that the critical mass of volume needed for a new weapons system must rely on export sales.

In the United States, exports continue to play an important role in lowering the cost of weapons systems. However, the U.S. volume of R&D and procurement is large enough to maintain a strong defense industry without exports. This gives the United States the luxury of contemplating policy without having to deal with the immediate short-term requirement of exporting to maintain production. The Europeans, on the other hand, find themselves in a very different situation, with a driving need to export.

One consequence of this need to export is a tendency by our competitors to export more-advanced capabilities as a way of competing with U.S. industry. The result is a vicious cycle. The response to this higher-capability competition by U.S. producers is to also export more military capabilities. At the firm level, the logic is straightforward: If the United States does not give the buyers this capability, they will still be able to acquire it from a competing producer. The United States may as well make the sale and gain the economic benefit.

International Cooperation

Complicating matters is the close technological cooperation between the United States and its allies. Historically, the United States has, to some extent, subsidized the development of the very capabilities that are driving the competition in foreign markets. The United States makes up a little less than half of total Allied procurement. However, the United States provides about 72 percent of total R&D. Either the United States is incredibly inefficient in its R&D, or it is subsidizing the rest of the world. During the Cold War, this was a perfectly reasonable policy for building up the defense industrial base of U.S. allies. From the point of view of economics, it also makes sense to sell off components or technology to our allies to recoup some of the money already spent to develop the technology.

All of this strengthens alliance ties by creating a world of close cooperation. The subsidies to Allied defense industries have been both direct (through licensed production, co-production, technology licensing, and participation by U.S. companies in product development teams in Europe) and indirect by providing components for European weapons systems so that they do not need to develop a particular technology embodied in the component themselves. The United States has thus created a system in which it cooperates technologically while competing for sales.

With Negative Consequences

The above is a consequence of a logical set of actions by the individual actors that has significant negative impacts for the system. The intensified competition



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