Why arms sales are bad for Britain

Samuel Brittanargues that selling weapons to odious regimes, as well as being ethically wrong, isn't

In a telling Times cartoon, a buoyant Tony Blair was shown exclaiming: "We need a hawk" (meaning a more determined military effort in East Timor). On the side he was shown piloting one of the Hawk aircraft that the UK had been delivering to Indonesia for many years for the use of the country's military dictator, General Suharto.

The official defence was that these aircraft were supplied under a contract approved by the previous Conservative government. This begins to wear thin when the same excuse is given for the resumption of deliveries of Hawk fighter spare parts for the government of Zimbabwe, after a brief suspension during the fighting in the Congo, in which Zimbabwe was heavily involved.

The Labour government has indeed stepped up action to limit arms sales. British ministers have taken the lead in pressing for a European code of conduct on arms control, which was agreed in 1998; and Gordon Brown began the millennium by adding 22 new poor countries over and above the existing 41 covered by the ban on export credits "for unproductive expenditure".

Indonesia, however, is still not on the list. And because the Chancellor's action was in the context of debt relief for poor countries, it did not affect Saudi Arabia, which accounts for about one third of British arms sales under the somewhat mysterious Al Yamamah "arms for oil" deal, originally struck by the Thatcher government as far back as 1986.

So does an ethical foreign policy have to take second place to hard commercial realities? Do we have to accept the argument that, though many of these arms deals are undesirable, jobs depend on them and that if Britain did not promote them, other countries would take the orders instead?

We should be on our guard when politicians defend dubious policies by declaring "jobs are at stake". This is so whether it is an "old Labour" supporter wanting to protect manufacturing, a Tory spokesman talking about the employment provided by hunting, a "new Labour" minister allowing Mike Tyson into the country because "jobs are involved" or a business lobbyist pushing for arms sales to dubious regimes.

The argument that jobs derived from exporting weapons cannot be replaced is akin to the argument for keeping open uneconomic coal mines for the sake of employment. Yet it is often just those people who lecture us on the need for workers to change jobs, and who say that full employment cannot mean the same employment, who are most keen to promote the sale of arms.

Such arguments are based on the myth that there is a lump of labour that is engaged in making specific products. Then, it is supposed, if orders or output are lost in one area they cannot be regained anywhere else. But people change jobs constantly. Well over three million people leave the unemployment register each year even in recession periods, over half of them for new jobs or training. Indeed, it is almost certainly easier for arms workers, many of whom have a wide range of valued skills, to find new jobs than it was for miners, whose training was far more specific.

There is a good deal of confusion about how large arms sales are, partly because aerospace exports are not recorded in the customs total. The Defence Manufacturers Association - which is hardly likely to underestimate - values "defence exports" (measured by orders rather than sales) at around £5-6 billion a year or a little over 0.5 per cent of GDP. The number of workers employed is 130,000.

Few critics would suggest a complete ban on arms sales; but a cut of one-third would effectively eliminate the most dubious items. So we are talking about a loss of 0.167 per cent of GDP or just over 40,000 jobs.

Let us suppose, then, that British arms exports were cut by £1 billion or £2 billion a year. The arms lobby will say that what is at stake is not merely jobs but exports - another sacred cow of bogus economics. Let us grant that these exports would have to be replaced or imports reduced in their stead. There is no more a fixed lump of exports than there is a fixed lump of jobs. We are talking about the loss of 0.5 per cent of UK exports of goods and services. This might involve a miniscule devaluation and some slight adjustment in monetary and fiscal policy. If we cut through the technicalities, the cost could be a small deterioration in the terms of exchange between British exports and imports from overseas amounting to around 0.25 per cent of GDP.

In fact, this arithmetic is far too generous to the arms lobbies. It would apply if we were talking about an industry that doesn't get special government help; in that case, the resources involved would have to move to their next best use. But arms sales do not represent, even in the narrowest economic terms, the best use of national resources. They are so heavily supported by the taxpayer that there might actually be a gain in moving the workers, plant and technical skills to other activities that could pay for themselves.

Taxpayer support starts with the never-ending procession of royalty, ministers and ambassadors who promote arms sales abroad, to say nothing of the military and trade attaches. Then there is the Defence Export Services Organisation, which provides marketing and military assistance.

Moreover, arms sales are often backed by the Export Credits Guarantee Department (ECGD), which provides "insurance and finance packages for exporters of capital goods and services and political risk insurance" - in other words, taxpayer support for sales that would not pass muster on purely commercial terms. While public enterprises are set a target real rate of return of 6 per cent, this department has to do no more than break even on average. The projects involved go well beyond arms and include the planned Ilisu Dam in Turkey, which will flood a site of cultural and religious significance to millions of Kurds.

The much-maligned Treasury tends to fight these deals, but is often defeated. Andrew Tyrie, a special adviser to both Nigel Lawson and John Major, and now a Conservative MP, wrote in the Financial Times on 1 February, 1991: "It is illogical to indulge in a competition to give away our own exports through an auction of subsidies." Huw Evans, a former Treasury deputy secretary, has said that the ECGD is too vulnerable to intensive lobbying of ministers by large corporations and that it should become an independent agency.

The arms producers argue that the government should continue to support exports because the proceeds contribute to the overhead costs of firms supplying the British military. These considerations cut both ways. The drive for arms sales itself distorts the design and production plans of British manufacturers and, in the view of some defence economists, offsets the savings in overheads. In any case, only some arms exports would be affected by a ban in the spirit of our supposed ethical foreign policy. Moreover, economies of scale could readily be achieved by greater specialisation among Nato countries - a process inhibited by the desire of so many governments to protect domestic firms.

The damage inflicted by official arms promotion goes well beyond the harmful potential of the arms themselves, bad though that is. Many other undesirable policies are rationalised in terms of the need to keep arms purchasers sweet. How else can one explain the extreme sensitivity in official quarters to any criticism of Saudi Arabia and the pressure once put on the BBC over The Death of a Princess? Why did a British Conservative government take the rare step of over-riding a minuted reservation of a permanent secretary in order to finance the Pergau Dam?

Some will say that these actions represent the triumph of hard-boiled commercial self-interest over sentimental moral concerns. It would be bad enough if they did. But in fact the arguments are neither hard-boiled nor commercial, nor really ones of national self-interest.

The root of the matter is the belief throughout the political and business establishment that exports are worthwhile for their own sake, irrespective of the terms on which they are sold and how much they have to be subsidised. It is for this reason that prime ministers, whether Thatcher, Major or Blair, time and again come down against the Treasury in favour of controversial arms deals or dubious overseas capital projects. These attitudes are a hangover from the siege economy days of Stafford Cripps and have no place in a global market economy.

The recent report of the Commons Trade and Industry Committee swallowed the case of the capital goods and arms exporters, hook, line and sinker. Not merely did it come down heavily against any change in the status of the ECGD, but it criticised the Treasury for daring to hold up some deals by asking a few critical questions. It did not even print the memorandum of Huw Evans, let alone take evidence from him.

It is obviously desirable to bring other countries into efforts to restrict arms sales. But even if other countries do not co- operate as much as we would like, the effort is still worth making. When many of these exports are not worthwhile in hard economic terms, there is no case for governments supporting them, whatever other countries do. It is not a good idea to hit yourself on the head because your friends are doing the same.

The politicians' appeal to competitive market economics is bogus; they are confusing it with a soft spot for commercial interests. On the issue of arms sales, genuine market economics should be an ally of political radicalism.

Sir Samuel Brittan writes for the "Financial Times". Sources for this article can be found on his personal website: www.samuelbrittan.co.uk