Introduction

Critics focus on arms producers being inefficient and operating in state-protected markets earning excessive profits at the expense of taxpayers. They point to a failure to manage major weapons projects, reflected in cost overruns, delays and weapons that are costly and often fail to perform to their operational requirements. Further, it is claimed that any export successes are achieved either through large government subsidy payments or through the payments of bribes to foreign buyers, or both. Religious, moralist, ethical and peace groups also condemn arms industries for supplying products that kill and injure people.

Supporters of arms industries point to their military benefits in the form of supplying weapons that contribute to maintaining peace, protection and security for a nation’s citizens, their property and their way of life. Contrary to the opponents of arms industries, some groups argue that arms producers save lives and protect a nation’s citizens’ independence and freedoms. There are additional wider economic benefits in the form of employment, technology, spin-offs, exports and import-savings benefits.

Are arms industries worthwhile industries?

How can these conflicting views be assessed? Economists need to assess the various arguments critically and consider the criteria for determining whether the arms industry is a worthwhile industry and one which should be retained. The economic criterion for a socially desirable change is demanding: namely, that change is desirable if one person can be made better off without making someone else worse off. In reality, this criterion is likely to be replaced by the less demanding criterion of cost–benefit analysis: do the benefits of change exceed the costs? But the fact that the issue of whether the arms industry is a worthwhile industry is being raised at all needs to be considered.

Typically, a competitive industry is regarded as worthwhile if consumers are willing to pay its economic price and the returns to the industry cover all its costs, earning at least normal profits. Here, profits are regarded as normal if they are sufficient to induce investors to remain in the industry, providing continued funding for the business.