Blackmail or Bad Math?

Lockheed Martin must be getting nervous about Ottawa’s decision to entertain alternatives to their F-35 fighter jet.  The company has indicated that $10.5 billion of potential work for Canadian companies could disappear if Canada doesn’t buy the plane.  Oh my gosh let’s run out and confirm that we want the F-35 right now, or they might kill the hostage!

Or not.  Let’s do some simple math: $10.5 billion over 40 years is about $250 million a year.  Which is not peanuts, but in defence spending terms, it is not that big of a deal.

However, there are clearly heaps of budgetary consequences if the government does choose to buy the F-35.  This Lockheed Martin calculation ignores the ‘opportunity costs’ of the purchase – that is, the money that could be spent elsewhere if the F-35 turns out to be more expensive than the alternatives.  Indeed, the government could not buy any plane and just spend $250 million a year for the next 40 years on industrial policy, and it might just be better for the Canadian economy.

Continue reading

Advertisements