GEORGETOWN UNIVERSITY
RESEARCH PROPOSAL:
THE COST OF SOVEREIGNTY:
AN ANALYSIS OF EUROPEAN CROSS-BORDER DEFENSE INDUSTRY
CO...
McBride, 1
1. What is the question and why is it important?
Why do defense firms1
merge across state borders? This questio...
McBride, 2
because they cannot be sure of the intentions of other states.5
This leads to the self-help system,
which limit...
McBride, 3
inadequate basis for analyzing the politics of interdependence.”7
This leads them to offer a
model of internati...
McBride, 4
threats. This relates to the political interest of the regional actors in strengthening their
supranational org...
McBride, 5
Company (EADS), the largest pan-European defense firm, and BAE Systems (BAE), a
competing defense firm that has...
McBride, 6
domestic industrial base as a key part of a state’s power.15
In this light, the formation of cross-
national de...
McBride, 7
economic interests of the defense firms, or to support the larger process of European integration.
In order to ...
McBride, 8
My second argument seeks to explain the dependent variable from an economic-based
approach. Drawing from libera...
McBride, 9
economic integration. Social learning acts as a mechanism to apply this norm to the previously
untouched defens...
McBride, 10
direction. If the norm-based hypothesis appears the most germane, then this suggests that EU
policymakers will...
McBride, 11
5. How will you prove it?
In order to test my three proposed hypotheses, I will investigate the post-Cold War
...
McBride, 12
government debate on defense industry integration should have begun once it became apparent
that the internati...
McBride, 13
role in debates. The likely trigger for this action was either the negotiations leading up to the
Maastricht T...
McBride, 14
Lungu, Sorin. “European Defense Market Integration: The Aerospace Sector in 1987-1999.”
Ph.D. diss., The Fletc...
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Research Proposal: An Analysis of European Cross-Border Defense Industry Consolidation

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Why do defense firms1 merge across state borders? This question is important for
students of international relations, as cross-border defense integration challenges traditional
notions of state sovereignty. For example, Michael Williams has recently characterized the
defense industry as “a critical component of the Westphalian system, and perhaps the last bastion
blocking the way to a new kind of international security system.”2 This comment relates to the
idea that defense firms bridge the gap between economic and military power, accepting money
and national resources as an input and outputting military weapons platforms able to project
national power in the international arena. Cross-national industrial consolidation therefore
stands as an extremely important change, perhaps even presaging a paradigm shift in the
relationship between states and defense firms in providing security in the international sphere.

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Research Proposal: An Analysis of European Cross-Border Defense Industry Consolidation

  1. 1. GEORGETOWN UNIVERSITY RESEARCH PROPOSAL: THE COST OF SOVEREIGNTY: AN ANALYSIS OF EUROPEAN CROSS-BORDER DEFENSE INDUSTRY CONSOLIDATION INAF 590: EUROPE AND INTERNATIONAL RELATIONS DR. ABRAHAM L. NEWMAN BY SEAN P. MCBRIDE WASHINGTON, DC 7 MAY 2010 AD MAIOREM DEI GLORIAM
  2. 2. McBride, 1 1. What is the question and why is it important? Why do defense firms1 merge across state borders? This question is important for students of international relations, as cross-border defense integration challenges traditional notions of state sovereignty. For example, Michael Williams has recently characterized the defense industry as “a critical component of the Westphalian system, and perhaps the last bastion blocking the way to a new kind of international security system.”2 This comment relates to the idea that defense firms bridge the gap between economic and military power, accepting money and national resources as an input and outputting military weapons platforms able to project national power in the international arena. Cross-national industrial consolidation therefore stands as an extremely important change, perhaps even presaging a paradigm shift in the relationship between states and defense firms in providing security in the international sphere. Drawing on Kenneth Waltz3 and other theorists of structural realism, this question is tremendously important because of the central role the defense industry plays in shifts in the international balance of power,4 as the expansion, contraction, or consolidation in a country’s defense industrial base will have a direct impact on that state’s ability to project power in the future. Nevertheless, the idea of cross-border defense integration is problematic for traditional theorists of realism, who argue that states seek to produce independent military capacities 1 The term “defense firm” requires some clarification. This paper employs the definition used by the Stockholm International Peace Research Institute (SIPRI) of a defense firm as a company that produces equipment for the armed forces or provides crucial components for the production of such equipment. See “What is the arms industry,” in Stockholm International Peace Research Institute [Web site and database]; available from < http://www.sipri.org/research/armaments/production/researchissues/transparancy>; accessed 5 May 2010. Related terms such as “defense industry,” “armaments industry,” or “defense industrial base” are used to refer collectively to defense firms. 2 Matthew Williams, “Machineries of War and Mechanisms of Change in World Politics” (Ph.D. diss., Queen’s University, 2007), 25. 3 Kenneth Waltz, Theory of International Politics (Reading: Addison-Wesley Publishing Company, 1970). 4 Williams, 2.
