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2017 | Book

Background, Problems Addressed, and Economic Political Context Read chapter Read first chapter

Visible Costs and Invisible Benefits

Military Procurement as Innovation Policy

Author: Gunnar Eliasson

Publisher: Springer International Publishing

Book Series : Economics of Science, Technology and Innovation

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Technik" , Springer Professional "Wirtschaft"

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About this book

This book examines the historic role of professional and demanding military customers in industrial development. Particular emphasis is paid to public procurement of military equipment as a catalyst for innovation; and the civilian commercialization of military technologies (from gunpowder and cannons to submarines, missiles and aircraft) is documented by many case illustrations that show how macro-level productivity advance has been generated. A complementary volume to Advancing Public Procurement as Industrial Policy (2010), which focused on the spillover effects of the Swedish combat aircraft, Gripen, in this book Gunnar Eliasson widens the perspective to cover product development across the Swedish defense industry, with an emphasis on regional economic development and macro-economics, inter alia through the involvement of Saab (aircraft) and Kockums (submarines) in partnership ventures in Australia, Norway and Brazil.

The volume is organized into four parts. Part one examines the historical transformation of the Swedish economy over the past three centuries from agriculture and raw materials to an advanced industrial economy. Part two presents detailed case studies to illustrate the spillover effects of procurement projects and military-industrial partnerships. Part three explains the spillover phenomenon theoretically within a dynamic micro- to macro-economic perspective. Particular emphasis is placed on the empirical credibility of model-based economy-wide and dynamic cost-benefit calculations. The book concludes with a section on fostering industrial development through public procurement. The result is a book that will appeal to economists in the industrial economics and management fields; to technical, marketing and purchasing executives in business; and to policy makers in public procurement concerned with innovation and long-run industrial development.

Table of Contents

Frontmatter

Customer Competence, Military Technology and Civilian Industry

Frontmatter
Chapter 1. Background, Problems Addressed, and Economic Political Context
Abstract
A standard presumption in empirical research on the origin of economic growth has been that economic development has to be preceded by technological development. This is however only part of a more complex story of long-term industrial evolution, which on close inspection turns out to be more economic and cultural than it is technological. The nature, existence, and magnitude of positive externalities (or spillovers) from advanced industrial development projects and specifically about technological spillovers emanating from military product development are therefore addressed in this chapter as a potential instrumentation of growth policy, hence the subtitle of the book, Public Procurement as Innovation Policy.
Gunnar Eliasson
Chapter 2. The Role of the Competent and Demanding Customer and Technological Product Competition in Industrial Evolution: A Historic Perspective
Abstract
The industrial sophistication of today’s Sweden has its roots far back in history. The argument in this chapter is that it depends to a not negligible extent on the historic role of Swedish Government as an advanced customer of privately demanded public goods and infrastructure investments, for a long time largely military equipment but later also investments in railroads, electrical power generation and distribution, and telecommunications networks. Most of this would never have gotten under way spontaneously in the market. It was either that the customer engaged was public, or a public monopoly, or the private payback horizon was too distant. Infrastructure projects such as railroads, electrical power generation and distribution, and telecommunications networks have been cited as the typical examples, but military exports have been a steadily growing source of income for Swedish Government for centuries. It is symptomatic, for instance, that the countries that did not start building railroads early in the nineteenth century (and frequently this was at the initiative of a prudent government) never became industrial economies. It is also interesting to note that the vast territory of China at that time was integrated through a system of canals, built at an enormous cost. The owners of that canal system seem to have been capable of preventing the modernization of land transports in China through railroads. They therefore also prevented the industrialization of China (Boserup 1981:160ff).
Gunnar Eliasson
Chapter 3. Public Procurement of Public Goods as Innovation Policy: The Cloud of New Technologies Around Military Product Development
Abstract
Advanced industrial production is always surrounded by a cloud of new technology, available to each and all in proportion to the ability of local entrepreneurs to pick up and commercialize its content – receiver competence. We talk about technological spillovers or positive externalities, a concept originally invented and used by the nineteenth-century British economists Henry Sidgwick, Arthur Pigou, and Alfred Marshall (1890). Marshall introduced the theoretical concept to overcome the shortcomings of the then dominant static economic model that I will have reason to return to in the theoretical Chap. 13. Most of this document is however devoted to measuring the economy-wide long-term consequences of technologies created during military product development.
Gunnar Eliasson

