía de Qualidade." 24. See the October 1989 edition of Revista Brasileira de Tecnologia. 25. These figures were obtained in interviews with Brazilian naval officials; see also the October 1989 edition of Revista Brasileira de Tecnologia. 26. Edward A . Kolodziej, Making and Marketing Arms (Princeton, NJ: Princeton University Press, 1987). 27. "Industria naval debate crise com prefeitos," Jornal do Brasil, June 21, 1990. 28. FBIS, "Budget Alters Plans." 29. FBIS, "Increased Spending Needs," Latin America Daily Report, August 14, 1991. 30. Prior to the early 1990s, details about the parallel program remained shrouded in secrecy; its activities were not even officially acknowledged by the Brazilian government until 1987. What little information was available had to be gleaned from the occasional statements of insiders, press accounts, intelligence reports of foreign governments, and the monitoring activities of international nonproliferation groups. See Luiz Pinguelli Rosa, A Política Nuclear e o Caminho das Armas Atómicas ( R i o de Janeiro: Jorge Zahar Editor, 1985); Centro Ecuménico de Documentaçâo e Informaçôes ( C E D I ) , De Angra a Aramar: Os Militares A Caminho da Bomba ( R i o de Janeiro: CEDI, 1988); David Albright, " B o m b Potential for South America," Bulletin of the Atomic Scientists 45 no. 4 ( M a y 1989): pp. 16-20; Oliveira, A Questâo Nuclear. The recent civilian governments have been more forthcoming with information on past military activities, although there are still gaps and conflicting accounts. A congressional inquiry conducted in late 1990, covered extensively by the Brazilian press, also shed considerable light on the program. 31. According to one retired admiral with whom I spoke, " A First World country must dominate the nuclear cycle, and no First World country is going to g i v e Brazil this technology." 32. Thomas Skidmore, Politics in Brazil 1930-1964: An Experiment in Democracy ( N e w York: Oxford University Press, 1967). 33. Oliveira, A Questâo Nuclear. 34. C N E N was created in 1956 as an independent entity that reported directly to the president. The commission retained that status until 1960, when President Kubitschek transferred it to the newly created Ministry of Mines and Energy. President Goulart restored C N E N ' s autonomy when he succeeded Quadros as president; this status remained until 1967. 35. Heavy water, which has an enhanced concentration of the hydrogen isotope deuterium, is required as a coolant and moderator f o r the natural-uranium cycle, but this technology was felt to be far less difficult to master than uranium enrichment (Rosa, A Política Nuclear). 36. Comissâo Nacional de Energia Nuclear, "Relatório do Comité de Estudos de Reatores de Poténcia," cited in Rosa, A Politica Nuclear, p. 30. 37. Rosa, A Politica Nuclear. 38. Emanuel Adler, The Power of Ideology: The Quest for Technological Autonomy in Argentina and Brazil (Berkeley: University of California Press, 1987): p. 311. 39. See Federative Republic of Brazil, The Brazilian Nuclear Programme (Brasilia: Federative Republic of Brazil, 1977); Rosa, A Política Nuclear, p. 35. Formed a$ a state-owned firm in 1971 under the name Companhia Brasileira de Tecnologia Nuclear, the firm was renamed Nuclebras in 1974. The accord established f i v e joint-venture subsidiaries linking Nuclebras to German supplier industries and two fully Brazilian subsidiaries. Of the joint Brazilian-German ventures,

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four had majority Brazilian ownership: Nuclam (uranium mining), Nuclei (enrichment operations), Nuclep (heavy components and equipment), and Nuclen (construction engineering and design). A fifth, Nustep (enrichment R&D and commercialization), was of half-German, half-Brazilian ownership. The fully Brazilian-owned subsidiaries were Nuclemon (heavy-metals production) and Nucon (a joint venture in power plant construction between Nuclebras and other Brazilian firms). 40. Oliveira, A Questáo Nuclear. 41. Rosa, A Política Nuclear. 42. Ibid. 43. Federative Republic of Brazil, The Brazilian Nuclear Programme, p. 11. 44. FBIS, "Othon Defends Parallel Nuclear Program, Angra II," Latin America Daily Report, February 8, 1995. 45. Some critics suggest that electricity demand figures were falsified and hydroelectric potential deliberately underestimated to justify the massive scale of the nuclear program; see Rosa, A Política Nuclear, CEDI, De Angra a Aramar. 46. CEDI, De Angra a Aramar, p. 33. 47. Rosa, A Política Nuclear, p. 41. 48. "Brazil's Nuclear Plans: In Search of Enrichment," The Economist, March 5, 1988; Albright, "Bomb Potential"; "Acordo nuclear faz 15 anos sem ter gerado energia," O Globo, June 25, 1990. 49. The head of INB (as Nuclebras is now known) claimed in 1989 that the Germans limited transfer of reprocessing technology to preliminary designs for a reprocessing plant. According to one interview subject, a 1987 German intelligence report concluded that far more extensive technology transfer occurred, and that Brazil commissioned a reprocessing plant in 1986. Albright reported that financial difficulties forced indefinite suspension of this program (Albright, "Bomb Potential"; see also "Brazil Denies Report of Reprocessing, Plutonium Production at IPEN," Nuclear Fuel, December 29, 1986). The idea was never fully abandoned, however; an interministerial working group appointed by President Collor in 1990 proposed funding lab-scale development by 1996 and a pilot reprocessing plant by the year 2000. 50. "Cnen anuncia que Brasil já pode reprocessar uránio," O Globo, December 17, 1986; FBIS, "Former Navy Chief on Nuclear Program," Latin America Daily Report, September 27, 1990. 51. Sociedade Brasileira de Física, bulletin no. 5, 1975; cited in Rosa, A Política Nuclear, p. 46; Antonio Rubens Britto de Castro, Norberto Majlis, Luiz Pinguelli Rosa, and Fernando de Souza Barros, "Brazil's Nuclear Shakeup: Military Still in Control," Bulletin of the Atomic Scientists 45 no. 4 (May 1989): pp. 22-25. 52. The hearings are summarized in Comissáo Parlamentar de Inquérito, A Questáo Nuclear: Relatório de Comissáo Parlamentar de Inquérito do Senado Federal Sobre o Acordo Nuclear do Brasil com a República Federal da Alemanha (Brasilia: Senado Federal, 1983). See also Rosa, A Política Nuclear, pp. 49-50. 53. CEDI, De Angra a Aramar, pp. 45^t6. 54. CEDI, De Angra a Aramar, p. 47; Albright, "Bomb Potential." 55. "Radioisotope vai ser fabricado pelo Ipen," O Estado de Sao Paulo, August 18, 1990. 56. FBIS, "Minister Briefs Congress on Uranium Program," Latin America Daily Report, June 24, 1991. 57. If each centrifuge at Aramar were capable of 3 "separative work units" (SWU) per year, a 5,000-centrifuge facility would yield 15,000 SWU per year. According to the Brazilian Physics Society, the unfinished reactors Angra II and Angra III would each require about 133,000 SWU per year to supply the roughly

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35 tons of 3 percent-enriched uranium required to refuel such a reactor. Sociedade Brasileira de Fisica (SBF), "A viabilidade de enriquecer uranio no Brasil em grau para bomba e o projeto conceitual de um explosivo nuclear," Report of the Committee on Nuclear Questions, May 1990, p. 83. 58. The plant could be reconfigured so that the centrifuge cascades are connected in parallel. A kilogram of 90 percent-enriched uranium produced this way would require about 200 SWU; thus 5,000 centrifuges working at 3 SWU per centrifuge per year could produce as much as 75 kg per year. An alternative approach would be to use the plant as currently configured to produce 20 percent-enriched uranium, and then recycle that material to attain higher levels of enrichment. The Brazilian Physics Society estimated that a plant with 3,000 centrifuges could recycle 157 kg of 20 percent-enriched uranium to produce 25 kg of 90 percentenriched uranium in a period of eight days. See SBF, "A viabilidade de enriquecer uranio"; Albright, "Bomb Potential." Although a nuclear explosive can be produced with lower levels of enrichment, the enrichment level of 90 percent is typically taken to define "weapons-grade" uranium. 59. CEDI, De Angra a Aramar, p. 28. 60. "Saboia admite estudos para o submarino nuclear," Folha de Sao Paulo, August 24, 1986; "Marinha defende sigilo para seus projetos nucleares," Jornal do Brasil, September 5, 1986. 61. "Brazil's Nuclear Plans"; "CDU/CSU Charges Helmut Schimdt Gave Brazil Sensitive Know-How," Nucleonics Week, September 21, 1989. 62. Albright, "Bomb Potential," p. 20. 63. Albright, "Bomb Potential." 64. Rosa, A Politica Nuclear, p. 27. 65. "Sarney arma seu ciclo," Veja, September 9, 1987; "Cnen anuncia que Brasil." 66. Reportedly the German centrifuges were of the Groth design, which proved to be far more complex and unwieldy than subsequent ones of late-1950s Zippe design. Albright reports that information about Zippe centrifuges was available in unclassified form until the 1960s. See Albright, "Bomb Potential"; "Sarney arma seu ciclo." 67. Admiral Othon Pinheiro da Silva, longtime director of naval nuclear R&D, studied at MIT in the 1970s. 68. CEDI, De Angra a Aramar. 69. Castro, "Brazil's Nuclear Shakeup." 70. "Saboia admite estudos"; "Marinha vai testar propulsao de submarino nuclear em Ipero," Jornal do Brasil, September 24, 1986. Previous Navy Minister Maximiano da Fonseca had stated publicly in October of 1982 that the navy was undertaking nuclear research for the purpose of naval propulsion; see "Almirante diz que Brasil pode fazer bomba atomica," Jornal do Brasil, October 7, 1982. 71. "Sarney arma seu ciclo." 72. The army did begin to adopt a more open posture in 1990, resulting in a number of favorable press accounts of the nuclear activities at the CTEx research center (FBIS, "Secretary Discusses Army Nuclear Project Details," Latin America Daily Report, September 18, 1990; FBIS, "Activities of CTEx Special Research Institute," Latin America Daily Report, January 10, 1991. 73. "Nova politica nuclear fortalece CNEN," Jornal do Brasil, September 2, 1988; "Governo modifica politica do uranio," O Estado de Sao Paulo, September 2, 1988; "Nuclear Program Refueled," Gazeta Mercantil (international edition), September 5, 1988. 74. CEDI, De Angra a Aramar, p. 66; my translation.

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75. Of this $4 billion, $2 billion represented debts to West German concerns under the provisions of the 1975 agreements. Total expenditures and obligations incurred by Nuclebras and subsidiaries had reached $8 billion by the time of the reorganization. See "Governo modifica politica"; "Nuclear Program Refueled." 76. One CSPN member stated that the council met only two or three times, with one meeting solely dedicated to a World Bank demand for information on the Angra nuclear plants in the context of an energy-sector loan. 77. The following summary is based on interviews with one working-group member, one individual who attended an official presentation of the group's recommendations, and one individual who participated in discussions with workinggroup members. See also "Programa nuclear paralelo devera ganhar prioridade," O Globo, June 30, 1990; "Collor adia decisao sobre piano nuclear," Folha de Sao Paulo, September 9, 1990; FBIS, "Recommendations of Nuclear Affairs Group Viewed," Latin America Daily Report, September 25, 1990; "Atomos armados," Isto E, September 19, 1990. 78. General Danilo Venturini, in charge of nuclear affairs at the end of military rule, told a congressional inquiry panel that the parallel program (including all three services) had spent $374 million as of late 1990 ("Safeguards Were Evaded," Gazeta Mercantil [international edition], October 29, 1990). Congressional sources put the figure at that time at $500 million (FBIS, "Batista Reveals Details of Nuclear Program," Latin America Daily Report, December 10, 1990.) Navy Minister Mario Cesar Flores told Congress in mid-1991 that $418 million had been spent to date on navy programs (FBIS, "Minister Briefs Congress"). It is known that CNEN financed parallel-program efforts through a series of secret bank accounts in the early 1980s (CEDI, De Angra a Aramar, pp. 54-55; FBIS, "Batista Reveals Details"). In 1991, the Brazilian press uncovered the fact that the SAE had secretly spent nearly all of a $65 million discretionary fund on nuclear activities ("Uma Verba Atomica," Veja, August 14, 1991). Even with secret expenditures and underreporting, it seems unlikely that total expenditures have been in excess of $2 billion. 79. According to the plan, the army would receive funding for its gas-graphite research reactor (planned at 5 megawatts). The air force would receive research funds for a 100-kilowatt satellite reactor and its laser-enrichment program. For the navy, three separate reactor projects would be funded: an 11-megawatt submarinereactor prototype using 20 percent-enriched uranium, a 70-megawatt materialstesting reactor, and a 100-megawatt prototype light-water reactor. CNEN would receive preliminary funding for a high-flux research reactor and a reactor to study the uranium-thorium and plutonium fuel cycles. For a brief description of these projects and a critical overview of the working group's proposals, see Luiz Pinguelli Roza, "Avaliajao Critica das Conclusoes Preliminares do Grupo de Trabalho do Programa Nacional de Energia Nuclear" (manuscript, June 12, 1990). 80. FBIS, "Enriched Uranium Production Goals Previewed," Latin America Daily Report, February 27, 1990. 81. "A negra historia das rela§oes entre Brasil e Iraque," Jornal do Brasil, August 12, 1990; "Os lances secretos da conexao nuclear entre o Brasil e o Iraque," Jornal do Brasil, September 2, 1990; "Alemanha sabia de repasse de tecnologia," O Globo, September 6, 1990. 82. According to one U.S. government official, Germany indicated that it would abrogate the nuclear accord with Brazil if the working-group recommendations were implemented. Such pressures were taken seriously; while the workinggroup recommendations clearly deemphasized the German relationship, Brazilian Foreign Ministry officials insisted forcefully during deliberations that the letter of the German agreement must be respected in any policy changes.

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83. "Brazil Uncovers Plan by Military to Build Atom Bomb and Stops It," New York Times, October 9, 1990. 84. "Brazil Uncovers Plan"; FBIS, "Development of Solimoes Nuclear Project Detailed," Latin America Daily Report, November 21, 1990. 85. "No governo Figueiredo decidiu-se tocar o programa nuclear paralelo," Folha de Sao Paulo, August 14, 1986. 86. Goldemberg later stated that there was evidence the military intended to test a nuclear device by the end of the Figueiredo regime, as a "grande finale for the military regime" and perhaps to create a "climate of euphoria" that would keep them in power. See "A bomba apagada," Veja, February 5, 1992, p. 8. 87. "Brazil Won't Sign Nuclear Pact but Plans Curbs, Official Says," New York Times, October 17, 1990. 88. For the text of the Brazilian-Argentine agreement, see FBIS, "Text of Brazil-Argentina Nuclear Accord," Latin America Daily Report, August 28, 1991. 89. FBIS, "Nuke Fuel Pact Signed with Argentina," Latin America Daily Report, April 24, 1987. 90. "Collor-Menem pact," Gazeta Mercantil (international edition), December 3, 1990. 91. Leonard S. Spector, "Repentant Nuclear Proliferators," Foreign Policy no. 88 (fall 1992): pp. 21-37. 92. FBIS, "Nuclear Accord Discussed with Argentina, IAEA," Latin America Daily Report, May 24, 1991. 93. FBIS, "Nuclear Energy Accord Signed with IAEA," Latin America Daily Report, December 16, 1991; Jean Krasno, "Brazil's Secret Nuclear Program," Orbis 38 no. 3 (summer 1994): pp. 425-437. 94. FBIS, "Nuclear Accord Discussed." 95. FBIS, "Congress to Legalize Parallel Nuclear Program," Latin America Daily Report, November 13, 1990; "'Parallel' Program Okayed," Gazeta Mercantil (international edition), December 3, 1990. 96. Krasno, "Brazil's Secret," p. 425. 97. FBIS, "France Offers Aid in Building Nuclear Submarine," Latin America Daily Report, February 7, 1995; FBIS, "Nuclear Submarine Program Examined," Latin America Daily Report, December 30, 1994. 98. FBIS, "Study: Country Should Redirect Science Policy," Latin America Daily Report, June 29, 1994. 99. FBIS, "Navy Seeks Funds."

Part 3: Implications

11 Institutional Tensions and the Failure to Adjust

The division of labor among nations is that some specialize in winning and others in losing.

—Eduardo

Galeano1

Without doubt, it is easier to demilitarize the government than the centers of power.

—Alain

Rouquie2

Structural Convergence Brazil's military-industrial expansion was contingent upon a convergence of international and domestic structures. On the one hand, structural changes in the global arms economy opened a sizable and stable market niche for medium-tech systems. Emerging programs, firms, and industries were bolstered by strong demand, readily available international financing, and substantial leverage to acquire advanced technology. At the same time, the broad political latitude enjoyed by successive military governments not only facilitated defense-sector expansion, but also shaped the character of the military industries that emerged. To be sure, some of the conditions most responsible for this, including military autonomy and service independence, were enduring patterns prior to military rule. But by strengthening the military's political position and restructuring civil-military relations, the coup of 1964 added several key ingredients: the ability to steer resources preferentially to the defense sector, the capacity to guarantee a domestic market when necessary, the opportunity to implement a set of consistently supportive export policies, and the ability to shield critical activities from the vagaries of inconsistent macroeconomic policy and the buffeting forces of dependent development. Although the individual cases support this interpretation, they also reveal that the importance of international and domestic structures did vary

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across specific programs. The parallel nuclear program, for example, drew principally upon the military's domestic political autonomy (although taking advantage of loopholes in international technology constraints as well). The space program relied substantially on access to foreign technology (although profiting as well from the National Security Council's latitude to define priorities and steer resources). The armored-vehicle and aeronautics industries enjoyed the combined benefits of service autonomy, consistent political support, technological leverage, and international-market expansion. The case studies also highlight the heterogeneity of domestic and international structures; what mattered most about global and local conditions varied across segments. To be sure, the changing structural features of the global arms economy—the increase in suppliers, the commercialization of transactions, the emergence of technology as a medium of exchange, and the internationalization of production—were key ingredients in all cases. But markets, financing, and technology were discrete terms in the formula for globally linked expansion, and their relative importance varied. Variance is also seen in the role of domestic politics. The military's overall political autonomy was clearly a key ingredient in each case. But the significance of such specifics as the military's reliance on civilian bureaucratic and industrial support, the split between hard-liners and moderates in the army high command, or the autonomy of the individual service branches varied across cases. The cases also show the constitutive nature of domestic and international structures. Structures not only constrain but enable; they are the conditions for action, and not merely constraints on action. The institutions of military industrialization did not merely respond to global markets and local politics in some static, detached sense, but rather emerged from and linked those two sets of structures. All four cases reveal a pattern of active structural convergence, in the sense that conditions on one level created opportunities to deepen the sector's institutionalization on the other level. The military's autonomy and domestic political latitude enhanced the effectiveness of responses to international opportunities, while deepening global-market integration created alliances and resources that boosted the military-industrial autonomy of the individual services. The same basically favorable pattern endured from the early 1970s to the mid-1980s: Global-market conditions favored access to technology, financing, and markets, and domestic-political conditions made it possible to seize such opportunities, while also shielding the sector from economic instability. There were some examples of successful sector-level adjustment: the shift from a strategy of industrial mobilization to one targeting key firms for military-industrial patronage, the late-1970s emergence of PNEMEM as a revised policy foundation, and the shift from domestic procurement to export-led growth in several industries. But these were overshadowed by the sector's enduring features: state-led growth, the pragmatic pursuit of greater technological autonomy, a commercialized decision logic, a sharp external boundary, and the military's path-defining control.

