There is much talk about the need to rebuild the defence industrial base. No doubt this will be covered extensively in the UK Strategic Defence Review and the EU has appointed a Defence Commissioner who has made some bold statements on the demands that will be placed on member states. There is an positive EU Defence Industrial Strategy document here. However, whilst awareness and ambitions have changed the path to delivery of the desired outcomes appears to be centred on a continuing belief, bordering on faith, that the market will deliver. Surely this now falls into the category of doing the same thing and expecting different results. As with many issues there is much time and effort expended on describing the problem with little or no attention on how to improve matters.
Let’s add to the problem definition by stating some assumptions:
The weakness of the European Defence Industrial Base (EDIB) and the demands placed on US defence industries by other priorities were factors in the failure of deterrence that resulted in the Russian aggression in Ukraine.
The weakness in the EDIB, including UK, persists such that the potential withdrawal of US support for Ukraine post the November 2024 election would be catastrophic for Ukraine and lead to Russia claiming victory in the most kinetic conflict in Europe since 1945 that would, in turn, facilitate further Russian aggression to NATO nations that are also in the EU.
Whilst these assumptions are open to debate, they are also fair and reasonable. Also perhaps it would be helpful to state that whilst we refer to the EDIB no single nation is self-sufficient in the design, development, manufacture and supply of defence products systems and services. The supply chain for the EDIB, including the United Kingdom, stretches across the European nations and the world, including of course the United States. In UK, and no doubt other nations, the public is often presented with the impression of self-sufficiency, which conceals the complexity and vulnerability of the supply chain that is usually managed by a small number of Prime Contractors. Self-sufficiency is simply unaffordable. Whilst the decline, managed or otherwise, in defence industrial capability in Europe over the last forty years has been such that it now represents a major risk to security it would be a mistake for each nation within NATO or the EU to embark upon independent solutions.
One of the outcomes of the market based approach to procurement to yield the ‘peace dividend’ and to satisfy the efficiency hawks in finance ministries across Europe has been a fragmentation of equipment types and industrial capability. For example the EU Defence Commissioner elect, Andrius Kubilius, has called each nation to sustain minimum stockpiles of ammunition, but which ammunition? There are four or five different 155mm systems across Europe, produced by various intertwined supply chains. the decisions on what investment in industrial capability are made by companies that are invariably beholden to stakeholders other than the Customer. The market has sought efficiency conditioned by national political requirements for defence contracts to provide jobs.
The subtle but important shift in worldview that would radically improve Europe’s chances of establishing a credible defence industrial base would be to consider industry as a key element of military capability on a par with the other recognised domains - land, naval, air, space, cyber etc. This perspective is well understood by USA, China, Russia, South Korea but appears to have eluded European nations, particularly the UK, who have been attracted by the efficiency benefits of treating the market for defence products, systems and services, like any other market and holding the industry at arm’s length via a set of ever more complex ‘value of money’ focused contracts.
The market for defence products, systems and services is an effective monopsony. the performance risk is held by the buyer, who has the power and opportunity to play a key role in designing the supply chain. There is a false belief that any role for the buyer in defining the supply chain will corrupt the purity of the risk transfer achieved via the contract. Whilst within the bounds of the contract this is true, the impact of a failure to perform cannot be mitigated or redressed by financial damages and if, as the buyer, there is a vital interest in the resilience of, and risk in, the supply chain it would appear to be foolhardy to trust that to a counter party who has fiduciary responsibilities and is probably managerially incentivised, to enhance financial returns for shareholders.
If industry is redefined as a an element of military capability what could be done to improve the trajectory of the EDIB?
The alliance nations (NATO and or EU) should consider what industrial base is required to meet their deterrence and combat requirements. These requirements could be set against criteria such as Innovation and Technology; Resilience and Capacity.
Develop and implement a roadmap to deliver interoperability / commonality. The rationalisation of equipment and system models should not be taken as a commercial victory for individual nations or businesses. The same number, if not more, of a particular type will be required. This will require co-operation and possible licence manufacture by businesses that are currently set up by buyers to be competitors.
Redefine the commercial relationship with industrial partners to properly define risk allocation and returns. Competition has proven to be a blunt instrument that has decimated the industrial base. Whilst it would be an error to blindly follow the US model, there are some lessons to be learnt. Europe should be able to sustain a defence industrial base that is similar in technological achievement and productive capacity to that in the US.
Focus on military outcomes rather than national interest. Will a plant located in Country A benefit the alliance more than being located in Country B? It would be pointless to build in Country B to satisfy workshare or value for money for the taxpayer if the same taxpayer’s security is jeopardised by a lack of resilience in the industrial base.
Given the importance of the defence industrial base to national and alliance security, and given the power of the buyer, it is vital that nations play a greater role in establishing a innovative, robust and resilient supply chain. It is too risky to be left to commercial drivers alone. Moving industry inside the boundaries of military capability looks like a simple subtle change, however the implications are huge for the alliance and companies alike. It maybe that this is seen as a step too far, however Europe is at war, surely it is time to change the modus operandi that got us here in the first place. If we are to deliver different results its time to make subtle and significant changes.