Spillover Measurement from Cases to Macro

Frontmatter
Chapter 4. The Swedish Military Aircraft Industry: The Development, Upgrading, Modernization, and Exporting of the Gripen Combat Aircraft
Abstract
My earlier spillover study on the Gripen development (Eliasson 2010a, b) is summarized, and estimates have been presented on the spillover potential of both modernizing the Gripen from the C/D to the E/F version and on the joint development of the two-seater F version of Saab and Brazilian Embraer. Finally, the Gripen is introduced as an early networked weapons system, which is also the appropriate way to fully understand its spillover implications. Networking technologies lead to unmanned combat aircraft and further on to cyber warfare.
Gunnar Eliasson
Chapter 5. Weapons Development and Civilian Technology Creation
Abstract
Functionally Gripen is a weapons platform or a carrier of weapons. One could also say that the Gripen system, including its missiles, is the weapon (combat system). The most appropriate definition of the Gripen as a combat system therefore is to view it as the critical element in a complex military command and control system, as in Table 4.​2. At the time of the Original Gripen study (Eliasson 2010a), it was not possible to separate the missiles. That belonged to the Gripen system, from the much broader range of weapons, or weapons systems that Saab Bofors Dynamics (SBD) was developing, manufacturing, and exporting. Gripen, furthermore, could be equipped with weapons that SBD did not develop and manufacture. This chapter is therefore devoted to estimating the spillovers from all missiles developed at SBD during the period 1982 through 2007, using identical methods to those used in the Gripen case (previous chapter) for the same period. In the end I discuss the integration of the Gripen platform with its armament, a not insignificant technology in itself with considerable spillover characteristics.
Gunnar Eliasson
Chapter 6. The Linköping, Karlskoga, and Gothenburg New Industrial Competence Blocs
Abstract
Sweden’s continued position as a major European military power during the early seventeenth century demanded an indigenous weapons manufacturing capacity. To that effect Dutch and other industrialists, as told in Chap. 2, were invited to set up shop in Sweden. With time Norrköping on the river Motala Ström developed into a major industrial city of Sweden, second in size only to Stockholm. While Norrköping of today has gone through a long period of industrial stagnation and lost the large part of its industrial backbone, in the mid-1950s, mostly textiles, little in the form of new industrial formation occurred thereafter. Neighboring Linköping, on the other hand, at the peak of Norrköping’s industrial performance, was primarily the site of the regional bishop, the royal governor, the regional government tax collector, and other religious and political industry inhibiting authorities. Since the establishment of military aircraft manufacturer Saab in 1937, Linköping has however evolved, as Norrköping did three centuries before, into a modern industrial city, and a high-technology industrial district, that has left Norrköping in its local backwaters. Again this new industrial formation, as once Norrköping, has a military and weapons manufacturing origin.
Gunnar Eliasson
Chapter 7. Military Vehicles on Land and at Sea: The Experimental Dynamics of the Örnsköldsvik Industrial Region in Northern Sweden
Abstract
The third military industrial competence bloc in Sweden developed in the midst of a region dominated by forest, pulp, and paper industry in Örnsköldsvik on the coast of northern Sweden. Örnsköldsvik has a “metropolitan” population of some 55,000 people (2016) in the midst of a sparsely populated countryside, down from 60,000 in the early 1970s. Here, Hägglunds was founded in 1899 as a joinery. The business, governed by entrepreneurial owners developed into the largest furniture maker in northern Sweden, but Hägglunds soon took up (in 1924) building busses on a T-Ford platform, then trams and locomotives. During WII Hägglunds became the largest engineering firm in northern Sweden when it began building military vehicles and even airplanes for Swedish defense. Its remote location offered protection from possible Nazi Germany attempts at its destruction.
Gunnar Eliasson
Chapter 8. Worker and Engineer Learning on the Australian Collins Submarine Project: Human Capital Spillovers and the Case of Swedish Kockums in Australia
Abstract
R&D investments and innovation are the focus of spillover literature. A different and a large measure unrelated literature addresses the socioeconomic effects of general education and vocational learning. Even though empirical research has mostly addressed the private benefits (the educational premium) of education, the academic discussion has had its ultimate concern to divulge the hope for large externalities of or the large social returns (above the private returns) to education. The latter has however turned out to be something of a disappointment in that empirical research has failed to support that reasonable proposition. One reason for this negative finding may however be that most of the research on educational spillovers has been limited to the study of public schools. This study of on-the-job learning on an advanced military equipment producer therefore constitutes a needed extension of the empirical analysis into a very different form of learning.
Gunnar Eliasson
Chapter 9. Industrial Competence Bloc Formation Around Submarine Design, Development, and Manufacturing
Abstract
Spillovers around submarine design, development, and manufacturing in general, and about Swedish, Australian, and Norwegian submarine development and manufacturing in particular, are studied.
Gunnar Eliasson
Chapter 10. Indigenous Development or Buying Off-the-Shelf
Abstract
Escalating costs for new weapons development have caused concerns about costs in Government Treasury quarters across the industrial world and prompted a shift of military procurement programs, from indigenous development and manufacturing to off-the-shelf purchases. This has been so even in countries that have the requisite indigenous technological and industrial capacities to develop and manufacture innovative top-of-the-line weaponry for their own use at internationally competitive costs. Those countries, as we have shown, might therefore benefit handsomely from developing their own military technology both in the form of spillovers and through exports of sophisticated military equipment. The temporary post-Cold War thaw of the 1990s, however, created a belief that seriously effective weaponry was no longer needed and fostered a static cost minimizing off-the-shelf purchasing political mood. The bottom line belief has been that a peace dividend has become available for politicians to distribute elsewhere. Many countries canceled their weapons procurement plans and even allowed some of their military producers to close down. Denmark shut down its entire submarine defense, and Norway followed suit by opting out of the joint Danish, Norwegian, and Swedish Viking submarine project (Chap. 9). The Netherlands has allowed its previous in-house capacity to design and build its own submarines to slip.
Gunnar Eliasson