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The individual cases also reveal a mix between structural continuity and successful adjustment, but once again they confirm that continuity outweighed adjustment during the sector's growth period. Embraer, for example, did adjust over time in its notion of exactly what it meant to "climb the technological ladder." But both the firm's expanding international medium-tech market niche and the air force's ability to shield the firm and steer its resources preferentially endured in a stable fashion for more than a decade. In the armored-vehicle industry, Engesa exploited a similar situation for a similar length of time. The navy's foray into submarine construction was able to emulate a pattern of licensed technology transfer established more than a decade earlier. The space and nuclear programs, which emerged as strategic priorities in the mid-1970s, enjoyed effective political sheltering and sustaining transnational linkages for at least a decade as well.

Change and Adjustment As discussed previously, the defense sector's institutional core consisted of four enduring sets of roles and rules: 1. An internal division of labor that sharply separated the individual service branches, but also blurred the distinction between "public" and "private" entities in individual industries and programs; 2. A sharp external boundary, which limited ties to the larger civilian economy and allowed the state to play a developmental role it could not play for Brazilian industry as a whole; 3. A hierarchy of authority that decentralized instrumental choices about production, technology, and markets while preserving the military's broad path-defining control; 4. Developmental norms defining a market-oriented logic as part of a larger strategic vision, and identifying technological pragmatism as a pathway to technological autonomy. Structural change brought these institutions under stress. Internal boundaries were forced to rigidify; external boundaries eroded; reconstituting military control and deepening the sector's internationalization proved contradictory; and prevailing norms were exposed as increasingly in conflict.

The Changing Division of Labor: Interservice Tensions and Public-Private Polarization Each case shows a clear pattern of growing interest conflicts. Such conflicts had always existed, but expansion and growth muted their impact. As tensions flared in the 1980s, a clearly defined division of labor and authority—

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institutionalized by the repeated application of rules, routines, and standard practices—began to erode. The military had avoided interservice conflicts by preserving a clear division of military-industrial labor, organized around the traditional weapons platforms of each service branch. Conflicts between the military and industrialists were also minimized; military support for commercially oriented expansion in a flourishing international market made it possible to satisfy both commercial and strategic interests simultaneously—indeed, commercial interests were strategic under those circumstances. But resource constraints and political change hurt on two levels: They provoked new forms of interservice conflict, and they drove a serious wedge between military and industrial interests. The cases reveal the importance of a historically clear and welldefined interservice division of labor: essentially, a single-service monopoly around each major system under development. In aerospace, where crosscutting applications ruled out such a monopoly, the result was wasteful duplication, redundancy, and destructive competition. The nuclear segment showed a variation on the same theme: A de facto division of labor was established early in the parallel program, but the more overtly bomboriented activities of the army and air force became a drag on navy efforts in the 1980s. Previously, the absence of any sort of unified, justified defense posture gave each service an important measure of freedom. But by the early 1990s that same lack of coordination had become a political constraint. As Congress played a larger role in setting military budgets, coordinated campaigns to support key sector policies began to emerge, as in the resistance to a new military-industrial pact with the United States (discussed below). But the new climate also produced new tensions among the services. Expensive programs such as the AM-X and the nuclear submarine, previously governed by completely separate budgeting processes, loomed as rivals in an environment where the services were forced to lobby for scarce resources. While erosion of traditional boundaries generated tensions, so did forced sharpening of boundaries that were previously highly flexible and permeable. The logic of the market generated strong pressures for a privately controlled, commercially oriented defense sector, at the same time that defense-sector control emerged as an important vehicle for the military in its effort to retain political influence in postauthoritarian Brazil. During the boom period, the boundary between public and private endeavors had been a highly flexible one, allowing for close public-private partnerships and coordination. But diverging interests provoked by structural change forced an ever greater sharpening of these boundaries. The struggle over privatization was the ultimate expression of this phenomenon. But less dramatic developments reflected similar tensions—military opposition

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to some of the international entrepreneurial ventures of leading firms, for example, and pressures from the fledgling association of supplier firms (ABIMDE) to "regularize" sector procedures. Other interest conflicts introduced internal cleavages more complex than service-versus-service or business-versus-military. A prime example was the debate over export policies, which crystallized in the mid-1980s and peaked following the 1991 Gulf War (see below). Unrestrictive arms sales policies, including cultivation of a reputation as a "nonpolitical" supplier and ties to clients facing political barriers to arms supply, were crucial to export-led military-industrial expansion. But such practices also complicated access to foreign technology, invited international political pressure, and guaranteed conflict with the United States. The cleavage surrounding export policies did not divide military and commercial interests in simple fashion; rather, it pitted export-dependent firms and their military patrons against both civilian and military elements advocating a new form of global-market integration based on closer ties to industrialized countries.

Eroding External Boundaries: Civilian Encroachments and the Collapsing Policy Shield A second key institutional feature was the sector's clear external boundary. The state in the hands of the military picked winners, disbursed subsidies, and filtered out the effects of change in ways that were not, and never could have been, extended to Brazilian industry as a whole. Two processes were central to the erosion of the sector's external boundary. First, the military's waning control of the broader policy context weakened its capacity to shield the sector from the effects of change. Second, democratization meant the emergence of proliferating civilian demands at a time of shrinking resources. Some of the actors able to raise such demands gained new standing as a result of political and economic change. Clearly, Brazil's massive budget deficits and foreign debt constrained the flow of resources to military-industrial programs. 3 And political liberalization lessened military influence over budgetary policy, shifting the relative ability of military and civilian interests to claim scarce resources. The problem was not simply one of intensifying budgetary competition, however. The military's effective congressional lobby during the drafting of Brazil's new constitution revealed its ability to exert influence in the postauthoritarian era. The larger problem was that, while military control of specific programs endured, the political transition meant an appreciable loss of influence over the larger policy context within which defensesector activities would thrive or, increasingly, wither. One consequence of this loss of control over the larger policy context was that previously marginal or excluded groups gained increased standing

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within the sector itself. While the sector's core (the key research institutes, firms, and relevant bureaucratic organs of the state) remained under military sway, elements previously on the periphery (tangential bureaucratic organs of the state, civilian research institutes, supplier firms) gained the ability to shape some aspects of sector policy. A prime example was the changing role of the civilian space activities. INPE's transfer to the new Ministry of Science and Technology gave it new standing, as reflected in the adoption of the Brazil-China satellite cooperation accord despite military opposition. Events surrounding the dismissal of INPE's civilian director in 1989 reflected a largely successful air force bid to reassert control. But the onset of a new, internationally oriented strategy for the Brazilian space program depended critically on civilian activities such as satellite development and collaborative launching ventures. INPE also emerged as a key focal point for the fledgling industry in aerospace components and subsystems. The nuclear program provided another example of civilian encroachment. Brazil's civilian scientific community had long been a vocal critic of nuclear policy, as seen in opposition to the 1975 German nuclear accord. In the 1980s the Brazilian Society for the Advancement of Science (SBPC) and the SBF argued that the parallel program's emphasis on technology development marginalized considerations of reactor safety, radiation hazards, and environmental impact assessment. 4 The combination of political liberalization and international pressure gave new standing to these nuclear critics. The effort to reach out to dissident groups during the 1990 deliberations of the interministerial working group on nuclear policy acknowledged this enhanced standing. The erosion of the sector's external boundary did not produce a pluralized defense sector under effective civilian control. But it did mean that the military could no longer take path-defining control for granted. And as discussed below, the eroding external boundary furthered the growing rigidity of previously flexible internal roles and relationships. As outside forces intruded, the highly personalistic management style common throughout the sector came under pressure for more formalized and rigid forms of bureaucratic control and interorganizational coordination.

Questioning Authority: Internationalization and Military Control Military control and internationalization were complementary features of the sector during its heyday. Military control allowed each service to aggressively pursue internationalization as it saw fit; internationalization in turn introduced allies and alliances that helped enhance the standing of the service branches as key actors, further consolidating their control. Perhaps more than any other feature, the combination of internationalization and

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military control defined the institutional core of the Brazilian defense sector. The separate logics of internationalization and military control endured, even deepened, as a result of structural change. But as it became increasingly difficult to defend the sector from civilian encroachment and the buffeting forces of policies the military no longer controlled, it also became more difficult to cede microlevel decisions. Thus the need to reassert control contributed directly to the problem of growing rigidity and polarization between public and private spheres alluded to earlier. Where pathdefining military control had once facilitated internationalization, it now became an obstacle. Each case illustrates the difficulties of retaining traditional forms of control while pursuing the intensified internationalization demanded by the global arms economy. The air force lost its grip on an increasingly transnationalized Embraer. The army became irrelevant to the market-driven decisions of Engesa. The space program's quest for international integration undermined military control of civilian activities. And the transnationally dependent civilian portions of the nuclear program proved unresponsive to the military's technology development goals. One traditional approach to balancing control and internationalization was the ability of key individuals to operate in both worlds. Figures such as José Luiz Whitaker Ribeiro of Engesa, Admiral Othon Luiz Pinheiro da Silva of the navy's nuclear program, and Brigadier Hugo de Oliveira Piva of CTA proved able to represent the military's institutional interests while operating in the increasingly transnationalized world of military-technological development and the international arms trade. But as internationalization came to mean not cooperation but integration, this personalistic approach proved inconsistent with the growing need for conformity and predictability. And as military control increasingly meant legitimizing defense-sector activities in the face of civilian encroachment, individuals once seen as powerful leaders came to look more like rogue elements. Whitaker's Engesa proved to be beyond the army's control; Brigadier Piva caused great damage to Brazilian diplomacy when his team of missile engineers was discovered in Iraq on the eve of the Gulf War; and Admiral Pinheiro da Silva reportedly became the subject of an internal navy investigation due to alleged funding irregularities in the nuclear submarine program. 5 The dual imperatives of internationalization and control created broadly similar tensions for each service. Although each reacted differently, none found a stable new balance between the two. The air force's quest to maintain control while aggressively pursuing internationalization produced the organizational schizophrenia and privatization stalemate that shook Embraer. The navy resisted internationalization when it proved inconsistent with path-defining control, causing technological and financial stagnation in several key programs. The army, having lost path-defining

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control of the armored-vehicle industry to the increasingly internationalized Engesa, simply withdrew, leaving the firm to founder without its patron.

Fragmenting Norms: From Dual Use to Divergent Demands The sector's unifying vision had been the widespread belief that marketdriven choices could serve military requirements. But as capabilities grew, a gap emerged between what military planners thought the services required and what market projections suggested would sell internationally. These two considerations began to suggest very different production choices for the core weapons systems of each service. Simple, durable equipment such as Embraer's Bandeirante aircraft and Engesa's wheeled vehicles had easily straddled this gap. But more advanced products lacked either export appeal (such as the AM-X), or the interest of the operational side of the military (such as most Avibras products), or had little promise on either level (such as the Osorio tank). Inevitably, export-led growth provoked tension between global niche and domestic need. In three of the four case studies, however, a path was found that initially reconciled these competing demands. For Engesa and Embraer, rapid expansion was based on producing equipment that filled a need at home and a niche abroad. Even Avibras, which did not fill a clearly identified military need, benefited from domestic procurement at key moments. Only naval shipbuilding failed to link these two elements—principally because there was no significant international market niche toward which production could be geared. As a result, the navy had less incentive to compromise its production choices to market considerations. The subsequent dilemma was rooted in the failure of two elements of the formerly successful model: exhaustion of export-led growth and the growing inability of domestic procurement to bolster the existing industrial base. The medium-tech market niche evaporated, a victim of the same global trends (commercialization, internationalization, and technological diffusion) that produced it. Ever more suppliers fought for space in a market characterized by weak demand, and innovation forced new producers to move upward technologically to defend whatever market share they had attained. But carving out a new niche with more technologically advanced products proved impossible, as the cases illustrate. As the market niche eroded, the military's budgetary situation made the traditional export-promoting role of domestic procurement impossible. Although domestic procurement was never adequate to sustain the industrial base, it could guarantee the start-up of production lines and provide demonstration value for the export market. By the early 1990s even this limited role was beyond the military's means, as demonstrated most vividly by the Osorio tank fiasco.

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As the outlines of this problem became clearer in the 1980s, each service reacted differently. Engesa and the army delinked, with the firm developing a fully export-oriented product line (to the point that its crowning technological achievement, the Osorio tank, was reportedly too heavy for most Brazilian bridges). The navy did the opposite: Market dictates were essentially ignored, thoughts of export-led growth abandoned, and production concentrated in the Rio de Janeiro Naval Arsenal at the expense of private shipyards. The air force clung longest to the myth of reconciling niche and need, confident that the AM-X could work on both levels. But the program's spiraling cost precluded even break-even export sales, presenting the air force and Embraer with stark choices for future military projects. Because the domestic market was too small to influence international trends, the dominant pressure was for procurement to conform to exportdriven product design. This problem was exacerbated by budget constraints across all three services and the military's checkered success in claiming resources in the postauthoritarian environment. 6 When resources proved scarce, the domestic appetite for export-oriented products decreased. When the military did succeed in claiming budgetary resources for its programs, technology development efforts moved in the direction of evolving defense doctrine and long-delayed reequipment desires, often conflicting with the needs of the export sector. Tensions emerged not only over production choices but also around the larger question of how best to organize the production process so as to create a broader process of technology development. One key to growth had been the ability to adapt and absorb civilian products and processes. In the armored-vehicles and nuclear cases, this meant bringing key civilian entities into the military-industrial fold; in aeronautics and aerospace it meant creating new entities whose early projects straddled the civilian and military spheres. One of the principal institutional features that made such absorption possible was the blurred boundary between public and private endeavors. For those segments straddling civilian and military sources and applications, the gap between civilian and military technology did grow, but never to an insurmountable level. Although the associated costs were a heavy burden, many of the skills Embraer gained in the AM-X program did have ready applications in its civilian product line, just as improved production techniques from the civil sphere bore economies and efficiencies for military ventures. For the space and nuclear programs, the gap between civilian and military realms was minimal to nonexistent for most of the core technologies. The problem was not technical but organizational: Keeping pace simultaneously in the civilian and military realms implied increasingly inconsistent requirements for how each segment was organized to absorb and apply those technologies.

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Among the case studies, the starkest choice was seen in the aeronautics industry. By the late 1980s, keeping pace in civilian and military markets implied very different forms of organization for the firm, and very different modes of insertion into what was in both cases an increasingly internationalized context. If the space and nuclear segments ever manage to graduate from technology development programs to full-fledged industries, similar dilemmas are likely to emerge. A second problem was the growing importance of technologies that cut across the traditional organizational chart of the individual service branches and of the military-industrial sector as a whole. The market niche of the 1970s was based on specific weapons system platforms, and the service's technological and industrial enterprises were similarly organized around traditional weapons systems. But the key to global-market competitiveness shifted to the realm of crosscutting technologies that could enhance the performance capabilities of traditional platforms. The institutional strains accompanying this type of shift were enormous. The global-market pull of keeping pace with technological change increasingly conflicted with an organizational scheme that was an outgrowth of enduring domestic-political conditions.

Fragmenting Norms: The Ambiguities of Technological Autonomy Closely related to the norm of commercial-as-strategic was the sector's consistent technological pragmatism. The case studies reveal differences among the specific technological strategies of the individual militaryindustrial segments. In general, however, the broad strategy followed during military rule was to try to build an autonomous capacity for technological innovation through a transitional phase of externally oriented technology assimilation. In other words, short-term technological dependency was seen as a way to long-term technological autonomy. There is some question as to whether this basic technological strategy ever worked as effectively as is sometimes claimed. Tangible gains notwithstanding, several programs show a treadmill effect: The domestic content of particular production lines increased over time, but high levels of external dependence for technology and components endured across generations of weapons systems. This pattern is reflected most clearly in Embraer aircraft and the navy's shipbuilding program, but can be seen in some fashion across all the principal segments. Nevertheless, the basic technological strategy of the 1970s did manage to reconcile global-market and domestic-political conditions sufficiently to produce real gains. Growing supplier competition made access to foreign technology a real possibility, principally through technology licensing.

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Leverage also came from effective use of domestic procurement, restricted market access, and other tools that drew on the military's ability to set implicit and explicit sector policy. For each service, the key bridging element in this basic strategy was a central organ of military-technological coordination: CTA for the air force; the triumvirate of COPESP, IPqM, and CASNAV for the navy; and CTEx for the army. The services did not apply identical technology strategies; nor were their technological activities organized in identical fashion. But in each case a militarily controlled technological organ played a central role in the broad strategy of military-industrial development, albeit more successfully in some instances (CTA) than others (CTEx). In its basic outlines, this approach changed little from the 1970s to the 1990s. For the air force, the aerospace program clearly reflected an attempt to extend the model first developed with the aeronautics industry. The army imitated the broad outlines of the air force model, with CTEx being the analog to CTA. Even the navy's more decentralized approach changed little after the late 1970s. What did change were the conditions for the model's successful implementation. Domestic political changes made it impossible to guarantee the institutional stability crucial to earlier successes. The highly centralized organizational format, premised on the notion of creating "islands of excellence," failed to adapt to the growth of the civilian technology sector in Brazil, particularly in the case of the army and air force. And access to foreign technology shifted appreciably as more advanced programs emerged. The accelerating global pace of technological innovation deepened these problems by making timely adaptation more difficult. Adaptation of the traditional developmental norm was complicated by the ambiguous nature of the concept of technological autonomy. The case studies show that, its importance as a broadly unifying symbol notwithstanding, the idea of autonomy involved multiple elements that grew increasingly incompatible. The norm of "autonomy" referred to a complex mix of three ingredients: decisionmaking freedom, sustained production capacity, and the ability to keep pace with international trends. Essentially, structural change dislodged the tenuous balance among these elements. By the 1990s, maintaining an internationally competitive industrial base meant increasing integration into the global arms economy at all levels. This meant continuing, if not enhancing, the already extensive reliance on external sources for technology, components, investment capital, and markets. But this trend collided head-on with another first principle of the norm of technological autonomy: decisionmaking freedom and control. At first glance naval programs, which neither emphasized export opportunities nor evolved in response to external demand, might seem to offer an alternative to the export-linked technological treadmill and the

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loss of control it threatened. But the limited size of the domestic market in naval shipbuilding thwarted efforts to increase the domestic content of production. Both the German-licensed submarines and Inhauma-class corvettes built at the navy's Rio de Janeiro shipyard had low indices of nationalization, a circumstance that could be altered only by substantial increases in scale. As the starkness of production choices grew and the organizational demands of the various components of technological autonomy diverged, historical debates on the meaning and feasibility of technological autonomy were refueled. During its growth period, the sector's overall technology strategy effectively straddled global-market and domestic-political conditions. In doing so, it created the impression of simultaneous progress toward each of the components of the norm of technological autonomy. But by the early 1990s this was clearly no longer the case.

The Collor Era and the Limits of Reform In December of 1989, Brazil held its first direct presidential election in three decades. Fernando Collor de Mello, a little-known northeastern governor who had been a member of the promilitary Democratic Social Party ( P D S ) during military rule, won a narrow victory to succeed the transitional Sarney regime. By the time Collor took office early in 1990, the defense sector's mounting problems and the failure of individual programs to adapt to the new climate had made it clear that the status quo ante was nonviable; "muddling through" had ceased to be an option. Under these circumstances previously unthinkable policy options, including privatization of state-owned firms and expanded foreign investment in sector activities, began to gain support. Although Collor would remain in office for less than three years before falling in a corruption scandal, his relatively brief tenure saw a flurry of policy initiatives meant to stabilize and reinvigorate the defense sector. But while Collor's military-industrial policy did not reflect business as usual, neither did it reflect a new consensus. Clearly, the need to respond to a radically changed context was perceived. But efforts to reconstitute the sector's global-market integration could not be reconciled with the equally pressing need to reconstitute the sector's domestic political base. Trapped between these two worlds, Collor's military-industrial policy focused on short-term priorities—chiefly, defusing international pressures and shoring up the sector's financial base—and relied on a largely ad hoc, personalistic approach to change. While the beginnings of policy reorientation could be seen, the barriers to a new paradigm for military industrialization proved insurmountable.

