Memorandum from QinetiQ
INTRODUCTION
QinetiQ welcomes the broad thrust of the way
the DIS is being implemented, in particular the key themes of
ensuring innovation in defence capabilities and creating and agile
industry base through open acquisition supply chains that have
been developed since the publication of DIS. The emphasis on architecting
and on the MoD establishing relationships that extend below the
"platform prime" is commended, although we note there
is still much detail to put in place. Defence industry has also
evolved since publication, and there has been a step change increase
in dialogue within the sector which we expect will, in time, create
the richer "partnering" climate that DIS is encouraging.
However, QinetiQ remains concerned that the
extent of increased funding needed for defence research is still
not recognised, and our main contribution is on this point.
ABOUT QINETIQ
QinetiQ is the UK's second largest defence and
security company, one of Europe's largest employers of scientists
and a leading organisation in technology transfer. Over the past
50 years QinetiQ and its predecessors have built up significant
intellectual capital and expertise in innovation. We exploit our
strengths in technology research, evaluation and management by
delivering solutions into a broad spectrum of defence, security,
transport and related markets. We have delivered such technological
advances as liquid crystal displays, carbon fibre and thermal
imaging into both the civilian and military sectors.
Our 11,400 staff are continuing our commitment
to pushing forward the boundaries of innovation in scientific
and technological knowledge and in the provision of first class
managed services to customers including the Ministry of Defence,
US Department of Defense, National Audit Office and Highways Agency,
as well as private companies.
THE NEED
FOR INCREASED
DEFENCE RESEARCH
1. It is now widely accepted that the combination
of competition for resources and the stress of climate change
will make the world less stable and predictable. The United Kingdom
will need both industrial and military strength to maintain prosperity
and resist buffeting. The Government's policy is to have small
but highly effective military forces to preserve freedom of action
for the UK. This is well judged because people under arms are
people removed from our productive industrial base. With a high
and growing GDP per head, the UK pays a higher industrial opportunity
cost per serviceman than many nations, and this opportunity cost
will grow with increasing UK prosperity.
2. Having good equipment is key to the Government's
strategy. More than 50% of the UK's defence costs is allocated
to the purchase, maintenance and deployment of equipment. The
major nation with still higher GDP/head, the USA, goes even further.
As with industrial investment to increase productivity, equipment
investment goes hand in hand with ever higher skills and training.
3. This is an issue for the economy as a
whole. Besides the manpower issue, there is the possibility, best
demonstrated by the USA, of using defence innovation to seed technology
into the wider industrial base. Defence is a necessity, but it
can contribute to virtue.
4. It is clear that these issues are central
to the future of the UK, but how far should the nation go down
this track of investment in defence quality?
5. We suggest that the answer lies in considering
a few basic principles, then directing the MoD in the context
of a wider national policy which recognises that defence can contribute
to national industrial innovation. The MoD has researched this
question and, unusually, has published important research findings
to allow them to be subjected to academic scrutiny.[1]
It perhaps foresaw that the issue would become one for Government
and not a single department and that, without wider debate, it
would be asked to address a problem insoluble without increased
resource.
6. The principles are these:
(a) Do we accept the proposition that defence
can be achieved through "smaller, smarter forces"? It
appears to make economic sense in a nation with high industrial
productivity, and it has been repeatedly demonstrated in the military
sense as well. The need to use manpower efficiently will apply
just as much to the urban scenarios we currently face as it does
to the historically more conventional conflicts.
(b) Do we accept that modern defence has
many of the characteristics of modern enterprise; that defence
can also offer "productivity" by investment in equipment,
skills and training? It appears an obvious parallel.
(c) Do we accept that, as with the industrial
parallel, the outcome of competition or conflict is determined
not by the absolute quality of equipment and skills, but by how
much better it is than the competition? Again, few doubt this
to be true. It's not about "doing a job"; you have to
win, in competition or in conflict.
