IRDISP-RESEARCH INSTITUTE FOR DISARMAMENT, DEVELOPMENT AND PEACE

ABSTRACT: Fine that there is the arms race, but what has Italy to do with it? Aren't the U.S. and the Soviet Union the promoters of such race? It is true that the two superpowers are the chief responsibles for the arms race. The chief ones but not the only ones. Italy has its share of responsibility as well. A smaller share, but not a negligible one. In absolute numbers, Italy's military spending in 1985 was the eighth of the world. As regards the number of men at arms, it is among the first fifteen countries. And the Italians are in the first six positions among the world exporters of armaments. The weight of the military sector on the whole of the Italian economy is still rather limited: The spending accounts for 2.7% of the gross domestic product; arms represent 2.7% of the wealth produced by the industry, and 2.3% of the exports. Moreover, the military threats to the security of Italy are less serious than those which many other international actors have to face - including many of our allies. Therefore,

Italy is in a situation that offers many opportunities to contain the spending, experiment conversions to civilian uses of the military productions, and promote a realistic security policy aimed to achieve détente.

Unfortunately, these opportunities are dropped. In fact, there has been a tendency to expansion over the last decade which must be urgently stopped. As of the mid-seventies, Italy has become one of the major exporters of weapons systems, and its military spending exceeds the annual growth rates decided at the NATO level. That same period marks the rise of the supporters of a "new military role" for Italy in the Mediterranean. The "White Paper" presented by the Minister of Defense Spadolini in winter 84-85 summarizes and pinpoints these developments, obviously from the point of view of a person who supports them and hopes that they will continue. This book on the contrary highlights the doubts, the questions, the alternative proposals compared to what has been to this moment a monologue carried out by the establishment.

("ITALY AND THE ARMS RACE" - A counter-White Paper of defense - edited by Marco De Andreis and Paolo Miggiano - Preface by Roberto Cicciomessere - Franco Angeli Libri, 1987, Milan)

7. THE ITALIAN MILITARY INDUSTRY AND ARMS EXPORTS

by Marco De Andreis and Alessandro Liberati

1. Introduction

This chapter deals with the Italian arms industry. First of all we will try to pinpoint the main economic indicators of the sector, comparing estimates made in recent years by various authors and the conclusions we reached during our research. Then we will assess the impact of the military sector on the Italian economy as a whole. The remaining paragraphs will explore other important aspects of the military production, such as the protectionist measures that favour it, its technological limits, its export flows and their legislative regulation, research and development in the military sector. Lastly we will try to understand whether this industry has a strategy, who supports it and with what aims, as well as the conclusions to be drawn on the present situation and on its foreseeable evolution.

A number of maps of Iri, Efim and Fiat shares in the military industry conclude the chapter.

2. The size of the Italian arms industry

Difficult to interpret as it may be, the Defense budget remains a public document whose figures cannot be questioned. Clearly, we can play around with numbers, make any comparisons we want, but those are the data.

With the military industry the situation is even more complicated, as there are no reliable official data. The main responsibility for this belongs to the government, since the government is the only source of internal demand and at the same time the authority that issues export licenses. The executive is perfectly in the condition, therefore, to give us the fundamental size of the Italian arms production. But it fails to do so, not even on "historical" opportunities such as the Conference on defense industry of July 1984 promoted by the Ministry of Defense itself. For their part, public and private industries do the same: anyone who has dealt with this sector has had to struggle through unavailable data, unfindable budgets, ignored questionnaires. Lastly, mention should be made of the Central statistics institute, whose registrations of the trade with foreign countries cannot be used for the problem at hand because they do not include a category capable of giving a comprehensive list of war material transfe

rs.

Estimates are bound to be the main instrument in a situation of this kind. Regretfully, the objectivity and neutrality of most of these estimates are very similar to the ones used by the military and political leadership vis-à-vis the defense budget.

In the 1977 defense "White Paper", for example, the data were grossly manipulated. According to that document, in 1975 "the value of the deals made with foreign countries on the part of Italian industries operating in the sector" amounted to Lit. 2,300 billion (1). Fine, but how many of the deals handled led to an agreement? Few, considering that the value of the exports totaled some 500 billion that year. In 1978 the then Oto-Melara CEO Gustavo Stefanini, speaking at the Centre for higher military studies, had boosted the size of the same phenomenon by a good 50%. In those same years, moreover, both industrialists and military places the number of people employed in the military sector at about 150-180,000. The number of workers in the military sector is the only one on which there is a certain amount of consent: about 80,000.

One might wonder why the government, industrialists and military were so keen on magnifying the military industry and, in particular, the relative indicators of employment and exports. They must have reckoned that in a country such as Italy, the greed for hard currency prevails over any moral dilemma: weapons are used for killing. Among other things, inflated data such as the ones above were ultimately taken for good precisely by those who do have scruples. It is fairly logic to think that the most serious and widespread a phenomenon, the stronger the denunciation. In time, however, anyone harbouring doubts about the soundness of producing as many weapons as possible has learned to be wary. At the same time, the most ruthless manipulation of the data has gradually ceased. The problem with the most widespread estimates is different, and can be summarized in the following aspects: all too often the authors forget to specify the procedure and the sources; in certain cases the government uses such estimates in l

ieu of the reliable data it has access to and which it should use. On answering an interrogation presented by the radical deputy Rutelli on November 28, 1984 at the Chamber, for example, the minister of foreign trade Capria mentioned the data on the sales revenue and export of Italian weapons assessed by a private researcher, Sergio Rossi, at the Conference on defense industry. On other occasions the executive has used data provided by foreign institutes. At any rate, the result is the same: simple estimates are given an official status, while at the same time covering the reticence of the government on the matter.

Table 23 contains a comparison between a certain number of estimates published in the last three years by qualified Italian observers. None of these researchers explained how they reached their conclusions, except Rossi, who added up the sales revenue and military workers of a number of industrial groups on the basis of the data provided by the companies themselves. We will further analyse these estimates later on. As can be seen, we will often refer to the ones developed by Sergio Rossi, partly because they are the most detailed ones and partly because of the semi-official character which they have gradually assumed. Here below we will present our own, each time explaining the procedure.