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The Failure of Global-Market Reintegration Early in its tenure, the Collor administration's defense-sector policy consisted primarily of a renewed effort to promote export-led growth. The government strongly supported Brazilian arms sales, prompting the president of Avibrás to state that "in four months, Collor has done much more for our defense industry than Sarney did in five years." 7 Iraq's invasion of Kuwait in August of 1990, however, triggered a dramatic policy shift. The focus of world attention on the Iraqi military revealed an extensive Brazilian military-technological connection, beginning in the late 1970s and extending through the onset of the war itself. During the Iran-Iraq War, Iraq emerged as Brazil's leading customer for military equipment, including Engesa armored vehicles, Avibrás rocket launchers, and Embraer aircraft. Preliminary cooperation on a military satellite project also took place, beginning in 1989. But revelations of a deeper link emerged in the wake of the Kuwaiti invasion. Brazilian investigative journalists revealed that Brazil had supplied enriched uranium and services for Iraq's nuclear program in the early 1980s.8 Equally damaging was the revelation that a team of Brazilian missile engineers and technicians had been in Iraq for almost a year prior to the invasion. 9 Although accounts differ, their activities appear to have included modernization of Iraq's Scud missiles and development work on an air-to-air missile of joint Brazilian-Iraqi design. 10 The group was led by Hugo de Oliveira Piva, a retired air force brigadier and former head of the Aerospace Technical Center (CTA). The Collor government moved quickly to dissociate itself from these connections with the Iraqi military. Foreign minister Rezek stated that "people were confusing a group of Brazilians with Brazil itself." 11 Brazilian officials also stressed repeatedly (and accurately) the much larger military-technological assistance to Iraq from the industrialized countries during the 1980s. But such claims did little to defuse international pressure, forcing the Collor government into a series of new initiatives. The Foreign Ministry soon announced a more restrictive arms export policy, including buyer assurances that armaments were to be used for defensive purposes only. 12 A high-profile interministerial committee began to develop guidelines for limiting the transfer of sensitive technologies and services. 13 A series of substantial reforms were also forthcoming in nuclear policy (culminating in the agreement with Argentina and the IAEA). Though many of these changes were triggered by the international furor surrounding the Gulf War revelations, they also fit the larger agenda of Collor's foreign policy, which sought to improve relations with the Organization for Economic Cooperation and Development (OECD) countries. By the time Collor took office, Brazil's military-industrial policies had become a seriously contentious issue, particularly in U.S.-Brazilian

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relations. 14 Efforts to lessen these tensions were thus consistent with a range of other initiatives, including enhanced environmental protection in the Amazon region, reduced restrictions on foreign investment, changes in information-sector policies, and a more accommodating stance on Brazil's international debt. Strengthening the state's capacity to regulate defense-sector activities was also consistent with Collor's broader effort to redefine the role of the state in Brazilian society. Ben Ross Schneider describes Collor's efforts as a strategy of "conservative modernization"—conservative in that it did not challenge the highly unequal "basic property and power relations" in Brazilian society, but also modernizing in that it sought to "redistribute power within the elite from the old to the modern." The result was a mixed political agenda, combining privatization of state enterprises, trade liberalization, bureaucratic reform, and reformulated regulatory powers with several traditional features of the Brazilian state, including a strongly technocratic orientation and the broad use of unilateral executive powers. 15 But it would be a dangerous simplification to conclude that Collor's military-industrial policies merely sacrificed the defense sector to a larger international or domestic agenda. On the contrary, it was felt that healing the military-industrial rift with the United States would create a new niche for Brazil in the global arms economy. Such a niche would entail neither the low-cost, medium-tech strategy that succeeded in the late 1970s, nor the failed 1980s strategy of stepping up as a full-fledged competitor in advanced systems. Instead, it would involve deepened integration of Brazilian firms and programs into an increasingly internationalized structure of production, and a new form of partnership with advanced producers. Anticipated results included fewer restrictions on access to foreign technology, closer working relationships with U.S. and European multinationals, and export opportunities in the far larger arms market of the industrialized world. Several military-industrial initiatives during the Collor era sought such global-market reintegration. Foremost were the effort to reorganize the space program and promote international involvement with the Alcantara launch facility, the effort to salvage Engesa through foreign participation, Embraer's bid to win the competition in the U.S. JPATS training aircraft program, and the increasing openness to foreign investment across the chronically capital-poor military industries. A strategy of global-market reintegration for the defense sector was not without risks, of course. Embracing such a strategy meant rejecting some cornerstones of past growth. The condition extracted by the industrialized world would be greater restraint in arms sales and military-technology transfers to states hostile to the West or pursuing independent foreign policies. This in turn would mean abandoning Brazil's reputation as a neutral, nonpoliticized supplier, and an abrupt halt to the cultivation of clients facing political barriers to arms supply from other sources. Reflecting this

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dilemma, statements by Foreign Minister Rezek in late 1990 and early 1991 sought to keep open the possibility of a closer military-industrial relationship with Iran, even as he announced tighter restrictions on arms exports and technology transfer. 16 But the primary obstacles to reintegration into the global arms economy were those facing Collor's overall effort for conservative modernization: Powerful domestic forces had much to lose in such changes, and the increasingly fragmented character of Brazilian politics meant that effective vetoes were widely dispersed. Foreign investment, technological integration, and intensified internationalization posed a severe risk to the military's ability to retain path-defining control of the sector in postauthoritarian Brazil. To be sure, some of the Collor policy initiatives reflected a weakening of the military's ability to set defense-sector policy or veto undesirable changes. But it must be stressed that those changes were by no means universally opposed within the military. Given the sector's mounting difficulties, some military factions supported steps that were previously unthinkable, including privatization of state-owned defense firms and increased participation by multinationals. Opposition to such steps varied both within and across the services, as the case studies show. But unified military opposition could still wield an effective veto over defense-sector policy shifts. For example, Foreign Minister Rezek stated in April of 1991 that Brazil and the United States were moving toward agreement on closer defense cooperation, including military-industrial ties. The statement produced strong and unified opposition from the military ministries and the military-industrial trade association ABIMDE, forcing the government into a hasty retreat. 17 Similarly, the army was able to impose impossible conditions on would-be foreign investors in Engesa. 18

The Elusive Search for Domestic Allies If the response to a changing global arms economy stressed a new form of global-market integration, the response to the changing domestic political context stressed the need for a broadened political base. Several attempts were made to reach out to domestic groups traditionally excluded from sector activities. Successfully bringing organized labor, the civilian research apparatus, the universities, and civilian industry into the militaryindustrial fold would not have eliminated tensions surrounding path-defining control. But a broader base of support might well have increased the flow of resources, making it possible to live with such tensions. These tensions had existed even in the sector's heyday, but remained submerged in the sector's rising economic tide. The defense sector's existence beyond the reach of civil society meant less interference in the form of democratic oversight. The cost of this

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insularity, however, was a narrower base of social support for sector activities. As discussed previously, Brazil's manufacturing industries never had a large stake in defense production, given the sector's enclave character. The same was generally true of other potential allies, including organized labor and the university system. In the late 1980s, when broad segments of labor and industry in the United States and Europe were forging united fronts to minimize cuts in defense spending, the Brazilian labor movement brought mounting pressure for conversion to nondefense activities. The metalworkers' union of Sào José dos Campos (the site of much of Brazil's military-industrial park) became an aggressive advocate of conversion. During the 1989 presidential campaign, Lula, the Workers' Party (PT) candidate who lost narrowly to Collor, called for economic conversion of the defense sector. And though individuals in academia had occasionally played a role in sector activities, organized science played an important oppositional role. The Brazilian Society for the Advancement of Science (SBPC) became an increasingly vocal critic of the militarization of Brazilian nuclear policy in the 1980s. Thus, the Brazilian defense sector rested on a fundamentally different base of social and political support than the familiar "military-industrial complex" model of the industrialized countries. 19 The post-World War II defense industries of the United States and Europe rested on the multiple pillars of government, industry, labor, and the universities. In contrast, the Brazilian experience saw a highly selective form of civilian industrial participation, and marginalization of both labor and academia as a matter of policy. Thus efforts to recruit new political allies looked to the left as well as the right along the Brazilian political spectrum. Embraer's privatization plan allowed for 20 percent equity participation by its workers, and similar ideas were floated in the failed effort to reconstitute Engesa. 20 Military ministers lobbying Congress in 1991 claimed support for defense-related projects within opposition parties of the left and center-left. 21 A few civilian nuclear scientists spoke of discreet military inquiries seeking enhanced academic participation in the parallel program beginning in the late 1980s. When the 1990 interministerial working group on nuclear policy reported its proposals to expand the military's nuclear R&D, members of the SBPC were invited to attend briefings. The effort to build political support on the left, or at least mute its opposition, was not inherently contradictory to the strategy of global-market reintegration. But while building support on the left might enhance the flow of resources, the left's exclusion was so complete that just such an expansion of resources was a prerequisite for building a broader coalition. In hindsight, one can identify a number of base-broadening steps that could have been taken prior to the sector's downturn: demilitarizing the nuclear program sufficiently to attract support from civilian science,

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strengthening the role of civilian science and the private sector in the space program, tempering the armored-vehicle industry's reliance on arms exports with civilian production, and tolerating the unionization of defense workers. Such steps could have institutionalized a stake in the sector's health among unions, scientists, and academics. But the window of opportunity closed with the sector's financial downturn, and shoring up the leftward pillars of a more typical military-industrial complex became a missed opportunity. A more substantial possibility for bolstering domestic political support lay to the right, with domestic capital. By the late 1980s, there was observable interest in some military circles in moving the defense sector from export-led growth to civilian-led growth. Under this scenario civilian product lines would replace defense exports in providing the scale necessary for stable growth among militarily strategic firms. This pattern already applied to some of the leading defense electronics firms and parts of the aeronautics industry, and was further boosted by Collor's emphasis on technological competitiveness and industrial modernization. 22 Blurring the sharp boundary between the military-industrial sector and the bulk of Brazilian industry (including Brazil's largest industrial groups) promised a broader political base of support. Civilian-led growth also offered the obvious advantage of stabilizing boom-bust cycles: During difficult periods of procurement cutbacks or a sag in arms exports, civilian production could keep strategic military industries afloat. A civilian-oriented paradigm also acknowledged the global trend away from "spin-off'—in which military R&D yielded civilian products and applications—and toward "spin-on"—in which innovations in the commercial sphere formed the leading edge of technological development with military applications. As the U.S. Office of Technology Assessment observed in 1989, "Increasingly, leading edge technology comes from an internationalized, civilianoriented economy, which puts a premium on exploiting technology as well as developing it." 23 Proposals for civilian-led growth were not new. The question of whether to tie defense production to a broader civilian base, available for "industrial mobilization" in times of need, had long been debated in military-industrial circles. Formation of the Permanent Group for Industrial Mobilization (GPMI) in the 1960s (see Chapter 5) reflected an earlier attempt to tie growth in defense production to civilian industry. Dagnino summarizes a 1983 debate at the Escola Superior de Guerra (ESG) in which leading industrialists, defense-firm executives, and military officers weighed similar issues. One of the main points of disagreement was whether to channel support principally to the existing handful of heavily defense-oriented firms or to renew a broader effort to mobilize civilian industries. 24 But the obstacles to the concept proved as enduring as its appeal. The question of political control remained problematic. For example, the

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navy's resistance to greater private-sector participation in shipbuilding during the 1980s stemmed in large measure from its mistrust of industry's "oligopolistic" power. And civilian industry remained a reluctant partner at best. Barring periods of severe recession, the reluctance of civilian industrial groups to enter defense production has been a relatively constant feature of Brazilian military-industrial history. Engesa's president Whitaker concluded in 1983 that "compared to other areas of business, the production of defense material is seen by entrepreneurs in general as less stable, less predictable and therefore less attractive." 25 Subsequent developments only reinforced this perception. Even if these barriers were overcome and a new approximation between civilian and military interests crafted, the state of Brazilian industry imposed severe limits on the feasibility of civilian-led defense-sector growth. Problems included the legacy of minimal investment in modernization, a stubbornly anachronistic strategy of competing through depressed wages, and industrial policies that have made it easier to import "blackbox" technological packages. The result was a civilian industrial base unable to sustain the increasingly market-efficient, advanced-technology orientation sought by the defense sector since the early 1980s. A 1991 university report commissioned by the Science and Technology Secretariat of the state of Sao Paulo concluded that there existed a modernization gap of fifteen to twenty years between Brazilian industry as a whole and its First World counterparts.26 Where the Brazilian auto industry required an average of 48 hours to manufacture an automobile, the Japanese required 17. Where Brazil's auto industry averaged 92.5 factory defects per 100 vehicles manufactured, the Japanese rate was a world-best 60 per 100 vehicles.27 In the climate of the 1990s, reorienting and deepening the sector's global-market integration meant leaving most of this uncompetitive civilian-industrial base behind. Even if historical barriers to engaging the private sector could have been overcome, doing so in a manner consistent with global-market requisites demanded a prior shift of almost revolutionary proportions in Brazilian production, and in the links among research, development, and industry.

A Victim of Past Successes Brazil's military-industrial institutions came under stress because they were the product of domestic-political and global-market conditions that no longer existed. Under these circumstances, it proved impossible to chart a new course that reconciled the institutional dilemmas sketched above. The sector found itself encumbered with conflicting goals, reflecting the once-convergent but now-contradictory interests of its diverse coalition of supporters: Brazilian defense firms, the armed forces, the military R&D bureaucracy, civilian organs of the state, multinational defense firms, and

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their home governments. The problem was not simply to find a new growth-oriented trajectory, but to find one that could balance divergent civilian and military demands, stabilize the traditional division of labor, speak simultaneously to global niche and local need, pursue the multiple ends embedded in the notion of technological autonomy, and reproduce military control while deepening the sector's internationalization. If the task were simply to define a new, growth-oriented path, the challenge would have been to break this logjam of increasingly contradictory interests and shed some of these performance requirements. This would have been a sizable task, but not an inherently insurmountable obstacle. The deeper problem was that the interests and practices institutionalized by the sector's prior successes stood in the way of adaptation and renewal. The same organizing principles that had effectively integrated the sector's diverse tasks and interests inhibited the emergence of new practices. The sector's sharp external boundary, which created crucial space for early growth, became one of the principal barriers to broadening the defense sector's base of social and political support during troubled times. The highly personalistic system that grew up behind that boundary made the more bureaucratically stable and regulated forms of control demanded by international actors difficult if not impossible. The blurred distinction between public and private entities, so important to earlier sector growth, actively inhibited a more adaptive division of labor between state organs and private actors. And the coexistence of deepening internationalization and enduring military control loosed a set of military entrepreneurs that weakened the military's policy autonomy and undermined Brazil's bid for more integrative international cooperation. Traditional practices stubbornly endured, even though it was increasingly clear that the structural props making those traditional practices meaningful had fallen away. Trapped between these two worlds, military-industrial policy under Collor strove for a precarious balance between new restraints and continued support. The increasingly ad hoc approach was testament to an inability to resolve underlying tensions, and to the larger dilemma of Brazil's military industrialization: The old paradigm was no longer viable, but the alternatives insufficiently powerful and unifying to replace it. The common feature of the quests for deepened global-market integration and broadened domesticpolitical support is that neither could reconcile the divergent interests and imperatives that characterized military industrialization by the 1990s.

Notes 1. Eduardo Galeano, Open Veins of Latin America (New York: Monthly Press Review, 1973): p. 11. 2. Alain Rouquié, "Demilitarization and the Institutionalization of MilitaryDominated Polities in Latin America," in Guillermo O'Donnell, Philippe C. Schmitter, and Laurence Whitehead, eds., Transitions from Authoritarian Rule:

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Comparative Perspectives (Baltimore: Johns Hopkins University Press, 1986): p. 133. 3. Ironically, this problem was exacerbated by political successes during the transition to civilian rule. Civilian activities remaining under military control— such as the air force's oversight of airports and air traffic control, or the navy's duties in port management and coast guard functions—exerted substantial demands on a shrinking resource base. 4. Antonio Rubens Britto de Castro, Norberto Majlis, Luiz Pinguelli Rosa, and Fernando de Souza Barros, "Brazil's Nuclear Shakeup: Military Still in Control," Bulletin of the Atomic Scientists 45 no. 4 (May 1989): pp. 22-25. 5. FBIS, "Nuclear Submarine Program Examined," Latin America Daily Report, December 30, 1994. 6. Stepan argued that the prospects for the Brazilian military to claim budget resources would, paradoxically, be enhanced under democratic civilian rule. He cites interview data suggesting that important military figures held this view during the transition period. See Alfred Stepan, Rethinking Military Politics: Brazil and the Southern Cone (Princeton, NJ: Princeton University Press, 1988): pp. 72-86. 7. "Fora do ar," Is to E, August 15, 1990. 8. "Os lances secretos da conexao nuclear entre o Brasil e o Iraque," Jornal do Brasil, September 2, 1990; "A negra historia das rela§5es entre Brasil e Iraque," Jornal do Brasil, August 12, 1990. 9. "Cientista das Arabias," Veja, October 3, 1990; "Liga9oes perigosas," Veja, August 8, 1990. 10. FBIS, "Development of Sparrow-Type Missile in Iraq," Latin America Daily Report, October 10, 1990. 11. FBIS, "Rezek Views GATT, Tlatelolco, Arms Sales," Latin America Daily Report, December 4, 1990. 12. FBIS, "Rezek: Government to Restrict Future Weapons Sales," Latin America Daily Report, March 4, 1991. 13. FBIS, "Ramos on Need to Control Arms Sales," Latin America Daily Report, July 8, 1991. 14. Conflict on military-industrial issues began in 1977, when Brazil unilaterally canceled a bilateral defense-cooperation accord in response to U.S. pressure on human rights and nuclear proliferation. The two governments signed a 1984 accord on military-technological cooperation, but its implementation was frustrated by Brazil's unwillingness to accept U.S. restrictions on retransfer of technologies and products, and U.S. insistence that Brazilian arms-transfer restraint be a precondition for closer technological cooperation ("U.S.-Brazil Arms Pact Opposed," Financial Times, February 21, 1984). Tensions also flared over proposed arms sales to Libya in the mid-1980s, at which time Brazil made a largely ineffective effort to defuse the issue by restricting sales of "terrorist-usable" items—mostly small arms (FBIS, "Heavy Weapons Will Be Sold to Libya," Latin America Daily Report, August 5, 1986; FBIS, "Government to Continue Supplying Arms to Libya," Latin America Daily Report, January 10, 1986; "Tiros de diplomacia," Veja, February 3, 1988). A subsequent dispute involved U.S. unwillingness to license supercomputers for export, in response to the military orientation of Brazil's space and nuclear programs. Embraer's request to purchase a vector processor, to upgrade an existing IBM machine to supercomputer status, was repeatedly denied. The United States later approved the purchase as part of President Bush's 1990 visit to Brazil, in response to the Brazil-Argentina nuclear safeguards accord. But the sale was further delayed by Brazil's failure to provide guarantees that use would

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be restricted to civilian applications. In February of 1992, the U.S. government approved six supercomputer sales to Brazil, earmarked for a Brazilian university, three banks, and two unnamed companies. Brazil was placed on the U.S. Department of Commerce's list of countries not allowed to receive sensitive technology in June of 1992. On the supercomputer dispute, see "A Standoff with Brazil on Computer," New York Times, April 12, 1991; "U.S. Debates Selling Supercomputers to three Nations," New York Times, August 20, 1989; "Ligafoes perigosas," Veja, August 8, 1990; "Efeito retardado," Veja, November 28, 1991; FBIS, "Embraer Postpones Purchases of Computer Equipment," Latin America Daily Report, December 5, 1990; "Supercomputers: U.S. Gives Clearance for First Six Sales," Gazeta Mercantil (international edition), March 2, 1992. 15. In an analysis of Collor's first six months in office, one leading Brazilian newspaper dubbed this mixture "democratic authoritarianism" ("Autoritarismo democrático de Collor derruba inflafao e freia a economia," Folha de Sào Paulo, September 15, 1990). But as Schneider points out, the Collor program reflected more than anything else an underlying political pragmatism, blending elements of classical neoliberalism, social democracy, and conservative modernization in a complex fashion. See Ben Ross Schneider, "Brazil Under Collor: Anatomy of a Crisis," World Policy Journal 8 no. 2 (spring 1991): pp. 321-347. 16. "Government to Restrict Arms Sales," Latin American Regional Reports— Brazil RB-91-03, March 21, 1991; FBIS, "Rezek Views GATT." 17. FBIS, "Defense Industry Opposes Arms Deal with U.S," Latin America Daily Report, April 11, 1991; FBIS, "Foreign Ministry Denies New U.S. Agreement," Latin America Daily Report, May 15, 1991; FBIS, "Possible Military Agreement With US Denied," Latin America Daily Report, June 5, 1991; FBIS, "Establishment of Military Alliances 'Discarded,'" Latin America Daily Report, June 10, 1991. 18. "Com dinheiro do povo," Veja, April 8, 1992. 19. I am indebted to Renato Dagnino for this observation. 20. "Com dinheiro do povo." 21. FBIS, "Increased Spending Needs," Latin America Daily Report, August 14, 1991. 22. A 1989 conference on the defense sector held at the University of Campinas reflected this trend, which had been building in the late 1980s and gained momentum in the Collor years. See the proceedings of the conference "Estratégia para o Brasil do Seculo XXI" (Strategy for 21st-century Brazil) hosted by the Nucleus of Strategic Studies (Nucleo de Estudos Estratégicos), State University of Campinas, September 20-21, 1989. 23. U.S. Office of Technology Assessment, Holding the Edge: Maintaining the Defense Technology Base, report no. OTA-ISC-420 (Washington, DC: U.S. Government Printing Office, 1989): p. 3. 24. Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliagáo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989, pp. 202-207. According to Dagnino, Engesa president Whitaker favored the former approach. Luiz Eulálio Bueno Vidigal Filho (president of the Federation of Industries of the State of Sào Paulo, Brazil's leading industrial association) championed the latter, while Ozires Silva of Embraer adopted a middle position. Dagnino identifies similar themes in debates sponsored by the Clube Militar in 1916 (pp. 128-131). 25. Quoted in Dagnino, A indùstria de armamentos brasileira, p. 205; my translation.

