WHAT'S HOT? –– ANALYSIS OF RECENT HAPPENINGS

World’s Defence Spending Is Set To Rise

by Ranjit Rai

New Delhi, 01 October 2001

Eleventh September 2001, will long be remembered as the day on which the world's leading nation suffered over 6400 deaths via a new threat, which had spurred the establishment to declare war on its perpetrators. Security measures by nations to protect its people and vital interests and methods of warfare against terrorism –– a new and deadly enemy –– appear to have entered the defence spending paradigm of all nations. Therefore IDC feels this is the right time to discuss the philosophy of defence spending and we are convinced that it is set to rise.

Nations Must Spend on Security

History has a nagging habit of repeating itself in the same vein, but under the circumstances prevailing. Man’s basic instincts have not changed since Adam and Eve tasted of the forbidden fruit. Therefore conflict and temptation will remain a failing of human nature and continue to exist in varying degrees and will depend on the amount of policing and rule of law in force to keep both in check. Conflict between individuals is the lower aspect in daily life, but conflict between nations is what spurs disagreements that lead to skirmishes and wars, whether they be cold or hot. Sages and statesmen will continue to make mankind aspire for a utopian world, free of conflict and wars, but no one, not even those at the school of divinity, have had success in finding the elixir for it.

Nations will continue to spend on armaments, in an effort to prevent conflict and keep wars in check. Even Adam Smith said, “The first duty of the Sovereign is to provide for the security of the state". But the world is divided into the developed and the developing. The former jealously guard their lead and advancement in armament technology and at times encourage and abet small wars in the third world to suit their ends. In many studies it has also been found that the spending of between 2 to 3% of the GNP on defence contributes to employment, pride and safety of the nation. It’s like insurance.

Hence we live in a Catch-22 situation. The spending on arms is wasteful yet unavoidable. Defence spending in today’s world, which now is seeing proliferation of nuclear weapons, is like a bucking horse. If it is let loose and not reigned in, it can create havoc, but if controlled and corralled it can offer a safe and comfortable ride to its mount.

Economics of the Military Industrial Complex

Soon after the Second World War, USA built up its economy and rebuilt Europe thanks to the Marshall plan. The Military Industrial Complex (MIC) fuelled America’s economy to become the largest by far in the world. The phenomenon of USA’s rise via the MIC route prompted Cornelli Barnett to write his thesis in the 1960s titled “The Death of an Economy” which went something like this.

USA, the largest economy in the world is dependant on the MIC as its largest component. (This was admittedly before the Service and Information Technology Sectors emerged strong.) He went on to explain that larger the MIC of USA, the healthier will be the country’s economy which made ample sense and the GOP is the great follower of this even today. Barnett then predicated that should the MIC shrink in USA the economy will go down, and should the MIC die it will be the death of the American economy. No one contradicted Barnett.

Kenneth Galbraith did some studies at Harvard based on Japan’s rise as an economic power. He proved that lowered defence spending can also spur growth rates, but he did not emphasise that USA gave Japan a protective nuclear defence umbrella and had more troops stationed outside USA than in America. USA used Japan’s real estate to great advantage and Japan paid for the upkeep of the troops. His theory was an exception to the rule and Galbraith’s studies were never followed up.

However, Barnett’s theory blossomed only in the free market economies, which could export arms for profit. However, the same excessive defence spending on MIC in a socialist regime, made the Soviet economy go downhill and the Union broke down. That was also prompted by Mikhail Gorbachov’s doses of Perestroika and Glasnost too fast and too brashly.

End of Cold War Reduced Defence Spending

Then followed the demise of the cold war and USA emerged as the sole super power and began to talk of the peace dividend, which itself was elusive. USA’s defence budget fell from the US$ 350 billion levels to $ 250 b. Worldwide defence spending appeared to have slowed down during the period 1993-99. This trend had a major impact on arms producing companies. The vast arms industry, for decades nurtured by the Cold War, was faced with unprecedented contractions in arms procurement orders.

Researchers began to doubt Barnett’s theory, but they did not realize that history repeats itself under the prevailing circumstances, which is that today’s weapons and systems have a large component of information technology and software. Once again USA leads in IT applications. This change needs noting and Russia is today gearing up its MIC for exports, by adopting those technologies.

In 1996, the total arms sales of the 100 largest companies in the OECD and developing countries stood at $156 billion. The US arms industry witnessed a rapid concentration with mergers and acquisitions that contributed significantly to an increase in the overall arms sales. The US topped the list with its 38 top companies contributing 55 per cent of the total arms sales worth $86.3 billion in 1996, while top 54 companies of the combined OECD countries contributed 42.2 per cent of sales amounting to $66.1 billion, and those of non-OECD countries contributed only 2.5 per cent, with sales worth $4 billion.