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Tab. 23 Estimates on the Italian military industry

A B C D E F G H I L

Piovano 82 2.000 80% 5.000 3.000 (60%) 80.000 - -

Falciai 83 2.800 80% 7.000 4.200 (60%) - 2 4

Romiti 82 - - 5-6.000 - - - - -

Romiti 83 - - 6.000* 3.500 (58%) - - -

Prodi 82 - - 6.000 3.000 (50%) 80-100.000 - -

Spadolini 82 2.500 - 6.000 3.500 (58%) 80.000 2 5

Rossi 82 2.500 85% 6.300 3.800 (60%) 80.000 - -

Rossi 83 - - 7.400 4.400 (60%) 80.000 2 4,3

Rossi 83 - - 6.000** 3.500 (58%) 80.000 - -

Nones ? - - - - - - 1,2 5,6

Capria 84 - - - 3.900 - - - -

* = "excluding interchanges"

** = "estimates on the net sales revenue, i.e. eliminating the supplies

Key: A = Author of the estimate. Gen. Giuseppe Piovano is a former national director for armaments. The data are taken from his speech at a convention organized by the review "Città e Regione" (Cf. n. 54). Rear Admiral Gian Paolo Falciai is a former head of the financial planning office at the Navy Staff and member of the technical commission for public expenditure at the Ministry of Treasury: the data are taken from "Ipd" n. 9-10-11, 1985, pp. 103-104. Cesare Romiti is managing director of FIAT. For the first group of data, Cf. n. 45; for the second one Cf. "Ipd" n. 16-17, 1984, pp. 54-55. Romano Prodi is chairman of IRI: the data are taken from "Ipd" n. 11, 1983, pp. 6-10. Giovanni Spadolini is minister of Defense and secretary of the Republican Party: the data are taken from "Ipd" n. 19-20, 1983, pp. 35 and foll. Sergio A. Rossi works as a journalist with "Il Sole 24 Ore": for the first and second group of data, Cf. n. 5; for the third Cf. "Difesa Oggi", n. 77, Sept. 1984. Michele Nones is a researcher at

the Centro Studi per la difesa based in Genova: for his data Cf. n. 16. Nicola Capria is minister of foreign trade: for his data Cf. n. 19.

B = Year the estimate refers to.

C = Sales of the national military industry to the Italian Ministry of Defense.

D = C as percent of demand of military material generated by the Italian Ministry of Defense.

E = Sales revenue of the Italian military industry

F = Exports of the Italian military industry

G = S/E as percent

H = Number of people employed by the Italian manufacturing

industry

L = E as percent of the sales revenue of the Italian manufacturing

industry

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As far as the number of persons employed is concerned, the most convincing reasoning is the following: "according to the Aia (Associazione industrie aeronautiche, editor's note, Association of aircraft industries, translator's note) in 1980 the aircraft industries employed 40,700 people. As far as the electronics sector is concerned, the data of the Associazione nazionale industrie elettroniche (Anie) (National association of electronic industries) have not been updated after 1976. At the time the number of people employed in military production were in a 1:2 ratio with those of the aircraft industry. Supposing that the increase that occurred in the meanwhile respected this ratio, military electronics should currently employ some 20,000 people (2-3,000 more units, hypothesizing a greater development). Lastly, according to the White Paper of the Minister of State Participations De Michelis ("Report on state participations", Marsilio, Padua 1980; Cf. pp. 142-45), the people working in state-owned military ship

yards were 5,600 in 1980; we can rule out that the military naval constructions of private companies employ more than 1,000 people. Considering a certain juxtaposition (5,000 units) between the electronic sector and the aircraft one, as well as a 10% of the workers of this last sector working on civilian productions, we come up with a total of 58,000-60,000 workers (shipyards, aircraft and electronic). The mechanical and chemical sectors are unlikely to employ more than 15,000-20,000 people in any case" (2).

On the whole, therefore, the number of workers could be placed at 70,000-80,000 units in 1980. Five years later, the number climbs: 2,000 more workers in public shipyards: an additional 2,000 workers for the Aia (part of whom, in any case, are assigned to the civilian sector). As for the rest, a look at the balances shows that the single companies saw increases contained in the order of a few dozen people, and even a slight drop in the last two or three fiscal years. Not enough to drastically change the situation. All this completely neglects induced investment, which cannot be assessed, in our opinion, in an acceptably reliable manner.

The question of the other indicators is more complex: sales revenue, added value and exports. The problem here is acquiring the data, establishing some parameters and assessing the remaining unknown factors. In our opinion, a sufficiently reliable method consists in establishing the size of the internal demand (orders of material material from the Ministry of Defense, deducting the imports); establishing a link between internal demand and exports and then assessing the latter on the basis of the former.

To get an idea of the Italian demand, we can use the defense budget, adding up the items that regard the purchase and maintenance of arms. We will include maintenance not so much because the Italian defense budget is so badly devised at to distinguish it from the purchase into a great number of chapters, but because most of the revision and maintenance work is entrusted to the companies, thus ending up in the relative sales revenues.

Moreover, since we want to find the sales revenue (sales, not orders), we will use the cash statement, i.e. the statement of the payments made in the various years on the items we are interested in (3). We thus obtain the following series: Lit. 1,860 billion in 1980; 2,109 in 1981; 2,455 in 1982; 3,267 in 1983; 3,709 in 1984. At this point, however, we need to deduct the imports. The problem is obviously understanding to what extent the Italian armed forces buy weapons from foreign countries. As we can see looking at table 23, researchers who tackled the problem have placed the part of the Italian arms expenditure directed towards foreign countries at 20%. If we submit this datum to the few available verifications, it seems acceptable enough: in the period between July '79 and August '85, contracts have been made for the three promotional bills amounting to Lit. 4,552 billion. Of these, 872 went to non-Italian firms, i.e. 19,2% (4).