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26. FBIS, "UNICAMP Study Describes Industrial Lag," Latin America Daily Report, April 1, 1991. 27. A 1989 survey of 7,300 Brazilian industrial firms by the international accounting firm Arthur Young reached similar conclusions; see "Consultoria faz comparaçâo com outros países," Folha de Sâo Paulo, December 18, 1989.

12 Development, Security, and Military Industrialization in the Third World

What do the rise and fall of the Brazilian defense sector tell us about the prospects for Third World military industrialization? What are the implications for security, development, and North-South relations? The Brazilian case challenges some widely accepted claims about both the international and domestic consequences of Third World military industrialization. Chief among these are the widespread belief that Third World military-industrial development poses a growing security risk to the North, and common claims about the democratizing and developmental effects of defense-sector expansion. Yet determining whether the pattern of the Brazilian experience applies to the Third World more generally is problematic. One of the principal lessons emerging from the Brazilian case is that domestic-political structures and the historical trajectory of military-industrial development matter, because they shape current institutions in ways that strongly limit future possibilities. Thus, beyond the inherent problems of generalizing from a single case, the specific findings from the Brazilian experience caution against making sweeping claims about the heterogeneous countries of the Third World. Nevertheless, there is reason to believe that structural barriers to sustained military industrialization are not unique to Brazil. In terms of technology, financing, and markets, all would-be military industrializers face essentially the same global-market context that narrowed Brazil's options so severely in the 1990s. And while domestic political contexts vary enormously, the essence of the Brazilian pattern may apply more generally. With the widespread rise of domestic-political contestation in the post-Cold War Third World, the basic political conditions necessary for stable defense-sector expansion are likely to be difficult to sustain across a broad range of national settings. Consider India, another Third World military-industrial leader with a long history of efforts to promote defense-sector development. 1 As have 237

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Brazil's, India's strategic initiatives in nuclear, aerospace, and other areas have reflected a combined logic of security and development. 2 As did Brazil, India underwent a substantial upscaling of its military-industrial programs during the 1980s. Key programs launched during this period included a light combat aircraft; the Arjun main battle tank; a submarine construction program bent on producing a nuclear vessel; and a series of short- and medium-range missile projects under the auspices of the Integrated Guided Missile Development Program (IGMDP). Finally, India, like Brazil, seemed well positioned to exploit global military-industrial trends during this period. Growing budgets for national defense and a large science and technology sector lessened resource constraints. An earlier tendency for defense-sector policy to vacillate between autarky and blackbox arms purchases was supplanted in the 1980s by an emphasis on licensed production, technological absorption, and modernization of national defense industries. 3 Another key advantage was the leverage provided by the attractiveness of India's large internal market to European defense multinationals and the Soviet Union. Brazil and India share another common feature—the failure of these ambitious efforts to produce a broad, self-sustaining trajectory of military industrialization. Gupta concludes that the efforts so far have been less than promising. All of these systems depend heavily on imported components, and many doubt whether some of them can ever enter service. Of particular concern is the LCA [Light Combat Aircraft], which not only has heavy developmental costs but, with a production total of only four hundred planes, is uneconomical. . . . Although [India] has one of the largest arms industries in the Third World, it remains largely a licensed producer of weapons and is also one of the largest importers of weaponry. 4

Gupta's assessment of India's future possibilities is equally skeptical: India . . . cannot emerge as a complete military power. Financial and technological constraints will keep it from developing critical sections of its force structure that would allow it to both launch offensive operations against major powers and resist intervention by them. It is more likely that a few high-profile programs such as missiles or naval vessels may emerge; although these will give the illusion of military power, they will not dramatically change the course of a confrontation. . . . India will continue to depend on the West for weapons technology, and it will continue to produce weapons that are at least one generation behind, which, again, will hinder military capability. 5

Clearly, the Indian and Brazilian defense sectors are embedded in very different economic, political, and military settings. Unlike Brazil, India has historically faced highly credible external threats at the regional level;

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since independence in 1947 there have been three wars with Pakistan and one with China. The Indian government also faces serious internal threats to its legitimacy, particularly in Punjab and the disputed border territory of Kashmir. Nor does India share the Brazilian experience of extended periods of military rule. There have also been important differences in national economic policy: Unlike Brazil's emphasis on industrialization in the context of dependent global-market integration, India until recently placed far greater emphasis on technological self-sufficiency and autonomous development. These differences are reflected in the Indian defense sector. The perceived need to respond to regional developments has had important consequences for the mix of weapons-system programs. At times the effect has been stimulating: The Agni missile program, for example, appears to be a reaction to the modernization of Chinese missile forces. 6 More commonly, the unstable regional context has made it more difficult to concentrate resources in programs that do not promise immediate advances in military capability. For example, the Reagan administration's 1981 decision to sell F-16 aircraft to Pakistan prompted India to acquire Mirage 2000 aircraft, an expensive move that hurt indigenous aircraft development programs. 7 Despite India's strong historical emphasis on technological self-sufficiency in the commercial sector, and despite attempts at defense-sector autarky in the 1960s, the option of promoting indigenous military-industrial development has generally been seen as too costly and too slow for the prevailing strategic environment. Another key difference is that the Indian military have been far less supportive of military-industrial initiatives than their Brazilian counterparts. Historically, much of the stimulus for military industrialization has come not from the military but rather from senior political officials; with few exceptions the military has favored the acquisition of more capable foreign systems. 8 For example, the Indian Air Force opposed license-producing the Soviet MiG-21, preferring to purchase the American F-104 Starfighter. But they were overruled by the civilian leadership of the Defence Ministry, on technology-transfer grounds. Another key difference: Even if the military were interested in being a patron of domestic defense industries, they have typically lacked the influence to do so. The political and bureaucratic structures of decisionmaking have been such that debate is dominated by senior civilian bureaucrats in the Finance Ministry and Defence Ministry, as well as Parliament and the cabinet. 9 Also, in India the civilian science apparatus plays a far more influential role in charting the course of strategic initiatives such as the nuclear and space programs. Finally, civilian industry has had an even lesser role than in Brazil: The strategic incorporation of selected civilian activities under military tutelage, a key Brazilian practice, has been far less common in India.

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Yet despite these differences, the macro pattern behind India's difficulties bears important similarities to the Brazilian experience. A turbulent domestic political situation and a changing global-market context have combined to exacerbate the traditional obstacles to Indian military industrialization. Goals differ, as do the domestic political structures within which those goals are pursued. But finding a growth-oriented trajectory that can simultaneously adapt to domestic-political change and meet the requisites of an increasingly competitive global arms economy has proven just as difficult in India as it has in Brazil. One destabilizing set of changes involves the political redefinition of military tasks. Policy-guiding conceptions of security were broadened both externally and internally during the 1980s. Raju Thomas describes the emergence, beginning in the late 1970s, of a "new political perspective regarding security that sought to achieve a complexity of interrelated goals: defense against external enemies, the maintenance of internal peace and security, and the promotion of economic and social development." 10 Externally, security policy shifted to stress the "extended strategic environment"—a euphemism for heightened concern over developments in the Middle East, Central Asia, and the Indian Ocean, with a corresponding deemphasis of the Pakistani question. At the same time, the emphasis on internal stability increased substantially in light of mounting unrest and violent conflict in Punjab and Kashmir. Also, Gupta describes an emergent "South Asian Monroe Doctrine," in which the acquisition of military capabilities supplanted diplomacy as the instrument of deterring outside involvement in the region.11 Although partly grounded in changing regional conditions, this shift in the political definition of security tasks was also a product of the reorganization of decisionmaking institutions for security affairs. The late-1970s reorganization of the cabinet-level and Defence Ministry bodies for defense affairs opened the door to a much broader focus on social, economic, and political considerations in security policy formulation. At the same time, the voice of the service branches in defense deliberations was reduced, both within the cabinet and within the Defence Ministry. As Raju Thomas reported in 1986, the move has had mixed results for the economy and for the military. On the one hand, it has provided defense input in the national planning process and ensured that defense allocations do not undermine the economic and political stability of the nation. On the other hand, the new system has eroded military input into defense p l a n n i n g . . . . In the present setup, the needs of defense tend to become submerged in larger national political, economic, and social issues. Although this may seem unfortunate from the military standpoint, it has been deemed essential for economic planning and stability. 12

Ironically, these changes occurred just as the more open acquisitions posture of the 1980s began to build stronger military ties to Western defense

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establishments. The downgrading of the military's voice in defense planning made it impossible to translate these ties into a durable coalition linking transnational interests, the armed forces, and the national militaryindustrial base. A second destabilizing change involves the declining hegemony of the Congress Party in Indian domestic politics. During the 1980s, the bureaucratic marginalization of defense interests was to some extent offset by the stability of Congress Party rule and the resulting network of personalistic channels linking interests in defense, industry, science, and the bureaucracy. 13 But the decline of Congress Party dominance has destabilized the traditional system. The brief loss of power during 1977-1980 to the opposition Janata coalition showed the potential for security policy consensus to fragment and polarize on such fundamental issues as the Pakistani threat, regional peace initiatives, the role of the nuclear-weapons option in India's defense posture, and the consistency of internal security concerns with individual freedoms and democracy. Under these increasingly uncertain conditions, the absence of a consistent military patron has hurt many military-industrial initiatives. A third important tension involves the growing commercial pressures on the defense sector, grounded in the larger context of a changing relationship between India and the global economy. India's foreign debt, the growth of foreign direct investment, privatization, and structural adjustment have all put pressure on the defense sector to pay its own way. 14 McCarthy concludes that "shrinking military budgets, the desperate need for hard currency, and the need to recoup some of the sunk capital costs of the IGMDP provide powerful incentives for the [Defence] Ministry to seek customers for their technologies." 15 In 1991 the defense laboratories were opened to Indian industry "as a way to develop new technologies and to increase the quality of their products." 16 These commercial pressures are particularly evident in aerospace, which is probably the most technologically advanced of India's principal military-industrial segments. ISRO, the Indian civilian space agency, is moving aggressively into the space-launch and space-applications markets. 17 This conflicts with India's diplomatic stance: Although not a member of the Missile Technology Control Regime and officially rejecting the regime as discriminatory and antidevelopmental, India's export behavior has been consistent with the regime's provisions. 18 The restrictive policy on exports has already produced conflict with industry, which has chafed against the ad hoc character of the export controls process. 19 As divergent strategic and commercial logics cause mounting tensions between the space program's civilian and military manifestations, Indian aerospace seems headed for the same political conflicts and destructive competition for resources that have plagued Brazil since the mid-1980s. Sorting out the full effects of these changes for the military-industrial sector is difficult, and requires analysis far beyond the scope of this chapter.

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However, adding them to the traditional economic, technological, and political barriers to defense-sector expansion in India raises serious questions about the prospects for sustained military-industrial growth. The expansion of tasks, the fragmentation of consensus, the downgrading of the military in political decisionmaking, and the destabilization of traditional channels of interest representation seem likely to undermine any such effort. Priority treatment and support for selected programs, and in particular the space and nuclear programs, will probably continue. But the continued fragmentation of defense-sector policy and a destructive competition for resources and influence are a more likely scenario than institutional stability and sustained growth. Again, these problems and prospects differ in some important ways from those marking the Brazilian experience. The common theme is that in both cases a formula for sustained military-industrial expansion—one that can simultaneously navigate through domestic-political and global-market channels—remains elusive. Consider, as a second example, the South Korean defense sector. As in Brazil, South Korea experienced extended military rule, followed by a protracted political transition that saw gradual, uneven liberalization rather than a clean break with the past. As in India, a credible external threat has strongly influenced perceived defense needs. Unlike either the Brazilian or Indian case, however, South Korea's defense sector has been bolstered by a rapidly advancing industrial economy, as well as by the financial and technological support of an important external patron, the United States. Defense production began in the early 1970s, as a component of heavy industrialization. 20 Boosted by government incentives and U.S. technology, Korean defense industries grew rapidly and were supplying a wide range of domestic needs by the early 1980s.21 At that time, domestic-market saturation and idle capacity led the defense sector to turn to exports; the U.S. Arms Control and Disarmament Agency estimates that Korean military exports rose from $5 million in 1975 to $400 million in 1982.22 Given Korea's enduring dependence on external sources of technology and the inability of domestic procurement alone to sustain the defense sector, military-industrial expansion increasingly demanded a global-market strategy. By the mid-1980s 40 percent of Korean arms production was exported. 23 Baek and Moon describe several trends in the direction of a more aggressive global-market strategy in the late 1980s: efforts to wean the defense industry from government support, a turn to arms exports to prevent underutilization of industrial capacity, and a more active role for the Korean Defense Industrial Association and the Ministry of Commerce and Industry in promoting arms exports. 24 Along with the growth of capital- and technology-intensive manufacturing, conditions on the Korean Peninsula have helped sustain defensesector expansion. In spite of sporadic thawing in relations with North Korea, a broad consensus has endured among South Korean political and economic elites that the external threat remains substantial, and that an

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increased share of the resulting defense burden will fall on South Korea itself as the U.S. presence diminishes. 25 As perceptions grew that the United States could not be relied upon fully or indefinitely, support for a more independent military-industrial orientation grew. Hayes reports that in the late 1980s "influential South Korean defense intellectuals" began to advocate development of the military-technological capabilities for a strategy of offensive deterrence. 26 Perhaps more importantly, the defense sector has been well positioned politically. By the mid-1980s, the sector was dominated by seven of the ten huge conglomerates that together account for 40 percent of Korean GNP. 27 This led Moon to project that the fusion of the defense and commercial heavy industries in the hands of these few big conglomerates may transform the emerging military-industrial complex into a powerful political entity. . . . Big business is gradually gaining political power . . . not only because the ruling regime heavily depends on economic performance of big business for its political legitimacy, but also because recent economic liberalization has given more autonomy to the private sector. 28

But despite these fortuitous economic and political conditions, military-industrial expansion in South Korea faces a number of obstacles not unlike those seen in Brazil. The tight control that the military has exerted on the defense sector complicates the prospects for sustained expansion. A joint report of the Rand Corporation and the Korea Institute for Defense Analyses suggested that "although most Korean defense industry is already privately owned, this ownership is only nominal. Management and utilization are tightly controlled by the military, frequently resulting in low utilization rates, high operating costs, and restricted opportunities for conversion to higher yield civil production." 29 Such control was the logical product of the means used to stimulate military industrialization. Moon, reporting on the defense-industry boom during the second half of the 1970s, concluded that the insulation of defense industrialization from competing political claims was a result of a highly centralized decision-making system. While other economic policies were subject to pluralist debates among technocrats, businesspeople, and scholars, the policies related to the defense industry (including heavy industry) were confined to the hands of only three persons during the Force Improvement Plan period (1976-1979). . . . All decisions on the defense industry were made by these three, and once decisions were made, they were implemented quickly.

The three were the president's economic secretary for heavy and defense industry, the director of the Agency for Defense Development, and President Park himself. 30

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But tight military control becomes problematic when much of the sector's growth potential lies in dual-use technology, the development of which is increasingly driven by commercial consideration and applications. Hayes, for example, concludes that South Korea's capacity to develop and export missile systems "will likely emerge from dual-capable technologies acquired for its endeavors in space"—endeavors driven primarily by commercial considerations in the emerging markets for satellite communications technology. 31 The underlying dilemmas are quite similar to the Brazilian case. First, the military's ability to control sector policies endures, but the capacity to shape the broader confluence of economic and diplomatic policies affecting the sector waned with political liberalization. Thus the capacity to stabilize the defense sector and coordinate the participation of industry, civilian science, the state technology bureaucracy, and the armed forces has eroded as well. 32 Second, as foreign partners are recruited to profit-oriented dual-use ventures, the need for a flexible globalmarket strategy inevitably clashes with the requisites of tight military control. The full implications of Korea's political transition for the balance between military and commercial interests in the defense sector remains to be seen. If, as seems most likely, commercial considerations and an aggressive global-market strategy remain ascendant, one effect would be to exacerbate the already substantial tensions within the U.S.-Korean military-technological relationship. Korean defense firms benefited enormously from U.S. technological assistance in the 1970s, and the bulk of potential Korean arms exports embody U.S. technology. 33 As Korea's export potential has grown, so have contentious issues, including U.S. veto power over such exports, royalty requirements, and U.S. resistance to offsets on Korean arms purchases. Although not inherently unmanageable, these conflicts—rooted in the combination of South Korea's growing competitive potential and its enduring technological dependence—have become sources of serious tension clouding the U.S.-Korean security relationship. If domestic political change continues to shift the balance between military and commercial interests within the military-industrial coalition in favor of the latter, such tensions will increase. Clearly, one cannot conclude from these brief observations that the specific tensions seen in Brazil are reproduced in South Korea, India, or other Third World countries with relatively advanced defense sectors. Nor would their existence automatically produce the same debilitating impact on military-industrial expansion. Such conclusions await more detailed comparative analysis. Why did Argentina and South Africa experience less dramatic military-industrial expansion than Brazil during the same period? Why have countries with very different patterns of civil-military relations, such as Israel and South Korea, experienced broadly similar periods of growth?

