Saturday, 15 June 2013


  It may seem obvious but it needs to be said, the point of military procurement is to get our men and women in uniform what they need, based on a list of requirements determined by National Defence which is then compared against the products that best meet those requirements.

It has been suggested by the Government, in the form of Rona Ambrose, that in the future a new requirement will be added. (1) From now on whether or not Canadian industry will benefit financially is now to be considered a deciding factor. Proposals coming in with the lowest bottom line will no longer be given the most weight by the government when making acquisitions for the Canadian Armed Forces.

With an estimated government spend of $490 billion into military acquisitions within the next decade, Ms. Ambrose said that it was time Canada joined most other developed nations that already have defence procurement strategies in place. Needless to say, there is no way to say where the Minister came up with this number. It would seem to imply a doubling of the Defence budget, or an elastic notion of the meaning of the word ‘decade’.

Apparently various value propositions in addition to cost – including sustainable job creation, research and development opportunities and intellectual property – will be weighted and rated to ensure that military procurement is benefiting Canadian companies, not just providing the government with the lowest price.

Ms. Ambrose is quoted as saying that it’s time Canada joined most other developed nations that already have defence procurement strategies in place. “It was clear to me that Canada was an outlier,” she said. Ms. Ambrose may not be aware that many of these other developed nations have defence procurement strategies in place that fail almost as often as Canada’s to provide their Armed Forces with the material they need in a timely fashion.

There may be some military benefit to being able to independently manufacture those goods necessary to the defence of the Nation. As a general rule of thumb it is not good to be dependent on ones adversaries for those things needed to fend off those adversaries. This rule of thumb can even apply to allies who in times of crises may feel that their own needs over ride previous agreements and contracts.  For the most part however, in an interdependent world, independence can be an illusion

Several recent studies have attempted to estimate the adverse economic and employment effects of reductions in government spending generally, and defense outlays in particular. In the past such studies have tended to understate the beneficial effects associated with redirecting resources to more productive uses. (2)

In truth, a reduction in defense consumption and investment shifts resources among economic sectors and thus has economic effects analogous to those caused by changes in supply and in any industry. In other words, the less you spend on defence, the more you have to spend on other things like infrastructure, schools, daycare and free yoga lessons. Some of these things will increase productivity and therefore increase the total amount of money available.

Perhaps even more important, governments are notoriously bad at allocating money for commercial purposes. Governments have no idea what business needs or what new technology will be most applicable to military uses in the future. In reality governments traditionally support industries that support the government in power. “Marginal constituencies”, those who contribute to the party coffers and unionized industries whose unions support the powers that be are at least as important as “sustainable job creation, research and development opportunities and intellectual property” to those determining just who does and does not get a contract.

Governments can not begin to match the ruthless efficiency of the market place in the allocation of money and even though this process of resource reallocation can be politically significant they should not even try. It is economically beneficial in the aggregate over time. It is the job of government to ameliorate the effects of unemployment and dislocation caused by that ruthless efficiency. They can do this by re-distributing wealth to those ground up in the gears of capitalism or by mandating rules by which that reallocation of money is less harmful. What they can not do is create wealth.

Defence spending is a drag on the economy. No amount of dressing it up with talk of job creation will change that. Although it would be nice, all other things being equal, to spend as much of our defence budget in Canada as possible, it makes more economic sense to spend as little as possible on defence and get the most for what we do spend.  More government interference in the process will lead to the less, not more efficiency in military procurement.

(1) Military procurement to better benefit Canadian economy: Ambrose

(2) Economic Effects of Reductions in Defense Outlays