Can a strategic sector like defence be dependent on market conditions to define the trajectory of its technological prowess without state intervention?
In her book ‘The Entrepreneurial State’ Maria Mazzucato has emphasized on the role of the State in innovation and that it must direct the economy towards new ‘techno-economic paradigms’. According to her these directions are not generated spontaneously from market forces; they are largely the result of strategic public-sector decision making. Nearly all technological revolutions in the past required a massive push by the State with the examples of Internet which evolved from ARPANET, a program funded in the 1960 by the Defence Advanced Research Agency (DARPA), the Global Positioning System (GPS) which began as a1970s US military program called NAVSTAR to even SIRI, the iPhone’s cheery, voice recognizing personal assistant, which is a spin-off of a DARPA artificial-intelligence project. These examples underscore the role of the government as an innovator in a sector like defence, the impact of which influences the technological direction of other sectors also.
Choices on Industrial Policy and R&D
So how do Governments decide on the quantum of investment to make on innovation and whether to develop its technology domestically or obtain it by leveraging its buying power? According to noted defence economist Keith Hartley the choices made by a nation between alternate industrial policies are guided by the following four options,
- Support creation of a national industrial capability;
- Collaboration where two or more nations share both development(R&D) and production;
- Licensed or co-production of an existing system;
- Off-the- shelf import with or without some offsets.
The options can be viewed as choices about work shares, where national production offers 100% work to indigenous defence industry and import shifts it to the foreign suppliers. Licensed production provides some work share distribution in production whilst collaboration involves sharing of design, development and production.
So how does a government make a decision about which choice would be most suitable for its defence ecosystem? Hartley has explained how cost-benefit analysis, provides a framework for economic evaluation and for choosing between alternative defence projects and their associated policies. Such an approach is broader and more extensive than a simple investment appraisal exercise, and the choices will vary depending on whether military and strategic benefits are primary or it should also include wider national economic benefits which have a spill-over effect on the civil sector as well. At another level the choice could involve entry level restrictions by giving preference to public sector or to provide some access, and include the private sector, or have public private partnerships.