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Moreover, even if the same basic dilemma of institutional adjustment confronts all would-be producers, it may well be that the pathways to successful adjustment vary across national political systems. Such a finding, which can only be supported by comparative case studies, would have substantial implications for efforts to design effective international institutions or to craft meaningful national-level policy responses. Particularly useful would be comparative case studies focusing on countries with a different pattern of civil-military relations or intramilitary cleavages. A second important set of questions for future research involves whether or not prevailing global-market conditions have the same specific implications for different Third World producers. It was suggested earlier that all technologically advanced Third World countries face the same basic set of market conditions, given the increasingly transnationalized structure of production in the global arms economy. But this does not mean that all Third World defense industries face identical opportunities for market participation. These are shaped by a number of factors, including historical relationships with multinational firms and Western governments, as well the assessments these actors apply to domestic political developments in the South. One underexplored avenue in this regard involves the forces that drive multinational defense firms and their home governments to choose Third World partners and investment opportunities. Presumably, a complex mix of factors shapes such choices, including the defense market in the home country, labor costs and skills, available industrial infrastructure and technological capabilities in the host country, export policies, conditions attached to the transfer of technologies, the perceived strategic significance of closer military-industrial links, and political conditions in both home and host country. Thus the amount of maneuvering room available to individual Third World countries may vary substantially within a given set of global-market conditions. The Brazilian experience with European multinationals and their home governments in the 1970s and early 1980s indicates the complex intertwining of convergent interests among state and firm. Evans's analysis of the interactions of firms and bureaucratic organs of the state in shaping U.S. policy toward the Brazilian computer industry indicates the sort of investigation that is required. 34 While generalization awaits research along these lines, one broad pattern is clear. In India and South Korea, as in Brazil, nontrivial problems of adjustment are the product of simultaneous global-market and domesticpolitical change. As a result, increasingly stark policy options and formidable barriers to sustained defense-sector expansion can be identified. While the specific causes and conditions vary from case to case, a common theme emerges. Despite very different external-security contexts, the coalition of interests in favor of military-industrial expansion faces a similar task in all three cases: It must respond both to changing global markets

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and to turbulent domestic politics. But the formula for making such adjustments simultaneously and effectively remains elusive.

Systemic Implications of the Brazilian Experience If countries as diverse as India, South Korea, and Brazil struggle with broadly similar problems of reconciling global markets and domestic politics to promote military-industrial development, one implication is clear: Collective developments in the Third World are unlikely to transform the structure of global arms production and the international arms trade. As discussed in Chapter 4, only a handful of Third World producers were able to exploit market changes in the 1970s and early 1980s to expand their role in the global arms economy. As increasingly competitive market conditions took hold, it became clear that a second wave of emerging producers would not be forthcoming. Attempts to identify the conditions needed for viable arms production suggest the importance of both factors of scale (e.g., size of military, GNP, and industrial infrastructure) and economic structure and performance (e.g., trade competitiveness and access to external capital). 35 With the possible exception of a few Southeast Asian countries, the list of next-generation candidates making a bid to join the ranks of significant producers differs substantially from the large, technologically advanced, and relatively affluent Third World countries that emerged as arms producers in the 1970s. Instead, the group consists principally of countries that are either very small (Singapore), very poor (Pakistan, Philippines, Peru, Egypt), possessing a limited technological and infrastructural base on which to build (Iraq, Nigeria), or suffering under large external-debt burdens (Mexico). A more important question than whether a new wave of Third World producers can emerge is whether a handful of the more advanced Third World producers—essentially, Brazil, Argentina, South Africa, India, Israel, Taiwan, China, and South Korea—can consolidate earlier militaryindustrial gains in a very different climate. One immediately noteworthy feature of this list is the shared contemporary political experience of these countries. Almost all are in the throes of broad political transformations involving the decline of a hegemonic force in national politics, be it the military, a dominant party, or some other expression of a stable coalition of elites. It is possible that political turbulence will create opportunities to reorganize entrenched institutions and transcend traditional obstacles to military-industrial growth. But doing so in ways that promote global-market integration while simultaneously navigating the complex waters of fragmented domestic polities is likely to be as difficult in these countries as it has proven to be in Brazil.

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A second implication of the Brazilian experience involves the security posture of the industrialized countries. Widely voiced concerns about Third World military-technological ventures have emerged as one of the principal justifications for sustaining high levels of defense expenditure in the post-Cold War era. Such claims assume that Third World military industries can be sustained developmentally. The Brazilian experience casts fundamental doubt on several aspects of this premise—that Third World military industrialization is easily sustained, that important military capabilities are internalized as a result, and that the most effective means of response is to retain or boost the North's defense posture toward the South. A country with seemingly all of the domestic-political and globalmarket prerequisites for sustained growth—a hard test for skeptics—could not create the necessary institutional stability. The Brazilian experience also speaks directly to efforts to limit or control the proliferation of weapons and defense-related technologies. To suggest that proliferation concerns can be easily dismissed would be to overdraw conclusions. The observed dynamism of both domestic politics and global markets suggests that the boom-bust cycle seen in Brazil may be a recurring pattern there and elsewhere. A renewal of growth, based on a reconvergence of domestic-political and global-market structures, cannot be dismissed out of hand, however unlikely it appears at the moment. Military-developmental regimes may reemerge in one or more countries; the constraints of Third World debt and structural adjustment may ease; falling oil prices may rise again; seemingly manageable conflicts may erupt anew; Third World armed forces may embark on a new round of procurement initiatives once the major purchases of the 1980s are obsolete. Perhaps most importantly, navigating between global-market and domestic-political structures to build a handful of nuclear weapons and a few prototype delivery systems is less demanding than doing so to create a broadly based, thriving, and sustainable defense sector. Although they should not be overstated, the basic concerns underlying nonproliferation efforts remain in place. But the program-level cases examined here do suggest that both the designers of nonproliferation regimes and their critics have embraced some flawed premises. The nuclear nonproliferation regime, the Missile Technology Control Regime, and other efforts to limit Third World military-industrial development assume that technology (narrowly defined as hardware and key production techniques) is the limiting factor in militaryindustrial development. A second implicit premise in the discourse of nonproliferation is that externally imposed constraints are the key to limiting military-industrial expansion. Critics of the nonproliferation approach tend to stress the genuine underlying security concerns of Third World states, and to call for regional security guarantees and/or stabilized regional balances of military power as more effective means.

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Neither of these approaches are supported by the program-level case studies in this book or the developmental pattern seen in the Brazilian defense sector as a whole. In no case was imported hardware, know-how, or production equipment the limiting factor. The scarce resource was not technology but rather adaptive institutions able to guide the technology development process in a stable, consistent fashion in the face of turbulence. Nor were externally imposed constraints, technological or otherwise, the principal force in preventing these activities from satisfying the various economic, political, and technological conditions required for their growth and endurance. Specific programs and the sector as a whole were pulled apart by interest conflicts and competing needs, not reined in by externally imposed barriers. This does not mean that such barriers on technology acquisition are irrelevant. They clearly did contribute to some of the underlying interest conflicts and competing needs, albeit in a secondary fashion in most cases. But it does mean that the key to nonproliferation lies in recognizing the heterogeneous cast of characters and complex array of interests driving military-technological ventures and industrial expansion, even on the more limited scale of most Third World defense sectors. Nonproliferation initiatives should be evaluated not simply in terms of whether they make it more difficult or costly to acquire key inputs, but also whether and how they affect the often precarious balance of competing interests and the scarce resource of institutional stability. Domestic opposition to military-industrial expansion existed at every step of the way during the Brazilian case. For at least some of this period, opposition was not limited to peace activists and academics, but also included the mainstream scientific community and even such large and influential actors as the capital-goods industries, which were largely excluded from sector operations. But more than a decade of sustained growth in Brazil was possible, in part, because domestic opponents lacked the conditions to oppose. Critical resources that were scarce or unavailable included access to accurate information, a meaningful capacity for independent analysis, social legitimacy, and a feasible set of alternative policies to galvanize broader support from competing interests.36 The heavy-handedness, hyperbole, and failure to distinguish among domestic actors that often characterize nonproliferation initiatives probably made these conditions more difficult to attain. But the Brazilian experience should also give pause to nonproliferation critics who favor working on the demand side, either through greatpower security guarantees or stabilized regional balances. The Brazilian case suggests a provocative hypothesis: Military security needs may have little to do with the forces driving military industrialization. To be sure, Brazil, which has not been involved in a war on the South American continent for more than a century and faces no credible threat from any of its

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neighbors, is a weak test of such a proposition. But the extremely weak external-security justification proves a larger point: Political and economic motives were strong enough to mobilize a military-developmental state in the complete absence of a compelling external threat. This suggests that creating regional stability where it is lacking or providing security guarantees where they are needed may well be inadequate to undercut the complex, multifaceted rationale for military-industrial expansion. Again, this suggests a return of focus to the diverse coalition of domestic actors in the defense sector and the conditions domestic opponents require to make their case.

Domestic Implications of the Brazilian Experience Some advocates of military industrialization argue that it can meet legitimate defense needs and enhance international influence. Others argue that, because military industries are "part of the front end of the national technological innovation process," they can play an important role in broader efforts to promote economic development. 3 7 Analyzing whether Brazil's military-industrial programs have delivered on such promises has not been the central goal of this study. Indeed, some oft-cited claims, such as that of "international prestige," are so vague as to be beyond evaluation. What is clear is that providing these or other broadly distributed national benefits was not a necessary condition for two decades of defense-sector expansion. Most aspects of military-industrial policy remained within the purview of a narrow, shielded constituency, made up of selected private firms, stateowned enterprises, military R&D centers, and the service branches. Moreover, there is little evidence in this case to support such claims of national benefits, and much to suggest the opposite. The notion of legitimate defense needs has always been a weak foundation on which to build support for military-industrial expansion in Brazil. Brazil has not fought a war on the South American continent since the 1870s, and has a long and internationally respected tradition of defusing potential conflicts through skilled diplomacy. Developments of the past decade—in particular, the melting away of tensions with Argentina and the accelerating economic integration of the Southern Cone—have only lessened Brazil's externaldefense requirements. 38 This hopeful political trend is supported by an overriding military fact: None of Brazil's neighbors is capable of mounting sustained and effective military operations against it, just as Brazil would be hard-pressed today to mount sustained aggression beyond its own territory. Perhaps the most telling comment on the contribution to national defense is that military-industrial expansion did not put an end to substantial foreign acquisitions of major weapons systems. SIPRI estimates that Brazil imported $1.5

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billion (in 1985 dollars) in major weapons systems during 1986-1990, the peak period of military-industrial performance. This figure is more than 25 percent larger than estimated arms exports during the same period, and 50 percent larger than the arms imports of any neighboring country.39 The question of economic and technological benefits is more complex. As discussed earlier, Dagnino has shown the relatively minimal benefits of arms exports on Brazil's balance of payments, given its dependence on imported components for exported systems. 40 Technologically, there have been some clear gains in aeronautics, aerospace, shipbuilding, nuclear technology, defense electronics, and other areas. The central questions here are who benefits, at what opportunity cost, and whether those costs and benefits are realized publicly or privately. Clearly, the opportunity costs are borne publicly, in that military industrialization absorbs capital and skilled labor in a country where both are scarce. To argue that the benefits are also public, one must show technological effects that extend beyond the relatively small defense sector to the economy as a whole—to show, as one interview subject expressed it, "that something is developed for zero-gravity conditions and ends up in everyone's frying pans." Such claims are often made; consider the following statement of Maldifassi and Abetti: In Brazil, one of the most important contributions the emergence of an important defense industry has made to the local economy is the capacity to generate domestic defense technology. This can be observed in the weapons produced by the Brazilian defense firms. These products have experienced rapid change in the embodied technology. It was shown that the technological sophistication of the weapons manufactured in Brazil has reached levels similar to the levels of industrialized countries. Thus, it appears that the defense industry of Brazil has been the first industry of the Brazilian economy to achieve such a degree of technological sophistication. 41

Even assuming that this interpretation predates the sector's collapse, the case studies in preceding chapters call such claims into doubt. The coproduced A M - X aircraft is the only major weapons system to make it past the prototype stage that shows a level of technological sophistication comparable to those of the industrialized countries, and then only because of Brazil's Italian partners. To suggest that "rapid change in the embodied technology" of particular weapons systems is the same as "the capacity to generate domestic defense technology" ignores the institutionally contingent character of technological development. Much of that technology becomes just as quickly disembodied in the absence of institutional stability. When assessing the sector's technological significance for the economy as a whole, one must further consider the limited ties to civilian industry. What has often been described as "the preponderant participation

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of private firms in the Brazilian defense industry" has in practice involved a relatively small number of private firms—some bound formally or informally to the military, others start-up firms controlled by retired military officers, and still others drawn in to defense production during periods of recession. 4 2 Further research is required, but the burden of proof lies squarely with those asserting broadly distributed economic and technological gains. What, finally, of political benefits? Some scholars examining democratic transitions suggest that military industrialization yields a type of political spin-off. In societies emerging from military rule, military industrialization is said to ease the transition by providing a legitimate, substantial, valued task for the military as it withdraws. The claim is worth considering in some detail for two reasons. First, if correct, it could be a powerful counterweight to what critics see as economic and technological militarization inherent in defense-sector expansion. Second, much of the evidence said to support this argument is drawn specifically from the Brazilian experience. Several variants on the idea of political spin-off have been put forward. 43 Alfred Stepan suggested that "Brazil's military-industrial complex may paradoxically strengthen the chances for democracy" by removing what he saw as an important motive for future military interventions: "The presence of a massive arms-producing and exporting capacity means that some of the ideological and industrial infra-structure arguments the military could conceivably utilize as a reason for seizing control of the government are lessened." 44 Others hypothesize professionalizing, legitimizing effects. O'Donnell and Schmitter, while acknowledging the danger of "militarization of the state and productive apparatuses," have argued that the net effect of military involvement in industrial production activities "may be more positive than negative." 4 5 They point to the value of providing a legitimate task for the armed forces in the absence of credible external threats, as well as the opportunity to expand the range of the military's contacts with civil society. Markoff and Baretta also stress the broadening of civilian contacts. They view this phenomenon not in terms of professionalization, however, but rather in terms of personal and corporate interests: Indeed, the very availability of positions of clear influence, the private firms into which generals could retire, the existence of parastatal structures which drew on the personal connections and technical expertise of military and ex-military personnel undoubtedly made it easier to withdraw from positions of formal political authority. 46

The Brazilian experience casts doubt on these assertions. Stepan may be correct in claiming that the existence of the defense sector removes one

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rationale for a military coup. Certainly the creation of a defense industry was part of the ideology of conservative modernization pervasive in the Brazilian military for most of the twentieth century. But past seizures of power have been driven by more fundamental concerns: pressures for land reform, growing political organization on the left, crises of economic growth and state legitimacy, and threats to the prevailing economic and social order. The mere existence of military industries would seem to provide little in the way of practical insurance against coups. Moreover, the cost of Stepan's doubtful coup insurance is that of providing a platform for less explicit forms of intervention, including efforts to steer public policy toward the military's corporate interests. If the definition of intervention is broadened in this manner, it is not at all clear that the defense sector has led, on balance, to less intervention. Once the sector was in place, the military expended significant effort to shield it from encroaching civilian control. Further, the military's enduring (albeit weakened) control of a significant fraction of national R&D and the principal military industries gave an important boost to their political influence in postauthoritarian Brazil, in policy portfolios as diverse as science and technology, education, energy, industry, and foreign affairs. The notion that military industrialization has been a legitimizing, professionalizing force is also suspect. Legitimation would seem to hinge on delivering the sort of broadly based economic, technological, or security benefits that have not been forthcoming. If the armed forces of a country exposed to no armed external threats face a crisis of legitimacy, it is difficult to see how arming to meet the nonthreat can be legitimizing. The possibility that expanded civilian contacts led to a redefinition of interests within the military or had professionalizing effects deserves further investigation. But the point may be moot, in that the enclave structure of much of the defense establishment, the limited spin-off to civilian production, and the poor recent economic performance of the sector have served to lessen such contacts. One recent high-profile example, involving the planned $1.4 billion SIVAM air-defense and air-traffic-control system for the Amazon, suggests that potential for corruption may outweigh professionalization. After the contract was awarded to the U.S. firm Raytheon without a competitive bid process, allegations of corruption and influencepeddling engulfed several key actors and eventually forced the resignation of the minister of aeronautics. Finally, even if any of these political benefits could be shown to result, they must be weighed against the risk of institutionalizing a form of technological militarism, with an accompanying spillover of influence that subverts the democratic process on a range of public policy issues. How one weighs this balance depends heavily on perceptions of where the greatest threats to the fragile democratic gains of the past decade lie. O'Donnell has described two scenarios by which such gains could be

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reversed: "through the 'quick death' of a conventional military coup or through the 'slow death' of a gradual erosion of democratic practice." Writing in 1988, he found the latter more worrisome: Because the authoritarian regime in Brazil had greater relative success, both economic and political, than those in other Latin countries, actors left over from that period have retained significant power and influence in the current Brazilian government. As a result of their presence, Brazil is particularly vulnerable to the "slow death" style of regression. The advances of the past few years could be undone: there might be a closing of the space available for the exercise of civilian authority and the observance of constitutional liberalism. In this case, Brazil would be left with a civilian government controlled by military and authoritarian elements— what I have called elsewhere a "democradura." 47

The Brazilian experience suggests that, where the military's technological programs and industrial activities are concerned, elements of "democradura" have endured in the postauthoritarian era. The question of what might be gained from military industrialization remains important. The military's growing inability to dictate outcomes and shield the defense sector meant that new, broader forms of support became necessary. The failure to find it was central to the sector's collapse, and remains a barrier to renewed military-industrial expansion. Under such circumstances, claiming that such benefits exist is an important rhetorical device in efforts to reconstitute the sector's political and social foundations.

The Insecurity and Underdevelopment of Military Industrialization In September of 1987 Brazilian president José Sarney announced that, as a result of major strides in the navy's uranium-enrichment program, Brazil had mastered the nuclear fuel cycle. Just a few weeks after this announcement, a serious nuclear accident took place in Goiània, a city of one million people located in Brazil's central plateau region. Local residents entered an abandoned nuclear-medicine facility in search of recoverable scrap materials. They broke open a capsule of cesium-137, left behind when the facility was improperly decommissioned. Four people died of radiation exposure, several more were hospitalized, and subsequent tests revealed that at least 250 people had received significant doses of radiation. 48 Brazilian environmentalist Fernando Gabeira, commenting on the bitterly ironic juxtaposition of Sarney's proclamation and the Goiània tragedy, concluded that "these two facts constitute an image of Brazil, of its contradictions and, specifically, of Brazilian nuclear policy." 49

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Gabeira could also have drawn a more general meaning from this juxtaposition; it provides an apt symbol for what the term "Third World" has come to mean on the threshold of the twenty-first century. As many observers have pointed out, the idea of the Third World has been subjected to numerous interpretations and definitions in its relatively brief history. The term first came into use following World War II, to identify a heterogeneous group of newly independent countries—Nehru's India, Tito's Yugoslavia, Sukarno's Indonesia, Nasser's Egypt—resisting the East-West polarization of the Cold War. In the 1950s, the term metamorphosed from political identity to economic classification, describing a much larger group of countries alleged to be scaling the heights of a vaguely defined terrain known as "development." In the 1970s, the growing North-South polarization in world politics seemed to harbinger yet another meaning for the term: The rise of OPEC and calls for a "new international economic order" were often read as indicators of a collective Third World political consciousness. The meaning of the Third World continues to change. Decades of unequally distributed economic growth and social change have created a highly uneven landscape, both within and among the poorer countries of the world. Monuments to economic growth and technological achievement cast ever longer shadows on the widespread poverty, human misery, and social despair beside which (and often upon which) those edifices have risen. Brazil's military-industrial sector reflects this growing disparity. The bulk of military-industrial activity takes place in areas such as the Sào José dos Campos industrial park, places that stand as island monuments to modern industrialism in a sea of unmet needs. From the window of an office building in downtown Rio de Janeiro, one can look down upon the Naval Arsenal, where a nuclear submarine may yet be built—or upon some of the estimated seven million children trying to survive in Brazil's streets. Today the North casts a wary eye toward the South, discovering a range of new threats to its security even as it wavers in its commitment to development. Under these circumstances, much of the South has come to doubt the possibility of attaining the goals of security and development as traditionally conceived. In Brazil, a unique survey of more than 400 of the country's leading political, economic, and military figures, conducted in 1990, reflected this mounting pessimism in stark fashion. 50 Eighty-seven percent of this elite group doubted it would be possible to improve the daily lot of the sixty million Brazilians living below the official poverty line. By the same margin, they saw little chance that the poorest 40 percent of Brazilians could significantly increase their share of national income. Eighty-two percent doubted that illiteracy could be reduced, and 70 percent believed it would not be possible to achieve sustained annual growth rates of 5 percent and annual inflation rates of less than 20 percent during the 1990s; 52 percent felt that the market economy itself would become "nonviable."