Subtracting some 20% from the values of the 1980-84 series considered above, we get this new series: Lit. 1,500 billion in 1980; 1,700 in 1981; 2,000 in 1982; 2,600 in 1983; 3,000 in 1984. With all the necessary caution in using estimates such as these, the sums paid by the Ministry of Defense to the Italian military industry should not be drastically different.

To reach an estimate of the sales revenue as a whole, we need to hypothesize a ratio between internal and external demand as close as possible to the reality of facts. Since there are no systematic surveys, we based our calculations on the results of the fiscal years of the most important companies - in the case of Rossi this seems ascertained. These results, in fact - as the Aia data - show a considerable tendency over the last years towards a growth of the share of exported sales. Let us see some of these figures. The incidence of the export in the production of Oto-Melara, for example, followed this pattern in the last years: 1978 = 51%; 1979 = 57%; 1980 = 52%; 1981 = 48%; 1982 = 65%; 1983 = 84%.

The value of the orders acquired from foreign countries by this same company has amounted to 75% (1982) and 89% (1983) of total orders. The twelve industrial groups mentioned by Rossi (5) all export more than they sell in Italy, in a percentage between 53% (Fincantieri) and 90% (Oerlikon Italy). The only exception is Bastogi, whose sales abroad reportedly account for 37% of the total sales. This is for the whole of 1983.

The same pattern can be noticed from the official data of Aia (Cf. table 24). On the whole, therefore, all these data seem to buttress the opinion that exports represent a predominant factor of the Italian military production.

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Table 24. Sales revenue and export of the Italian aerospace industry* (billions of current lire).

A B B/A %

years sales revenues export export

incidence

1977 740 330 44,6%

1978 900 430 47,8%

1979 1.120 565 50,5%

1980 1.500 900 60,0%

1981 2.200 1.550 70,5%

1982 2.900 1.900 65,6%

1983 3.600 2.300 63,9%

1984 3.900 2.500 64,1%

Note: * = the production is prevalently military, notwithstanding a certain growth in these last years of the civilian aircraft sector and of aerospace activities.

Source: Association of aerospace industries

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However, the fundamental point is that if we look at things from the point of view of the results, internal and external demand represent two non-homogeneous realities which cannot be directly compared. Let's see why.

On purchasing its weapons systems, the Ministry of Defense adopts a "fragmented" system, so to say. In other words, it does not make contracts with a single firm, establishing the global cost of the system and then leaving the responsibility of buying the sub-systems with its sub-suppliers. Instead, it makes separate contracts for each component of the weapons system. The prime contractor thus bears the cost of the parts produced autonomously plus the cost of the assembly.

This means that the part of sales revenue which the industries place within should be considered as almost void of any duplication. On such a basis, no firm has another firm as customer. The only client, in practice, is the Ministry of Defense.

This does not apply to the foreign sales revenue, where the duplications are numerous. Moreover, there is no system to calculate the purchase of the main components from foreign countries - they too purchased separately when the client is the Italian administration.

Let's make an example: when the Ministry of Defense buys an MB-339 from Aermacchi, it pays the engine directly to Rolls Royce or Rinaldo Piaggio, the ejection seat to Martin-Baker or Sicamb, a number of electronic parts (such as the Tacan or the IFF) to Collins or Italtel, and so on. These apparata are not part of Aermacchi's sales revenue. When a foreign air force buys the same plane, the value of the sale which is listed in the sales revenue should include the same apparata.

Caution must therefore be used especially for firms that sell extremely complex systems (ships, aircraft, armoured vehicles, etc): that 30 or 40% of sales in Italy weighs much more than the remaining 60 or 70% of sales abroad, as its added value is much higher.

Here too, a few examples will help illustrate what we are trying to prove. In 1981, the budget of Oto-Melara listed orders for a total of some Lit. 1,350 billion. In fact, this included 700 billion of supplies from Selenia, Breda Meccanica Bresciana and Motofises, plus 280 billion of supplies from Emerson: about 370 remained to Oto-Melara. These were mostly orders from foreign countries (83%) - as we saw in the case of Italian orders this phenomenon does not occur. In an interview with an Italian review (6), Oto-Melara Chairman Sergio Ricci said that of the 380 billion of estimated sales revenues for 1982, "the physiological sales revenue of Oto-Melara amounts to 150-200 billion; the rest comes from the activity of the sub-suppliers". Judging from the data provided by a yearbook of an authoritative magazine (7), Oto-Melara in 1984 registered an added value of 24,2% of its sales revenue, one of the lowest percentages among the firms of the military sector - a fact which should signal that the La Spezia-based

firm often plays the role of prime contractor. During a hearing in Parliament, the chairman of Ernesto Breda, Carlo Lattuada, said that "the sales revenue of the three main companies (of the Breda group, editor's note) that produce directly for the military market (Oto-Melara, Breda Meccanica Bresciana, Officine Galileo) in 1983 amounted to 592 billion, employing 4,635 workers. Exports exceeded 422 billion, or 71% of the sales revenue" (8). Clearly, Lattuada was referring to the sales revenue of the three companies net of the sales among associated companies, since the sum of the sales of these same companies in the same year amounts to 1,067 billion (9).

IRI chairman Roman Prodi also took into account factors of this type. Placing the military sales revenue of the Fincantieri at 858 billion, he specified that the figure "includes the value of co-supplies, of which about 100 billion from other IRI companies" (10).

Also, the sales revenue of the Agusta group never totals the sum of the sales revenue of the companies that are part of the same group. The so-called consolidated sales revenue deducts the sales to associated or controlled companies. In 1983 this second method of calculation gave a result of 863 billion, versus the 1,078 resulting from the sales of: Costruzioni Aeronautiche Giovanni Agusta, Elicotteri Meridionali, Siai Marchetti, Iam, Omi e Caproni-Vizzola (11).

So far we have dealt with the duplications that originate in the single financial conglomerates. It would be interesting to calculate all the others, the ones that are common to all groups and that are very numerous. Ships, for example, are profitable for many, if the Fincantieri's sales revenue included the value of the on-stream sales to foreign countries - i.e. of the ship complete with all the equipment and combat systems - the part of the sub-supplies would be the predominant one. According to former Navy Chief of Staff Admiral Marulli, on average on a Maestrale-class frigate the platform accounts for 17%, versus 20% of the propelling system and 63% of the combat systems (12).