(d) Has a new post cold-war military norm
been established in Iraq, Afghanistan and the daily experience
of Israel? Instead of anticipating conflict with the big "cold
war" players such as the Soviet Union and China, or their
close allies, will the UK in future predominantly face opponents
armed by major exporting nations? This is the key question. If
this is the case, then it inevitably leads to a policy of increased
investment in defence R&D.
(e) The quality of military equipment available
for export by non-NATO countries is set to rise dramatically over
the next 10 to 20 years. The rise of China is perhaps the clearest
example, but China is not alone. By 2020 the MoD expects Chinese
military equipment to be of the same quality of European equipment.
An arms race is unhelpful, and the USA, as the manufacturer of
the best military equipment in the world, is careful to sell (even
to close allies) only what the purchasing nations could make for
themselves or buy elsewhere. China faces a quite different set
of political imperatives: it might become the major non-western
arms-exporting nation before 2020.
(f) If the UK does not increase investment
in military equipment quality, or find a more efficient approach
to investment, it will loose the quality advantage it currently
enjoys and will be less able to exert influence. Consequently,
to preserve the existing level of military capability, the UK
will have to spend more. In fact, we have to do better just to
maintain competitive advantage. This is the Government's dilemma;
it is expected to deliver "security" with costs rising
no more than inflation, but it faces underlying drivers more in
line with GDP growth. The difference between Defence and government
departments delivering a normal service is that Defence is about
international armed competition (conflict), not delivering a monopoly
service.
(g) UK military equipment quality in 2020
will be predominantly determined by what the UK MoD is currently
spending on R&D. With delays between R&D expenditure and
military equipment quality being 10-25 years, we either invest
now or forgo the option of maintaining UK's qualitative military
advantage.
(h) Defence requirements look set to continue
to change as the uncertain strategic context unfolds, and this
means a broad range of options need to be sustained for rapid
application to problems as they arise. Failure to maintain access
to capabilities will constrain the UK's ability to respond in
time.
7. This analysis takes you to a substantially
higher expenditure on UK military R&D in order to continue
to have "smaller, smarter, forces", and the agility
to respond to uncertainty. The amount of additional expenditure
can be calculated by predicting who will be important exporters
and how good their equipment will be. The "how much"
question is very much one for debate, but if one accepts the arguments
above, it is clear we are spending substantially too little on
defence R&D.
8. In the opinion of QinetiQ, to maintain
the option to have "smaller, smarter forces" the UK
must reverse the long-term decline in defence R&D. This requires
an increase in both near-horizon and far-horizon research. Research
in both timeframes has declined over the last two decades. Work
is underway jointly between MoD and Industry to consider the barriers
and incentives to industrial investment for near-horizon research,
but long-term investment must be the prerogative of Government.
Whether the investment is made direct by Government, or indirectly
through accepting higher profit margins on supply contracts to
incentivise this activity, the equivalent of some £250 million
is required to maintain our competitive position. This is not
an affordable option for MoD within its current budget. It cannot
realistically reduce support to Afghanistan now, to preserve a
future option for a future Afghanistan, and has no way out.
9. This issue arises at a time when UK is
seeking better ways to couple its highly successful academic base
into its industrial base to enhance national competitive advantage.
The government has substantially increased investment in academic
research but, as the CBI Innovation study notes, it needs a greater
focus on activity which couples science at low technology readiness
levels into manufacture, across an "investment chasm".
This is, of course, the zone on which much of the MoD's research
is focussed, and a still greater fraction of the USA defence budget.
10. Defence is one of the few government
departments with a strong capability to manage the risk inherent
in applying advanced technology to immediate problems. In the
USA, this strength is deliberately harnessed through companies
active in several markets. Defence funds technology maturation
and its early use drives down unit costs. The technology then
finds its way into the wider industrial base through these multi-market
suppliers, as it does in USA aerospace, computing, information
technology and electronics. To reiterate a point, there is a means
of making a UK necessity into a virtue.
22 December 2006
1 Middleton A, Bowns S et al (2006) The
effect of Defence R&D on Military Equipment Quality, Defence
& Peace Economics April 2006. Back
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