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Not surprisingly, such views translate into expectations of social upheaval and political instability: 63 percent felt that Brazil faced a state of "chronic social convulsion," and 40 percent agreed that the situation could be termed "social apartheid." Such elite pessimism offers a stark contrast to earlier, buoyant notions of an emerging great-power Brazil, driven by an economic miracle. Problems of chronic political instability and social upheaval head a long list of very real security threats and developmental needs facing most Third World states. Most live with borders that reflect the logic of colonialism instead of national identity. Most harbor dissident ethnic, regional, or class-based movements, including groups ready to take up arms to express their dissatisfaction. Many face aggressive neighbors never far removed from using military means to resolve or provoke conflicts. All must contend with the political, economic, and military might of the industrialized countries. And many are confronted with their own growing irrelevance in an information-based global economy that favors privatized, transnationalized forms of production over the state-organized extraction of commodities. In the Brazilian scenario, military industrialization did not, could not, and was not intended to respond to these very real problems. Nevertheless, the quest to develop military-technological capabilities and foster defenserelated industries will surely continue, in Brazil and elsewhere. Domestically, the chimerical promise of security and development—or, more accurately, the promise of a particular form of security and development with which political and economic elites are familiar and comfortable—remains a powerful stimulus. Internationally, Third World participation in the global arms economy suits the current logic of the market, even if it fails to fulfill popular aspirations. But Third World military industries face enduring and formidable obstacles to sustained expansion. Governments seeking to promote militaryindustrial growth must either find a global-market niche consistent with the domestic coalition supporting military industrialization, or rebuild the coalition to suit the needs of the available market niche. Either is difficult, for the same reason that seeking security and development via military industrialization has had such appeal—because Third World defense sectors sit squarely at the intersection of global markets and domestic politics. In the wake of the Cold War, the threat of Third World military industrialization has been put forward as a justification for a new wave of militarized foreign policies and domestic spending priorities in the North, and particularly in the United States. There is little in the preceding pages to justify such a response, and much to argue against it. But this does not mean that there are no reasons to be concerned about military industrialization in the Third World. In the case of Brazil the reasons for concern can be seen clearly: Economic and technological contributions have been

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minimal; contributions to the security of a nation facing no threat from its neighbors and beset by enormous social problems are dubious; and far from providing a legitimate, professional task for the armed forces, the enduring militarization of science and industry keep alive a nondemocratic influence in economic policy, international trade, technology development efforts, and diplomacy. Ultimately, the main impact of Third World military industrialization on the international system will probably be the burden these programs represent for societies facing enormously complex economic challenges, social problems, and political adjustments.

Notes 1. The following discussion draws on Raju G.C. Thomas, Indian Security Policy (Princeton, NJ: Princeton University Press, 1986); Raju G.C. Thomas, "Strategies of Recipient Autonomy: The Case of India," in Kwang-Il Baek, Ronald D. McLaurin, and Chung-In Moon, eds., The Dilemma of Third World Defense Industries: Supplier Control or Recipient Autonomy? (Boulder, CO: Westview Press, 1989); Amit Gupta, "Building an Arsenal: The Indian Experience," in Norman A. Graham, ed., Seeking Security and Development: The Impact of Military Spending and Arms Transfers (Boulder, CO: Lynne Rienner, 1994); Amit Gupta, "The Indian Arms Industry: A Lumbering Giant?" Asian Survey 30 no. 9 (September 1990): pp. 846-862; and Timothy V. McCarthy, "India: Emerging Missile Power," in William C. Potter and Harlan W. Jencks, eds., The International Missile Bazaar: The New Suppliers' Network (Boulder, CO: Westview Press, 1994). My discussion of both India and South Korea in this chapter draws upon Ken Conca, "Third World Military Industrialization and the Evolving Security System," in Wayne Sandholtz, Michael Borrus, John Zysman, Ken Conca, Jay Stowsky, Steven Vogel, and Steve Weber, The Highest Stakes: The Economic Foundations of the Next Security System (New York: Oxford University Press, 1992). 2. See Thomas, Indian Security Policy. 3. Thomas, "Strategies of Recipient Autonomy." 4. Gupta, "Building an Arsenal," p. 111. 5. Ibid., pp. 117-118. 6. McCarthy, "India," p. 214. 7. Ibid., p. 213. 8. See Gupta, "Building an Arsenal," pp. 105-110. 9. Thomas, Indian Security Policy, pp. 119-134. 10. Ibid., p. 201. 11. Gupta, "Building an Arsenal," p. 104. 12. Thomas, Indian Security Policy, p. 201. 13. Dhirendra Sharma, "India's Lopsided Science," Bulletin of the Atomic Scientists 47 no. 4 (May 1991): pp. 32-36; Itty Abraham, "India's 'Strategic Enclave': Civilian Scientists and Military Technologies," Armed Forces and Society 18 no. 2 (winter 1992): pp. 231-252. 14. McCarthy stresses the role of foreign exchange pressures ("India," p. 217); see also Gupta, "Building an Arsenal." 15. McCarthy, "India," p. 223. 16. Hindu (international edition) (November 1991): p. 3; as quoted in McCarthy, "India," p. 215.

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17. McCarthy, "India," p. 223. 18. Ibid., pp. 220-221. 19. Ibid., p. 222. 20. The following historical sketch draws on Chung-In Moon, "South Korea: Between Security and Vulnerability," in James E. Katz, ed., The Implications of Third World Military Industrialization: Sowing the Serpent's Teeth (Lexington, MA: D.C. Heath, 1986); and Janne Nolan, Military Industry in Taiwan and South Korea (New York: St. Martin's Press, 1986). 21. On government support, see Moon, "South Korea," p. 249. On U.S. technological assistance, see David J. Louscher and Michael D. Salamone, "Brazil and South Korea: Two Cases of Security Assistance and Indigenous Production Development," in Louscher and Salamone, eds., Marketing Security Assistance: New Perspectives on Arms Sales (Lexington, MA: D.C. Heath, 1987). 22. Moon, "South Korea," p. 244. 23. Michael Brzoska, "Third World Arms Control: Problems of Verification," Bulletin of Peace Proposals 14 no. 2 (1983): pp. 165-173, cited in Keith Krause, Arms and the State: Patterns of Military Production and Trade (Cambridge: Cambridge University Press, 1992): p. 164. 24. Kwang-Il Baek and Chung-In Moon, "Technological Dependence, Supplier Control and Strategies of Recipient Autonomy: The Case of South Korea," in Baek, McLaurin, and Moon, eds., The Dilemma of Third World Defense Industries. 25. See, for example, William J. Taylor, ed., The Future of South Korean-U.S. Security Relations (Boulder, CO: Westview Press, 1989). 26. Peter Hayes, "The Two Koreas and the International Missile Trade," in Potter and Jencks, eds., The International Missile Bazaar, p. 141. 27. The seven conglomerates are Sam Sung, Hyundai, Lucky-Gold Star, Daewoo, Sangyong, Korea Explosive, and Hanjin. See Moon, "South Korea," pp. 256-257. 28. Moon, "South Korea," p. 259. 29. Charles Wolf Jr., Donald P. Henry, K.C. Yeh, James H. Hayes, John Schank, and Richard L. Sneider, The Changing Balance: South and North Korean Capabilities for Long-Term Military Competition, Rand Corporation report R-3305/1-NA (December 1985): p. 40. 30. Moon, "South Korea," p. 250. 31. Hayes, "The Two Koreas," p. 144. 32. Hayes reports that one Korean official interviewed described the first generation of Korean satellites under development as, in Hayes's words, "an ad hoc, commercial endeavor, not a national space strategy." Hayes, "The Two Koreas," p. 145. 33. Schwarz calculates an index of U.S. technological dependence for Korean arms production of 94 percent. Anne Naylor Schwarz, "Arms Transfers and the Development of Second-Level Arms Industries," in Louscher and Salamone, eds., Marketing Security Assistance. 34. Peter B. Evans, "Declining Hegemony and Assertive Industrialization: U.S.-Brazil Conflicts in the Computer Industry," International Organization 43 no. 2 (spring 1989): pp. 207-238. 35. Robert E. Looney and P C . Frederiksen, "Economic Environments and Third World Arms Production," Defense Analysis 3 no. 1 (March 1987): pp. 80-81; Robert M. Rosh, "Third World Arms Production and the Evolving Interstate System," Journal of Conflict Resolution 34 no. 1 (March 1990): pp. 57-73. 36. I discuss these themes in Ken Conca, "Technology, the Military, and Democracy in Brazil," Journal of Interamerican Studies and World Affairs 34 no. 1 (spring 1992): pp. 141-177.

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37. José O. Maldifassi and Pier A . Abetti, Defense Industries in Latin American Countries: Argentina, Brazil, and Chile (Westport, CT: Praeger, 1994): p. 5. 38. See Armando A.F. Vidigal, "Urna Nova Concepjao Estratégica para o Brasil: Um Debate Necessàrio," Política e Estratégia 1 no. 3 (1989): pp. 304-324. 39. SIPRI estimates that Brazil exported $1.2 billion and imported $1.5 billion in major weapons systems during this period. The next largest importers were Peru ($1.0 billion), Argentina ($874 million), Cuba ($809 million), and Chile ($695 million). See Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1991 (New York: Oxford University Press, 1991): p. 198 and pp. 208-209. 40. See Renato P. Dagnino, A industria de armamentos brasileira: urna tentativa de avaliagáo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989. 41. Maldifassi and Abetti, Defense Industries, p. 228. 42. Ibid. 43. The following discussion is adapted from Conca, "Technology, the Military." 44. Alfred Stepan, Rethinking Military Politics: Brazil and the Southern Cone (Princeton, NJ: Princeton University Press, 1988): pp. 84-85. 45. Guillermo O'Donnell and Philippe Schmitter, Transitions from Authoritarian Rule: Tentative Conclusions About Uncertain Democracies (Baltimore: Johns Hopkins University Press, 1986): p. 32. 46. John Markoff and Silvio R. Duncan Baretta, "Economic Crisis and Regime Change in Brazil: The 1960s and the 1980s," Comparative Politics 22 no. 3 (July 1990): pp. 421-444, p. 427. 47. Guillermo O'Donnell, "Challenges to Democratization in Brazil," World Policy Journal 5 no. 2 (spring 1988): pp. 281-300, p. 282. 48. "Goiània Accident," Nuclear Energy, June 1989. 49. Fernando Gabeira, Goiània, Rua 57: O Nuclear na Terra do Sol, 2nd ed. (Rio de Janeiro: Editora Guanabara, 1987); my translation. 50. The study, conducted by researchers from the Institute for Economic, Social, and Political Studies of Sào Paulo (IDESP), used media coverage to generate a list of 500 leading figures in business, labor, politics, communications, the bureaucracy, the clergy, community groups, and the military. These individuals were then surveyed on a range of issues, including a question asking them to identify the most influential individuals in their particular realm. The director of the study concluded from responses to this question that a group of roughly 1,500 persons represents "the first team of recognized leaders in the country" (my translation). See "Direto ao abismo," Veja, June 27, 1990.

Appendix A Measuring Brazilian Military-Industrial Activity

The size of the Brazilian defense sector can only be estimated. The secrecy surrounding sector activities has limited public information severely. Much of what is publicly available is ambiguous, vague, difficult to confirm, and at times contradictory. It is also known that some actors associated with the sector during its heyday made inflated claims presumably to legitimize expenditures, secure their own position, or boost the international reputation of Brazil's military industries. 1 What follows is an attempt to estimate the size of military programs and industries, with particular attention to the peak period of the late 1980s. A range of indicators are estimated, including military R & D expenditures, number of affiliated firms, value of total output, value of arms exports, and employment in military R & D and defense industries.

Military R&D Expenditures Official data on military R & D expenditures are unreliable. The data understate the total funds dedicated to the scientific and technological activities of the armed forces, for several reasons. The official data are known to omit or misrepresent some activities. Saraiva, for example, estimates that from 1970 to 1980 military projects accounted for approximately 13 percent of funds from the National Science and Technology Development Fund (FNDCT) administered by the Studies and Projects Financing Agency (FINEP); these expenditures are not included in official figures for military R & D . 2 Similarly, the National Council for Scientific and Technological Development (CNPq), the official source of data on science and technology funding, reports that the National Security Council was not a part of the science and technology budget until 1981, meaning that any military R & D supported by that organ prior to the 1980s does not appear in the official figures. 3

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Appendix A

A second problem is the highly aggregate nature of the official data, which makes it difficult to separate civilian and military R&D. The military's nuclear programs, for example, have been funded in part by the National Nuclear Energy Commission (CNEN), ostensibly a civilian organ and thus not included under military R&D. The same appears to be true of R&D funds dedicated to other organs, including government-owned industries, nonmilitary ministries, and civilian research institutes such as the Space Research Institute (INPE). It is also difficult to distinguish military R&D from other military expenditures. The absence of independent oversight makes it impossible to judge whether funds dedicated to the military for non-R&D purposes are ultimately spent on R&D, or whether nominal R&D funds are spent for other purposes. During the period in question, the bulk of military R&D reported in federal budget figures has been listed under organs such as the National Security Council and the Armed Forces General Staff (EMFA), as opposed to the specific programs of the three military services, further complicating any effort to determine the final destination of allocated funds. The CSN and EMFA together accounted for 67 percent of officially acknowledged military R&D expenditures in 1986, 80 percent in 1987, and 78 percent in 1988. 4 Given these limitations, only a very rough estimate of military R&D expenditures is possible. Dagnino estimates that the military share of annual federal R&D spending averaged 18 percent over 1980-1987. 5 Saraiva concludes from an analysis of official figures that spending on military R&D circa 1989 was no less than 12 percent of federal R&D spending; how much greater than 12 percent could not be estimated given the incompleteness of available figures. 6 Most of the observers interviewed for this book felt 20 percent to be a plausible estimate for the military share of federal R&D funds in the late 1980s and early 1990s. CNPq estimates that the federal government accounted for two-thirds of total R&D funding during the 1980s, with the rest coming from statelevel R&D funding, private firms, and nonbudgetary funds generated by state-owned firms. 7 It is impossible to determine the extent to which these nonfederal sources of R&D funding may have supported military R&D, but some support undoubtedly exists. For example, the Institute for Technological Research (IPT) of the State of Sao Paulo, the leading state-level research institute in Brazil, has historically maintained close connections with the navy and presumably conducts some navy-related research. The total pool of R&D funding available in Brazil in recent years has been on the order of $2 billion annually; even if nonfederal sources provide little or no support for military activities, the large share of federal funding in total R&D means that the military have had access to some 15 to 20 percent of this pool of funds.

Measuring Military-Industrial Activity

2 61

Employment in Military R&D As with R&D expenditures, estimates of employment in military R&D are highly uncertain. This uncertainty is further exacerbated by the tendency of employment figures to fluctuate with the three services' budgetary fortunes and the cyclical nature of major military R&D programs. At their peak in the late 1980s, the combined total of personnel employed in an R&D-related capacity in the navy and air force was probably in the neighborhood of 8,000 to 9,000, with the majority of these being civilians. This figure includes an estimated 6,000 to 6,500 workers at the air force's Aerospace Technical Center (CTA) facility, of which perhaps 5,000 were civilians. 8 Naval officials interviewed reported that the three naval institutes (CASNAV, COPESP, and IPqM) employed an estimated 1,500 engineers and technicians, over 80 percent of whom were civilians. Data on employment in the army's R&D system are not available. The army accounted for about two-thirds of total military personnel (including both civilian and military personnel in combat, technical, and other capacities) in the period in question.9 If the same ratio held true for R&D activities, this would yield a total estimate of 24,000 to 27,000. This figure is far too high, given the lesser emphasis placed on R&D by the army and considering the estimates for total employment in the military industries (see below). Given the lesser scale of army activities, 10,000 seems a more reasonable rough estimate for total employment in the armed forces' R&D at its peak.

Number of Firms in Military Industries During its heyday in the mid-to-late 1980s, the conventional wisdom was that the Brazilian defense sector involved some 300 to 350 firms. 10 More recent estimates suggest that these figures are significantly overstated. As discussed in Chapter 4, a more plausible peak estimate is 100 to 150 firms, including perhaps 50 dedicated solely to defense.11 This estimate is consistent with the relatively small number of prime contractors in the sector, and with membership in ABIMDE, the national defense-industry trade association.

Employment in Military Industries The figures that once constituted the conventional wisdom on employment in military industries are also excessively high. These estimates put total employment in the mid-1980s at 100,000 to 200,000 workers.12 Table A.l

262

Appendix A

summarizes several more recent estimates of defense-sector employment (again, these estimates are prior to the dramatic downturn in sector employment beginning around 1988). These estimates include only direct employment. Dagnino presents an upper-bound estimate of 100,000 jobs generated both directly and indirectly by arms production (excluding the nuclear sector). 13 Maldifassi and Abetti use an indirect employment multiplier of two in estimating "total defense industry employment" of 72,800 (year unspecified). 14 It is also unclear whether the estimates in Table A. 1 include military personnel engaged directly in production and civilians employed by the military in its production facilities. For example, in the late 1980s the Naval Arsenal and Engineering Directorate employed roughly 5,500 workers (mostly civilians). A partial picture of defense-sector employment is available from the figures for individual firms and industries. Before massive layoffs in 1990 and 1991, Embraer employed in excess of 13,000 workers. 15 Dagnino, drawing on annual surveys of Brazilian industry, reports that employment in the Engesa group peaked at just over 9,000 workers in 1986. 16 Given the firm's increasingly diversified portfolio of subsidiaries, not all of these workers were involved in armored-vehicle production, although this remained the firm's main activity. 17 All but a few hundred of these workers were dismissed when the firm reorganized under Brazilian bankruptcy law

Table A.l Selected Estimates of Defense-Sector Employment (excluding nuclear programs) Source Brigagäo Evans Lock Saraiva Dagnino Proeja Maldifassi and Abetti

Estimate 200,000 100,000 30,000 50,000 34,000 25,000 to 30,000 36,382

Comments

major firms only estimate for 1986 major firms only selected prime contractors only

Sources: Clovis Brigagäo, "The Brazilian Arms Industry," Journal of International Affairs 40 no. 1 (summer 1986); Carol Evans, "Reappraising Third World Arms Production," Survival 28 no. 2 (March-April 1986); Peter Lock, "Brazil Arms for Export," in Michael Brzoska and Thomas Ohlson, eds., Arms Production in the Third World (London: Taylor and Francis, 1986); José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro, CNPq, July 1989); Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliaqào, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989; Domicio Proenga Jr., "Guns and Butter? Arms Industry, Technology and Democracy in Brazil," Bulletin of Peace Proposals 21 no. 1 (1990): pp. 4 9 - 5 7 ; José O. Maldifassi and Pier A. Abetti, Defense Industries in Latin American Countries: Argentina, Brazil, and Chile (Westport, CT: Praeger, 1994).

