Military Industrial Boondoggle

Today in my defence policy course my students and I shall be spending some time discussing defence procurement. As luck would have it, as I was munching on my morning bread and marmalade, a highly relevant article swan into view in the op-ed page of my local rag, The Ottawa Citizen, after which I then discovered a new US report on a similar topic.

The Citizen article concerns Canada’s shockingly badly managed naval shipbuilding program. Written by a former Assistant Deputy Minister of Defence, Alan Williams, the article declares that ‘Canada’s Warship Program is Sinking Fast.’ In this Williams reports that Canada’s plan to build 15 new surface combatants originally had

an estimated cost of $26 billion, with deliveries to begin in the early 2020s. Today, the forecasted costs to build these ships is far beyond that. Deliveries are to start in the early 2030s, a decade later than scheduled … [The Parliamentary Budget Office] estimates that it will cost $77.3 billion … to maintain these ships over their expected total life-cycle would amount to an additional $208 billion, for a total life-cycle cost of $286 billion. In comparison, the funds available in DND’s [Department of National Defence] budget over the next 30 years to acquire and maintain its capital goods for the army, navy and air force combined is only $240 billion. This program alone would bankrupt the department’s capital and maintenance accounts for the next 30 years.

Despite this, DND insists that, ‘It will neither entertain a new design nor undertake a new procurement process.’ Williams adds that the United States is building very similar ships for about one-third of the price of the Canadian ones, and also that DND rejected an offer by the Italian company Fincantieri to build the ships in Canada ‘at a fixed cost of $30 billion’, less than half what DND is now paying. ‘As currently planned, these ships will likely never be built. They are simply unaffordable,’ concludes Williams.

But could the government cancel such a project after throwing so much money at it? That’s where the US report comes in. Published by the American Enterprise Institute, and entitled The 2020s Tri-Service Modernization Crunch, the report mentions how the shift in priorities during the War on Terror led the USA to cancel a whole series of projects originally designed for fighting wars of a different type. You can see the details in this chart, showing cancelled projects from 2002 to 2012 alone.

The ‘Sunk Cost’ column shows how much the US government had already spent on the project by the time it was cancelled. For instance, the Future Combat System, designed to revolutionize the US army by equipping it with networked vehicles, cost a staggering $22 billion before it was scrubbed. In total, in just one decade 2002-2012, projects were cancelled that had cost $81 billion. That’s $81 billion of taxpayers’ money that produced absolutely nothing! Nadda. Think about that for a second.

Waste on this scale is quite staggering. You’d think people would be outraged. But for whatever reason, it seems like nobody cares very much. It’s as if it’s just assumed that this is the cost of doing business.

Meanwhile, some people are doing very well out of it, namely defence industries. They, no doubt, would tell us all that the money isn’t wasted, because it all helps to stimulate the economy. ‘Money spent on defence boosts growth’ they tell us. But does it? I decide to check, and discovered this little table that summarizes economists’ research into the multiplier effect of defence spending.

For those of you without economics training, the multiplier effect is a measurement of how much the economy grows as a result of expenditure. The idea is that if the state spends some money on x, then that produces spending on y, which in turn produces spending on z, so that for every buck you spend, you stimulate the economy as a whole by several bucks. So what’s the multiplier of defence spending? The table tells us.

As you can see, research on the matter suggests strongly that for every dollar spend on defence, you get less than a dollar’s growth in the economy, with most studies showing a multiplier of around 0.6.

So, defence spending isn’t so great for the economy after all. I can’t say that I’m surprised. Yet somehow, we allow huge sums of money to be squandered on unnecessary and grotesquely overpriced military projects. I don’t know about you, but it suggests to me that there’s something seriously wrong with our democracy.

PS. An article published yesterday in Sputnik News tells us that the Russian Navy is planning to test its new Zircon hypersonic missile at the start of the summer. Coming on top of the deployment of Russia’s Avangard intercontinental hypersonic glide missile, this puts Russia well ahead of the rest of the world in the realm of hypersonic technology. Russia’s defence spending is about three times that of Canada in raw dollar terms (about $65 v. $22 billion). Yet, it’s in a completely different league. We can’t build a few ships. They can develop hypersonic missiles. All of which makes me think that raw numbers of defence spending don’t tell us everything. Just as important is how effectively the money is spent. From that perspective, we don’t seem to be doing so well.