  3. 3. McBride, 2 because they cannot be sure of the intentions of other states.5 This leads to the self-help system, which limits the potential for cooperation between states out of fear that the other state may gain in relative power. While this more traditional conception of balance of power is of limited utility to examining cross-border defense integration between states, some scholars have adopted the concept of balance of threat, which argues that states balance against perceptions of threat as opposed to mere concentrations of power.6 Under this more-flexible realist framework, defense integration serves as a form of external balancing carried out between states that do not pose threats to each other against a more-threatening third party. In contrast to Waltz’s model, these states are able to signal credibly about their intentions, thereby dampening concerns about relative power. Because the defense industry lies at the intersection of security, economics, and politics, an investigation into the causes of cross-border integration must look beyond realist explanations to examine the possibility that economic or political factors may have compelled defense firms to merge across state borders. Given the fact that many defense firms are privately-owned and relatively separate from the government, it seems logical to consider the possibility that defense firms acted as agents in their own right according to their own preferences and economic interests, much like normal mergers between multinational firms in other sectors. However, this idea that firms can be actors alongside states is anathema to more traditional realist conceptions of international relations. How then can we account for firms as agents? In Power and Interdependence, Robert Keohane and Joseph Nye propose that realist theories “are often an 5 Waltz, 165. 6 Stephen Walt, “Alliance Formation and the Balance of World Power,” International Security 9, no. 4 (Spring 1985): 3-43.
  4. 4. McBride, 3 inadequate basis for analyzing the politics of interdependence.”7 This leads them to offer a model of international relations called “complex interdependence,” which argues that “multiple channels connect societies” and allows room for “transnational organizations (such as multinational… corporations)” to be actors on the international scene.8 What then is the role of firms in international relations? Susan Strange argues that firms possess “structural power,” which is “the power to shape and determine structures of the global political economy within which other states, their political institutions, their economic enterprises and their scientists and other professional people, have to operate.”9 Because of the growing influence of firms, they have become more “statesmanlike,” making state-firm and firm-firm bargaining two new important dimensions of international diplomacy.10 Liberals thus provide a theoretical framework to examine defense firms as actual actors on the international stage, suggesting that firm preferences based around economic priorities drive cross-national defense consolidation. What about political factors? As realist scholars argue, states have historically been loathe to give up control over their national defense industrial base, except when an common external threat necessitates that states cooperate as a means of counterbalancing. What if there is no external threat? What political actor would support defense integration then? In the case of areas experiencing regional integration,11 this paper identifies the supranational entrepreneurs at the regional level as potential supporters of cross-border defense consolidation absent external 7 Robert Keohane and Joseph Nye, Power and Interdependence (New York: Harper Collins Publishers, 1989), 23 8 Ibid. 9 Susan Strange, States and Markets (Malden: Blackwell Publishers, 1988), 22. 10 Susan Strange, “States, Firms and Diplomacy,” International Affairs 68, no.1 (January 1992): 1-15. Also see John Stopford, Susan Strange, and John Henley, Rival States, Rival Firms: Competition for World Market Shares (Cambridge: Cambridge University Press, 1991). 11 Even though this criterion only applies to European integration currently, it is helpful to generalize this theoretical discussion before moving to a specific application of Constructivist theory to European integration.
