No, I'm not talking here about the gun in your possession that you somehow acquired from one of the police officers, the price of which has gone up because the officer decided to take his "cut" from the deal... Rather, our talk today is about defense systems and a slightly broader perspective.
Many people, when looking at defense budgets and the prices of planes and missiles, immediately say: Surely there is corruption... Surely there is favoritism and brokerage... These companies must be robbing the world!
Some of this talk may contain a grain of truth, of course, but even if you completely eliminate corruption and mismanagement, you will discover that there is an economic logic that makes the prices of weapons rise faster than the inflation rate, while at the same time, makes mobile phones and laptops improve every year and become relatively cheaper.
In the defense industries (and others), there is what is called the "cost disease." There are sectors that increase their productivity rapidly, like the production lines for electronic chips, or consumer electronics, or software sold to millions of users. In each new production batch, you will find the same team of engineers producing much more than what they produced the last time.
In contrast, there are sectors that do not increase their productivity at the same rate, such as complex services, education, healthcare, and, more clearly in the case of defense: military research and development, long testing phases, and systems engineering that connects a radar to an aircraft through a command and control network in a conflict environment.
The problem is that wages do not follow our wishes. An engineer capable of working at a civilian electronics company or a defense company will not agree to be paid half the salary just because the productivity of the defense sector is lower. The market raises his wage in all directions, forcing you to raise the engineer's hourly wage, the testing hourly rate, and the costs of documentation teams, quality assurance, and certifications.
Thus, wages rise with the market, but productivity per hour in defense does not grow at the same speed as electronics, for example. Here appears what is known as "Baumol's disease" (the scholar who introduced this concept academically). He stated that the costs of slow-growing sectors chase after rapid sectors without actually catching up. The result? That a defense project of the same kind that was executed thirty years ago for a certain amount now requires multiples of that amount, even without any groundbreaking new invention inside it, simply because every hour of work in the production chain has become more expensive.
There is another reason: the "perfection trap" and the inflation of requirements. In civilian industries, producers usually think in logic: We launch a reasonable product suitable for sale and then enhance it in the next generation. However, in defense industries, many countries want from day one the "final" complete product. They want a fighter jet that carries more, flies farther, operates in a jamming environment, connects to ten other systems, functions in every possible theater of operations, and serves all branches of the military... etc..
So you find yourself not producing just a product that you will later develop but building a "system of systems" from day one. Every management adds a requirement in the specifications, every command sets a new safety margin, and every operations officer says: "Why don't we make the system do this too?"
And every simple addition on paper means, in reality, redesigning, retesting, and reevaluating the supply chain. This is what is called requirements creep or Requirements Creep, meaning that requirements increase quietly, but each additional requirement creates inflation in the timeline and cost.
Therefore, you find official reports in major countries stating that the average time a large armament program needs to reach initial capability has become nearly twelve years since the start of the program.
Twelve years! Not because the engineers are incapable of designing, but because the goal itself keeps changing, and they are chasing it.
There is another important point. The very time has become the most significant cost item in defense projects. Anyone who has worked in project management knows that delays have a price. The engineering team continues to work and receives their salaries, tests are redone because the specifications have changed, contracts are reopened because global prices have changed, some suppliers have exited the market, so you search for alternatives, and the politics themselves change, rearranging the priorities of the program.
In reports about American arms programs, for example, you will find they say that the Sentinel project alone is responsible for most of the cost increase, not because the company suddenly decided to steal thirty or forty billion without anyone knowing, but because the program itself was delayed, the requirements increased, and the original estimates were overly optimistic, turning every additional year into a continuous bill.
But what does all this mean for us?
The most important economic lesson is that any country wanting to enter the field of defense manufacturing must commit to three essential principles from day one:
All this explains why sometimes localization or domestic development is more expensive than direct purchase. Not because the idea of localization is wrong, but because if you enter this field without sufficient production volume, and without strict governance in requirements and timing, you will find that you are paying the cost of establishing a factory, expertise, and supply chains for a very limited number of units.
At that point, it may seem like you are supporting a national industry in form, but its economic reality burdens your budget more than it enhances your deterrent capability.
This is an AI-generated English translation. The original text is in العربية
PhD Researcher in Defense Contracting and Cooperation Policies