Defense economy: Industrial policy instead of „war economy”

Exports developed weakly due to the restrictive export policy of the federal government. This led to higher production costs and lower competitiveness. The Russian attack on Ukraine fundamentally changed the conditions for the defense industry. The turning point has led to an exceptional boom for the industry but has also brought new challenges. These include the need to expand production capacities and to be prepared for future crisis situations. In particular, stable public financing would be necessary for this as the basis for industrial development with a long-term orientation. It creates the possibility for expanding the necessary capacities and for long-term investments in capacities and innovations.

Specific justifications for industry-specific instruments are derived from the special features of the value chain for equipping external security, which go beyond general location policy. For example, it is important to secure certain technological capabilities in order not to jeopardize defense capabilities in the event of a conflict. Capacity planning and financing require the coordination and participation of the central government contracting authority. It must also be possible to convert civilian production in the event of a crisis in order to provide components for the defense-related value chain.

An industrial policy for the defense industry must always be conceived internationally. A European regulatory framework strengthens competition and meets common defense needs. A European innovation funding program can help to achieve the necessary innovative edge in the event of a conflict. Trade policy, which in Germany has traditionally been restrictive with regard to the export of military and dual-use goods, should also be established at the European level in order not to hinder the willingness of European and German companies to cooperate.

A national and European industrial policy for the defense industry must be aligned with the particularities of the value chain. At the same time, there is potential for abuse, with hidden competitive distortions favoring certain companies. By using competition as an instrument and limiting intervention to what is necessary, damage can be avoided.