Introduction
Research and Technology (R&T) and Research and Development (R&D) are critical ele- ments in the production of defence capabilities: without scientific and engineering inge- nuity, technological advances in the defence sphere cannot be made. R&T is the critical beginning phase in the development of defence capabilities. It is in the R&T phase that initial scientific modelling and applied science occurs, after which point the production phase moves into R&D, a phase where technologies are brought up to the testing and demonstrator levels and eventually transformed into finished products. R&T and R&D are not only critical for adapting traditional naval, air and land platforms for continu- ously evolving defence requirements, they also play an important role in developing new defence industrial capabilities related to Chemical, Biological, Radiological and Nuclear defence (CBRN), cyber, unmanned systems and nanotechnologies. Furthermore, spend- ing on defence R&T and R&D is important in order to retain highly skilled employees such as engineers and scientists, and not to lose them to the civilian sector or to competitors in third countries.
The role of governments in defence R&T and R&D is crucial. Indeed, defence firms tend not to have the capital resources or the appetite for the level of risk involved in defence R&T and R&D projects. The costs and risks associated with R&T and R&D derive from the fact that, unlike civilian markets, there are limited numbers of customers that can buy finished defence products. A lower number of end-users drives up R&T, R&D and per unit costs associated with each defence product. This is the reason why governments become critical in the investment phase, as not only are they typically the only end- users of defence products but they have a key role in defining the overall direction of R&T and R&D programmes based on defence requirements. Ministries of Defence are intimately associated with the R&T and R&D phases both as customers and investors. Defence budgets are used to help initiate R&T programmes and to deal with unforeseen costs that arise over the whole capability development cycle. Therefore, governments rather than firms take on much of the risk of defence R&T and R&D. The cost to the firm is usually that procurement contracts will involve profit caps and specific end-user requirements, although R&T may lead to the accrual of intellectual property rights and the ability to sell spin-off technologies in civilian markets.
This is not to diminish the importance of defence firms in R&T and R&D processes. While governments put up much of the investment and take on risk, defence firms have the scientific and industrial infrastructure to develop defence capabilities. R&T and R&D therefore involve a two-way process with, on the one hand, governments transmitting particular defence requirements to firms, but, on the other hand, firms setting the techno- logical and scientific parameters in which a specific defence capability can be developed. Such is the close relationship between governments and firms that in some cases defence firms may be able to anticipate the types of defence capabilities needed by governments. Major firms play a critical role in R&T and R&D processes, and SMEs – which tend to specialise in specific niche areas of production – are sources of innovation. Dedicated research institutes and universities play a vital role in the R&T phase too.
R&T and R&D cost significant amounts of capital investment, but there is increasing pressure on defence budgets in Europe at present. Governments are making the difficult choice of whether to invest in defence or to allocate more resources to civilian R&T and R&D. As Figure 1 shows, the tendency across the EU-28 since 2000 has been to allo- cate available R&D budgets to the civilian sector rather than defence. Indeed, the almost perfect correlation between civil-defence allocations can be noted; what is allocated to civilian R&D is deducted from defence R&D. The emphasis on civilian R&D might be reflective of the notion that the civilian sector is more internationally competitive than the defence sector. However, it is unclear how much civilian R&D spins into the defence sector and vice-versa. In the United States defence R&D has traditionally provided spin-off technologies for the civilian sector (e.g. GPS or the Internet), whereas in the EU there is a greater reliance on spin-in technologies that emerge from civilian R&D programmes with defence applications (e.g. aeronautics). While it is true that European defence markets are increasingly characterised by dual-use products, the lack of empirical data on the level of R&D cross-fertilisation (or lack thereof) between the defence and civilian sectors poses certain challenges for defence capability planning purposes.
As one can see from Figure 2 below, there has been a steady decline in the levels of government allocations to defence R&D as a percentage of overall outlays on R&D (GBAORD) by the EU-28 over the 2000-2013 period.2 This began with a notable downward trend in 2003. It should be noted that the EU-28 increased allocations between the 2011-2012 period (from 4.52% to 4.97%), but this would not see allocation levels return to their high peak in 2000 (at 12.95%). Therefore, over a twelve-year period the EU-28 has experienced a 7.98% decrease in total defence R&D budget allocations as a total of overall government R&D budget allocations. In contrast, the United States has the highest levels of total budget allocations, although it experienced a dip in 2009 and a downward trend since 2010. Canada has maintained stable levels of defence R&D budget allocations, albeit at a lower level than the EU-28, the United States, the Republic of Korea and Japan in certain years.
The EU-28’s downtrend is reflected in some of the individual figures of European coun- tries. As Figure 3 highlights, Spain has witnessed the most severe downward trend in defence R&D budget allocations – from 26.2% in 2000 to 3.7% in 2012 (a decrease of 22.5% over a twelve-year period). France and the United Kingdom have also witnessed sizeable decreases in allocations. France witnessed a 15.1% decrease from 2000 to 2013, and the UK experienced a sharper decrease of 19.8% over the 2000 to 2012 period. After a progressive increase in allocations from 2000 to 2002 (a 7.51% increase in the space of two years), Sweden’s allocations have reduced to levels close to that experienced in 2000 (7.1% in 2000, 8.1% in 2012). Although at a traditionally lower level of allocations than France, Sweden and the UK, Germany has also experienced a downward trend in its al- locations over the 2000-2013 period.
While it is true that EU member states are cooperating through mechanisms such as the EU Framework Programmes and the European Defence Agency (EDA), collabora- tive R&T and R&D programmes at the European level – which could potentially plug spending gaps and reduce costs – have also experienced spending decreases. Figure 4 illustrates the overall level of European collaborative defence R&T, and the overall level of investment in R&D (including R&T) as a percentage of total defence expenditure among the 27 participating member states of the EDA. Investment levels in R&D have remained stable over the 2006 to 2011 period, but there was a drastic decrease in invest- ments with levels falling from 4.1% in 2011 to 2.5% in 2012. The total level of European collaborative defence R&T has been in decline since 2008, and from a high in 2008 of 16.6% the level fell to 7.2% in 2012 (a decrease of 9.4%).
EUISS Yearbook of European Security 2014
Daniel Fiott 