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The free market case against arms promotion
Samuel Brittan: The New Statesman 18/09/03

I was tempted to begin this article by saying that if I were 20 years younger I would have joined the demonstrators against the government supported arms fair held this September in a closely guarded location in Docklands. But this would have been untrue.

For 20 years ago I held very similar views to the ones I do today about government supported sales of arms to dubious regimes, but I did not have the courage to move away from cosy discussions of Treasury and Bank of England strategy and take the physical and career risks involved in such protest activity.

So I am certainly not going to sneer at people, whether in beards or sandals or not, who - to use an unfortunate metaphor - move into the firing line. Not all the protestors were against globalisation or even against capitalism. But even supposing that most of them were, they would still right when it comes to arms sales.

The exhibition promoter, DSEi, boasts that it is the only exhibition organised in association with the UK Ministry of Defence, whose secretary of state, still Geoff Hoon at the time of writing, compiled the introduction to the pocket preview. The promoters say that all exhibitors "are required to attest that their exhibits comply with English law EU/UN legislation and the UK's international undertakings on export and arms control."

But you do not have to be an expert in this area to sense the very murky problems of interpretation. Nor to realise that this fair is supported by that part of the government machine concerned to promote arms sales rather than to police them. At a previous such fair in 2001 the countries invited to attend included China, India, Kazakhstan, Pakistan, Philippines, and Russia among others involved, in the opinion of the US CIA, in some kind of internal or other conflicts (No Nonsense Guide to the Arms Trade, Gideon Burrows, Verso, 2002).

The case against such sales is enormously strengthened by an understanding of how a competitive market system works: which is of course different from the ersatz understanding displayed by Third Way politicians who claim to espouse it. Indeed official support for the arms trade is the last redoubt of the discredited industrial policy of picking "national champions" of which we heard so much from Old Labour and corporatist Tories in the 1970s.

Critics of the arms promotion policy do not have to be against all weapons sales. Indeed more specialisation inside Nato would be desirable. The same secretary of state who supports the arms fair has been boasting of his success in overriding the Treasury and securing an order for "British" Hawker trainer jets when the Treasury would have preferred an open competition.

The critics do argue that arms sales should be confined to genuine allies, which excludes dubious associates such as Saudi Arabia, and not supported by official export credits, royal visits, prime ministerial sales drives and other pressures on governments to buy British arms.

The favourite arguments for promoting arms sales are exports and jobs. The whole export drive is a hangover from the post-war period when exchange rates were fixed and currencies inconvertible. It is quite out of date in a world of floating exchange rates and massive capital movements where the balance of payments balances automatically. Some of the anti-arms demonstrators may not like this world. But its existence is their best defence against bogus arguments for promoting the sale of machines which cause death and destruction.

The ranks of government economists are full of "realists" with a living to earn, who tell me that it is hopeless to campaign against the export drive and that it would be much better to concentrate on making government support less erratic and irrational than it tends to be. My own response is to start with that part of the export drive which is not merely a waste of resources but contributes to death and destruction of innocent human beings.

As Adam Smith wrote: "There is an awful lot of ruin in a nation." If the economic wastage were all, I would hardly bother to write articles which some of my colleagues regard as a diversion from the headline economic issues and perhaps puzzle the usual opponents of arms sales when they see support coming from an unashamed defender of competitive capitalism.

Indeeed it is the very smalless of the economic effects which give the game away. Because arms sales are such a modest proportion of the national product the adjustment and dislocation costs of reducing them would be miniscule. This might make them uninteresting subjects of general economic debate. But they remove any shred of justification for the government's case.

We are often told that full employment does not mean that everybody should stay in the same jobs. But when it comes to arms official policy is still in the grip of the "lump of labour theory", which assumes that there is a fixed amount of work to be done and that any-labour saving development must lead to workers being put on the scrapheap.

But it is worse than that. It assumes that there is a constant amount of work to be done, but that it must always be the same work. Such arguments were rightly ridiculed when it came to closing down uneconomic coal mines. But they are trotted out again and again to justify the support of the military- industrial complex.

It is worse than that. For people who have spent their lives in a limited skill such as mining are surely more difficult to retrain and move than people who have the more general engineering skills required in the manufacture of arms, aircraft or heavy capital goods.

Of course size makes a difference. If a country is highly specialized in one class of product - say Hong Kong textiles in the 1950s - then indeed a sudden closure of the market for this product would come as a shock and relocation of workers would take time.

But this is far from the case with UK weapons exports. Their magnitude was recently investigated by a very under-publicised specialist group including the chief economist of the Ministry of Defence. Beforehand the MoD was touting the report. But when it did not like the results it went very quiet and made sure that it was published as an academic research paper by the University of York ( The Economic Costs and Benefits of UK Defence Exports, Centre for Defence Economics, York 2001.)

The York Report conservatively put official support at around 80m per annum which it argued was slightly more than offset by the contribution to the overhead costs of British weapons manufacture. Critics argue that these numbers under-estimated the ECGD contribution and that there was a net subsidy of 420m a year ( The Subsidy Trap, Oxford Research Group and Safer World 2001.) But even on the lower estimate the York group concluded that the net benefit to the British economy was so small that balance of argument on military exports should "depend mainly on non-economic considerations."

The York Report concluded that the economic effects of halving UK arms sales would be relatively small and one off. It would, it estimated, result in the loss of nearly 49,000 jobs in this sector and their replacement over a five year period by around 67,000 new jobs, at somewhat lower wages, in civilian employment. This is much less than the earlier loss of 150,000 jobs in this same sector in a seven year period following the end of the Cold War and also less than the 180,000 lost in the coal industry between 1985 and 1993. It also compares with an estimated number of engagements - that is the gross number of people moving into jobs - during 1999 of nearly 6 million and a net increase in employment in that year of 284,000.

Predictably the MoD ran a mile away from the findings to which it contributed. Its response was left to the Defence Export Services Organisation (which means what you think it means) which ignored the central findings and cherry picked among the numbers. For instance it highlighted the total adjustment costs of around 1bn from the relocation of workers and capital, glossing over the fact that it is expected to be spread over five years and amounted at an annual average to 0.02 pc of GDP.

Many New Statesman readers might argue for special government efforts to find new jobs for displaced armaments workers, while I might be inclined to rely more on the normal ebb and flow of the labour market. But these are surely second order differences compared with the main question.

The pull of constituency interests, the hope of political donations and no doubt many other murky influences play a part in the politics of arms sales. But in the last resort it is the incapacity for abstract thought in Downing Street, the Foreign Office and the Cabinet Office which weakens fatally the resistance against such pressures. In the end it is a moral question. But what is so maddening about the discussion is, that here is a rare case of the cost of following the right action is extremely small, if it exists at all.

The last resort argument of the arms promoters is that if the UK does not supply these arms others will step into the breach. As General de Gaulle said when told that the Russians would take the place of the French in Algeria, "I wish them much joy of it". We should not pretend that a better UK arms policy would transform form the world, But at least it would be a nudge in the right direction.


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