The Structure of the Defense Industry

An International Survey

Nicole Ball, Milton Leitenberg

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367701253
• eBook ISBN: 9781000371277
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Proponents of arms control and disarmament are often confronted with the argument that reductions in defense expenditure lead to cutbacks in military industries and thus to economic hardship. While a reduction in defense production would cause some economic dislocation, this would be mitigated by the ability of the economy to adapt to changing patterns of production. This book, first published in 1983, assesses the likely effects of reductions in defense industries by an examination of the roles these industries play in national economies. Each chapter discusses industry employment, output, research and development, capital value, profitability, concentration and competition, internal organization and regional employment concentration. Other questions considered include the economic importance of weapons exports, the defense industry as a 'leading edge' in maintaining national technological capabilities, and the reliance of individual firms on defense contracting.

1 The United States

Judith Reppy

Introduction

Billions of dollars are spent each year by the US on the development and production of weapons, making the defence industry clearly an important sector of the economy. Yet, even though military hardware has been produced in the United States since the earliest days of the republic, the emergence of a full-scale defence industry in the private sector of the economy did not occur until World War II. Throughout the nineteenth century the manufacture of guns and ships for the government was shared between government arsenals and private firms, but only during actual war fighting was there a significant level of arms production. Indeed, the dominant feature of arms procurement up to World War II was its episodic quality. Typically, the start of a war found the US military unprepared, and US industry engaged in the manufacture of civilian goods. During the fighting there would be a strenuous effort to increase production of war material followed by sharp cutbacks in defence spending and production when the war ended.

Thus, during World War I the United States sent two million men to Europe, but they had to fight mostly with French and British-made weapons: only a small number of US weapons were shipped to Europe before the war ended. The exception was the US output of ammunition and explosives, but in other categories the volume of production was very small. For example, only 145 field guns and sixteen tanks were shipped to France before the Armistice (although if the war had continued longer, US production would have become important).¹ When the war ended most of the firms that had converted from civilian to wartime production either went out of business or returned to production for the civilian market.

Nor was private industry heavily involved in developing new military technology. The main source for new weapons design in the nineteenth century was the arsenal system of the military departments, the naval shipyards and War Department armories. Military technology tended to mirror the general level of civilian technological development, with specialized applications for military use being developed in Army or Navy research establishments that were co-located with the arsenals themselves. Earlier, the arsenals had been an important source of innovation for civilian industry, for example, in the development of machine tools, but their significance in this role faded as the civilian economy became industrialized, and low military budgets forced cutbacks in arsenal activity.²

Recognition that this system might not be adequate, even in peacetime, came with the increasing importance of new technology and new weapons, particularly the introduction of aircraft. By the 1920s and 1930s, the Army Air Force was contracting with private firms to develop a succession of aircraft prototypes. These designs advanced the state of the art, even though none of them was procured in large numbers, and this military support was important for the very survival of the industry during the Depression.³ Among the firms that supplied aircraft to the military services during this period ’ for example, Boeing, Chance-Vought, Pratt & Whitney and Grumman ’ one can recognize the future major defence contractors of the postwar period. The groundwork was laid for major governmental funding and close relationships between private contractors and military services in developing new weapons, characteristics that became dominant features of the defence industry in the United States after 1945.

World War II was a watershed in the history of the US defence industry. From the early build-up in production for European needs to the high point of wartime production, spending for defence jumped from less than 2 per cent of gross national product (GNP) to nearly 40 per cent. Hundreds of firms were mobilized to produce for the war effort; new governmental bodies for organizing and controlling the production and distribution of war material were instituted; and new institutional arrangements for performing military-related research and development were devised.

At the end of the war there was a short period during which it seemed that the traditional pattern of cutbacks in spending to low peacetime levels would be repeated. But two major influences intervened to alter the historical pattern. Peace gave way to the Cold War, as the United States and the Soviet Union confronted each other in Europe and elsewhere. The Soviet threat to US interests was seemingly confirmed by the Berlin Blockade of 1948 and the first Russian atomic bomb tests in the following year. The start of the Korean War in 1950 unleashed a surge of defence spending by the United States that was only partially related to the war itself. Defence budgets jumped to over $40 billion, establishing a level for ‘peacetime’ military spending that in real terms (that is, corrected for inflation) has been nearly constant, except for the bulge caused by the Vietnam War, until the current upward trend beginning in 1976. This high and relatively steady level of spending formed the basis for the establishment of a ‘permanent’ defence industry.

The second major influence on the evolution of a defence industry in the private sector was the significant increase in the rate of technological change in weapons and associated systems during and after World War II. The new technologies associated with nuclear weapons, jet aircraft, missiles, radar, satellites and nuclear-powered submarines, to name just a few examples, did not have a well-established base in the existing arsenal system. Indeed, there was a general perception that the in-house laboratories of the military services were not well suited to advance technology in these rapidly changing areas because of their limited flexibility in terms of such things as salary levels and hiring practices under the civil service regulations. Technology and a political preference for private enterprise combined to shift resources from the in-house estab...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Table of Contents
• List of Tables
• List of Figures
• Preface
• Introduction: The Military Sector and the Economy
• 1. The United States
• 2. The Soviet Union
• 3. France
• 4. The Federal Republic of Germany
• 5. Sweden
• 6. Czechoslovakia
• 7. Italy
• 8. China
• 9. Israel
• 10. Developing Countries
• Appendix 1: The United Kingdom
• Appendix 2: Use of Raw Materials for Military Purposes
• Notes on Contributors
• Index