Efficiency, Industry and Alternative Weapons Procurement Policies

NATO weapons markets are by no means Pareto-efficient. They are characterised by government-created monopolies and trade barriers, and are more appropriately analysed as political markets (i.e. a study in public choice). Weapons procurement policy is determined by agents in the political market place, with vote-sensitive domestic governments influenced by budget-maximising defence agencies and industry departments, as well as by producer groups in the form of weapons contractors. Any assessment of efficiency is complicated by two factors. First, procurement policy usually embraces a variety of diverse and often vaguely-specified objectives, including advanced technology, jobs, the balance of payments and the ‘avoidance of undue dependence on foreigners’. Second, weapons contracts are usually subject to state imposed profit controls, so that profitability cannot be used as an efficiency indicator. This paper considers some aspects of the efficiency of both weapons industries and procurement policies. Aerospace is taken as a case study. A starting point is an analysis of the differences in efficiency between the American and European aerospace industries. What, for example, are the efficiency implications of alternative market structures and associated national procurement policies?