  5. 5. McBride, 4 threats. This relates to the political interest of the regional actors in strengthening their supranational organization relative to the member states. This possible hypothesis ties to constructivist theory, which argues that all actors, including states, are socially constructed, necessitating that actor identities be sociologically examined. In the context of regional integration, J.T. Checkel12 argues that social-constructivism allows for an examination of social learning, the process whereby actors acquire new interests and preferences, typically through the novel application of a preexisting norm. A regional government official can thus learn to apply a preexisting norm, such as “economic integration,” to a new area, such as the defense sector.13 This change in preferences at the regional level thus offers a potential political explanation for cross-border defense integration. 2. What do you want to explain? The past two decades since the end of the Cold War have witnessed an unprecedented level of cross-national consolidation in the European defense industry. The specific goal of this paper is to examine the factors that have led to this cross-border consolidation from the end of the Cold War until the present. Although these recent changes in the European defense industry can be contextualized globally,14 this paper seeks to focus on the European case because of its unique combination of decreased defense expenditures, regional economic and political integration, and a historical commitment to security through a transatlantic framework. Furthermore, this paper will primarily focus on European Aerospace Defense and Space 12 Jeffrey T. Checkel, “Social construction and integration,” Journal of European Public Policy 64, no. 4 (Special Issue 1999), 545-560. 13 Checkel, 548. 14 For a global examination of this phenomenon, please see Eun-Seok Jang, “The Importance of Nationalism Force in the Development of Autonomous Major-Weapons Production in Less-Powerful Nations” (Ph.D. diss., University of Kentucky, 2004). A similar study of Canada’s defense industrial base is Wendy Webber, “The End of the Cold War and the Transformation of the U.S. Defense Market and Defense Industrial Base: Implications for Canada” (MA thesis, University of Manitoba, 1997).
  6. 6. McBride, 5 Company (EADS), the largest pan-European defense firm, and BAE Systems (BAE), a competing defense firm that has expanded both on the European continent and in the United States. Due to the myriad products and services provided by defense companies, this paper will focus on a single weapons system. Though surely not all elements of the defense industry have undergone the same internal and external pressures, this paper assumes that the general trends in European military aerospace (specifically fighter jets) are representative of the wider European defense industry. European aerospace has experienced greater pressure to integrate due to the higher R&D cost of its product, but similar price trends in other weapons systems suggest that what happens to aerospace will likely eventually happen to the rest of the defense industry. Because of the close relationship between shifts in the defense industry and future shifts in the international balance of power, the consolidation of Europe’s defense industry has important implications for the ongoing debate in the United States over how to perceive the rise of Europe and the development of a European Common Security and Defense Policy [CSDP]. Furthermore, by examining the underlying causes of European defense integration, this paper will better contextualize the debate on Europe’s rise as a strategic rival or partner. By examining the logic and reasoning behind the formation of transnational defense firms, this paper can contribute to a greater understanding of the changing nature of the security dilemma in a globalizing world through an examination of the interrelationship of cross-national defense industrial consolidation, the security dilemma, and regional integration. 3. What is the conventional wisdom? The conventional wisdom regarding the European defense industry views defense firms as sub-national actors that are subject to state regulation as part of a national defense industrial base. This largely draws from traditional realist perceptions of state sovereignty and of the
  7. 7. McBride, 6 domestic industrial base as a key part of a state’s power.15 In this light, the formation of cross- national defense firms such as EADS are written off as mere superficial changes due to the continuing dominance of juste retour thinking among EU member states, which ultimately is enshrined of Article 296 EC of the EU Treaty, which allows any member state to “…take such measures at it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war materiel.”16 My approach challenges the null hypothesis of treating defense firms as lackeys of states by synthesizing the theoretical frameworks of several recent works. First, I draw from Seth Jones’ idea that states may be willing use cross-border defense firm integration as a means to further their national interests.17 Second, I draw from Sorin Lungu’s application of Susan Strange’s conception of state-firm bargaining to the defense sector. Third, I draw from Terrence Guay’s consideration of the European Union as an actor in the debate over defense industry consolidation. Synthesizing these three approaches allows for a fuller picture of the interaction of defense firms, states, and the European Union in examining the post Cold War development of a pan-European defense industry. 4. What is your hunch? Due to the complex role of defense firms in security, economics, and politics, my hunch is that the cross-national consolidation of the European defense industry since the end of the Cold War is driven by either security, economic, or political factors. This means that this event either occurred as a means to counterbalance the unipolarity of the United States, to serve the 15 In addition to more modern theorists such as Morgenthau and Waltz, this perception of the defense industrial base stretches back to Machiavelli and Thucydides. Terrance Guay, The Transatlantic Defense Industrial Base: Restructuring Scenarios and their Implications (Washington DC: Strategic Studies Institute, 2005), 6. 16 Center for Strategic and International Studies, European Defense Integration: Bridging the Gap between Strategy and Capabilities (Washington: CSIS, 2005), 74. 17 Seth Jones, “The Rise of a European Defense,” Political Science Quarterly, no. 2 (2006): 241-267.
