Does Britain still need an arms industry?
Matthew Lynn says the business of exporting weaponry to despotic regimes is of little value to the British economy but is still capable of causing national embarrassment The fiercer the fighting for our boys in Basra and Helmand, the more important you may think it is that Britain has a thriving arms industry to supply them. The reasons that this isn't so can be summed up in one Arabic phrase which translates, ironically, as 'dove of peace': Al Yamamah.
Over the past 20 years, Saudi Arabia has paid tens of billions of pounds to BAE Systems under a deal negotiated by the British government called Al Yamamah. The Saudis got a lot of expensive kit that goes bang. Many people believe bribes were paid. Last December Tony Blair ordered the Serious Fraud Office to drop its investigation 'in the national interest', but in June the tougher US Justice Department announced its own investigation. Expect Al Yamamah to be back in the news in the autumn, but there's a more interesting question than whether a little baksheesh helped the deal along. Does Britain really need an arms industry at all — or at least one that consumes so much government energy and taxpayers' money, and exposes the nation to so much embarrassment? Or is it the last relic of a 1960s balanceof-payments-obsessed industrial policy?
If anything good comes out of Al Yamamah, it might be that the gentlemen from Whitehall dealing with the gentlemen from the desert will finally realise that what makes modern Britain prosperous is nothing to do with making fighter jets and bombs. True, Britain is one of the world's largest arms exporters, ranking fifth below the US, Russia, France and Germany, but slightly above China. Two thirds of our arms exports go to the developing world, according to the US Congress. Weaponry is big business, and successive governments have bought the idea that we need to be in it. Jobs are at stake. The balance of payments depends on it. It's at the cutting edge of technology. And our armed forces need it to provide them with their kit.
But even if those arguments were once true, it's not clear that they hold water any more. 'Even on the MoD's own numbers, only 0.2 per cent of British jobs depend on UK arms exports,' said Symon Hill of the pressure group Campaign Against the Arms Trade. 'And it gets £850 million of subsidies from the government.'
His figures are hard to dispute. According to the MoD, 65,000 British jobs depend on arms exports. That needs to be put in the context of the total number of jobs in the UK — just over 30 million. So the arms trade accounts for a tiny fraction of total employment; and much of the work is located in the south-east, where there are plenty of other jobs available. If Britain has managed to find work for half a million Poles and other migrants in the last few years, it's hard to believe we couldn't absorb 65,000 skilled defence industry staff. In truth, whether we have an arms industry or not probably doesn't make any difference to employment.
How about the balance of payments? Defence exports currently amount to an annual £5.1 billion — but total UK exports are close to £300 billion. Our trade deficit currently runs at around £6 billion a month, without doing much harm to the economy or the pound. So, again it's hard to believe that it would make much difference (and, of course, those 65,000 people would be doing other jobs, which could create other exports).
Then again, maybe there's some wider industrial policy lurking behind government support for arms companies, recognising that R&D in the industry spins off into other high-tech product areas. If we were in Germany, there would be force to that argument. But Britain gave up on a manufacturing-based economy a long time ago. Only two defence manufacturers, BAE Systems and Rolls-Royce, are left in the FTSE-100 index, and both make the bulk of their money either overseas or from civilian aerospace.
So the only argument left standing in favour of a state-sponsored arms industry is the so-called 'defence industrial base'. 'Of course we could buy all our defence equipment from overseas,' said Paul Everitt of the Society of British Aerospace Companies, 'but there would be issues of operational effectiveness, and of sovereignty as well.'
That's true: you never know who you might end up fighting, so it makes sense to make your own weapons. If you buy from abroad, you can't guarantee you'll get the most up-todate equipment. On the other hand, if you maintain the capacity to make your own weapons, you can defray the cost by selling them for export as well. The trouble is, a lot of our stuff is not actually that good. Professional soldiers will tell you in private that the best kit is made by the Israelis, the South Africans and the Russians. Our boys in Basra and Helmand might be better off with foreign-made stuff that actually works.
Finally, the most troublesome point is the toll all this takes on the country's reputation. If you run a hotdog stand, there's no point in complaining that you smell of onions. Likewise, if you sell guns to dictatorships, there isn't much point in complaining if you end up smelling of something worse. And yet the reality is that Britain's arms industry is now so tiny that it could probably be swallowed whole by a couple of hedge funds. At least they only blow themselves up.
There might be a case for maintaining a modest, specialised arms industry to support our own army. But anyone who thinks an export-driven defence industry is important to the economy should stop kidding themselves. It is the last relic of the discredited 'national champions' school of economics — which still has its supporters on the other side of the Channel, but which the British rightly gave up on long ago.
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