Pro-capitalists hate the arms trade, too

Samuel Brittan, a defender of competitive markets, supports the protests against selling weapons. Th

I was tempted to begin this article by saying that if I were 20 years younger, I would have joined the demonstrators against the government-supported arms fair held this month in a closely guarded location in London's Docklands. But this would have been untrue. Twenty years ago, I held very similar views to the ones I do today about government-supported sales of arms to dubious regimes, but I did not have the courage to move away from cosy discussions about Treasury and Bank of England strategy and take the physical and career risks involved in protests. So I am certainly not going to sneer at people, whether with beards and sandals or not, who - to use an unfortunate metaphor - move into the firing line. Not all the protesters were against globalisation or even against capitalism. But even if most of them were, they would still be right when it comes to arms sales.

The promoter of the Docklands exhibition, Defence Systems and Equipment International (see Gideon Burrows, Mark Thomas and John Kampfner, NS, 8 September), boasted that it was the only one organised in association with the UK Ministry of Defence, whose secretary of state (still Geoff Hoon at the time of writing) wrote the introduction to the pocket preview. The promoters said that all exhibitors "are required to attest that their exhibits comply with English law, EU/UN legislation and the UK's international undertakings on export and arms control". But you do not have to be an expert in this area to sense the very murky problems of interpretation; nor to realise that this fair was supported by that part of the government machine concerned to promote arms sales rather than to police them. At a previous such fair in 2001, the countries invited to attend included China, India, Kazakhstan, Pakistan, the Philippines and Russia, all of which, along with others, were involved - in the opinion of the CIA- in some kind of internal or other conflict.

The case against such sales is enormously strengthened by an understanding of how a competitive market system works, which is quite different from the ersatz understanding displayed by those Third Way politicians who claim to espouse it. Indeed, official support for the arms trade is the last redoubt of the discredited industrial policy of "picking national champions", favoured by old Labour and corporatist Tories in the 1970s.

Critics of the arms promotion policy do not have to be against all weapons sales - indeed, specialisation by more countries inside Nato would be desirable. But such sales should be confined to genuine allies, and thus exclude dubious associates such as Saudi Arabia. And they should not be supported by official export credits, royal visits, prime ministerial sales drives and other pressures on governments to buy British arms.

The favourite arguments for promoting arms sales are that they boost exports and jobs. The whole export drive is a hangover from the postwar period, when exchange rates were fixed and currencies inconvertible. It is quite out of date in a world of floating exchange rates and big capital movements. Some of the anti-arms demonstrators may not like this world. But its existence is their best defence against bogus arguments for promoting the sale of machines that cause death and destruction.

The ranks of government economists are full of "realists" with a living to earn, who tell me that it is hopeless to campaign against the export drive and that it would be much better to concentrate on making government support less erratic and irrational than it tends to be. My own response is to start with that part of the export drive which is not merely a waste of resources but contributes to death and destruction of innocent human beings.

As Adam Smith wrote: "There is an awful lot of ruin in a nation." If the economic wastage were all, I would hardly bother to write articles that some of my colleagues regard as a diversion from the headline economic issues and which perhaps puzzle the usual opponents of arms sales when they see support coming from an unashamed defender of competitive capitalism. But it is precisely because arms sales are such a modest proportion of the national product that the costs of reducing them would be minuscule. This might make them uninteresting subjects of general economic debate; but it removes any shred of justification for the government's case.

We are often told that full employment does not mean that everybody should stay in the same job. But when it comes to arms, official policy is still in the grip of the "lump of labour" theory, which assumes that there is a fixed amount of work to be done and that any labour-saving development must lead to workers being put on the scrap heap. Such arguments were rightly ridiculed when it came to closing down uneconomic coal mines. But they are trotted out again and again to justify the support for the military-industrial complex. It is worse than that. People who have spent their lives in jobs that require limited skill, such as mining, are surely more difficult to retrain than people who have the more general engineering skills required in the manufacture of arms, aircraft or heavy capital goods.

Size makes a difference. If a country highly specialised in one product - say, Hong Kong in textiles in the 1950s - faces a sudden closure of the market for that product, then the relocation of workers takes time. But this is far from the case with UK weapons exports. Their importance was recently investigated by a very under-publicised specialist group including the chief economist of the Ministry of Defence. Before the group reached its conclusions, the MoD was touting its report. But when the ministry did not like the results, it went very quiet and made sure that the report was published as an academic research paper by the University of York (The Economic Costs and Benefits of UK Defence Exports, Centre for Defence Economics, 2001). The report conservatively put government subsidies to the arms industry at around £80m per year, which, it argued, was slightly more than offset by the contribution to the overhead costs of weapons manufacture for the British armed forces. Critics argued that these numbers underestimated the contribution from the Export Credits Guarantee Department and that there was a net subsidy of £420m a year (see The Subsidy Trap, Oxford Research Group and Safer World, 2001). But even on the lower estimate, the York group concluded that the net benefit to the British economy was so small that the balance of argument on military exports should "depend mainly on non-economic considerations". If UK arms sales were halved, the report said, the result would be the loss of nearly 49,000 jobs in the arms industry and their replacement over a five-year period by roughly 67,000 new jobs, at somewhat lower wages, in civilian employment.

Compare the loss of 150,000 jobs in this same sector during a seven-year period following the end of the cold war and the 180,000 lost in the coal industry between 1985 and 1993. Compare also the six million people who moved into jobs (either from other jobs or from non-employment) during 1999 and the net increase in employment in that year, which was 284,000.

Predictably, the MoD ran a mile from the findings of the York report. A response was left to the Defence Export Services Organisation (which means what you think it does), which ignored the central findings and cherry-picked among the numbers. For instance, it highlighted the total adjustment costs of around £1bn from the relocation of workers and capital, glossing over how this was likely to be spread over five years and how it amounted to an annual average of 0.02 per cent of GDP.

Many New Statesman readers might argue for special government efforts to find new jobs for displaced armaments workers, while I might be inclined to rely more on the normal ebb and flow of the labour market. But these are surely second-order differences compared with the main question.

Why is so little heard in opposition to arms promotion from mainstream economists? Leaving aside career-based motives, there are probably two semi-respectable reasons. One is the curse of extreme specialisation that keeps economists in their own little boxes. Second, the small share of arms exports in the total economy means that what happens in this sector will not determine matters such as growth, unemployment and inflation on which economic policies tend to be judged and commentary requested.

In the end, it is a moral question, but what is so maddening about the discussion is that here is a rare case where the cost of doing the right thing is tiny, if it exists at all. The last-resort argument of the arms promoters is that if the UK does not supply these weapons, others will do so. As General de Gaulle said when told that the Russians would take the place of the French in Algeria, "I wish them much joy of it." We should not pretend that a better UK arms policy would transform the world, but at least it would be a nudge in the right direction.

A fuller version is in World Economics, April 2003 and on www.samuelbrittan.co.uk. Samuel Brittan is a Financial Times columnist