Measuring Military-Industrial Activity

2 63

in 1990. Dagnino reports that the next largest armored-vehicle producer, Bernardini, employed 600 workers in 1986-1987. Most of the other firms associated with armored-vehicle production are either quite small or dedicate only a small portion of their productive endeavors to the manufacture of military vehicles, parts, and components. Saraiva reports that four leading private shipyards (Verolme, CCN, Caneco, and Ishikawajima) employed a total of just under 15,000 workers in 1987.18 As indicated in Chapter 4, the relatively small proportion of military activity taking place in these yards suggests that only a small percentage of these workers were engaged in defense-related activities. As mentioned earlier, the Naval Arsenal and Naval Engineering Directorate employed roughly 5,500 workers. Prior to a major reorganization and downsizing that began in 1988, employment in Nuclebras (the state-owned nuclear industry, later renamed I N B ) was reported to be 5,289 employees; following reorganization, that figure fell to a reported 3,070.19 Union representatives concerned about the economic impact of proposed cutbacks in the official nuclear program, however, claimed that some 10,000 workers held jobs in the nuclear sector in the state of Rio de Janeiro, where the nuclear industry is concentrated.20 Reliable employment data are not available for the military's nuclear programs. In light of these partial figures, Saraiva's estimate of 50,000 workers seems a reasonable figure for peak sector employment, including prime contractors and second-tier firms.

Arms Production and Exports Controversy also surrounds the data on arms production and exports. Official figures on the value of arms production and arms exports are unreliable. Some arms sales are known to have been misclassified in Brazilian export statistics in categories such as "other automotive vehicles." 21 It is frequently stated that exports represented more than 90 percent of production during the sector's boom period; as discussed in Chapter 5, Dagnino's data suggest a larger role for domestic consumption.22 Unofficially, arms sales were widely reported to be on the order of $2 billion annually by the mid-1980s—a figure that would have corresponded to 9 percent of the value of officially reported merchandise exports in 1986, and an astounding 51 percent of reported Brazilian manufacturing exports to the Third World that year.23 Dagnino cites eight separate estimates appearing in Brazilian and international media sources in 1984, ranging from $800 million to $3 billion, with an average of $1.9 billion. 24 More recent information suggests that these widely reported estimates were dramatically, and at times deliberately, inflated. In what remains the most detailed analysis published to date, Dagnino estimated that arms exports for the three leading firms (Embraer, Avibràs, and Engesa) peaked at

264

Appendix A

$569 million in 1987 and averaged just over $300 million annually over 1 9 8 2 - 1 9 8 8 . 2 5 Though considerably lower than the figures prevailing in both the Brazilian and international media, these numbers are comparable to estimates of the Stockholm International Peace Research Institute (SIPRI) and the U.S. Arms Control and Disarmament Agency (ACDA), the two leading sources of data (Table A.2). 2 6 Table A.2 Estimates of Brazilian Arms Exports, 1975-1989 (in millions of 1985 U.S. dollars) Year

Dagnino

SIPRI

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

56 51 71 126 134 146 46 222 248 287 426 266 537 180 n.a.

25 154 130 120 112 268 271 202 298 271 172 134 491 338 182

n.a. n.a. n.a. 154 155 181 201 749 139 669 360 263 567 347 n.a.

2618

2677

3785

Subtotals, 1978-1988

ACDA

Sources: Renato P. Dagnino, A industria de armamentos brasileira: uma tenativa de avaliaçâo, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campinas, Brazil, 1989, Table 5.6.7, p. 368; Stockholm International Peace Research Institute, World Armaments and Disarmament: SIPRI Yearbook 1990 (New York: Oxford University Press, 1990), Table 7A.2, pp. 252-253; U.S. Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1990 (Washington, DC: ACDA, 1990), Table II, p. 30. Note: Figures for Dagnino and ACDA were converted to constant 1985 dollars using GNP price deflators. On the differences in coverage between ACDA and SIPRI, see Chapter 4.

Notes 1. Renato P. Dagnino, A indùstria de armamentos brasileira: urna tentativa de avaliaqào, doctoral dissertation, Instituto de Economia, Universidade Estadual de Campiñas, Brazil, 1989; Roberto Lopes, Rede de Intrigas: Os Bastidores do Fracasso da Indùstria Bélica no Brasil (Rio de Janeiro: Editora Record, 1994). 2. José Drumond Saraiva, "O Desenvolvimento Industrial Bélico," report prepared for the research project Brasil no Século XXI: Ciencia e Tecnologia Como Variavel Estratégica no Pensamento Militar Brasileiro (Rio de Janeiro, CNPq, July 1989): p. 367. 3. Conselho Nacional de Desenvolvimento Científico e Tecnològico, Ciencia e Tecnologia: Recursos do Tesouro da Unido (Rio de Janeiro: CNPq, 1989); cited in Saraiva, "O Desenvolvimento Industrial Bélico," p. 361. 4. Saraiva, "O Desenvolvimento Industrial Bélico," p. 365.

Measuring Military-Industrial

Activity

265

5. Dagnino, A indùstria de armamentos brasileira, p. 448. 6. Saraiva "O Desenvolvimento Industrial Bélico," p. 362. 7. CNPq, Ciencia e Tecnologia; cited in Saraiva, "O Desenvolvimento Industrial Bélico," p. 357. Dagnino estimates the breakdown of total R&D funding by source for 1982 as follows: federal government, 65.2 percent; state-owned firms, 13.5 percent; state governments, 8.3 percent; private firms, 7.0 percent; foreign sources, 4.7 percent; financial sector, 1.3 percent. See Dagnino, A indùstria de armamentos brasileira, p. 443. 8. Brigadier Hugo de Oliveira Piva, at that time director of the CTA, reported the figure of 6,000 employees in a 1984 interview ("O CTA em 1984," Tecnologia e Defesa no. 10 [October 1984]: pp. 30-31). The figure of 6,500 employees and the estimate of civilian personnel are from CTA officials as reported in "Brazil's Goal of Self-Sufficiency in Arms Impeded by Inflation, Record High Indebtedness," Aviation Week and Space Technology, August 24, 1987. 9. "Militares empregam meio milhào," Veja, December 2, 1987. 10. Clovis Brigagào, "The Brazilian Arms Industry," Journal of International Affairs 40 no. 1 (summer 1986): pp. 101-114; Carol Evans, "Reappraising Third World Arms Production," Survival 28 no. 2 (March-April 1986): pp. 99-118. 11. Saraiva, "O Desenvolvimento Industrial Bélico." 12. Brigagao, "The Brazilian Arms Industry"; Evans, "Reappraising Third World Arms Production." 13. Dagnino, A indùstria de armamentos brasileira. 14. José O. Maldifassi and Pier A. Abetti, Defense Industries in Latin American Countries: Argentina, Brazil, and Chile (Westport, CT: Praeger, 1994): p. 201. 15. "Embraer—Background Information," Embraer press release no. 059/90, September 2, 1990. 16. Dagnino, A industria de armamentos brasileira, p. 423. 17. During 1986 the firm reported 3,273 employees for the parent company Engesa; the rest of the total of 9,033 workers were employed by one of the firm's growing number of subsidiaries. See Dagnino, A indùstria de armamentos brasileira, p. 423. 18. Saraiva, "O Desenvolvimento Industrial Bélico," p. 229. 19. "INB absorvera menos recursos do Tesouro nacional neste ano," Gazeta Mercantil, May 20, 1989. 20. "Programa nuclear paralelo deverà ganhar prioridade," O Globo, June 30, 1990. 21. Dagnino, A indùstria de armamentos brasileira. 22. Ibid. 23. Calculated from World Bank, World Development Report 1988 (Washington, DC: World Bank, 1988). Of 1986 merchandise exports of $22.4 billion, 41 percent ($9.2 billion) were manufacturing exports, of which 43 percent ($3.9 billion) were destined for less-developed countries, including oil-exporting nations. 24. Dagnino, A indùstria de armamentos brasileira, p. 297. 25. The author estimates that these three firms represent the vast majority of Brazilian arms sales. The estimates for Embraer included in these totals do not include sales of civilian aircraft. See Dagnino, A indùstria de armamentos brasileira. 26. For a discussion of differences in coverage between ACDA and SIPRI data, see Chapter 4.

Appendix B Interviews

Much of the information in this book is drawn from a series of roughly seventy interviews with various practitioners and observers of military industrialization in Brazil. Most of the interviews were conducted on visits to Brazil in 1989, 1990, and 1994; most were conducted in Portuguese, at the office or home of the individual in question. Given the often sensitive nature of the topic, I established as a general condition for most of the interviews that I would not quote or otherwise identify the interview subject. In the text I cite or quote specific interviews only when the information is not otherwise available, and when doing so does not reveal an individual's identity. Interviews were conducted with one or more current or former members of the following organizations: Brazilian military: • • • • • • • • •

Naval Engineering Directorate (DEN) Naval Research Institute (IPqM) Naval Systems Analysis Center (CASNAV) Naval Academy Naval War College Navy General Staff Aeronautics Technological Institute (ITA) Aerospace Technical Center (CTA) Department of Research and Development, Ministry of Aeronautics (DEPED) • Air Force General Staff Other Brazilian governmental organs: • National Council for Scientific and Technological Development (CNPq)

267

Appendix B

268 • • • • • • •

Planning Secretariat (SEPLAN) Special Secretariat for Science and Technology Space Research Institute (INPE) Office of the Governor of Rio de Janeiro Secretariat for Science and Technology, State of Rio de Janeiro Polytechnic Institute of Rio de Janeiro Health Secretariat, State of Sào Paulo

Brazilian firms and trade associations: • Brazilian Association of Defense-Material Industries (ABIMDE) • SFB Informàtica • AM-X International • Embraer Brazilian nongovernmental organizations: • • • • •

Brazilian Society for the Advancement of Science (SBPC) Committee on Nuclear Questions, Brazilian Physics Society (SBF) Ecumenical Center for Documentation and Information (CEDI) Alternative Policies for the Southern Cone (PACS) Workers' Party (PT)

Brazilian universities: • Federal University of Rio de Janeiro (UFRJ): Graduate Engineering Program (COPPE); Physics Institute; Institute for Geographic Studies • State University of Campinas (UNICAMP): Department of Science and Technology Policy; Nucleus of Strategic Studies • Pontifical Catholic University (PUC), Rio de Janeiro • Fluminense Federal University, Niteroi • University Research Institute of Rio de Janeiro (IUPERJ) • University of Sào Paulo (USP), Institute for Advanced Studies Non-Brazilian organizations: • • • • • • •

Brookhaven National Laboratory Federation of American Scientists Office of the Air Force Liaison, U.S. Embassy, Brasilia Office of the Naval Attaché, U.S. Embassy, Brasilia Office of Science and Technology, U.S. Embassy, Brasilia Office of Political Affairs, U.S. Consulate, Sào Paulo Office of Brazilian Affairs, U.S. State Department, Washington, DC

Interviews

269

• U.S. Army War College, Carlisle Barracks • U.S. Naval Postgraduate School, Monterey, California • Argentine National Atomic Energy Commission I was unable to obtain interviews within the following organizations and firms: • • • • • •

Army Technological Center (CTEx) Army General Staff (EME) National Nuclear Energy Commission (CNEN) Navy Special Projects Coordinating Office (COPESP) Engesa Avibras

Appendix C Acronyms

ABEM

Brazilian Military Engineering Association (Associaçâo Brasileira de Engenharia Militar) ABIMDE Brazilian Association of Defense-Material Industries (Associaçâo Brasileira das Industrias de Materiais de Defesa) ACDA Arms Control and Disarmament Agency (United States) AMRJ Naval Arsenal of Rio de Janeiro (Arsenal de Marinha do Rio de Janeiro) ANL National Liberation Alliance (Aliança Nacional Libertadora) ANPOCS National Association for Graduate Research and Study in the Social Sciences (Associaçâo Nacional de Pesquisa e Pôs-graduaçâo em Ciências Sociais) BNDES National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Económico e Social) CACEX Department of Foreign Commerce, Bank of Brazil (Carteira de Comércio Exterior do Banco do Brasil) CASNAV Naval Systems Analysis Center (Centro de Análise de Sistemas Navais) CAST Chinese Academy of Science and Technology CEDI Ecumenical Center for Documentation and Information (Centro Ecuménico de Documentaçâo e Informaçôes) CIA Central Intelligence Agency (United States) CINDACTA Integrated Center for Air Defense and Air Traffic Control (Centro Integrado de Defesa Aérea e Controle de Tráfego Aéreo) CNAE National Space Activities Commission (Comissäo Nacional de Atividades Espaciais) CNEN National Nuclear Energy Commission (Comissäo Nacional de Energia Nuclear) CNPq National Council for Scientific and Technological Development (Conselho Nacional de Desenvolvimento Científico e 271

272

COBAE COPESP COPPE

CPI CSN CSPN CTA

CTEx DACTA DEN DEPED

DGMM EME EMFA ESG FAB FAMA FBIS FEB FIESP FILA FINAME

FINEP FNA

Appendix C Tecnológico); formerly known as the National Research Council (Conselho Nacional de Pesquisa) Brazilian Space Activities Commission (Comissâo Brasileira de Atividades Espaciais) Special Projects Coordinating Center (Coordenadoria de Projetos Especiáis) Graduate Engineering Program, Federal University of Rio de Janeiro (Coordinaçâo dos Programas de Pos-graduaçâo de Engenharia da Universidade Federal do Rio de Janeiro) Parliamentary Commission of Inquiry (Comissâo Parlamentar de Inquérito) National Security Council (Conselho de Segurança Nacional) Superior Council for Nuclear Policy (Conselho Superior de Política Nuclear) Aerospace Technical Center (Centro Técnico Aeroespacial); formerly Aeronautics Technological Center (Centro Tecnológico da Aeronáutica) Army Technological Center (Centro Tecnológico do Exército) see CINDACTA Naval Engineering Directorate (Diretoria de Engenharia Naval) Department of Research and Development, Ministry of Aeronautics (Departamento de Pesquisas e Desenvolvimento do Ministério da Aeronáutica) General Directorate of Naval Material (Diretoria Gérai de Material da Marinha) Army General Staff (Estado-Maior do Exército) Armed Forces General Staff (Estado-Maior das Forças Armadas) War College (Escola Superior de Guerra) Brazilian Air Force (Força Aérea Brasileira) Argentine Aerospace Materials Factory (Fábrica Argentina de Materiales Aerospaciales) Foreign Broadcast Information Service Brazilian Expeditionary Force (Força Expedicionária Brasileira) Federation of Industries of the State of Sâo Paulo (Federaçâo das Industrias do Estado de Sâo Paulo) fighting intruders at low altitude Financing Fund for the Acquisition of Machinery and Industrial Equipment (Fundo de Financiamento para Aquisiçâo de Máquinas e Equipamentos Industriáis) Studies and Projects Financing Agency (Financiadora de Estudos e Projetos) National Aircraft Factory (Fábrica Nacional de Aviôes)

Acronyms FNDCT FRG FUNTEC GEAC GNP GOCNAE

GPMI IAE

IAEA IEAv IEN IFI IGMDP IKL IMBEL IME IMF INB INEM INPE IPD

IPEN IPI IPqM IPT ISRO ITA IUPERJ

273

National Science and Technology Developmènt Fund (Fundo Nacional de Desenvolvimento Científico e Tecnologico) Federai Republic of Germany Fund for Scientific and Technological Development (Fundo de Desenvolvimento Técnico-Científico) Executive Group for Computer Applications gross national product Organizing Group for the National Space Activities Commission (Grupo de Organiza§ào da Comissào Nacional de Atividades Espaciais) Permanent Group for Industrial Mobilization (Grupo Permanente de Mobilizafao Industrial) Aeronautics and Space Institute (Instituto de Aeronáutica e Espa£o); formerly Space Activities Institute (Instituto de Atividades Espaciais) International Atomic Energy Agency Institute for Advanced Studies (Instituto de Estudos Avadados) Nuclear Engineering Institute (Instituto de Engenharia Nuclear) Institute of Industrial Coordination and Promotion (Instituto de Fomento e Coordena§ào Industrial) Integrated Guided Missile Development Program Ingenieur Kontor Liibeck (Germany) Brazilian War Material Industry (Indùstria de Material Bélico do Brasil) Military Engineering Institute (Instituto Militar de Engenharia) International Monetary Fund Brazilian Nuclear Industries (Indústrias Nucleares do Brasil) National Institute of Oceanic Studies (Instituto Nacional de Estudos do Mar) Space Research Institute (Instituto de Pesquisas Espaciais) Research and Development Institute (Instituto de Pesquisa e Desenvolvimento); this acronym is used by both air force and army research units bearing this name Institute for Energy and Nuclear Research (Instituto de Pesquisas Energéticas e Nucleares) Industrial Products Tax (Imposto de Produfào Industrial) Naval Research Institute (Instituto de Pesquisas da Marinha) Institute for Technological Research, State of Sào Paulo (Instituto de Pesquisas Tecnológicas) Indian Space Research Organization Aeronautics Technological Institute (Instituto Tecnológico de Aeronáutica) University Research Institute of Rio de Janeiro (Instituto Universitário de Pesquisas do Rio de Janeiro)

274

Appendix C

JPATS KWU MAP MDB MECB MTCR NASA NATO NEE NPT OECD OPEC PACS PBDCT

PCB PDS PIC PMDB PND PNEMEM

PT PUC SADEN SAE SBF SBPC SEPLAN SIPRI

Joint Primary Aircraft Training System (United States) Kraftwerk Union (Germany) Military Assistance Program (United States) Brazilian Democratic Movement (Movimento Democrático Brasileira) Brazilian Complete Space Mission (Missäo Espacial Completa Brasileira) Missile Technology Control Regime National Aeronautics and Space Administration (United States) North Atlantic Treaty Organization Nucleus of Strategie Studies (Núcleo de Estudos Estratégicos), State University of Campinas Non-Proliferation Treaty Organization for Economic Cooperation and Development Organization of Petroleum Exporting Countries Alternative Policies for the Southern Cone (Políticas Alternativas para o Cone Sul) Basic Plan for Scientific and Technological Development (Plano Básico de Desenvolvimento Científico e Tecnológico) Brazilian Communist Party (Partido Communista Brasileiro) Democratic Social Party (Partido Democrático Social) Complimentary Industries Program (Programa Industrial Complementar) Brazilian Democratic Movement Party (Partido de Movimento Democrático Brasileiro) National Development Plan (Plano Nacional de Desenvolvimento) National Export Policy for Materials of Military Use (Política Nacional de Exporta£áo de Material de Emprego Militar) Workers' Party (Partido dos Trabalhadores) Pontifical Catholic University (Pontifica Universidade Católica) Secretariat for National Defense (Secretaria de Defesa Nacional) Secretariat for Strategic Affairs (Secretaria de Assuntos Estratégicos) Brazilian Physics Society (Sociedade Brasileira de Física) Brazilian Society for the Advancement of Science (Sociedade Brasileira para o Progresso da Ciencia) Planning Secretariat (Secretaria de Planejamento) Stockholm International Peace Research Institute (Sweden)

