Introduction

Arms industries are often condemned for being part of a powerful military–industrial complex that determines arms decisions. Is this a figment of the imagination or a real feature of arms industries? Developments in the economics of politics and public choice analysis provide valuable insights into understanding this complex.

The term is associated with President Eisenhower’s farewell address in January 1961, when he referred to the need for society to “guard against the acquisition of unwarranted influence … by the military–industrial complex”, adding that “the potential for the disastrous rise of misplaced power exists and will persist” (Eisenhower 1961). The political component has been added to the description military–industrial complex to recognize the role of political markets within the complex. Political markets comprise governments, political parties, bureaucracies and various other interest groups consisting of producers, consumers, and the disarmament, peace, environmental and green movements. This approach departs from the traditional economic model of competitive markets assuming large numbers of buyers and sellers. Instead, arms industries operate in political markets where the government is the only or major buyer and where there are often monopoly or oligopoly suppliers with barriers to new entry and markets typically in disequilibrium rather than achieving some neat mathematical and theoretical equilibrium. A further political dimension arises where arms producers are state owned rather than privately owned. The result of arms industries operating in political markets is that we need to use public choice analysis to further understand and explain behaviour in such markets.

A public choice approach

Public choice analysis explains behaviour in political markets using the concepts of self-interest and mutually beneficial exchange operating within the rules determined by the constitution or by some other rule-making individual or group. It involves the application of economics to political science and studies non-market decision-making. The analysis identifies various agents within democratic political markets, consisting of voters, political parties, governments, bureaucracies and interest groups. Each agent will pursue its own self-interest, which will determine its preferences for public policies towards arms industries. Examples include the choice of which arms to buy, from which contractor (national or foreign), how the arms will be bought (choice of contract) and at what price and profitability.