The UK’s Defence Growth Partnership: Refocusing the Relationship Between the Private Sector and Government

With the launch of the first report of the Defence Growth Partnership (DGP) in early September 2013, the highest level of government has recognised the importance of the UK defence industry. The recognition comes not just for its capacity to supply high quality equipment to UK armed forces, but also for its contributions to the country’s freedom of action, foreign relations[1] and of course economy.

The report is emphatic on the number of jobs (300,000 including the supply chain) and exports associated with defence, although it does not address tax revenues, multiplier effects and implications for economic success in commercial markets.  The turnover of the defence sector is calculated to be £22.1 billion.

Background : Focusing on Exports and Skills

The DGP, launched last December under the joint chairmanship of Business Minister Michael Fallon and MBDA UK Managing Director Steve Wadey,  has announced an intention to produce a clear plan by the time of the Farnborough Air Show in July 2014, that it will work through eight  eams, and that it will focus initially on two areas of UK strength, air capabilities (to include complex weapons) and  ‘intelligent systems’ involving electronics, software and systems integration,  information management, intelligent automation, human-machine interaction and mission management.

The other teams, led in the main by senior executives from industry, will address International Business (exports and cooperation); Technology and Enterprise (intellectual property creation and exploitation); Skills (workforces); Strategy (development of the DGP); Engagement (with key stakeholders including the Ministry of Defence); and Value Chain Competitiveness, as well as Air Systems and Intelligent Systems.  With companies such as General Dynamics, Raytheon, Thales and Finmeccanica being fully involved, the DGP underlines the government line recognised first in the Defence Industrial Policy of 2002 that any company adding significant value in the UK will be treated as British.

With ‘Growth’ in the title at a time when defence budgets across NATO are falling, the implication must be that the UK aspires to export more, perhaps through innovative cooperative projects. So the International Business team has a clearly central role, although it will depend on progress in all the other areas to have a reasonable chance of success.

Questions

Despite this added focus for the UK defence industry, the initiative does highlight key questions about existing arrangements between government and the private sector:

1.       How much Government effort and money will be put into this venture, particularly for research and development?  The Aerospace Growth Partnership (AGP), on which the DGP is based, has resulted in £2 billion of government and industry money being earmarked for research under the Aerospace Technology Institute. Launched in 2011, the AGP has developed a strategy and implementation plans, including graduate education schemes and the detail for the DGP will be fixed only in the next year. The Department of Business, Innovation & Skills (BIS) is the lead ministry for the DGP and it remains to be seen if it will use some of its own money for defence specific work.  Industry and trade ministries support for the defence industrial sector is not unknown in wider Europe and indeed the rest of the world.

2.       How will the DGP be reconciled with developments in the defence procurement area? The predisposition proclaimed in the 2012 White Paper Through Technology is to buy off-the-shelf systems from the world market. There is also the stated preference to establish a Government-Owned, Company-Operated (GOCO) body to run many aspects of the Defence Equipment & Support organisation?  If a significant element of the performance management regime for a GOCO will involve its success in delivering projects into service on time and to budget, it can be expected to have a preference for systems already developed elsewhere rather than technologically risky development projects involving British industry and perhaps other international collaborative partners.

3.       The procurement question is really a sub-section of how well the Department of Business, Innovation and Skills (BIS) and defence businesses can work with the Ministry of Defence which has long been reluctant to take explicit responsibility for its impact on the British economy.[2] Although the Defence and Security Organisation (DSO), the successor to the Defence Exports Organisation (DESO) is now based in BIS, and although the trade and ministry under its various titles has always had a small defence industry team,  the MoD is the established dominant department on defence industrial matters, not least because it is MoD-led decisions on individual procurements that determines much of the fate of defence firms. On the other hand, there are plenty in the MoD who are well aware that, unless there is a capable British defence industrial sector to meet most of the UK military equipment needs, London will have to say farewell to the ability to use UK forces as, when and how it sees fit. In its2011 ‘Security through Technology’ White paper, the government stated that this was the ‘essence of national sovereignty’.[3]

4.       How will the Aerospace Growth Partnership (AGP) be coordinated with the DGP when many firms, as well as the industry association ADS are involved in both. The links between the Defence Air Systems group and the AGP are clearly of central significance and the DGP has already said that its Skills team will work closely with the AGP.

5.       Is the emphasis in the Report on the value of Small and Medium Enterprises (SMEs_ entirely appropriate?  The agile and innovative nature of SMEs is conventional wisdom within government. However, as Mariana Mazzucato has written in a impressively research book on the financial role of the state in large-scale innovation and the civil sector, many SMEs are rather slow moving and not innovative. The challenge is to find and support those SMEs with the inclination and potential to grow quickly. [4] On the other hand, given the leadership of teams by personnel from prime contractors, it is not yet clear how smaller businesses can feed into the DGP’s processes.

Restating the Economic Significance of the Defence Industrial Sector

Perhaps because of financial pressures, the UK government has long been reluctant to acknowledge the importance of the defence industry for independence of action and effective defence capability, although this is well appreciated in the United States. Beginning his evidence to the House Armed Services committee in 2011, David Berteau of the Center for Strategic and International Studies said simply and without any apparent fear of contradiction: ‘Mr.Chairman, it is well known to this committee that the US depends on the defense industry for national security’.[5]  That kind of statement is unlikely to be heard in the UK but the restated recognition of the defence and foreign relations importance as well as the economic significance of the defence industrial sector within the Defence Growth Partnership is a welcome development.

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