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Authored by Dr. Terrence R. Guay. | February 2007
This monograph examines the impact of globalization on the U.S. defense industrial base. After providing a brief overview of globalization?s general effects on countries and companies and the current structure of the global defense industry, the author examines how elements of globalization are shaping the strategies of defense companies. He focuses on those elements of globalization that are of particular importance to the defense industry. They include the globalization of capital (finance), production, trade, technology and labor, and the changes in global governance that structure the forces of globalization. The author concludes by offering 10 recommendations on how U.S. Government, military, and company-level policies can preserve the U.S. defense industrial base during the current era of globalization. The recommendations revolve around three themes:
?Globalization? is perhaps the most popular term used to describe changes in the international environment since the end of the Cold War. Unfortunately, the term now is used so frequently that it has come to mean different things to different people. This lack of a precise definition of a term with wide currency can make it difficult to discuss globalization?s effects in a coherent way. However, one useful working definition of ?globalization? proposed by the International Monetary Fund is ?the growing economic interdependence of countries world-wide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology.?1 While economics and technology are perhaps its most tangible characteristics, globalization also includes political, cultural, and ideational dimensions, since each of these has a reciprocal relationship with economic and technological change. This combination of forces will present challenges, risks, and opportunities to virtually every industry in every country for the foreseeable future. This includes the sector that traditionally has been more insulated from external pressures than any other?the defense industrial base. This monograph will explore how key elements of globalization have transformed national defense industries around the world, and how these changes will affect the U.S. defense industrial base in the coming years. It concludes by offering recommendations for policymakers who have the difficult task of maximizing U.S. economic competitiveness without compromising national security. The recommendations revolve around three themes: 1) Globalization is blurring the distinction between a domestic and foreign defense company, and policies that aim to keep this artificial distinction are not helping either national security or the defense industrial base; 2) workers are a defense company?s most important asset, and policies should be designed to have the best educated and trained workers designing and building U.S. weapons systems; and 3) the relationship between globalization and technology provides both risks and opportunities, and policies geared toward preserving a perceived U.S. advantage in technology may prove to be detrimental to both national security and economic competitiveness.
1. International Monetary Fund, World Economic Outlook, May 1997, p. 45.