  8. 8. McBride, 7 economic interests of the defense firms, or to support the larger process of European integration. In order to investigate these possibilities, this paper offers three hypotheses for explaining the dependent variable. Based on my preliminary research, I believe that economic factors have played the dominant role in driving this cross-border consolidation, leading me to expect that firm preferences best explain cross-border European defense integration My first argument seeks to explain the dependent variable from a power-based approach. Drawing from the balance of power and balance of threat literature, I hypothesize that defense industry consolidation represents an effort by the European states to counterbalance the current American unipolarity of the international system. This relates to Samuel Huntington’s assertion that European integration represents "undoubtedly the single most important move toward an anti-hegemonic coalition."18 The primary actors of this argument are the European member states, although the move to construct a European defense industry can potentially be viewed as moving towards the formation of a European super-state. The independent variable is the polarity of the international system. This argument is compelling for several reasons. First, states are historically the most important buyers of military hardware. Second, the European states have played a dominant role in forming and administering intergovernmental defense projects, such as the Panavia Tornado and the Eurofighter. Third, due to the legacy of state- owned defense firms (e.g. France and Spain are minority share holders in EADS), certain state government have had tremendous control over their defense industrial base. Hypothesis #1: If the international system shifts to unipolarity around an external power, then states undergoing regional integration will integrate their defense industrial bases cross-nationally to counterbalance that power. 18 Samuel P. Huntington, "The Lonely Superpower," Foreign Affairs 78, no. 2 (March/April 1999), 45.
  9. 9. McBride, 8 My second argument seeks to explain the dependent variable from an economic-based approach. Drawing from liberal theorists, such as Keohane and Nye, I hypothesize that defense industry consolidation is a function of firm preferences. Under this model, defense industry consolidation has been transnational since the end of the Cold War, meaning states have not been the dominant actors and that consolidation has been the result of economic pressures beyond the control of governmental actors, including a decrease in external security threats and an increase in weapons R&D costs. Under this hypothesis, the primary actors are the European defense firms, and the independent variable is firm preferences. This hypothesis is compelling because European defense integration appears to have developed in a way that defied the original intent established by French, German, and British policymakers at the 1997 WEU conference on defense integration, which envisioned a pan-European defense firm formed between the key Airbus/Eurofighter partners. Instead of this outcome, BAE defied the Blair government and pulled out of the government-backed pan-European deal in favor penetrating the American defense market. Hypothesis #2: If national defense firms prefer to pursue cross-border consolidation as a means to counteract unfavorable shifts in the defense market, then the defense industry will consolidate cross-nationally. My third argument seeks to explain the dependent variable from a norm-based approach. Drawing from Constructivist theorists, such as J.T. Checkel, it suggests that cross-national defense industry consolidation has been the result of the “social learning,”19 meaning that European elite decision makers have promoted cross-national defense integration by applying the norm of “building the single market” to the defense industry. Under this hypothesis, the primary actor is the European Commission, and the independent variable is the norm of regional 19 Checkel, 553.
