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The Siren Song of Strategic Autonomy

Nov 8, 2019 Daniel Gros

A recent report by the European Commission’s in-house think tank has called for Europe to aim for more “strategic autonomy.” But what may seem like an innocuous goal could easily take an economic-nationalist turn, with serious implications for world trade and the global economy.

BRUSSELS – For over a year, US President Donald Trump’s protectionist war against China – and his broader use of import tariffs to advance geopolitical objectives – has been fueling anxiety about the future of world trade. But tariffs are only the tip of the iceberg of economic nationalism. If the world doesn’t navigate carefully, hidden hazards could sink the global trading system.

The United States has not found any followers in its aggressive use of tariffs. In developing countries, there is little pressure to implement similar measures, because so many firms manufacture globally, and even those that do not depend on global supply chains. And in developed economies, major sectors that struggled to cope with import competition in the past – such as the clothing and steel industries – have by now mostly adjusted, and no longer play an important role. This explains why US business leaders largely opposed Trump’s tariffs. It thus seems unlikely that the use of tariffs will spread beyond the US-China dispute.

Despite involving the world’s two largest economies, the tariff war seems to be petering out. Even the self-declared “tariff man” is starting to recognize the limits of this policy instrument. A growing body of evidence indicates that, contrary to most economists’ expectations, Chinese firms have increased their prices in line with tariffs, negating any benefit the US might reap from squeezing its suppliers.

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Jag Patel Nov 9, 2019

The trend towards what is called economic nationalism, the belief that national security is compromised when a country’s economy and military depend on imports, in some developed nations is a worrying development. The push towards a Europe-wide industrial policy is an example.

Of all the type of goods and services traded across national boundaries, none is more important strategically than the buying and selling of defence equipment. Consistent with its vision of a Global Britain trading freely with countries beyond the EU post-Brexit, the UK government is a notable exception to this economic nationalism.

Here is an example of its courageous and determined actions, in the face of considerable domestic opposition.

The severe financial crisis at the Ministry of Defence has forced it to adopt a zero-tolerance attitude towards persistent delays and cost overruns on defence procurement programmes which has, in turn, seen it go for off-the-shelf purchases to satisfy its military equipment needs – in the shape of orders for the P-8A Poseidon maritime patrol aircraft, Apache AH-64E attack helicopters, MQ-9B Protector armed drones, the E-7 Wedgetail airborne early warning and control aircraft, and now BOXER armoured vehicles to satisfy its Mechanised Infantry Vehicle requirement – the latter two, after first having conducted a comprehensive market survey and then a comparative analysis of existing, in-service platforms. All of this equipment is being sourced from manufacturers of foreign origin.

Whereas the government will not come out and say so publicly, it has revised its defence procurement policy to consider buying, as its first and foremost priority, new military equipment which automatically falls in the off-the-shelf category – specifically because an off-the-shelf equipment is a fully engineered and supported technical solution which satisfies the key user requirements at no additional cost or risk to the Exchequer, that is to say, it does not require any UK-specific modifications or related development work laden with risk to be performed upon it.

In so doing, this government has put financial security and the national interest first, not military equipment manufacturers’ commercial interests.

After being misled by UK-based defence equipment manufacturers with false promises and lies for several decades, this generation of elite politicians, senior civil servants, military top brass and front-line procurement officials have been so badly scarred that, there remains little appetite to consider any alternatives that may be put forward by these same dishonest suppliers.

Hitherto, MoD has had a policy of buying equipment designed to a tailored technical specification requirement set by the military customer – which has, in itself, led to persistent delays and cost overruns on equipment procurement programmes because of the inability of its own people to identify, manage and control technical risks inherent in a starting-point for the technical solution that requires development work to be performed upon it.

This tragic situation has come about because it does not possess the capability in the form of intelligent and experienced procurement officials who have an adequate understanding of what it takes (in terms of skill types, funding, tools, processes, materials, scheduled work plan, inter-business contractual agreements etc.) to advance an immature technical solution from its existing condition, to a point where it will satisfy the technical specification requirement, within a Private Sector setting driven by the profit motive and people who instinctively employ unethical business practices. Consequently, they are not able to establish what the true status of the evolving technical solution is, based upon claims made by Contractors. The harsh truth is that, these people have no business acumen at all – on account of not having spent a single day of their lives in the Private Sector and yet, they have been put in charge of spending taxpayers’ money to the tune of £15 billion per year to buy defence equipment, outsourced services and labour from the Private Sector.

Nor is the existing defence procurement process (which has evolved over the years) conducive towards delivering equipment to the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life, because it has been tampered with by defence contractors (most notably the Select Few) who have skewed it decisively in their favour, at every turn.

The government’s considered assessment is that it is unlikely to accumulate an in-house capability of the desired quality and numbers anytime soon, certainly not in the foreseeable future. It has also been realistic and concluded that it is nigh on impossible to reconstitute the existing, flawed procurement process alongside the tough 2015 Spending Review commitments further complicated by Brexit, the effort on which has commandeered the brightest people in Whitehall and made the task of balancing the MoD’s budget even more difficult – hence its preference for the off-the-shelf option.

Ironically, one of the most spectacular benefits to be derived from buying off-the-shelf equipment is that the leadership at MoD will be absolved from its burdensome responsibility of having to upskill its existing procurement staff to a level comparable with that exhibited by counterparts in industry, because this type of acquisition is relatively straightforward, and can even be undertaken by mediocre post holders with no business sense – not least, because it is devoid of any hidden financial, technical or schedule risks.

It is believed that a quarter of the UK’s equipment procurement budget is currently being spent on buying off-the-shelf equipment. This slice is set to increase dramatically, as more and more projects which involve significant development work are side-lined in favour of off-the-shelf purchases.
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