The economic dynamic of an arms industry doesn’t come as a surprise to anyone. Former US president Dwight D. Eisenhower famously alluded to it when he warned of a ‘military-industrial complex’ in his 1961 farewell speech. However, given recent trends in the global arms market – particularly efforts by South Korea, Japan, Turkey, and now the European Union to get into the game – it’s beginning to appear as though the demands of state-directed economics are eclipsing the conventional geopolitical calculus of national defense.

BACKGROUND

Arms production can provide a valuable boost to an advanced economy. Military contractors manufacture and employ people like any other industry, and they generally keep their operations on-shore. Yet there’s no consensus on the true extent of these benefits.

In his statement exonerating the Saudi royal family in the murder of Jamal Khashoggi, President Trump noted the “hundreds of thousands of jobs” and “tremendous economic development” that would result from $110 billion in Saudi defense purchases from US companies like Boeing, Lockheed Martin, and Raytheon. Trump’s position represents one extreme on the spectrum. Taken at face value, it suggests that arms sales are so lucrative to the US economy that they cut across any and all moral and diplomatic considerations. (Incidentally, Trump’s figures are also wild exaggerations).

Others disagree, pointing to the smaller-than-generally-assumed jobs footprint of defense exports. In the words of William Hartung of the Center for International Policy: “the relationship between arms sales and jobs is exaggerated.” This is because, relatively speaking, arms exports are an inefficient job creator. The US government subsidizes the arms industry with taxpayer dollars at every step of the procurement process, from initial R&D grants to, in some cases, even providing the money for the purchasing party to buy US arms (such purchases account for 10% of the entire global arms export market). When appraising the job creation impact, one must also consider the relative value of this investment vis-à-vis other industries. According to the US Commerce Department, every billion dollars’ worth of defense exports creates around 3,918 jobs on average, well short of the 5,700 jobs average of US exports in the broader sense.

So which is it – economic boon or BS?

As is often the case, the answer lies somewhere in between. If you look at the US national security sector alone, it accounted for around 355,500 jobs in 2017. Not a staggering number by any means. But there are run-on economic impacts to consider, such as synergies between the commercial aerospace and defense industries, which together accounted for 1.2 million US workers in 2014. US giant Boeing is emblematic of a private company straddling the commercial and the military sectors, and shifting fortunes on one side can affect economies of scale on the other. The manufacturing hubs of Boeing and other defense contractors are often the beating heart of self-contained business ecosystems that support industries like services, housing, restaurants, and even leisure activities. In 2014, an additional 3.2 million workers were supporting aerospace and defense industries throughout the country.

Finally, at least in the case of the United States, these factories are often strategically distributed in key battleground districts for maximum political effect. If they flounder, it’s not just a problem for members of the community, but their government representatives as well. The result is increased leverage for defense contractors to secure better tax breaks and government subsidies.

Yet not all arms sales deals equate to manufacturing jobs for the selling country. Even some of the Saudi deals cited by President Trump involve building weapon platforms off-shore. Specifically, a 2016 deal has satellites and Black Hawk helicopters being built in the Kingdom.

It’s safe to say that the military industrial complex brings some economic benefits, at least so far as the people building the weapons are concerned (a different story entirely for those on the receiving end of them). Perhaps the benefits don’t resemble President Trump’s pie-in-the-sky Saudi statistics. Perhaps they’re not so lucrative that the government is beholden to approve arms sales to every dubious regime that comes knocking. But the defense industry does represent a way for market economies to subsidize technological development and maintain an on-shore manufacturing base after private-sector manufacturers have picked up and left (and the ones who stay are providing less and less jobs due to automation).

We seldom get the economic case for arms sales in unfiltered form; it’s inevitably distorted and amplified by vested interests, whether in the form of powerful defense contractors, the lobbyists and message amplifiers who serve them, or the military bureaucracy itself. Back in 1961, the United States was the undisputed leader in global manufacturing. It wasn’t the financial appeal of the defense industry that President Eisenhower was worried about. Rather, it was the overlapping interests between the companies that build the weapons and the soldiers who use them, and the potential for that unspoken partnership to garner “unwarranted influence” in the halls of US governmental power.

Again, the millions upon millions of dollars that US defense contractors spend in lobbying and political donations is nothing new. However, it’s worth noting that this is a dynamic is increasingly present throughout the world, whether in democracies like South Korea, where the powerful chaebol conglomerates have been championing a domestic arms industry since the 1960s, or in closed political systems like Saudi Arabia, whose now-infamous crown prince has long harbored hopes of joining the club of global exporters.

These global upstarts often promote an accompanying defense/security narrative to justify the government spending. For a country like South Korea, the threat is obvious. A country like Japan requires some more creative thinking to sell its expanding military industrial complex to a skeptical public. Specific cases will be explored in greater depth in future articles in this series.

Looking ahead, we can expect some big changes for the global arms industry, both in the scale of sales and the countries doing the selling.

According to the Stockholm International Peace Research Institute (SIPRI), the volume of global arms transfers increased by 10% from 2013-2017 compared to the previous five-year period. By all indications, the trend of growing sales will only intensify over the next five years.

The United States, China, and Russia will be competing on various geopolitical fronts, creating upward pressure on their defense budgets. They’ll also be competing as weapon exporters. Evidence of this phenomenon is readily available, whether it’s Saudi Arabia’s brief flirtation with Russia’s S-400 platform or US sanctions on China for its purchases of Russian weapons earlier this year. Increasing competition between the “Big 3,” especially China’s emergence as a major arms exporter (generally it has been a buyer), will result in added pressure on future US administrations to drop human rights or stability concerns in its arm export calculus.

The shift toward a buyers’ market will be accelerated by the emergence of new players like Japan, South Korea, UAE, Turkey, and the EU – all of which have been making moves to consolidate their domestic arms industry with future exports in mind.

The next part of this series will focus on the European Union, exploring the industrial dynamics underpinning recent talk of an “EU Army.”