Today, the Ministers of National Defence and of Public Works announced a new approach to Canadian defence procurement. Given the track record of the recent (and not so recent) past, it is clear that Canada desperately needs to reform how it buys equipment for the Canadian Forces. The efforts to “re-capitalize” the CF have thus far produced more controversy than new planes, ships, vehicles, and other kit. Since the Department of National Defence has not worked so well in this area, it does make some sense to move it to Public Works although it is not clear that Public Works has a stellar record. Subsequently, more oversight from a team of Ministers makes a great deal of sense.
To be clear, this is not just a Canadian problem. Every advanced democracy is having problems buying arms and equipment for their militaries. The decisions facing procurement officers are incredibly hard:
- as inflation in this sector far out-paces every other;
- given that competition is hard to generate within countries as there are few firms that can produce advanced weapons;
- and that civilian expertise is not quite as strong as the military’s so the latter can sometimes “game” the former.
It would be fantastic if Canada tried to learn from other democracies what works and what does not work best both in terms of how to buy defence equipment and what equipment is best to buy. Perhaps this will be part of the job of the new “Defence Analytics Institute, which will provide expert analysis to support the objectives of the Defence Procurement Strategy (DPS) and its evaluation.”
But I am a skeptic of this reform because it adds something that really has nothing to do with efficiency: “leverage our purchases of defence equipment to create jobs and economic growth in Canada.” That sounds great as it makes defence purchases more appealing – we get some new equipment and it creates jobs in Canada. But the reality is again the basic problem that insisting on purchasing at home means more expensive ships, planes, helicopters, and other necessary military equipment. Efficiency means buying the best quality at the lowest price. Insisting on buying Canadian-made material means that when Canada is not the most efficient producer, Canadian-based firms will still be chosen. In the past, apparently acceptable ten percent markups became something closer to thirty percent increases in the costs of building domestically.
This is a real problem since Canada is often not the most efficient producer, given the economies of scale (that Canada does not buy as much as other countries so the costs cannot be averaged out over large production runs) and given that Canada simply has not been in some businesses for a long time so startup costs remain expensive (ship-building!), and so on. This would be fine if DND had money to burn, but we are living during a period of defence cuts, so the added expenses of building within Canada logically means that Canada will have to buy fewer planes, ships, and other military equipment.
Obviously, domestic political imperatives are at work here – and that is to be expected. The problem is that this move elevates playing to domestic audiences and providing jobs to key ridings, as a priority in the decision-making process. Domestic politics will always matter unless we build a non-partisan institution to make the decisions. This is unlikely to happen with such a big chunk of the government’s money. This “reform” is a mistake because it legitimates job creation as one of the key reasons for buying defense equipment. Given how capital intensive this sector of the economy is, it is hardly an “efficient” or effective way to create new jobs. A better way to do that would be (he says, self-servingly) to invest in higher education which has long proven to be a better job creator/economic multiplier than defence spending.
Of course, there is a larger problem in Canadian defence procurement that is entirely unaddressed with this reform: the refusal to make choices. Canada has not revised its defence strategy despite the fact that so many of the assumptions of the Canada First Defence Strategy have been overcome by events. Canada cannot afford to “re-capitalize” all of its military at once, and has to prioritize which parts of the Canadian Forces most need new equipment, which parts will have to settle for being less advanced, and which parts might need to be cut entirely.
Reforming the process of defence procurement is needed, but Canada’s understanding of what it needs to buy in the 21st century is in greater need of reform. That would require some hard decisions and significant transparency – and unfortunately these are not the strengths of this government.
By Steve Saideman