In conclusion, the method od summing the sales revenues of the single companies (or groups of companies) as Rossi did, is fairly misleading. Nonetheless, it should be acknowledged that this author specified that the discount for duplications "is variably calculated between 20 and 40%" (13). The author of this estimate and the method to achieve it are however unknown.

The problem raised by duplications, in any case, seems to concern directly the Italy-foreign countries composition of the sales of the arms industry. We said above that the orders of the Ministry of Defense were made in such a way as to exclude most of the multiple calculation of intermediate goods. Therefore, it we are looking for an estinate of the sales revenue of the Italian military industry as far as possible net of duplications, the first thing to do is rebalance the ratio between sales in Italy and sales abroad.

How can we do this? By assigning entirely to exports what Rossi labels "the discount for duplications". By using Rossi's data, with a 20% "discount", the sales revenue of 1983 climbs from 7,400 to about 6,0000, but the ratio between sales in Italy and sales abroad becomes 50:50, in the specific example 3,000:3,000. Incidentally perhaps, these values correspond to the ones indicated by Prodi, but for 1982 (Cf. table 23).

Let us now apply the new ratio to the data on internal demand which we calculated on the basis of the Defense budget. The result is contained in table 25.

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Table 25 Sales revenue of the Italian military industry (billions of current lire)

Years 1980 1981 1982 1983 1984

Sales revenue* 3.000 3.400 4.000 5.200 6.000

Note: * = the ratio Italy-foreign countries is 50:50. Source: our estimates.

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It is needless to remind that since these are merely estimates, caution should be used in interpreting the figures of table 25 as indicative and liable to an upper or lower fluctuation margin of at least 10%.

As to the ratio between Italy and foreign countries, nothing occurs with such accuracy in reality; in one of the years considered, the export may effectively have surpassed that 50% which we arbitrarily established, whereas in another year it may have remained below this value. Our intention was simply providing orders of magnitude, which is the only reasonable thing to do in the absence of systematic researches.

Other remarks may be advanced to back the thesis of a downscaling of the weight of the exports on the sales revenue of the Italian military industry, apart from the remarks on the problem of duplications. For example, if we look at the pure and simple figures of the units sold, in particular for major weapons systems, the bias towards foreign countries is not that evident. Oto-Melara exported tanks and self-propelled howitzers in a much lesser proportion compared to the Italian orders of these last years for corresponding means. The same applies, so far, to the MB-339 or G-222 aircraft. The Tornado is 10% Italian, and this will be the share of our industry in the exports of this craft to Oman and Saudi Arabia. On the other hand, thanks to a complex system of industrial compensations, Italian firms receive almost all payments for the 100 units of the same aircraft ordered by our Air Force. Shipyards have exported a sizeable number of frigates and corvettes over the last years. But well below the orders indica

ted by the promotional bill and, more recently, of the ordinary budget (Minerva-class corvettes, other Sauro-class submarines, landing craft, etc).

In the case of helicopters, light weaponry and a number of electronic equipment and especially artillery (particularly naval), the single systems sold outside Italy are certainly more numerous that the corresponding ones sold to our armed forces. However, apart from helicopters, in these case the value per unit drops; the phenomenon, moreover, should be amply offset by the mass of subsidies which the Ministry of Defense grants our industry (Cf. below).

In fact, as far as subsidies are concerned, it is legitimate to suspect that foreign clients pay more attention to prices than Italian ones. Competition exists on the foreign markets, and it is doubtful that a Venezuelan Admiral would show the same interest as his Italian counterpart in promoting Fincantieri. Is it really unthinkable that lower prices are applied abroad simply in order to export? Following is the opinion of the Arms Control and Disarmament Agency (Acda), a U.S. government agency: "Often the prices of the weapons do not reflect the actual production costs. Moreover, most of the international arms trade is based on compensations, deals, multi-year credits, payments made by third parties and partial abatement of debts" (14).

Lastly, mention should be made of the mediation fees: payoffs to third parties who might have the power to convince clients to buy. Such payoffs sometimes represent as much as 15% of the value of the deal, which should be accordingly reduced (15). Also there are a series of international comparisons which, if taken by the letter, lead to paradoxical results. For example, Federal Germany detains more or less the same share of the world arms market as Italy. However, exports account for about 11% of its industry, vs. 60% which is attributed to Italy (16). There follows that the German inner market is eleven times greater than the Italian one - which is impossible since the military expenses are about double (and a slightly lower percentage of purchases for equipment on the total of such expenses, according to Nato (17). The same applies to France, whose share of international market is three times the Italian one, but whose exports are only 36% of the sales revenue of its military industry. Here too, with a bu

dget which is slightly more than double compared to ours, the internal demand should be eight times the Italian one. The fact that Italy imports more is not enough, per se, to justify this discrepancy. As far as Germany is concerned, we can hypothesize an underestimation of its actual presence on the international markets. But the accounts are still incongruous if we do not assume that the size and weight of the Italian exports have been overestimated.

Lastly, there is the mystery of the gap between the data on export licenses granted by the government and the estimates of the Italian sales revenue abroad. According to the same report in which Rossi placed such size at 4,400 billion, the value of the arms export licenses had totaled 836,4 billion for the first semester of 1983, 847,7 for the second and 982,8 for the first five months of 1984 (18). Therefore, in the same year (1983), there supposedly were licenses for about 1,700 billion, versus the 4,400 billion of actual transfers. True that the licences might refer to deliveries to be made in following years, but the gap between the two data remains a fact. There are three possible explanations: a) the foreign orders recently received by the military industry prefigure an actual export collapse; b) illegal exports - i.e. exports without an authorization from the Italian authorities - are even greater than legal ones; c) the 4,400 billion of foreign sales revenue are a gross overestimation.

