Home guard: defence offsets are arrangements between a national government and a foreign arms supplier to direct some benefits of the contract back into the purchasing country as a condition of sale. Ron Matthews analyses the UK government's version of offsetting, 'industrial participation', which is designed to protect the domestic defence industry.
| Author | Matthews, Ron |
| Position | Defence Procurement |
The disintegration of the Soviet Union in 1991 ended the cold war and sparked off unparalleled changes in the international defence industry. All countries, save for bankrupt North Korea and Cuba, are now fervent disciples of Adam Smith, and defence has been touched just as much as the commercial sector by this neo-liberal revolution.
Defence spending has decreased worldwide, the industry has consolidated and traditional military activities, based on huge inventories of weapons, have given way to the doctrine of "transformational warfare". This is characterised by military agility, mobility and adaptability, supported by heavy-lift logistic systems and network-based command-and-control systems that deliver precision-guided munitions to devastating effect. As shown in the Iraqi war, the US is at the cutting edge of this process (see "Costing a bomb", May).
The reductions in global defence spending since the end of the cold war have shifted the market in favour of buyers. Arms are now harder to sell, not only because defence budgets are shrinking, but also because modern weapons are so costly to develop as economies of scale are lost. This is a vicious circle, but it fosters an economic environment that presses for cost reduction through competitiveness.
Reality therefore seems to contradict Adam Smith's view that defence is the ultimate public good. The premium that he placed on defence-industrial sovereignty has been superseded by the urgency with which governments are seeking value for money. The result is what may be termed defence globalisation. This phenomenon is characterised by a number of policy trends. They include international arms collaboration; international outsourcing through the development of global subcontracting networks; and international commercial off-the-shelf (Cots) acquisition, both of final defence equipment and of intermediate commercial subsystems and components.
Another key aspect of defence globalisation is what's widely known as defence offsets. These happen when the buyer's purchasing power is translated into pressure on a foreign vendor to furnish offsetting investments to compensate the purchasing nation for not engaging in domestic weapons production and for choosing its products over those of a competitor. Offsets are often hailed as a win-win arrangement, but on a societal level they are clearly not in the spirit of free, multilateral trade. For the purchasing country, the benefit is "free" investment...
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