Note: My new project involves examining how intellectual property law affects the spread of military technology across the international system. Accordingly, I’m now plowing into the literature on military procurement and the defense industry. I’ll grant that this literature can be a touch less sexy than the history of airpower thought, but there’s still a lot of interest. Consequently, some of the next few waves of book reviews will focus on books about the arms trade and the defense industry.
What chance do small firms have in the defense market? Small firms generally struggle to compete with the big defense conglomerates, but civilian technology often outpaces military tech, especially on price. James Hasik’s Arms and Innovation examines how small firms form alliances with large firms in order to sell to the Defense Department. Hasik concludes that under certain conditions, alliances between large and small firms can work, but that these conditions are often fleeting. Nevertheless, these alliances have produced some of the most important innovations in military technology of the last fifteen years.
Alliances and Innovation
The problems of integrating small firms into the military-industrial complex substantially predate the coining of the term “military industrial complex.” When weapon systems became too expensive and risky for firms to simply produce and sell them “off the shelf” to governments, pre-emptive collaboration between the state and a select number of large firms became inevitable. This necessitated the development of long term relationships, with the consequence that small, non-traditional defense providers had trouble breaking into the market.
There’s a lot of debate on how the Pentagon approaches small firms. For at least the last fifteen years, DoD has tried to encourage small firms to pursue military contracts. Don Rumsfeld, among others, believed that small, nimble, private firms could innovate more quickly and more cheaply than the large, state-dependent defense conglomerates. Especially in the tech sector, small firms (and non-defense firms more generally) seem to produce more advanced, lower cost equipment than their larger counterparts.
The problem is that it’s still extremely difficult for small firms to claw their way into the door, as Pete Dombrowski and Eugene Gholz detailed in their book Buying Military Transformation. The rules on securing procurement contracts from DoD are so arcane that only large firms that already have substantial experience with the Pentagon can hope to have much chance.The big defense firms are also far more likely to maintain personal contacts with the Pentagon through the hiring of retired military and civilian personnel, although this too depends on an arcane set of rules determining eligibility for employment.
There are also (as I have discussed in other places) significant issues with intellectual property protection. Small firms depend on patents and trade secrets to protect themselves from larger defense companies, but such protection depends on the willingness of the Pentagon to rein the larger companies in.
Hasik discusses this problem in terms of skill vs. capital intensive production, maturation of requirements, information “leakiness” and “shakedown potential.” Small firms do well with skill-intensive projects, and are flexible enough to take advantage of opportunities provided by immature technologies and shifting state requirements. Small firms and large firms can work together if the information requirements are right; if large firms can simply steal the trade secrets of small firms, or if the small firms lack sufficient legal protection for their ideas and techniques, then there’s little incentive for the latter to engage in alliances. Arms length relationships make more sense.
Hasik examines the Predator drone, the MRAP, the Littoral Combat Ship, the JDAM, and several other systems that have resulted from alliances between large and small firms. In some of these cases the small firms are remarkably successful; in others, they maintain success for a period before either a) the market for their product collapses, or b) a larger firm cuts into their market share. However, he makes clear that small firms have played an important role in the development of some of the most widely known technologies of the 21st century.
Pulling it Together
Hasik’s account of the relationship between the state and the private firm in the defense sector is necessarily incomplete, but a broader theoretical framework might have allowed him to frame the insights of this research in a way that could have problematized the entire public-private sector relationship. In short, the issue of the state’s relationship with private firms is much larger, and goes back much farther, than he suggests.
What Hasik doesn’t offer, and what I’m really interested in, is the comparative aspect; how do other countries stucture their defense industries in terms of allowing small firms a chance to win contracts? The way that small firms, large firms, and the state relate with one another are embedded in broader socio-economic frameworks, and we can expect that different structures will generate much different patterns of innovation. This is especially interesting as part of a comparison with the great command economies of the Cold War, but we probably should also expect that defense tech innovation will happen differently in Europe, where “national champions” tend to dominate defense contracting.
Nevertheless, there’s plenty of interest here, both on the theoretical and empirical sides. The cases are well-chosen on “interesting” criteria, and readers who want a short primer on how the JDAM or MRAP came about should find much to their liking. And Hasik provides a valuable window into how the defense industry works, and into how small firms can find a way to break through.