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The Economics of the Arms Trade  - FACT SHEET

(This fact sheet is a much-shortened version of the lecture given by Sir Samuel Brittan to the RSA on March 28th, 2001 and donated to the Westmorland Society of Friends Project “Preparing for Peace”. The full text of the lecture can be found at http://www.preparingforpeace.org/)

The business

The official estimate for British arms sales is that they amounted in 1999 to about £4bn or appreciably less 0.5% of GDP.  A great part consisted of aircraft and aerospace parts.  The number of workers employed is put at 90,000 or just over 0.33% of UK employment.

The moral case against

A market must operate within a framework of law and moral convention.  Investment Bankers are not permitted to finance firms that sell poison and there are strong constraints on the emission of lead into rivers or on pollutants into the chain of foodstuffs. 

My contention is that exports of arms to dubious regimes should come within the sphere of what is out of bounds – and more decisively so than at present. Britain should adopt a more effective ban on the sale of arms to dubious regimes and an end to subsidies for arms sales to any part of the world.  There is a pretty clear basic list of regimes that commit aggression, support terrorism or oppress large bodies of their own citizens.

Would we have to pay a heavy economic price for such restraint? 

 

 

THE ECONOMIC CASE AGAINST THE ARMS TRADE

1.  SUBSIDIES

A good academic estimate of the direct cost of government support to the arms trade is about £400m per annum.  This does not cover the arms promotion aspects of many royal, political and military visits and activities, which are ostensibly for other purposes. The chart shows how this is made up:

 

 

 

 

Organisation

Detail

Net subsidy in £m

ECGD (Export

Credit Guarantee

Department)

Net cost of supporting military exports

  52

ECGD

Subsidy from not requiring normal return on capital

  66

MoD

Defence Export Services Organisation

  16

MoD

Use of armed services to promote sales

  20

FCO

Support by embassy staff

   6

MoD & FCO

Defence attaches

 16

HMG

Official visits

  20

Inland Revenue

Tax breaks on bribes and other corrupt practices

128

MoD

Distortion of procurement costs

 50

TOTAL

TOTAL NET SUBSIDY FOR MILITARY EXPORTS

374

Subsidising Exports

The root of the matter is the belief throughout the political and business establishment that exports are worthwhile for their own sake, irrespective of the terms on which they are sold and how much they have to be subsidised. 

The origin of both the export drive and the reinvention of so-called balance of payments problem was in the immediate post-war years when sterling was on a fixed exchange rate and was also inconvertible.

By contrast we are now back in a world of relatively free capital flows.  There are bound to be large imbalances between countries with high savings ratios and relatively few investment outlets and other countries, such as the United States, which have had low savings but many investment opportunities.  Moreover we now have floating exchange rates

In today’s circumstances export drives really amount to the diversion of public resources towards special interest groups under the guise of patriotic slogans.

The basic political and business fallacy is not to realise that exports, like investment, are a cost and not a benefit.  If we could finance the imports that British citizens want to buy without any exports – say by interest-free loans from overseas on indefinite repayment terms – we would be better off. 

2.   JOBS

A popular view is that some arms sales may be undesirable, but that they help promote jobs, growth and employment.

The argument that jobs derived from exporting weapons cannot be replaced is akin to the argument for keeping uneconomic coalmines open for the sake of employment.  Such arguments are based on the myth that there is a lump of labour that is engaged in making specific products.  Then, it is supposed, if orders or output are lost in one area they cannot be regained anywhere else.  But people change jobs constantly.  Well over three million people leave the unemployment register each year even in recession periods, over half of them for new jobs or training.  Indeed, it is almost certainly easier for arms workers, many of whom have a wide range of valued skills, to find new jobs than it was for miners, whose training was more specific 

There are those who ask, ‘Where will the new jobs come from to replace those lost in exporting weapons?’  The onus is on them to explain how it is that other jobs, on a much greater scale, arose to take the place of handloom weavers or the drivers of horse-drawn carts – or for that matter the owners of pack-asses replaced by wheeled traffic at the dawn of history.  The multiplication of population and the multiple rise of productivity in the last two centuries, so far from these having caused mass unemployment, have been accompanied by a multiple increase in the number of jobs. 

Such arguments are based on the myth that there is a lump of labour that is engaged in making specific products.  Then, it is supposed, if orders or output are lost in one area they cannot be regained anywhere else.  But people change jobs constantly.  Well over three million people leave the unemployment register each year even in recession periods, over half of them for new jobs or training.  Indeed, it is almost certainly easier for arms workers, many of whom have a wide range of valued skills, to find new jobs than it was for miners, whose training was more specific 

There are those who ask, ‘Where will the new jobs come from to replace those lost in exporting weapons?’  The onus is on them to explain how it is that other jobs, on a much greater scale, arose to take the place of handloom weavers or the drivers of horse-drawn carts – or for that matter the owners of pack-asses replaced by wheeled traffic at the dawn of history.  The multiplication of population and the multiple rise of productivity in the last two centuries, so far from these having caused mass unemployment, have been accompanied by a multiple increase in the number of jobs. 

Let me cite two related bottom-up industrial studies.  These have examined the impact of a one-third reduction in arms exports based on the average of the decade 1985-95 when the size of the arms sector was somewhat larger than it became at the of the century.  The output of weapons and ammunition would have been cut by about 12% and of aero products by nine per cent.

The maximum number of jobs lost would have been 40,000.  On the basis of labour turnover estimates, the authors estimated that 40% would have found new work within a year and another 13% the year after that.  About 27% would have taken more than two years to find a new job.  Some 20% would have left the labour force.  The impact would have been greatest where defence employment is concentrated in one or two plants in individual towns such as Bristol, Plymouth, Yeovil and Preston.

 

3.  OTHER COUNTRIES WILL IF WE DON’T

The argument that others will export weapons if Britain desists is a dangerous defence for any aspect of the arms trade.  The very same argument was used to defend the slave trade in the 18th century and the opium trade to China in the 19th century. If other countries want to compete with us in foolish subsidies, let them.

  

“Can we justify bribing people to buy arms they may not need with money their taxpayers cannot afford, simply to inflate the number of jobs in a declining industry?” (J Roeber)

The economics of the arms trade - Scheme of work