James Hasik

Yesterday was the 300th anniversary of the Battle of Poltava, the famous battle between Swedish and Russian armies led by Charles XII and Peter the Great, respectively. It was a crushing defeat for Charles: unable to return to Sweden, the king would wind up spending the next five years in exile in Turkish Moldavia; captured by the Russians, his second-in-command spent the next nine years as a POW. More generally, the battle is generally considered the end of Sweden's bid for world power status, and the rise of Russia’s.

Sweden as a world power may seem a bit far-fetched, but Sweden has significant influence worldwide, striving to “punch above its weight” for a country of just nine million people. Even during the Cold War, when Sweden worked to build defenses to ward off the Warsaw Pact without joining NATO, successive governments in Stockholm kept troops abroad on peacekeeping duties as part of their commitment to collective security. During the Congolese Civil War (1961–64), the Army and Air Force even engaged in relatively heavy combat. The relatively centrist government in Stockholm today may not be looking for fights overseas, but it is keen to build more capability for this sort of work.

After all, despite the recent unpleasantness in the Caucasus, the Russian threat is generally considered to have subsided, so the emphasis in Baltic security has necessarily shifted towards increased overseas commitments. The peace dividend is being applied not just to relatively lower military spending, but to opportunities to enforce and keep the peace further abroad. In Sweden, in the UK, in the US, and throughout the world, this is necessarily leading to different priorities in spending and patterns of industrial structure. This week saw two notable developments in Sweden along these lines:

Patria’s armored vehicle sale to the Army. The FMV selected Patria’s AMV as the 8x8 meant to equip battalions of the Swedish Army meant for overseas service. BAE Systems Hägglunds is laying off 300 staff as a result. Dagens Industri reported yesterday that the head of the business unit at BAE that control Hägglunds sent a rather nasty letter to Prime Minister Reinfeldt, going as far as to question whether the company "would continue to invest in or have a presence in Sweden in the wake of the lost order." (That's the translation from the English-language paper in Stockholm).
Saab’s offer of a 50-50 partnership in Brazil. Saab has had meaningful export success with its Gripen in South Africa, Hungary, the Czech Republic, Thailand, and the UK (at the Empire Test Pilot School). It is still chasing opportunities in Switzerland, the Netherlands, and elsewhere. India and Brazil, however, are the big prizes. In pursuing Brazil, Saab recently offered to shift up to half of Gripen production there—today’s Brazilian aircraft industry, after all, is impressive, if only for Embraer.

Some years ago, a past head of the FMV observed that there was a defense industry in Sweden, but not a Swedish defense industry per se. That is, research, development, and production were becoming increasingly internationalized, and the trend was not abating. While national requirements clearly remain for a country with such relatively unique geography, these don’t extend to every system. Hence, Hägglunds’ work on adverse-terrain vehicles like the Bv206S and the BvS10 Viking are more likely to garner national support than work on a brand-new 8x8 vehicle, regardless of how compelling the concept is. The Gripen was initially tailored to Swedish requirements, with its ease of operation and maintenance, and short-field capabilities. Today, the exact future path for the Swedish Air Force is less clear, so Saab is aggressively looking worldwide for opportunities, and specifically outside of what Gripen marketing director Bob Kemp notes as “the five members of the UN Security Council.” In particular, not everyone wants to put up with American restrictions on technology transfer.

The lesson from Sweden this week is indeed broadly applicable beyond the Baltic. In the UK, the Ministry of Defense has announced that it is unconcerned about where its armored vehicles are built, so long as they can be maintained and upgraded in Britain, and it controls the intellectual property behind them. The United States will remain an exception for some time—as The Hill reports this week, the US-UK Defense Trade Cooperation Treaty is still unratified two years after George W. Bush and Tony Blair signed it. Efforts to burden it with additional “oversight” provisions, however, have the feel of a rearguard action that is merely slowing the retreat. Russia will be Russia, and we are not predicting any sudden changes in German and Italian affection for local vehicle- and ship-building. But overall, the concept of dominating local markets by a Wal*Mart strategy—controlling a local asset too big to economically displace—is falling in utility.

One of my colleagues observed today that according to a recent survey in CFO magazine, US business managers appear only half as likely as their European or Asian counterparts to consider environmental initiatives as worthy of sustained investment. It’s possible, another suggested, that the Americans are just being more honest: most businesses consider, say, energy savings efforts as sensible cost-reduction measures, whether saving kilowatts is good for the planet or snail darters or whatever. Consumers’ decisions often get down to price: British Airways carbon offsets program—in which travelers willingly pay more their tickets so that BA can plant trees somewhere—has reportedly had a take-up rate below five percent.

In commenting myself, I made the point that I am very suspicious of survey opinions, as they are considerably cheaper than cash. Thus, I tend to look in my work at how people and organizations—and not just early adopters—actually spend their money. As Vinod Khosla recently said, in explaining the up-and-down sales rates of the Prius, “five percent of Californians will buy anything.” A perennial money-loser for Toyota, the car could be derided as a marketing stunt—or it’s quite possibly a little something more.

Suppose that I run an airline, and I think that a government, in whose jurisdiction I have assets or operations that are difficult to relocate, is going to tax the life out of my petroleum usage or carbon emissions or something like that. Getting ahead of the curve and figuring out how to fly on pixie dust would be green, but more to the point, it would keep my business from tanking. If I’m running Toyota, I might some money on that Prius thing because the R&D and the burnished image will keep me ahead of my rivals.

This is obvious, of course, but we might ask ourselves how aircraft manufacturers and military contractors might crassly pursue self-interest in this environment, either by surfing the tide of policy, or by attempting to influence its direction in seeking rents. If build a cleaner jet engine, I’d want airlines required to buy the cleanest engine they could; if I build a cleaner diesel engine, I’d want EU military forces signed up for the maximally restrictive emissions controls.

Almost every significant military contractor appreciates how influencing legislation and policy important aspects of strategy, but the efforts are usually focused on the end products—getting governments to buy one’s own kit instead of the other guy’s. Influencing the requirements-setting process is more subtle, but upstream of that is influencing regulatory action. Engine manufacturers, energy firms, and construction companies understand that, but the more clever military contractors could probably do more for themselves in this arena.

And by the way, my VW New Beetle does sound a lot cooler than any of my Austinite neighbors’ Priuses.