Even more surprising is the government's interpretation of all this. On answering the aforementioned interrogation, Minister Capria declared, "...the current ministerial structures do not allow, in the short run, for direct surveys and processing of data relative to exports of military material or material for military purposes; such surveys would in any case be only partly significant, since they concern only authorized operations and not the ones that have actually been carried out". What the minister was implying, in practice, was that the Italian government tolerates the clandestine arms trade. We said tolerate, because notwithstanding the fact that the Italian state is no model of efficiency, we cannot think it lacks the means to control such phenomenon.

As far as the data of 1984 are concerned, the above affair received a reply. In 1985 Capria answered an interrogation presented by Rutelli, who had asked for an update of the export situation at 1984. Therefore, for that year, the figures would be: "about 2,700 billion in terms of authorizations granted and...3,900 billion in terms of exports carried out following authorizations issued in previous years and subsequently extended" (19). As we can see, the minister this time took pains to explain that the gap between authorizations and exports is caused by the postponement of the former. If we concentrate on the licenses, we can see that the sales revenue is even smaller than the one we had estimated for the same year. Since we came returned to the estimated on the value of Italian arms exports, we will give the figures calculated by Acda: $ 1 billion of current dollars in 1983, i.e. some 1,500 billion lire. Even less, therefore, than the 2,600 billion we had indicated. According to the same agency, the arms e

xport would account for 1,4% of the total Italian exports (20). Vice versa, accepting our calculation, such incidence is 2,3%.

3. Productivity and incidence of the military sector on the Italian economy.

Let us now examine the sales revenue per worker. With respect to this aspect, many researchers have underscored the positive trend assumed by such indicator in the military industry compared to the whole of the manufacturing industry. According to the calculations (Cf. the last two columns of table 23), the productivity of the work thus measured in the arms sector is between two to four-five times that of the civilian sector. It is almost needless to add that in this case too, we know nothing of the criteria that lie behind such calculations.

For our part, two remarks apply: a) the use of the sales revenue as an indicator of the productivity again raises the problem of duplications; b) the concept of manufacturing industry has been replaced in Istat statistics by that of "products of industrial transformation". The latter is a sub-category of the category "industry strictly speaking" of the national calculations, after deducting the "energy products" and the "Constructions". The number of persons employed and the added value are provided for the "products of industrial transformation". Such added value, unlike the sales revenue, is the only indicator of the wealth which is actually produced.

Let us now analyse the incidence of employment: the workers of the "products of industrial transformation" were 5,112,000 in Italy in 1984. Eighty thousand workers of the military industry thus represent about 1,6%.

Calculating the weight of the military industry on the added value is more difficult. Nonetheless, we gave it a try with the following method: we calculated the data of the added value of the various companies from the data published in the yearbook by "Il Mondo" (21). Obviously, these figures cannot always be interpreted "sic et simpliciter". Many firms also produce for the civilian sector. In all these cases, we used the following procedure: we saw what the incidence of the '83 military sales revenue was on the total of the sales revenue at the same year, combining the data of the yearbook with those of Rossi's report (22) or by using other sources when available. Once established a certain military/civilian ratio for sales revenue, we transferred it to the data on the '84 added value. The result is summarized in table 26. The industrial groups considered are the same used by Rossi. For Bastogi and even more so for the group which Rossi calls "other companies", it was not possible to obtain data. The estim

ate we made should therefore be taken with greater caution: 80 billion of added value for Bastogi and 500 for the "other companies". It should be considered that according to Rossi's evaluations, in 1983 Bastogi had a military sales revenue of 130 billion and the "other companies" of 1,250.

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Table 26 Added value of the Italian arms industry for 1984 (billions of current lire)

Finanziaria Breda 360

Agusta 510

Oerlikon 120

Aeronautica Macchi 120

Elettronica 120

Borletti 80

Stet 300

Snia-Bpd 220

Finmeccanica 480

Fiat 340

Fincantieri 240

Bastogi 80

Other companies 500

Total 3.470

Source: our estimates

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Once again, our estimates should be taken with great caution. On the other hand, we would be only too glad if someone with access to more accurate data made them available. As to the order of magnitude, an added value of about 3,500 billion is a considerable size: almost 60% of the 1984 sales revenue, which we calculate at 6,000 billion.

At any rate, if we assess the military sector for 1984 on the total of "Products of industrial transformation", in terms of added value this means seeing how much 3,470 billion weigh on 167,235: 2,1%.

This makes it perfectly clear that:

a) the gap between production and number of persons employed is far more contained that is commonly thought: 1,6% of workers give 2,1% of the industrial production. The productivity per worker is greater than average but not sensationally so.

b) 2,1% of the wealth produced by the manufacturing industry is a trifle. The same applies to its incidence on exports (as we saw, 2,3%). The military sector, in other words, remains a secondary phenomenon in terms of quantity. Later on we will see the political implications of this secondary role. But the problem is this. Even conceding that the added value of the military industry as estimated by us has a margin or error of 10%, the conclusions lead to the same direction. We would have an incidence of 2,3%, which is still very little. This might be disappointing for those who insist on perceiving the production of weapons as a key element of the Italian industry and economy.

Let us now analyse the other important aspects of the problem at hand.

4. A protected industry

Protecting national military industries is a widespread praxis in the Atlantic Alliance. Italy is no exception. In December 1983 the new Minister of Defense issued a directive (23) urging the officials in charge of planning the purchase of material to take heed of "the need to privilege the production of the national industry as far as possible when preparing supplies programs". In the case of productions under foreign license - the document continues - "considering the beneficial fallout on the national industry in terms of employment and in socio-economic terms...a relatively greater burden can be considered acceptable".

The question is understanding the meaning of the term "relatively". For example, in the case of the production under licence of the Milan anti-tank missile, the Defense deemed acceptable a 60% additional cost compared to the direct purchase of the same system abroad (24). As to the "beneficial fallout in terms of employment", Oto-Melara promised 700 jobs in Southern Italy, at Gioia Tauro, which then dropped to 465 (25). The cost of the entire Milan program is around 940 lire; therefore, about 350 represent the part allocated to support employment. Even if this were the aim, the question is whether alternative uses have been considered. Apart from the specific example, there remains the opinion of the former director general for armaments, General Piovano: "production under licence may exceed the cost at the source by as much as 40-50%" (26). Since these productions are extremely numerous in our country in the military sector, it is not hard to imagine the flow of subsidies pocketed in this way by the industr

y.

