A renewed focus on defence spending could turbocharge Britain’s scientific innovation

Germany, along with most of the rest of the EU, has finally woken up to the folly of relying on other countries – mainly the US but also the UK – to defend them.  

At the end of last month, Chancellor Olaf Schulz announced that €100bn will be put into a new defence procurement fund. For the first time in decades, defence spending will rise to over  2 per cent of German GDP.

The German move puts even more pressure on the British government to follow suit. If we are to retain our position as the premier military nation in Western Europe, defence spend needs to be nearly doubled to some 4 per cent of GDP. But all this pales in comparison with America. At an annual total of over $700bn, defence expenditure in the US  is more than the total spending on defence of the next ten highest spenders – including China – combined.

A striking feature of the American security budget is the vast amounts spent with private contractors. For example, around 10 per cent of total manufacturing output in the US is accounted for by military production.

The major defence suppliers are huge companies. Lockheed Martin employs 110,000 people. Raytheon Technology is even bigger, with a turnover of over $80bn and 243,000 employees.

Money is handed out not just to giant firms, but to companies of all sizes and individual contractors. The scope now extends far beyond the weapons manufacturing, with artificial intelligence, machine learning and cyber warfare services also now contracted out.

All of this comes with a risk. Economists have coined the phrase “regulatory capture” to describe situations in which regulatory bodies become dominated by the interests of the companies they are meant to regulate, rather than the wider public interest.

The symbiotic relationship between the public and private spheres in the American defence industry, and the employees who move readily between them, creates the potential for a similar phenomenon.

Sixty years ago, President Eisenhower recognised this in his farewell address. He warned that the arms industry was growing into a shadow government and urged that the actual government should be on guard against “the acquisition of unwarranted influence”.

He condensed all of this into the memorable phrase “the military-industrial complex”. But there has been a very marked upside to this complex.

The defence industry needs to innovate more than most other sectors. A failure to do so does not just mean a possible loss of market share to competitors. It puts the security of the nation in jeopardy.

The imperative to innovate plus the sheer size of the sector is a crucial reason why America has retained the technological leadership of the world.

Out of necessity, the military-industrial complex must carry out research in areas where failure is the most likely outcome. Indeed, even in areas where failure is almost certain.  

Almost all university research is based on tiny incremental change to existing knowledge on projects where the results are widely anticipated in advance. There are places trying to change this, such as Innovate UK, but even here a reasonable prospect of success is required. There is a role for this in the scientific process. But this is not how major breakthroughs are achieved.

In Europe and the UK, innovation lags badly behind the US. Ramped up defence spending could create our very own military-industrial complex, with all the benefits that come with it.

As published in City AM Wednesday 16th March 2022
Paul Ormerod
Image: Flickr

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.