Nations invest in defense technologies to protect their citizens and also to drive economic growth and prosperity. In Deloitte’s latest Global Defense Outlook, we found that 50 nations spend more than $1.7 trillion every year on defense, and national leaders expect to gain strategic benefits from their investments.
Gaining military advantages from innovation in defense technology is getting harder and more expensive. Changing global economic realities are leading toward catch-up and convergence, reducing the relative advantages of investment in high-tech defense systems. These trends are becoming more evident worldwide.
Catch-up is driven by macroeconomic realities. Higher-income nations among the Top 50 defense spenders (the United States and most of the Eurozone) have led defense innovation for more than 70 years and are responsible for most of today’s advanced weapons, including stealth, unmanned systems, precision strike, naval aviation, and cyber-related systems. These nations reduced defense investment by about 8 percent between 2008 and 2013, confronted by high debt, slow economic growth, and competing demands for deficit reduction and social services.
The lower-income nations among the Top 50 (China, Russia, India, Brazil, Saudi Arabia, Iran, Pakistan, and others) have traditionally spent less and followed the technology lead of the high-income nations. Because these nations are growing faster than the higher-income nations and hold lower levels of debt, they are increasing defense spending. Russia is undertaking the most expensive buildup of its defense since the breakup of the Soviet Union, increasing defense spending by 16 percent between 2013 and 2016. China’s defense spending has doubled over the past 10 years and will increase by 12 percent in 2014.
Convergence is happening because it is cheaper to copy than to create. Innovation can provide competitive advantages in warfare just as in commercial markets, but innovators face high costs and risks. In the United States, defense innovation is concentrated in 80 major defense acquisition programs (MDAPs), including the F35, expendable launch vehicle, and other high-technology systems. These systems are loaded with cost and risk. In fact, the U.S. General Accounting Office reported that the MDAPs have overrun budget estimates by $448B and are an average of 28 months behind schedule – solid evidence that gaining a technology edge in defense is a risky and expensive undertaking.
Copying defense technology is much cheaper. For example, the Chinese Navy boosted its power projection capability by purchasing a used Russian aircraft carrier for $20M and towed it home. This low-cost investment establishes carrier-based aviation in China, an early step toward what Chinese officials call “the century of the sea.”
Lower-income nations are catching up in defense spending as they exploit economic growth and favorable debt positions. The result over the decades ahead is likely to be technological convergence, with advanced defense technologies increasingly available to state and nonstate actors. To learn more, read the Deloitte Global Defense Outlook 2014: Adapt, collaborate, and invest. Please share your thoughts or questions by commenting below!
Jack Midgley is a director in Deloitte’s strategy practice, advising leaders in the defense and intelligence communities. He leads development of Deloitte’s annual Global Defense Outlook. Follow him on Twitter @jackmidgley.