Bean counting

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A major political furore has erupted over the finances of UK's National Health Service (NHS), currently facing a predicted £600m deficit. The overspend has been labelled a "crisis" by Tory leader David Cameron, and has precipitated calls for Health Secretary Patricia Hewitt to resign.

£600m certainly sounds like a lot, and it is. It's enough, for instance, to recruit and retain nearly 2000 new teachers for ten years; or to fund a 60% increase in our bilateral aid to Africa. [1]

But amidst all this general foaming at the mouth, politicians and media have been entirely silent about the fact that a £600m overspend is peanuts for one government department whose Treasury largesse nonetheless never dries up, and whose Secretary of State is never slow handclapped: the UK Ministry of Defence.

The NHS' forecasted overspend is around 0.75% of its £80bn budget. By contrast, the MoD's procurement of military equipment was actually praised late last year by the National Audit Office because its projected overspend on just 20 'major projects' dropped to a mere £2.7bn - around 10% of the projects' budgets.

So what's being done? In the NHS, nurses' jobs are being slashed. Is the MoD at least getting rid of the contractors wasting billions of pounds at taxpayers' expense?

Not exactly. At the centre of this massive overspend is UK arms giant BAE Systems, whose contracts made up over 50% of the MoD's entire budget last year. BAE has an established track-record of leaching money out of the public purse. In 2003, it and its associated companies were responsible for four MoD projects that alone collectively accounted for a £2.7 billion cost overrun, and were delayed by 113 months.

Yet rather than opening out the market to more reliable companies, the MoD is narrowing its circle of friends. Its 2005 Defence Industrial Strategy (DIS), a blueprint for the UK's military procurement for the next decade, actually reduces competition for contracts, identifying industrial partners covering "key industrial capabilities" who will basically receive MoD contracts without having to bid for them. Conveniently, these key areas cover BAE Systems' main areas of interest. In the words of BAE's Chief Executive, Mike Turner, describing BAE's lobbying efforts to shift the DIS in their favour, "we have got what we asked for". Or as one member of the Parliamentary Defence Select Committee put it earlier this year, "the government is in danger of conflating the interests of one private company with the interests of this country".

But wait. These major project overspends are merely the appetiser. They pale in comparison to the greatest boondoggle of them all: the Eurofighter Typhoon.

During the early 1980s, European countries identified a common need to defend against massive air attacks from the communist block. In response arms companies from four European countries were tasked with developing the Eurofighter. Britain ordered 232 planes, originally projected to cost around £7bn. Things went wrong early on. By 1997, Alan Clark, former Minister of State for Defence, was remarking that the Eurofighter was “essentially flawed and out of date ... we must find a less extravagant way of paying people to make buckets with holes in them”.

The Eurofighter Typhoon became operational in 2004, ten years late, and long after the mothballing of the mass fleets of Soviet fighters it was specifically designed to dogfight. It has taken over twenty years to make, and to date has cost the UK alone more than £19 billion (see from page 113 here) - £12bn more than first projected.

Let's get this straight. That's about £350 for every adult and child living in the UK; the equivalent of paying £1.1 million for every job that the Eurofighter project is said to sustain. At least the £600m NHS overspend has been spent trying to save lives, on hospitals, medical staff, defibrilators and drug supplies. The Eurofighter will probably never be used as intended, and instead sits unused on runways around the UK, at yet more massive cost.

And who is the main UK partner on the Eurofighter, trousering their share of the massive Eurofighter overspend? BAE Systems, the MOD's favourite arms company, now gifted with yet more secured MOD contracts for the next decade.


The mysterious case of the disappearing cluster bombs

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For the organisers of Europe's largest arms fair, Reed Elsevier is curiously touchy about any suggestion that it might actually be involved selling arms. Elsevier's latest PR line on Defence Systems and Equipment International, its flagship arms trade event in London's Docklands, is that the 'exhibition' is not about selling arms at all.

Last month, three days before Elsevier's other flagship event, the London Book Fair, thirteen internationally renowned authors issued a public call for Elsevier to end its involvement with the arms trade.

Company secretary Stephen Cowden immediately responded with an indignant letter insisting that

DSEi is not an arms fair, it is a trade exhibition. It is a venue for business and not an event where weapons can be sold or purchased.


We'll leave aside the semantic puzzle of a "business" which does not involve, well, business. But DSEi is quite clearly an event for buying and selling. The event's own brochure speaks for itself:

The world's defence suppliers and their customers meet at DSEi to discuss and conduct business in a central London location....DSEi fulfils an important role within the selling process for defence companies....There are hospitality suites that provide an ideal setting for private discussion and hosted entertainment with existing and potential customers.