  10. 10. McBride, 9 economic integration. Social learning acts as a mechanism to apply this norm to the previously untouched defense sector. This argument is plausible because the cross-border defense industry consolidation in Europe occurred shortly after the 1992 Maastricht Treaty, which formed the Common Foreign and Security Policy, and has occurred alongside the development of the EU’s CSDP and the European Defense Agency. Hypothesis #3: If supranational entrepreneurs apply the norm of regional economic integration to the defense sector through social learning, then the defense industry will consolidate cross-nationally. These theories are admittedly not mutually exclusive, meaning that the European states, the defense industry leaders, and the European Commission may all have played central roles leading up to the cross-border mergers, particularly in the formation of EADS. This will be undoubtedly true to some degree, but I expect to discover that one of these actors played a dominant role in this debate. Depending on which actor this is, I will be able to make certain predictions about the future shape of European integration in the realm of CSDP. If the power- based hypothesis appears the most germane, then European actions have been driven by the desire to counterbalance U.S. unipolarity. This would suggest that further moves towards a European CSDP represent a direct threat to NATO, the transatlantic community, and U.S. national interests. If the economic-based hypothesis appears the most germane, then the consolidation of the European defense industry must be viewed as detached from governmental moves to strengthen CSDP, representing instead a transnational economic issue largely unrelated to government policy. Furthermore, the defense firms’ economic interests may actually counter the states’ policy preferences, much as BAE pursued transatlantic consolidation over pan- European consolidation in defiance of the Blair government. In this case, it is likely that defense firms will continue to pressure governments to allow them to compete in the lucrative American defense market, which could potentially force European security policy in a transatlantic
  11. 11. McBride, 10 direction. If the norm-based hypothesis appears the most germane, then this suggests that EU policymakers will likely continue to build up EU capacities in the field of CSDP, particularly by building up the European Defense Agency as a unified procurement body for the member states. Because this policy would be pursued as a means to “build Europe” rather than as a means to counterbalance the United States, further development of CSDP would not form a direct threat to U.S. national interests. Competing Hypotheses for Cross-Border European Defense Integration Norm-Based IV: Norm of economic integration Actor: EU Commission Economic-Based IV: Firm Preferences Actor: Defense Firms Power-Based IV: Polarity Actor: States DV: Cross-Border European Defense Integration Realism LiberalismConstructivism Mechanism of Social Learning
  12. 12. McBride, 11 5. How will you prove it? In order to test my three proposed hypotheses, I will investigate the post-Cold War actions of the largest European defense firms (including those that decided for and against cross- national integration), the European member states, and the European Commission in order to determine when these actors began to discuss cross-national defense integration and what actions these actors took to promote or deter this end. The primary documents will be government documents (such as defense white papers), notes from congressional, parliamentary, and transnational debates on defense consolidation and cooperation (such as over cost overruns in the Eurofighter), corporate documents (shareholder reports and other public documents), as well as media coverage and publicized comments made by state government officials, European Commission officials, or European defense industry leaders. In looking at these documents, I will seek to identify the date of the comment, document, debate, etc. in order to map the chronological relation of these discourses against key dates of the end of the Soviet Union, the cutting of defense budgets and, the consolidation of U.S. defense firms, and the passage of the Maastricht Treaty. I will further examine the documents to identify argumentative references to U.S. unipolarity, economics or profit-based reasoning, or “building Europe.” I expect that the largest challenge I will encounter will be my inability to access classified government and corporate documents regarding corporate mergers. In order to overcome this limitation in primary sources, I will have to fill in informational gaps by making educated inferences based on available documents and news coverage in defense industry publications and news sources such as The Economist and The Financial Times. If my power-based hypothesis is correct, then I expect to find that the European states played the primary role in promoting defense industry consolidation. I should identify that