Also, we should take into account special subsidies, such as the bill designed to finance the research and development of AM-X, EH-101 and Catrin, which means outlays of about 1,000 billion for the companies involved. Also, an "aeronautical bill" is under discussion, passed by Senate on 27 September 1985. This bill should allocate 690 billion in five years to a series of companies of the sector. Moreover, the aeronautical sector will be one of the sectors to benefit from some 4,000 billion allocated by bill n. 46 of 1982 on technological innovation. The others are electronics, chemistry, iron works, and automobile industry. At least three, therefore, pertain to military production.

There are also a series of extra measures of protection. If, for example, a product finds no clients - even though it is expressly conceived for export - the armed forces will buy it. It is the case of the P-166, a biturbopropeller aircraft manufactured by Rinaldo Piaggio, which no one wanted and which the Ministry of Defense bought six units of with the funds of the ministry for civilian protection. The K version (single seat) of the training craft Aermacchi Mb-339 also found no clients, and the Defense is planning to buy it (27). Specifically, this would mean an infringement of the promotional bill of the Air Force, which mentions training aircraft (precisely the MB-339) and not ground attack and counter-guerrilla warfare aircraft such as the MB-339K.

Moreover, if a foreign client orders a product which the Italian armed forces have also ordered, the delivery is prompter for the former to the detriment of the latter, as in the case of Saudi Arabia's order for FH-70 Oto-Melara howitzers (28). As far as the Navy is concerned, we know that it deals with the training of the crews of the foreign countries that buy Italian ships. "This role represents a considerable commitment for the armed force" - was the comment of the Navy Chief of Staff (29). Fortunately, "it is carried out with care in the interest of the Country and of its image abroad".

The fact that the military industry should be assisted and protected is taken completely for granted. An array of appeals in this sense were addressed at the conference of July 1984. "The Defense" - said General Carlo Jean - "is directly concerned not only with satisfying its contingent needs (optimization of the use of its resources in relation to the operative tasks; this could lead it to systematic supplies from abroad of better, less expensive and more readily available weapons systems than the ones produced by the national industry) but also to promote the development of an arms industry adequate for its need in terms of size and technological level" (30).

This is a downright paradox: a general of the Army explaining that the role of Defense is not guaranteeing the country's military security - for which purpose it is only natural that "better, less expensive and more readily available weapons systems" are needed - but "promoting the development of the military industry".

5. Limits and shortcomings of the Italian military technology

As far as the characteristics of the Italian production are concerned, the first to be mentioned is technological dependency. According to Sipri (31) Italy is the third importer of the world after Japan and India, of licences for the production of "major weapons systems" (aircraft, helicopters, missiles, ships and armoured vehicles). On the whole, these are far from secondary means in the economy of our armed forces: the main combat tank, the Leopard, and the personnel carrier M-113; all helicopters (except the two Agusta models, A-109 and A-129); the F-104 fighter; the Milan anti-tank missile, just to mention the most common examples.

Recent, autonomously conceived projects are also fitted with imported key components. Of the "all-Italian" OF-40 tank (Oto-Melara and Fiat) the following parts were purchased abroad: the engine (a German Mtu diesel engine), transmission (German, Zf), the ordinary and night viewers for the chief tankman (produced by the French Sfim), the night viewer of the gunner (German, Aeg), the 7.62 coaxial automatic gun (Belgian, Fn) (32). All turbo propellers mounted on Italian aircraft and helicopters are imported or produced under license. Once again, on an "all-Italian" helicopter such as the A-109, 40% of the cost is represented by two turbines purchased in the United States (33). The foreign-made components fitted on the Aermacchi Mb-330 training aircraft account for about 30% of the cost of the entire aircraft. The LM-2500 Fiat Aviazione-built naval turbine is nothing but the "Navy version" of the General Electric TF-39 (the one used on B-747s); the same is true for LM-500, which derives from the General Electric

TF-34 fitted on A-10 fighters. In terms of value, however, these "Navy versions" should not represent more than 40% of the finished product. As far as the MRCA Tornado is concerned, an Italian coproduction with England and Germany, the Italian share is 12%. There are other coproductions in the aeronautical field, whose percentage of Italian work is even more scant: on the Pratt Whitney PW 4000 turbine, the value of the contribution of Fiat Aviazione is 2% (34). The same firm takes part in the International Aero Engines consortium for the development of the V 2500 turbofan for passenger aircraft, with a 6% share (35). In the field of electronics, apart from the fair results of Selenia and Elettronica, there is little more: a war materials review recently analysed aircraft radar and classified the products of the Italian Fiar among the "outsiders" (36).

This is the reality, therefore. Imagination is something different: in February 1983, the then Minister of Defense Lagorio on his way back from Washington declared the following in an interview with the review "Italian Internazionale". "Three years ago, when I came into office, I found that for each lira which the U.S. spent in Italy in the Defense sector, we were spending more than seven in the U.S. I tried to make up for this and last year the ratio improved: four to 1. It is not an enormous size of exchanges, but is not encouraging either. I discussed this with Weinberger (sic!) and together we agreed on the need to achieve a better balance. We established a new objective for our interchange: 2,5 to 1".

On the basis of the activity of the Eurogroup and of the European independent program group (two agencies, the second of which France participated in, who deal with the arms production of Nato European countries) it is a well-known fact that the ratio of exchange of strategic material between U.S. and Europe as a whole is about 10 to 1 to the advantage of the U.S. According to the Acda yearbook, until 1979 Italy did not export a single lira worth of weapons to North America, unlike other countries of the old continent (37). Thus, it is hard to believe that already in 1980 Italy could have a better ratio than the European average (7:1 versus 10:1); even less how it could have reached in 1982 a ratio of 4:1; and it is plain impossible to believe that in the near or distant future it could even attain the fantastic ratio of 2,5:1.