Reed Elsevier are particularly squeamish about cluster bombs - the appalling munitions, used in Iraq and Afghanistan, whose scattered bomblets virtually guarantee civilian casualties when used in built-up areas, and can create de-facto minefields. Human Rights Watch estimates that cluster bombs were responsible for more civilian casualties during the invasion of Iraq than any other military tactic, and there are widespread calls for them to be banned, like anti-personnel mines. Although Reed Elsevier don't want to risk losing any business by excluding cluster bomb manufacturers from DSEi, they publicly insisted that cluster bombs were not to upset anyone by being on open display.

So when the authors' public letter condemned DSEi's promotion of weaponry ranging from "tanks to cluster bombs", Elsevier's Stephen Cowden was breathtakingly quick to deny it:
There were no cluster bombs at DSEi. They were not displayed and not offered for sale....Although no international treaty bans them, Reed Exhibitions has taken the decision to ban from display, publication, offer or marketing in any form, all weapons and references to the type of weapons that can loosely be described as cluster bombs.


Nice try Mr Cowden, but no cigar. His exhaustive denial is somewhat undermined by the official catalogue for DSEi 2005, which on page 182 lists components for "aircraft deployed cluster bombs" amongst the products offered by Canadian parachute company International Custom Products (Exhibitor Number 1139). Oddly, though, the page is missing, along with a bunch of others, in the pdf copy of the catalogue on DSEi's website: an embarrassing reprographical error for a publishing company like Elsevier.

And if components weren't enough, you could always just ask one of the 14 cluster bomb manufacturers at DSEi (Lockheed Martin, EADS, Daimler Chrysler, Giat Industries, MBDA, Rhienmetall, RUAG, SAAB, Denel, General Dynamics, L-3 Communications, Northrop Grumman, Raytheon and Textron) to discreetly flog you the whole thing. A journalist from The Independent did just this at DSEi 2005, and reported that a manager from South African arms company Denel happily discussed supplying 155mm cluster bombs with him at the event.

Of course the real issue is not cluster bombs - just one of many deadly weapons, from assault rifles to Hellfire missiles, more openly on offer at Elsevier's arms fairs. The real issue is the arms trade free-for-all made possible by arms fairs like DSEi. But if we're going to argue about it, we should at least get our facts straight.


Special Agents

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Stamp out corruption, and you tame the arms trade. That's the broad conclusion of political economist Joe Roeber, who argues that arms sales are inflated by the trade's unique susceptibility to bribery. In recent years the UK's largest arms companies have worked hard to hamstring government anti-bribery measures. In a rare victory for commercial probity this week, they substantially failed.

First, the science bit. Roeber's argument is that the arms trade is 'hardwired for corruption'. Like other big manufacturing or infrastructure projects, arms sales consist of large, discrete, randomly separated deals that can individually make or break a company. The temptation is huge to go the extra step to seal a deal. Unlike other trades, though, arms sales usually operate behind a veil of government secrecy. In this heady environment, bribes in turn inflate demand, and the proliferation of weapons. The US Department of Commerce estimates that "half of all bribes paid between 1994 and 1999 involved defence contracts, despite the fact that arms constitute only 1% of world trade". In the blunt words of Sir Donald Stokes, the businessman employed by Harold Wilson's government in the mid-1960s to develop the British arms industry's first export strategy:
"a great many arms sales were made not because anyone wanted the arms, but because of the commission involved en route".


Stopping bribery might not stop the most dangerous arms sales, which may still be motivated by inducements other than those deposited in Swiss bank accounts - not least the terrible magnetism of a brewing conflict. But there's little doubt that robust anti-corruption measures would go a long way to ending unwanted arms sales that divert resources away from health, education and infrastructure across the global South.

In 2004, the battle against the bribe quietly entered a new chapter here in the UK. The Export Credit Guarantee Department (ECGD), a section of the Department of Trade and Industry, announced an unremarkable set of new regulations. ECGD acts as an insurer of last resort to export deals regarded as particularly important or risky. If the buyers default on their payments, ECGD coughs up instead, covering the shortfall with money borrowed on the public purse. To prevent public money from being used to underwrite corrupt activity, ECGD demanded amongst other things that companies applying for ECGD support would henceforth have to tell them the identity of agents employed to seal the deal - historically shown to be the key conduit for bribes to be paid at arms length from companies.

Pretty reasonable, you'd think, that an insurer should be able to know (in confidence) whether questionable or notorious individuals were involved in a contract being backed by taxpayers' money. . .