The World’s Spending on Defence

The world’s arms spending in 2000 on sales by way of imports and exports rose to $30.3 billion. USA led with $11.8 billion of exports. In the last 10 years USA’s Military Industrial Complex has exported $133 bill worth of arms. Russia exported 4.8 billion in the last year followed by Germany at 4 billion while France and UK touched just over one billion each. Two thirds of the sales were to developing countries.

India has a secret MOU with Russia and deals worth $9 billion (SU30, T90 Tanks, Gorshkov and MIG 29Ks) have been inked, while China has deals with Russia worth $8 billion, which will materialize in the next five years and be firmed up when Jiang Zemin visits Russia for the summit meet. Iran signed an agreement with Putin during his recent visit to import some $7 billion worth of defence equipment. West Asia has a plan to spend $4 billion while South East Asia, Korea, Taiwan, Pakistan and West Asia are the other major customers for USA.

There is also a paradigm shift to spending on maritime assets and at the recently held IMDEX 2001 at Singapore it is was forecast that between 2000–2014, over 450 newly-built warships will be commissioned. The list includes 250 Patrol Vessels, 70 Submarines, 65 MCMV's, 50 Frigates, 50 Corvettes/OPV's, 35 Destroyers, 20 Large Auxiliaries and 4/5 Aircraft-Carriers. Defence spending is on the rise and President Bush has his foot on the accelerator.

Missile Defence Programme

This brings us to the National Missile Defence (NMD) programme of President Bush. Unlike the space-based Star Wars system proposed in 1983 by then President Reagan, which was designed to protect the United States from a massive Soviet attack, Bush’s proposal seeks to give Washington the ability to intercept an individual or small number of missiles that might be launched with only rudimentary nuclear and ballistic capabilities by a rogue state or launched by terrorists.

Congressional support for such a defense system had grown after a 1998 report by a commission headed by Donald Rumsfeld. North Korea had successfully fired its three-stage Taepo-Dong One missile, which flew over Japan and splashed down in the Pacific Ocean. The Rumsfeld report prompted the Clinton administration to ask for $6.6 billion in new funding for missile defense research. The democrats had agreed to fund it only when technically feasible and after reasserting their commitment to negotiate further arms reduction with Russia.

Strategic Review

A confidential Defence Strategy Review has cast the Pacific as the most important region for military planners and calls for the development of new long-range arms to counter China's military power. Andrew W Marshall, a 79-year-old civilian analyst directed the review. He is also called the Pentagon Guru, a cult figure, the most original thinker in the defence establishment and a close adviser to Mr Rumsfeld.

He has long pressed for a radical overhaul of America's armed forces, concluding that American bases in the Pacific including the aircraft carriers are likely to become increasingly vulnerable as China and other potential adversaries develop more accurate missiles. It urges that the American military become less dependent on military bases and put more emphasis on fighting from a distance with technology.

He is the father of the term RMA (Revolution in Military Affairs) and enunciates that technology is transforming warfare and enabling weaker countries to challenge American military might. He opines that the next decade and a half will be like the interregnum between the two World Wars and America should not be caught holding on to an outdated Maginot Line in terms of galloping technologies. Bush’s pledge to “skip a generation” of weapons is also Marshall’s brainchild. When it comes to harnessing newer technologies, the American penchant for them is 10 to 15 years ahead of any competitors. Hence what the Generals and Admirals are seeing is Marshall’s vision of at least 50 years squeezed into a 15-year time frame. That’s how the US has outrun every one else during the last 100 years and it harks of Barnett’s thesis and in the driving seat is Rumsfield who just lectured Europe and explained NMD to reluctant partners.

History Repeats Itself

Twenty five years ago, Donald H Rumsfeld became Secretary of Defence at the age of 43 and had successfully convinced a skeptical Congress to give more money to the post Vietnam-bled Armed Services for meeting the Soviet threat. He is back at the Pentagon’s helm with a clarion call to a wary Congress for additional funds required for USA’s proposed face-lift of the American military machine. His goal this time is even more complex and fancy, that is to transform the military into a more agile, lethal and stealthy force including a costly and unproven missile shield. Even though US paramountcy of power today is unquestioned, he says “weakness is provocative”. His arguments to justify additional funds would emerge out of various reviews that are being completed in the Pentagon. His tactic is to keep the ‘iron triangle’ –– the Congress, the Defence industry and the Service Chiefs, that dominate the military budgeting, waiting till then, but in many people’s view he is merely following Barnett’s thesis. It seems to be working. In the aftermath of 11 September, although Bush had proposed US$ 329 billion for Defence, the Congress has already sanctioned US$ 344 billion!

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