Theory and Empirical Method

Frontmatter
Chapter 11. Competition, Industrial Competence Bloc Formation, and the Evolution of an Experimentally Organized Economy: Commercialization Theory
Abstract
The long-term sustainable development of a new industry is rarely or never the result of a political plan. It is the conclusion of a positive and long run, even historic evolutionary process, the origin of which is often accidental and spontaneous, that has been supported and not aborted, by cultural, political, and economic environmental circumstances. Entrepreneurial competition among actors pushes the entire economic system on through innovation and coordinates market activities. Such evolutionary market processes of course function differently in different economic environments and therefore function better in some, than in other.
Gunnar Eliasson
Chapter 12. Public Procurement of Privately Demanded Public Goods as Innovation Policy: Turning Dynamic Externalities into Social Value
Abstract
I have introduced public procurement of advanced and privately demanded public goods and services as a vehicle for innovation policy, perhaps the only effective innovation policy.
Gunnar Eliasson
Chapter 13. Theories, Choice of Models, and Estimation Methods: The Problem of Empirical Credibility
Abstract
Pour bien savoir les choses, il faut savoir le detail, et comme il est presque infini, nos connaisances sont tojours superficielles et imparfaites.
Francois de la Rochefoucauld
It is better to be vaguely right, than exactly wrong.
John Maynard Keynes
The true method of discovery is like a flight of an aeroplane. It starts from the ground of particular observation. It makes a flight in the thin air of imaginative generalization, and it again lands for renewed observation rendered acute by rational interpretation.
Alfred North Whitehead
Gunnar Eliasson
Chapter 14. Economy-Wide, Long-Run Model-Based Social Cost-Benefit Calculations
Abstract
Good economic theory should hold surprise predictions or outcomes that have not been observed before or not been thought about. This normally means complex models.
Gunnar Eliasson

Part IV

Frontmatter
Chapter 15. Political Economics
Abstract
I could have ended this document with the previous chapter. But the results arrived at, and the political discussion surrounding the role of military expenditures in economic development, inspire me to wrap it all up in a more general discussion on economic growth and political economics. In this concluding chapter, I am therefore stretching my arguments somewhat beyond what the empirical evidence of the previous chapters allows but not beyond the logical implications of the theory of the Experimentally Organized Economy.
Gunnar Eliasson
Backmatter
Metadata
Title
Visible Costs and Invisible Benefits
Author
Gunnar Eliasson
Copyright Year
2017
Electronic ISBN
978-3-319-66993-9
Print ISBN
978-3-319-66992-2
DOI
https://doi.org/10.1007/978-3-319-66993-9

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