Acronyms SIVAM SNDCT

SNI SWU UFRJ UNICAMP USP VLS

275

Amazon Vigilance System (Sistema de Vigilância da Amazonia) National System for the Development of Science and Technology (Sistema Nacional de Desenvolvimento Científico e Tecnològico) National Intelligence Service (Serviço Nacional de Informaçôes) separative work unit Federal University of Rio de Janeiro (Universidade Federal do Rio de Janeiro) State University of Campinas (Universidade Estadual de Campinas) University of Sâo Paulo (Universidade de Sâo Paulo) Satellite Launch Vehicle (Veiculo Lançador de Satélite)

Index

Aeronautics industry, 48-50; capacitation of, 48, 141-142; capacitation of suppliers in, 127, 128; early developments in, 28, 4 0 ^ 2 , 119, 135n.5; multinational participation in, 48, 79-80; technology development strategy, 48; vertical structure of, 123, 128 Aeronautics Ministry, 48, 79; and Embraer, 119, 128, 131, 132, 133; strong bargaining position of, 80 Aeronautics Technological Center (CTA), 40, 49, 119, 120, 128, 130, 142, 143, 144, 147, 152, 154, 225, 227 Aeronautics Technological Institute (ITA), 41 Aerospace industry, 53-54; and Brazilian Complete Space Mission (MECB), 130, 144, 145-147, 153-154; bureaucractic reorganization of, 155-156; capacitation goal of, 141-142; early ventures in, 130-131, 143-144; institutionalization of, 144; jurisdiction of, 142; origins of, 143-145; proliferation of programs in, 146-147; redundancy and dispersion in, 149-150; strategy of coordinated concessions and incentives, 155-157; and technology transfer, 146, 149, 150-152, 155, 156-157; transnational capacitation in, 79-80; U.S. cooperation in, 144. See also VLS program Aerospace Technical Center (CTA), 40, 55. See also Aeronautics Technological Center Air Force, Brazilian, 112, 113; and internationalization, 221; missile-related activities of, 149, 150; R&D system of, 30, 40-42, 48; relations with Embraer, 119, 120, 123, 124, 125-126, 127, 128-129, 131-132; technological orientation of, 30. See also Aeronautics

industry; Aerospace industry Air-traffic control and air-defense system (CINDACTA), 79, 80 Alcantara space center, 145, 156 AM-X program, 49, 124-135, 250; convergence of goals in, 125; costs of, 126; developmental gains of, 126-127; Italian collaboration on, 48, 124-125; supplier firms, 128. See also Embraer Argentina-Brazil nuclear-cooperation agreement, 202-203 Armed Forces General Staff (EMFA), 142, 149 Armored-vehicle production, 50-52; Army's unaggressive technological posture in, 165-166, 169-171, 180; export-growth model in, 171-172; origins of, 165-172; and Osorio battle tank, 165, 175-177, 179; private-sector autonomy in, 166, 171 Army, Brazilian: history of, 22, 23-25; and internationalization, 221-222; missilerelated activities of, 149, 150; R&D system, 42^13, 48; unaggressive technological posture of, 165-166, 169-171. See also Armored-vehicle production Army Technological Center (CTEx), 42, 43, 56, 172, 173, 176, 225 Astros II rocket-launching system, 147-148 Auto industry, 29, 171 Avibras, 57, 142, 144, 147-149, 150; financial crisis and bankruptcy of, 108, 155; and global-market integration, 76, 77 Bandeirante (aircraft), 40, 119, 120-121, 122, 130 Barbosa, Marcio Nogueira, 154 Barros de Melo, Ajax, 126 Bernardini (firm), 50-52, 168, 171, 172173

277

278

Index

BNDES. See National Bank for Economic and Social Development Brasilia (aircraft), 48^19, 129, 130, 131, 132 Brazilian Association of Defense-Material Industries (ABIMDE), 56-57 Brazilian Complete Space Mission (MECB), 130, 144, 145-147, 153-154 Brazilian Space Activities Commission (COBAE), 142, 144, 145, 146, 153, 154 Brigagao, Clovis, 106 Campos, Roberto, 31 Capacitation, technological and industrial, 48,49, 123, 125, 126-127, 128, 131, 141-142; and institutional stability, 12-13; as national policy, 30; political economy of, in AM-X program, 126-129; of suppliers, 126-127; transnational, 79-80 CASNAV. See Naval System Analysis Center Celma (firm), 49, 127, 128, 137nn.49, 53 China: joint aerospace ventures with, 148, 149, 153, 162n.73; and MTCR, 152, 161n.57 CNAE. See National Space Activities Commission CNEN. See National Nuclear Energy Commission CNPq. See National Research Council COBAE. See Brazilian Space Activities Commission Collor de Mello, Fernando: aerospace policy of, 155-156; foreign policy of, 227-228; military-industrial policy of, 226-229; nuclear policy of, 198 Complementary Industries Program (PIC), 127 COPESP. See Special Projects Coordinating Center Coproduction and codevelopment projects, 71, 74, 75; CBA-123 Vector, 129-130, 133, 139n.88 CSN. See National Security Council CTA. See Aeronautics Technological Center CTEx. See Army Technological Center DEN. See Naval Engineering Directorate Deodoro da Fonseca, Manuel, 23 Dutra, Eurico, 29 Economy: "Brazilian miracle," 88, 90, 106; debt crisis of mid-1980s, 110; and exportled growth, 90-91, 92; and importsubstituting industrialization, 25; under military rule, 85; New Republic, 114; nineteenth century, 21-22; Old Republic,

22-25; and pro-industrialization policies, 26-28, 29; and security-development coupling, 27; of Vargas era, 25-28 Elebra (electronics firm), 127, 128 EMB-145 program, 132, 133 Embraer, 48-50, 57, 72, 76, 77, 88, 217; aerospace involvement, 130-131, 150, 155; Air Force relations, 119, 120, 123, 124, 125-126, 127, 128-129, 131-132; Brasilia production, 48^49; civilian projects, 49, 129-131, 133; closing of, 155; conditions for success of, 123-124; coproduction agreement with Argentina, 129-130, 133, 139n.88; debt-equity swap, 132, 138n.70; decisionmaking autonomy of, 128; development and tutelage of, 48; and domestic procurement, 120; financial crisis of, 108; funding for, 114, 131-132; as international supplier, 130; organizational features, 123, 127; origins and nuturing of, 119-121; privatization of, 50, 132, 133, 230; split civil-military character of, 128, 132, 134-135; and supplier firms, 49; technological and industrial capacitation of, 123, 125, 126-127, 131; technology strategy of, 121-122, 123; and U.S. firms, 122. See also AM-X program Engesa, 50-52, 57, 76, 77, 130, 150; aerospace involvement of, 130-131; armored-vehicle production of, 165, 166, 167, 168, 171, 172-175, 176-180; expansion of, 177-178; financial crisis and bankruptcy of, 108, 177, 178-180; government funding for, 114 Escola Superior de Guerra (ESG), doctrine of, 30, 35n.62, 87 Estado Novo, 26-28 Export-growth model, 106; in armoredvehicle production, 171-172; and competing global-domestic demands, 222; Navy's shunning of, 204—205 Federation of Industries of the State of Sao Paulo (FIESP), 57, 87 Figueiredo, Joao, 93, 94 Flores, Mario Cesar, 188-189, 190-191 Foreign suppliers, 128; dependence on, 24-25, 28; and nationalization of production goals, 28, 31; post-World War II proliferation of, 65-67. See also Global arms trade France: participation in Brazil's aeronautics/ aerospace industries, 79-80, 144; as Third World arms supplier, 65-66, 67, 68 Gabeira, Fernando, 253 Geisel, Ernesto, 90, 93, 194

Index General Directorate of Naval Material (DGMM), 44, 204 German nuclear-cooperation accords, 54—55, 90, 193-195, 196-198, 200, 201, 205 Germany, as Third World arms supplier, 24, 67, 68 Global arms trade: Brazil in, 7 5 - 8 1 ; commercialization trend in, 6 7 - 6 8 ; emergence of global arms economy in, 6 5 - 6 8 , 103; emergence of medium-tech market niche in, 74; as geopolitical tool, 67, 68; internationalization of production in, 7 1 - 7 3 ; licensing and coproduction agreements in, 6 9 - 7 1 , 74, 75; major suppliers, post-World War II, 6 5 - 6 7 ; in major weapons systems, 109-110; of military regime, 9 0 - 9 1 ; production/export estimates, 263-264; proliferation of suppliers in, 6 5 - 6 7 ; stratification of Third World production in, 7 3 - 7 5 ; supply diversification in, 68, 75; and technology transfer, 6 8 - 7 1 , 7 3 - 7 4 , 75, 77 GOCNAE. See Group for the National Space Activities Commission GPMI. See Permanent Group for Industrial Mobilization Great Britain, as Third World arms supplier, 65, 66, 67, 68 Group for the National Space Activities Commission (GOCNAE), 31 Guarda Nacional, 22 Helicopter production, 50 IFI. See Institute of Industrial Coordination and Promotion Imbel munitions complex, 175 India: arms exports of, 73, 74; defensesector development in, 237-242; domestic-political change and regional instability in, 239, 241-242; and MTCR, 152, 161n.57; security policy reformulation in, 240-241 INPE. See Space Research Institute Institute for Advanced Studies (IEAv), 40-41, 55-56 Institute for Energy and Nuclear Research (IPEN), 55, 95, 196, 199 Institute of Industrial Coordination and Promotion (IFI), 41^12, 120 International Atomic Energy Agency (IAEA) safeguards system, 55, 200, 202, 203 International Monetary Fund, 110 IPqM. See Naval Research Institute Iraq: and Astros program, 147-148; involvement with Brazil's defense sector, 155, 227; transfer of enriched uranium to, 202

279

Israel, arms production in, 73, 74 Italy, as arms supplier, 67 Kubitschek, Juscelino, 29, 193 Licensing: internationalization of, 110-112; as vehicle for technology transfer, 6 9 - 7 1 , 7 3 - 7 4 , 75 Lula da Silva, Luiz Inâcio, 60, 230 Malvinas (Falklands) conflict, 92 MECB. See Brazilian Complete Space Mission Military Assistance Program (MAP), 31, 75 Military Engineering Institute (IME), 4 2 ^ 3 Military regime: civil-military relations under, 9 2 - 9 3 ; defense sector features under, 9 5 - 9 6 ; domestic politics of, 85-96; expansion of state-owned firms under, 9 2 - 9 3 ; and hard-line faction policies, 87-89, 90; human rights violations of, 97n.9; and period of liberalization and withdrawal from power, 9 3 - 9 5 ; political autonomy of, 95; R&D expenditures of, 45 Military research and development (R&D), 30-31, 3 9 - 4 6 ; and civilian R&D, 44-^5, 48; comparison by service, 46, 47; disproportionate funding of, 114; employment and expenditures, 45, 259-260, 2 6 1 - 2 6 3 Military-industrial sector: arms independence policy of, 25; budgets and funding, 31, 114; capacitation of, 12-13, 30, 48, 49, 7 9 - 8 0 , 123, 125, 126-129, 131, 141-142; civilian-led growth proposals in, 229-232; civilian-military boundaries in, 104, 205, 217; commercialstrategic-technological linkages in, 104-105; commercialized production logic in, 61, 6 7 - 6 8 , 8 6 - 8 7 ; conversion proposals, 60, 230; coproduction/ codevelopment projects, 71, 74, 75, 129-130, 133, 139n.88; domestic procurement, 31, 90, 92, 106, 120, 222; domestic-international boundaries in, 8-11 ; dual civilian-military character in, 123; early developments in, 2 1 - 3 2 ; export-led growth model in, 106, 171-172, 204-205, 222-223; force modernization and expansion programs, 92, 187-188; global-market reintegration attempt, 227-229; historical structure of, 11, 21-32; institutionalization of roles and rules in, 103-106, 217; internationaldomestic tensions in, 205; internationalization of production in, 7 1 - 7 3 , 80-81, 220-221; military control of, 2 2 0 - 2 2 1 ; in

280

Index

military-to-civilian transition period, 93-95; multinational involvement in, 57, 58tab, 75, 77-81; nationalization of production in, 28, 31; in New Republic, 112-115; in nineteenth century, 21-22; of Old Republic, 22-25; and organized labor, 57-60; post-1964 character, 60-61; pragmatic, incrementalist production strategy in, 122; private-sector autonomy in, 128, 166, 171; private-sector involvement in, 25, 44-45, 60-61, 87, 104; and privatization, 133; second-tier firms in, 56-57; security-and-development doctrine, 27-28, 30; service division of labor in, 86, 89, 96, 103, 104, 217-218; size of, 261; and state-led growth, 60, 88, 95-96, 104; strategic-technological-industrial convergence in, 125; technology transfer and strategies in, 61, 68-71, 73-74, 75-77, 79-80, 105, 122, 224-226; in Vargas era, 25-28; vertical integration in, 123 Missile Technology Control Regime (MTCR), 80, 110, 150-152, 156, 247 Missile technology development, 142, 145, 148-150; ballistic missile development, 148 Monteiro, Socrates, 133, 156 MTCR. See Missile Technology Control Regime National Bank for Economic and Social Development (BNDES),41, 114, 132, 173, 178, 179 National Development Fund, 114 National Export Policy for Materials of Military Use (PNEMEM), 91, 92, 106, 216 National Nuclear Energy Commission (CNEN), 55, 66, 193, 196, 199, 200, 207n.34 National Research Council (CNPq), 31, 143, 144, 192 National Security Council (CSN), 89, 95, 113, 114, 115, 199 National Space Activities Commission (CNAE), 143, 144. See also Space Research Institute (INPE) National space program, 131, 132, 142 Naval construction, 52-53, 186-189; costly production and limited resources in, 189, 190; early developments in, 21, 22, 23, 28, 43; fleet renovation project, 187-188; private-sector role in, 189, 190; shunning of export-led growth model in, 204-205. See also Nuclear submarine program Naval Engineering Directorate (DEN), 43, 44, 187 Naval Research Institute (IPqM), 43, 44, 149, 225

Naval System Analysis Center (CASNAV), 43, 44, 225 Navy, Brazilian, 112, 113; R&D system, 30, 43-44; U.S. tutelage of, 186-187. See also Naval construction; Nuclear submarine program Non-Proliferation Treaty (NPT), 55, 197 Nuclear development policy, 191-205; Argentine agreements, 202-203; civilian encroachment in, 220; and Collor administration, 198, 200-204; early activities in, 28, 41; German nuclearcooperation accords, 54-55, 90, 193-195, 196-198, 200, 201, 205; and Goiània tragedy, 253; and international concerns, 200-204, 247; military strategic control of, 198-200; monitoring and inspection agreements, 55, 56, 110, 200-204, 247-248; and nuclear-weapons development, 203-204; origins of, 192-193; parallel program, 54-56, 191-192, 195-204, 205, 207n.30, 216, 217; and Sarney government, 113, 114, 198, 199-200; and uranium enrichment program, 55, 194-195, 196-198, 200 Nuclear submarine program, 188-192, 197, 204-205; NAC-1 and NAC-2 programs, 188-189; Navy's commitment to, 185-186 Nuclebras, 194, 200, 207-208n.39 Orbita (aerospace firm), 130, 150, 155 Osório battle tank, 165, 175-177; compared to Tamoyo tank, 175, 176tab; failure to sell, 179 Permanent Group for Industrial Mobilization (GPMI), 87, 106, 168, 231 Petrobras, 29, 192 Petroleum industry, 29 Pirelli, 127, 128 PNEMEM. See National Export Policy for Materials of Military Use Raupp, Marco Antonio, 141, 154 Research and Development Institute (IPD), 40 Russia: and MTCR, 152, 161n.57 Sarney, José, 113-114, 115, 117n.l2, 131, 146, 154, 253; nuclear policy of, 198, 199-200 Science and technology policy, 89 Security-and-development ideology, 3, 27-28, 30 Silva, Ozilio Carlos, 119, 132-133 Sonda rocket program, 143-144, 145, 146, 147 South Korea: aggressive global-market

Index

strategy of, 242; and North Korean threat, 242-243; obstacles to defense sector expansion in, 243-244; and U.S. tensions, 244 Soviet Union, as arms supplier, 65, 66, 67, 68 Space Activities Institute (IAE), 40 Space Research Institute (INPE), 130, 131, 144, 145, 220; and Chinese agreement, 153; links to military-industrial sector, 154-155; struggle for control of, 153-155 Special Projects Coordinating Center (COPESP), 43, 44, 55, 196, 225 Steel industry, 25, 29 Stockholm International Peace Research Institute (SIPRI), 67, 68, 81n.2 Superior Council for Nuclear Policy (CSPN), 113, 201 Tamoyo battle tank, 172 Technology transfer: and arms trade, 68-71, 73-74, 75, 77; from Brazil, 77, 202; commercialization trend in, 67-68; and domestic policy, 31, 89; internationalization of, 110-112; licensing as vehicle for, 69-71, 73-74, 75 Third World: arms supplies to, 65-68; economic growth and social change disparity in, 254-255; model of dependent development in, 77-78; use of term, 254 Third World military industrialization, 237-256; democratizing and ramifications of, 2 - 3 ; implications of domestic-

281

international distinctions in, 8-11; and institutional adjustment, 11-14; nextgeneration candidates for, 246; developmental effects of, 237; emergence of market niche for, 74; global obstacles to sustained expansion in, 255; political versus economic forces in, 7 - 8 ; stratification of, 73-75; as threat, 2 - 3 , 73, 255-256; and U.S. technology transfer, 19n.28, 31, 81n.2. See also India; South Korea Tucano aircraft, 72, 122-123, 132; and "Super Tucano," 134 Unions, 57-60 United States: as arms supplier, 65, 66, 67, 68, 71; Lend-Lease Program, 31; and MTCR restrictions on Brazil, 151-152; opposition to Third World militaryindustrial expansion, 19n.28; technology transfer to Third World, 19n.28, 31, 81n.2 Vargas, Getulio, 25-28, 29, 192 VLS (satellite-launch vehicle) program, 141-143, 145-157; delays and threats to, 150-155; dual-use capability, 141; funding for, 146; and MTCR restrictions, 150-151; technical baniers in, 146 War of the Triple Alliance, 22 West Germany. See German nuclearcooperation accords Whitaker, José Luiz, 175 Xavante program, 121, 125

About the Book

Manufacturing Insecurity provides a sobering analysis of an extraordinary boom and bust story: Nurtured by military rule and expanding international markets, Brazil's defense sector emerged as a Third World leader in the late 1970s and early 1980s. Within a decade, a country that had been almost totally dependent on outside suppliers became a significant manufacturer for the global market in armored vehicles, military aircraft, naval craft, and short- and medium-range missiles. But by the early 1990s, many important firms were bankrupt, military R&D was virtually halted, and arms exports had slowed to a trickle. Ambitious plans to make Brazil the first Third World producer of advanced weapons systems were abandoned. The defense sector lay in ruins. Conca explores the spectacular growth and decline of Brazil's military-industrial complex and creates a conceptual framework for analyzing Third World industrialization, emphasizing the interplay of world markets and domestic politics. Using case studies of four weapons programs, he chronicles the increasing mismatch between the political needs of the Brazilian military on the domestic front and the demands of the global economy. He demonstrates how failed adaptations to changing international markets led the sector into a pattern of instability, chaos, and institutional disintegration, which continues to the present day. Ken Conca is assistant professor of government and politics at the University of Maryland at College Park, where he specializes in international relations, environmental politics, and the politics of science and technology. He is coeditor of Green Planet Blues: Environmental Politics from Stockholm to Rio and The State and Social Power in Global Environmental Politics.

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