Inti Landauro has a brief and entertaining report in today’s Wall Street Journal—“France's Hollande Calls for More Alliances in European Defense Industry”. Here’s the essence of it:
French President Francois Hollande Friday called for more alliances in the European defense industry to boost the region's capacity. "Industrial alliances must be agreed upon on a European scale," Mr. Hollande said in a Friday speech at the main French military school. He didn't provide details on what kind of alliances he was thinking about.
Le président said rather little on the subject, and as Inti went on to note, this speech came not so long after the collapse of the merger plan between EADS and BAE Systems. I am speculating a bit, but perhaps he was saying the Germans won’t let us create a European national champion, so alliances will get us out from under this problem. We all know that problem: France wants to play at the level of the Americans, but with French equipment, and yet doesn’t want to spend the money to make that happen with small national production runs. Thus Hollande seeks solidarité across the continent.
But before jumping on the alliance bandwagon, one might read Marc De Vore’s excellent article in the 4th quarter 2011 issue of Security Studies, “The Arms Collaboration Dilemma: Between Principal-Agent Dynamics and Collective Action Problems”. (If you’re really reading closely, you may have noticed that I cited him just the other day in my working paper on the Iron Dome system, but that’s a lot to ask.) He also collaborated with Sandra Eisenecker on a similar conference paper in 2010, “The Three Ages of Armaments Collaboration: Determinants of Organizational Success and Failure”. They note that pan-European programs began replacing binational programs starting around 1968, as defense ministries’ equipment preferences began favoring bigger and more complicated systems. Just consider the difference between the Alpha Jet and the Transall on the one hand, and the Typhoon and the A400M on the other. More customers were needed to foot the big bills for longer and more complicated development programs.
I hope that Mr. Hollande isn’t looking for another Airbus Consortium. That outfit eventually sorted out most of its problems, but becoming a proper company governed more by economic than political logic was an important step. For as De Vore observes, past research on multinational collaboration hasn’t been encouraging. Programs run that way don’t perform remarkably well in cost or schedule.
Having once written a book about alliance management in defense contracting, I might be expected to endorse the concept. But my study didn’t endorse alliances as a panacea, and that work specifically concerned smaller, more manageable arrangements between systems integrators and small developers of novel platforms and weapons concepts. That can be hard, but I also believe that it’s necessary to try. The tanks, ships, jets and the like on which rest much of the combat power of NATO’s forces are built and refurbished largely by large firms. But while they once built most of the subsystems themselves, for years now they’ve relied on extensive networks of mid-sized specialists to produce the bulk of those. And that’s where much of the interesting innovation is underway.
Some of the states in the North Atlantic alliance have been starting to pay attention to this. On National Defense magazine’s blog a few years ago, Sandra Erwin noted that the 2010 Quadrennial Defense Review described the American military-industrial policy as “Stuck in the 20th Century”, as it was too focused on the top tier of production. That same year, then-Defense Minister Liam Fox told Vago Muradian of Defense News that he saw two big questions for British policy in that realm: what is really a necessary sovereign capability, and how can the government best put small and medium-sized business to work helping? “I see the small businesses in the U.K.’s defense sector,” he said, “of which there are very many—they are the cutting edge.”
And since then, the Pentagon in particular has started actually paying attention. Industrial policy chief Brett Lambert’s Sector-by-Sector, Tier-by-Tier study has been aiming to reveal just how deep and wide those supply chains go. I had the opportunity to see a sanitized version of some of the work (see the enclosed photo), and they have certainly been doing their homework. Indeed, it seems that the folks in the Building and at Mark Center are really starting to care about this stuff.
So I hope that Mr. Hollande catches up. I’m anxious for another multi-national grand projet as a testament to Europe’s industrial excellence. I’ve got ample evidence of that, in a wide range of excellent products that the Pentagon ought to consider far more frequently, as cost-saving alternatives to yet another developmental science fair. Get behind those, and I expect the investments will prove more fruitful.
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