Prof Ron Smith, Department of Economics, Mathematics and Statistics, Birkbeck, University of London
Major weapons systems tend to be delivered late, over budget and unable to meet requirements. Despite expenditure of over £3bn, the General Dynamics Ajax armoured vehicle, due to be delivered to the UK army in 2017 is still being tested and seems to do more damage to its crew than the enemy.. This is nothing new. Since 1960 there have been 9 major studies on UK defence procurement and 27 on US defence acquisition. These reports have pointed to faillings in military purchases and recommended reforms, often the same ones. The reforms have not been implemented and the reports repeatedly comment on the defence department’s repeated failures to learn from experience.
In a new book Defence Acquisition and Procurement: How (Not) to Buy Weapons, I provide an economic analysis of why this happens: how the market structure, demand by the military and supply by the arms firms, shapes the conduct of the agents and generates the poor performance observed. These procurement failures matter for innovation because defence accounts fo a large proportion of UK and US R&D. In addition, failings in procurement inhibit the development of innovative solutions to military problems and limit the technological spin-offs to wider society.
The central problem is that none of the actors have any incentive to reform. All the actors – politicians, the military, civil servants and industry – have good reasons to under-estimate the cost, time and difficulty of the project. The politician wants to announce a new project that generates jobs. The military want the weapon. The civil servants need to spend their budget. The firms want the contract. Thus, it is in their joint and individual interests to make the project look sufficiently attractive to get it into the budgeted plan. Once in the plan, cancellation becomes difficult, even if the project fails to meet targets.
This optimism is a ‘motivated belief’. People believe things that it is in their interests to believe. If salary and promotion depend on believing that, unlike in the past, high-quality equipment will be procured quickly and cheaply, then this is a good reason to believe it. If, in addition, all the principal actors share this optimism, reinforcing each other’s belief, then it is likely that, despite past experience, all will become believers. This effect is likely to be particularly strong if these beliefs will only be proved wrong many years after the crucial decisions have been made, by which time the actors will have moved to other jobs. Hence there is little institutional learning from experience and each generation believes ‘this time will be different’.
As the book emphaises, buying weapons is hard. The actors face great uncertainty in trying to counter an evolving threat, subject to a budget constraint, high R&D costs and new technologies. The difficulty of the task and the institutional incentives faced by the actors mean that system performance is poor and reforms rarely solve the problem. The exceptions tend to be in times of war, when the incentives are different and under the pressure of necessity the system does tend to perform better. It would be nice to find a better solution than war to improving defence procurement.
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Smith Ron P. Defence Acquisition and Procurement: How (Not) to Buy Weapons, Elements in Defence Economics, Cambridge University Press, 2022, DOI: 10.1017/9781009189644. Available to download for free (for a limited period) from:
https://www.cambridge.org/core/elements/defence-acquisition-and-procurement/49E6319D752EDE93F973923B88F702FE