Cue a closed-doors lobbying effort by major arms and aerospace companies including BAE Systems, the UK's largest arms manufacturer. After which, in late 2004 the government backed down, secretly reversing the rules back to its previous 'see no evil, hear no evil, speak no evil' attitude.

Anti-corruption campaign Corner House then took the heroic financial risk of taking the government to court to force a judicial review of the reversed rules. The government lost, and a further - more open - consultation was finally agreed in early 2005. And this week, after much foot-dragging, ECGD announced that it would, after all, be demanding that companies disclose the identity of their agents as a condition of getting its financial backing.

Most striking has been the leading role of the arms industry in all this. ECGD underwrites a range of exports, only about a quarter of which are military equipment. But of the 6 submissions made by individual exporters to the most recent consultation, 4 came from arms companies (including 3 from BAE Systems), as well as one from the civil aerospace manufacturer Airbus, in which BAE holds a 20% share (CAAT's own submission is here)

The ECGD held only one face-to-face meeting during the consultation, with the Confederation of British Industry (CBI) - the leading lobby organisation for the whole of British business. Fair enough - business carries the burden of regulation. The minutes of this meeting, though, make interesting reading. A 3-person delegation labelled as CBI officials met the ECGD - representing, remember, all of the UK's exporters. Who were they?

Richard White I can't place. Sue Walton, also the chair of the British Exporters Association, just happens to have a day job at Rolls Royce, a company with (in its own words) the world's
"largest military engine customer base"
, powering around a quarter of the world's military aircraft and supplying over 160 armed forces.

Admittedly Rolls Royce also has wide non-military export interests. But who's the CBI official leading the delegation? One James Caldwell, chair of the CBI's Export Finance Committee, and also an executive vice-president at. . .
BAE Systems
. Cosily, Mr Caldwell also signed off BAE's own submission to the consultation (this time wearing his BAE hat).

There's no denying that Mr Caldwell has frontline knowledge of the export world's business exigencies. Back in 2003 the US Assistant Secretary of State accused BAE of offering bribes in its lobbying efforts to get the Czech government to buy a batch of its Gripen fighter jets. Hours before a crucial parliamentary vote on the issue, three Czech senators allegedly received unidentified phone calls offering them inducements to back the purchase. One senator went to the Czech police. The phone calls were never traced back to BAE, who robustly denied the allegations. As a side story, though, the Guardian newspaper
reported
that it had got hold of a leaked email from BAE's finance department detailing "corporate favours" offered to the boss of an influential but financially troubled private television station, TV Nova, with the prospect of a favourable media campaign for the Gripen sale.

Who wrote the email? Er . . . one James Caldwell.

In a leaked email, James Caldwell from BAE's finance department offered to introduce the owner of the troubled station, Vladimir Zelezny, to the bank which was financing the BAE Gripen bid.

Caldwell wrote: "Before the Czech Republic entered Nato, TV Nova produced and aired shows supporting Czech membership of the alliance, which influenced a lot of people. With regard to the current atmosphere in the Czech Republic, where the fighter issue is being actively discussed, we should not underestimate the seriousness and value of Mr Zelezny to our campaign."

BAE said: "Mr Zelezny asked us to help to arrange a meeting. We were never going to be party to the meeting or any financing for Mr Zelezny."

BAE was also fined $10,000 (£6,000) by the Czech authorities for illegally buying newspaper space to promote the arms deal.


Of course, there's no suggestion that Caldwell did anything illegal. But lobbying efforts surrounding arms deals evidently involve activities that are - at the very least - grey. Disclosing minimal details of the people involved - even confidentially to a UK government agency - is clearly a major problem. As the CBI themselves told the ECGD:

there were occasions where a customer legitimately wanted the agent’s profile to remain low. Insensitive enquiries may upset a customer.


Quite. And the more these low-profile agents and anonymous middle-men are brought out into the open, the more we're likely to see the real motivations behind many of the UK's largest export deals. The ECGD's decision is a small but significant victory in this direction.


Down on the farm

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We open this blog with the least racy (and least objectionable) end of the arms trade: Ministry of Defence surplus sales. Standing around in a field in Lincolnshire auctioning off clapped-out landrovers to farmers can hardly compete with flogging fighter jets to repressive Middle Eastern oil clients, either for glamour or for moral problematics.

It has its moments though, as keen readers of the Farmers Guardian will know:



Yours for 15 grand (ejector seat and Sidewinder air-to-air missiles not included). A bargain.


About me

  • The Campaign Against Arms Trade (CAAT) is a UK-based coalition working to reduce and limit arms exports, particularly to oppressive regimes; to countries involved in armed conflict or in regions of tension; and to countries whose social welfare is threatened by military spending.
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