Lagorio was more or less knowingly lying. According to the latest available edition of the Acda yearbook, the interchange of arms between Italy and the U.S. in 1979-83 had a 1:30 ratio - obviously to the advantage of the Americans, whom we purchased $600 million worth of arms from, at the same time selling 20 million worth (38). On the other hand, the scant information on Italian arms exports to North America are clear as far as technological contents are concerned: Beretta pistols and 76/62 Oto-Melara naval guns.

It is in this framework that we need to judge the realism of Italy's requests on the subject of the SDI. It is self-evident that the $26 dollar pie - the sum the U.S. government wants to invest on researches on star wars - is palatable for industrialists the world over. Prospects of sizeable orders and fantastic technological fallouts have been adopted to justify a participation in the American program - in Italy no less than elsewhere. According to Fiat, a large number of its associated companies (Fiat mezzi speciali, Snia Bpd, Telettra, Comau, Borletti, Fiat Avio and Sepa) could penetrate 17 of the 30 sectors of research located by SDI head General Abrahamson (39). Agusta headed a group of companies (Oto-Melara, Breda Meccanica Bresciana, Officine Galileo, Elettronica e Sma) in establishing the Cites - Consorzio Italiano per le tecnologie strategiche. The declared purpose of this consortium was proposing itself as Italian partners in the Sdi. Aeritalia and Ansaldo specially opened a representative office i

n Washington. Therefore, an industry which is incapable even of producing diesel engines for tanks should, according to its own statements, penetrate sectors such as ultra high speed computer software, radar and sensors, medium and high power laser beams, etc.

Much ado about nothing: the probable share of Sdi orders should be around 1% for the whole of non-American partners (40). Moreover, Congress is cutting layouts for research on star wars year by year: at this pace, the $26 billion are likely to be halved. In lire, the allies of the United States would share between 200 and 400 billion - much less than the cost to develop the Italian AM-X fighter. Considering the competition, including Great Britain, Germany and Japan, the Italian companies would be left with crumbs, or dust. Stardust. As we can see, it is best to judge the Sdi on the basis of its strategic repercussions (41) rather than concentrate on its much touted technological fallouts.

In the light of all the serious productive and technological limits which the Italian industry suffers from, it is also possible to get an idea of the appeals for self-sufficiency in supplies of material for defense. Such self-sufficiency is "an objective which can easily be renounced within reasonable limits, at the cost of losing the capacity to conduct an independent defense and security policy" (42). In actual fact, it is an unrealistic objective for our country, unless very large sums are invested in the military sector in order to have some kind of feedback in the long run. From the point of view of the security policy, however, self-sufficiency makes sense for a country that has taken the path of armed neutrality, but not for Italy which is part of an alliance. Belonging to an alliance implies, among the various advantages, that of the possibility of scale economies: in other words, we have the opportunity to benefit from the technology of our partners. Why shouldn't we? There are two possible answers

. The first is because we do not trust our allies. But this is such a grossly nationalistic approach that we believe Minister Spadolini cannot agree with it, even when he say that we would no longer be a sovereign state if "we were to depend on other foreign countries for our defense" (43). If, on the other hand, the answer is "in order to promote the arms industry and relative technologies", then another question arises. Why promote precisely this industry and these technologies instead of others? These are issues we will endeavour to further in the conclusions.

6. Other aspects of Italian arms exports

The most reliable estimate of the sales revenue of the Italian arms industry in the seventies is the one made by Gianluca Devoto (44). For 1972, the assessment of this author was 500 billion of sales revenue and 100 of exports. The latter - at the time one fifth of the sales revenue - started growing at a rather fast pace, especially as of 1975. This is the year in which the first of the three promotional bills were passed. Such bills guaranteeing more than a decade of support to the demand, allowed to expand the productive basis and as a consequence the capacity to penetrate international markets.

An analysis of the geographic distribution of the Italian exports reveals that the typical market was represented in the past by the Third World.

The fact is all the more obvious in the Acda data contained in table 27: the scant incidence of the Italian weapons in the markets of the developed countries; the arms-oil link; more than half the arms exports concerned producers of crude oil. Africa absorbed almost one third of the value of our transfers in the period considered. It should be remembered that such continent includes Libya, which, with Italian arms imports amounting to $ 700 billion, is one of Italy's best clients. Lastly, Latin America and the Middle East are the receivers of a further one fourth of the Italian export.

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Tab. 27 Value of the Italian arms exports (by economic and geographic areas, years 1979-83, in millions of current dollars)

Total 4.650

of which: developed countries 135

developing countries 4.515

of which: Opec countries 2.455

Africa 1.485

East Asia 320

Europe 290

Latin America 1.090

Middle East 1.255

North America 20

Oceania 10

South Asia 90

Note: the total does not correspond to the sum of the values of the geographic areas because it has been rounded off.

Source: Acda data, "World Military Expenditures and Arms Transfers", 1985.

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A few words now to comment some of these sales. While our governments have never adopted an official policy to promote arms exports - in fact, officials have always denied when questioned - it is a fact that everyone has been authorized to export anywhere, allowing the Italian industry to fill any gaps in the international demand.

For example, the U.N. embargos on arms exports to South Africa have been violated to the point that Italy ranks second after France as supplier of military material to South Africa.

In spite of the fact that a war is being waged for more than five years between Iran and Iraq, Italy has ruthlessly supplied both warring parts, and in the midst of the relative gruesome operations (45). Ample evidence of this is represented by the spokesmen of both governments - which in turns accuse the European countries, including Italy, of arming the opponent - and by photographs published on the Italian press. One of these - published by the monthly review JP4, issue n. 5 of 1982, portrayed Iraqi and Iranian cargos landing at Milan Malpensa airport to load "weapons and spare parts for aircraft and helicopters". Lastly, an entire war fleet which the Iraqi government ordered in 1980 is being completed by Italian shipyards. At the end of 1985, the ships - four frigates, six corvettes and one squad supplier - were about to be delivered. It seems that the squad supplier has instead already been delivered in early 1985 (46). All this must have taken place with great discretion despite the fact that the cerem

onial provides for an elaborate and noisy ritual on these occasions, since no trace of it was to be found in the media.

