NATO Arms Co-operation by Keith Hartley

Author:Keith Hartley [Hartley, Keith]
Language: eng
Format: epub
Tags: History, Military, General, Weapons, Wars & Conflicts (Other), Study Aids, Armed Forces (Incl. ASVAB)
ISBN: 9781000262995
Google: NLQKEAAAQBAJ
Publisher: Routledge
Published: 2021-01-26T16:02:26+00:00

EEC balance with USA −1530572

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 Source: EEC (1981).

 Notes: (i) Airliners are for aircraft in service and on order, by value, excluding the USSR, (ii) Trade flow figures are incomplete. They are for airframes and engines only and exclude UK data on trade in airframes. (iii) ECU = European currency unit, (iv) n.a. = data not available.

Aerospace is an example of a dynamic market subject to government protection and regulation. The market has generated technical progress in the form of faster, larger and more productive military and civil aircraft, with the substitution of jet engines for propellers and missiles and rockets for fighters and bombers. The speed of combat aircraft increased from some 600 m.p.h. (965 km h) in 1945 to over 1600 m.p.h. (2575 km h) by 1975. Rapid technical progress means that any monopoly tends to be temporary. The emphasis on technical progress is a result of government demand for more advanced military equipment, the technological benefits being subsequently applied to civil aircraft and non-aviation products (i.e. technical spillovers). In fact, aerospace industries are greatly affected by the policies of their national governments. During the 1970s, military contracts accounted for 70-75 per cent of the total business of the EEC’s aerospace industries, compared with 50-55 per cent in the USA (EEC 1981). Thus, governments are major buyers of military aircraft and missiles. They can use their procurement policy to determine the type of project and hence technical progress, together with the size of any domestic aerospace industry, its structure, entry and exit, prices, profits, efficiency and ownership. When purchasing military aerospace equipment, governments have a complex choice problem. They have to determine the extent of the market, and select a project, a contractor and a contract. Whether contracts are cost-plus or fixed price, and the associated arrangements for policing and regulating profits on non-competitive government work, can affect firm behaviour and contractor efficiency. Choices also have to be made on the point in a project’s life cycle when competition should cease and selection occur (e.g. ‘fly before you buy’). The solution of these procurement choices determines the efficiency of an aerospace industry. However, the choice set and government concern with wider ‘ends’ than the acquisition of military aerospace equipment raises doubts about the applicability of the economists’ traditional market structure-performance framework. Aerospace markets are more appropriately analysed as political markets in which the relevant economic agents are governments, bureaucracies and contractors (Chapter 2). In such political markets, where competition is absent (e.g. European nations), firms receiving subsidies have inducements to pursue aims other than maximum efficiency and maximum profits. They might prefer to consume managerial ‘perks’ such as luxury offices, company cars, or increase expenditure on staff (e.g. pretty secretaries, empire building, employment of scientists). Governments might react by imposing profit controls on the recipients of subsidies; but firms are likely to respond by consuming even more managerial ‘perks’ and spending more on staff! Subsidised firms subject to profit controls could also have a reduced incentive to resist wage increases (a testable hypothesis).

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