Conclusions and Policy Implications
As set out in the Final Report to the European Commission, January 2001

Defence Industry and Technology: Civil-Military Integration?

4.3.1 These high level political and security considerations provide the general framework within which our study has focused on defence-industrial affairs. At this lower level, we can observe first that, while the prospect which some, in the 1980s, saw for a transformation of military production based on the concept of dual-use technologies, has proved optimistic, nevertheless efforts at reforming defence procurement to promote growing civil-military integration have been substantial and ambitious. We see evidence of this in various of the countries that we have studied.

4.3.2 That said, the impact of these measures has so far been relatively limited at the level of prime contractors. Indeed, at first glance, there may even be thought to be a counter-tendency, arising from the fact that most of the defence prime contractors who survived the shakeouts of the 1990s are at least as heavily concentrated on defence production as previously, if not more so.

4.3.3 However, important examples of civil-military integration can be found among suppliers, and also in the production processes being used by defence primes. Outsourcing practices among defence primes are also increasing the relevance of civil-military integration in the supply chain. These trends do not appear to be due directly to the main procurement reform efforts. That is to say, they can be viewed as the consequences of decisions made within production networks rather than as emerging from official procurement reforms, although some governments have also encouraged defence primes to draw SMEs into their supply chains. The extent to which such policies have been implemented in practice, or sustained over time, is not, however, as clear as is the fact that, in times of difficulty, policy networks have tended to focus more on the maintenance of an adequate core of prime contractors than on the interests of lower tier suppliers.

4.3.4 Arguably, a stronger influence on the role of SMEs is a combination of technological and stock market pressure: technology, in the sense of the familiar phenomenon that the sources of innovation often lie outside the major corporations, the more alert of which, however, are quick to co-opt them; and stock market pressure in the sense that, in those countries where private (typically, mainly institutional) investors are now able to exert leverage over defence firms, they are likely to apply greater pressure than governments for returns on capital invested, thus encouraging defence primes to look actively at new modes of sourcing.

4.3.5 Assessing the policy consequences of these developments is not, however, a simple matter.

4.3.6 Thus, one consequence of increased civil-military integration within supply chains, whether arising purely nationally or internationally, may be to further weaken the grip of governments over the defence procurement process, although this weakening is a relative matter, given the over-riding fact that governments are the customers in this particular 'marketplace'. This point may be made even more forcefully in cases where defence production networks overlap with truly globalised suppliers, as is increasingly the case for telecommunications equipment. It arises equally when the global regulatory system impacts upon the defence sector, as it may yet do in the form of a trade war in the World Trade Organisation over subsidies to the aeronautical sector which, while formally concerned only with support to civil aviation, would inevitably have consequences for the defence sector.

4.3.7 On the other hand, developments such as 'Smart Procurement' in the UK strengthen the links between government and industry by giving industry greater responsibility both for the specification of the project and for its management. However, the fact that the state is thereby reducing its control over at least some parts of the production process does not mean that individual firms are necessarily able to act more autonomously in the defence sector.

4.3.8 What is clear, despite all the recent changes in the defence sector, and the globalisation of the sourcing of technology in so many areas of production generally, is the following. While civil-military boundaries evidently can be re-opened for negotiation under certain circumstances, there remains nevertheless a lot of inertia in the existing structure. The most impressive achievement of the military industrial complex in the United States could be said to have been the way that a very stable set of institutions (corporate and governmental) regularized the work of technological innovation so that continuous technological change did not involve anything like Schumpeter's waves of creative destruction". The question now is, has the end of the Cold War changed the terms so much that that this stability (the boundaries around the networks) can no longer be maintained? Given the consolidation of the industry into "pure play"; contractors, that is, defence specialist firms, the mechanism for opening up the boundaries is not clear. We take this discussion a little further in the next sub-section.

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