  13. 13. McBride, 12 government debate on defense industry integration should have begun once it became apparent that the international system was shifting to bipolarity to unipolarity. An appropriate date for this shift is December 12, 1991, when Russia officially succeeded from the USSR. Furthermore, within discussions between state policymakers on defense consolidation, I should identify direct or veiled references to American unipolarity as a key element of the discourse. If my economic-based hypothesis is correct, then I should find that the European defense firms were the dominant players in causing cross-border defense consolidation. This suggests that one or more of the CEOs of these firms (or possibly the cooperative Airbus or Eurofighter consortiums) were likely the policy entrepreneur of cross-border integration. Several features I should find in the public discourse include the formation of industry working groups, the proliferation of industry lobbying firms, and the felt presence of industry leaders and representatives in key debates, such as the 1997 WEU symposium on defense integration. The chronological trigger for this shift should be the cutting of European defense budgets and consolidation of competing defense firms in the United States, such as the so-called “Last Supper,” which occurred shortly after President Clinton took office in 1993 and led to a dramatic consolidation in U.S. defense firms. Finally, I should find that economic logic has been the dominant force in the discourse on firm consolidation. If my norm-based hypothesis is correct, then I should find that the European Union played the dominant role in promoting cross-border integration. I would expect that the European Commission acted as a policy entrepreneur for a “European” defense industry, contacting industry leaders to sell them on the idea, and then acting as an “honest broker” between defense industry representatives and the member states. In this hypothesis, I would expect to find that discourse on “building the single market” or “building Europe” plays a key
  14. 14. McBride, 13 role in debates. The likely trigger for this action was either the negotiations leading up to the Maastricht Treaty, although it is possible that this may have started after in debates occurring alongside discussions leading up to the creation of the Common Security and Defense Policy and the European Defense Agency. Bibliography Anderson, Jan Joel Young Soo. “Guns and Butter: A Neoliberal Statist Analysis of Cross-border Defense Industry Collaboration in Western Europe, 1950-2001.” Ph.D. diss. , University of California, Berkeley, 2002. Center for Strategic and International Studies. European Defense Integration: Bridging the Gap between Strategy and Capabilities. Washington: CSIS, 2005. Checkel, Jeffrey T. “Social construction and integration.” Journal of European Public Policy 64, no. 4 (Special Issue 1999): 545-560. Drown, Jane Davis, Clifford Drown, and Kelly Campbell, ed. A Single European Arms Industry? European Defence Industries in the 1990s. London: Brassey’s, 1990. Guay, Terrence R. “The European Union and Integration Theories: The Case of Europe’s Defense Industry.” Ph.D. diss. Syracuse University, 1996. ________. The Transatlantic Defense Industrial Base: Restructuring Scenarios and their Implications. Washington DC: Strategic Studies Institute, 2005. Huntington, Samuel P. "The Lonely Superpower." Foreign Affairs 78, no. 2 (1999): 35-49. Jang, Eun-Seok. “The Importance of Nationalism Force in the Development of Autonomous Major-Weapons Production in Less-Powerful Nations.” Ph.D. diss., University of Kentucky, 2004. Jones, Seth G. “The Rise of a European Defense.” Political Science Quarterly, Summer 2006, 241-267. Kelleher, Catherine McArdle and Gale A. Mattox, ed. Evolving European Defense Policies. Lexington: Lexington Books, 1987. Keohane, Robert and Joseph Nye. Power and Interdependence. New York: Harper Collins Publishers, 1989.
  15. 15. McBride, 14 Lungu, Sorin. “European Defense Market Integration: The Aerospace Sector in 1987-1999.” Ph.D. diss., The Fletcher School of Law and Diplomacy, 2005. Mörth, Ulrika. Organizing European Cooperation: The Case of Armaments. Lanham: Rowman & Littlefield Publishers, Inc, 2003. Walt, Stephen. “Formation and the Balance of World Power.” International Security 9, no. 4 (Spring 1985): 3-43. Strange, Susan. States and Markets. Malden: Blackwell Publishers, 1988. ____________. “States, Firms and Diplomacy.” International Affairs 68, no.1 (January 1992): 1-15. Stopford, John, Susan Strange, and John Henley. Rival States, Rival Firms: Competition for World Market Shares. Cambridge: Cambridge University Press, 1991. Waltz, Kenneth. Theory of International Politics. Reading: Addison-Wesley Publishing Company, 1970. Williams. “Machineries of War and Mechanisms of Change in World Politics.” Ph.D. diss., Queen’s University (Kingston, Canada), 2008.

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