Murphy's Law: Hidden In Plain Sight

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January 11, 2019: According to SIPRI (Stockholm International Peace Research Institute), an independent defense research organization, as of 2017 Russia is now the second largest arms manufacturer in the world. Russia passes Britain first time since the Cold War ended. The United States remains in first place, with $227 billion in sales by 42 major firms. Russia is second with $38 billion and Britain third $36 billion. Taken together Western European nations have total sales of $94 billion which is about the same as Chinese arms firms, whose published data shows about $95 billion for 2017. SIPRI notes that it leaves China out because it has not got comparable data for China going back to 2002 (which is when the current data begins for the “Top 100 Defense firms”). During the Cold War, SIPRI did not include Russia or other communist nations with command economies (most of East Europe, Cuba, North Korea, Vietnam and China) for the same reason

SIPRI was founded in 1966 with the help of the Swedish government to compile and publish, among other things, unclassified (“open source”) data on weapons production and exports to be used as a basis for negotiation arms control agreements. SIPRI has been pretty strict about using only reliable sources and that was a problem with the larger communist nations which produced a lot of weapons. These communist nations tended to sell to anyone who can pay and that practice did not end with the collapse of most communist nations in the late 1980s and early 1990s.

China avoided this collapse by adopting a form of radical socialism (which Russian communism was) that allowed free enterprise rather than the state ownership of all economic activity by the state, as practiced by the Russian Soviet Union and China, up until the 1980s. This total state ownership approach does not work, although it still has advocates (North Korea, Cuba, Venezuela). China switched to a modified form of radical socialism in which the unelected government allows free enterprise as long as these firms are loyal to the state (in the form of the CCP, or Chinese Communist Party). It’s not politically correct to point out that this is what Germany was after the National Socialist German Workers' Party (or Nazis) took control of Germany in the mid-1930s, about twelve years after the Union of Soviet Socialist Republics was established by the Russian Communist Party. The Bolsheviks sought to practice a pure form of socialism in which the state owned everything. The “national socialist” approach uses nationalism and only as much socialism as the economy can support. As the Nazis, Italians and Japanese demonstrated during World War II this approach did not work either. The Chinese communists believe they have learned from past mistakes of others and have, after three decades, kept it all going. But China is still trying to cope with the nationalism (reviving the Chinses empire at the expense of the neighbors) angle as well as the problems encountered when the strict controls over media and much else proved unenforceable with a huge new middle class full of well-educated Chinese who were willing and able to express disagreements with how the government and economy were being run.

When China allowed the economy to operate under a free market model in the 1980s that led to more and more privately owned firms dominating the economy and obliged to provide generally reliable financial data in order to raise needed capital from banks and financial markets. Although nearly half the major firms are still state-owned, all have to compete and provide a certain amount of data on operations to compete in the world market. Thus data on the production (or at least the value of it) of Chinese arms firms are available but not to the extent it is in Western nations where there are a lot of laws mandating audited and published financial data. Chinese firms only give up as much of this as they must to gain and maintain access to world markets. Thus it is possible to compile comparable (to what SIPRI collects) data on what the major Chinese arms firms produce, and it is currently about $95 billion and has been rising rapidly since 2002. Sometime in the last decade, China passed Russia (the longtime second largest arms producer) to move into second place. China continues to be secretive about who it sells to, which some Western producers sometimes do (announcing a sale to an unnamed customer). But in the case of these Western firms, the unnamed customer is eventually identified. For Chinese customers, the unidentified customers are often outlaws or customers in areas under international (usually UN) arms embargoes apply. Such exports are illegal and China will protect Chinese firms caught carrying out these illegal sales because the Chinese government does exercise control over who can make secret purchases and who cannot. So while it was nearly impossible to get any reliable sales data from the communist nations where the economy was state-owned, that is not the case with the other form of radical socialism where free enterprise is tolerated as long as it serves, and obeys the state. SIPRI is unwilling, so far, to use data for China that might warrant an asterisk next to it (to indicate not strictly comparable to other data but close enough because China is such a major producer).

 


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