Lastly, there is the case of Libya. The list of Italian weapons exported towards that country is truly impressive. The phenomenon is explained by the fact that Italy is Libya's prime commercial partner while at the same time Libya is the main source of our oil supplies. Nonetheless, we doubt that our government has simply given in grudgingly to Gaddafi's requests, considering the quantity of orders obtained by the Italian industry. As usual, the only criterion on the matter - business - must have ultimately prevailed. Never mind that Italian weapons end up in the hands of one of the most destabilizing - if not the most destabilizing - regimes of the region.

The paradox is that the "Libyan threat" occasionally comes out of the borders where it is effectively a threat (North Africa, Magreb, Middle East) and is taken into serious consideration on our coasts, which is scarcely credible, at least militarily. And yet, the then Navy Chief of Staff Admiral Monassi reminded parliamentarians at the assembly of the WEU assembly of late 1984 of the threat represented by the Libyan navy, which is "equipped with modern missile units" in the Mediterranean. Four Libyan corvettes (armed with Otomat anti-ship missile manufactured by Oto-Melara) have been built in Italy, while a British-made Libyan frigate was recently fitted with Italian weaponry (including Otomats). It is obvious that if the heads of our Navy consider these weapons a threat to the safety of Italy, then these weapons should not have been exported.

But apart from specific cases, the fact remains that Italy has become one of the main exporters of "major weapons systems" (aircraft, helicopters, ships, missiles and armoured vehicles). The data of the Swedish Sipri institute (Cf. table 28) on this subject provide the occasion for some comments.

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Table 28 Main exporters of major weapons systems:

values and relative percentages in the period 1980-84

% of total

exported to the

Third World

country 1980 1981 1982 1983 1984 1980-84 1980-84

United States 5.577 5.559 6.186 5.655 4.685 27.662 48,2

(36,7) (38,5) (42,9) (40,1) (40,4) (39,7)

Ussr 6.538 4.741 4.184 4.174 2.532 22.170 76,8

(43,1) (32,9) (29,0) (29,6) (21,9) (31,8)

France 1.144 1.347 1.241 1.360 1.242 6.335 80,6

(7,5) (9,3) (8,6) (9,7) (10,7) (9,1)

Great Britain 431 532 667 519 822 2.972 73,5

(2,8) (3,7) (4,6) (3,7) (7,1) (4,3)

West Germany 316 435 250 613 746 2.359 61,0

(2,1) (3,0) (1,7) (4,4) (6,4) (3,4)

Italy 366 531 576 374 372 2.219 91,9

(2,4) (3,7) (4,0) (2,7) (3,2) (3,2)

Third World 192 306 438 467 311 1.714 96,1

(1,3) (2,1) (3,0) (3,3) (2,7) (2,5)

China 82 148 221 222 430 1.103 99,4

(0,5) (1,0) (1,5) (1,6) (3,7) (1,6)

Others 533 831 668 707 444 3.182 62,9

(3,5) (5,8) (4,6) (5,0) (3,8) (4,6)

Total 15.179 14.430 14.431 14.091 11.584 69.715 65,8

Note: The data are Sipri values that express an indication of trend, expressed in millions of dollars, at constant 1975 prices. Their sum cannot correspond to the total because it has been rounded off. In the table percent shares are in brackets.

Source: "SIPRI Yearbook" 1985, p. 346.

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First of all, these data confirm a strong Italian dependency on Third World markets, where according to Sipri it supplies almost 92% of the arms exported by Italy. The other industrial countries - namely U.S. and Federal Germany - have a larger share of clients among other industrial countries. Another important element is that the peak of Italian sales occurred in 1982, both in absolute figures and as incidence on the total transactions. As of that year, the presence on the market of Germany and Great Britain became more aggressive, so much so that both surpassed Italy in the total of the five-year period. The other emerging seller is the Third World - considered as a whole - which in 1980 detained a 1,2% share of the market and in the last two years reached shares comparable to those of Italy. Lastly, it should not be forgotten that the "others" include countries such as Spain, which have recently enhanced their arms exports (47).

The Sipri data, while excluding less complex weapons systems and light weaponry, represent a significant indication of the trends of the world market. This gives us an idea of the prevailing trends. As far as our country is concerned, it seems it is beginning to suffer the attack of the competition, both from above (Great Britain, Federal Germany) and from below (Spain, newly-industrialized countries). The explanation for this is rather clear: other producers are taking the path already taken by the Italian industry. In other words, they are equipping themselves with a limited industrial capacity in the sector, based on mature technologies, production under license, and on low labour costs. Italian arms exports are thus thwarted by the fact that some clients are starting to replace their imports with indigenous products, and by the exports of such new producers themselves.

As to the competition from above, for the Italian industry this means competing with more sophisticated and higher quality products. This has reflects itself partly on the type of demand, which depends less on developing countries. In turn, this means stabler markets, less liable to suffer the collapse of the price of oil and the international financial crisis. In conclusion, there is an evident downward trend for Italian armaments. This is confirmed by the Sipri data, by the data issued by the government on the value of the export licences of the past two years, the contraction in real terms between 1984 and 1985 of the sales revenue of the Association of aeronautical industries (Cf. table 24). There are a series of other signals: the shipyards, having completed the Iraqi order, work exclusively on orders of our Navy; an agreement reached by the Peruvian government with Aermacchi for the production under license of the MB-339 has been interrupted. Agusta, once a major exporter, is suffering a dire crisis. T

he cooperation agreements signed by the Minister of Defense with China and India are only on paper: so far they have lead to no concrete result in terms of contracts.

7. The regulations on arms export

The praxis of unrestrained arms transfers abroad was made possible by the current regulations on the subject. So far licenses are issued by a panel formed by representatives of various ministries: foreign affairs, defense, industry, finance, interior. These are assisted by two "experts". In practice, they are representatives of the military industry. To get an idea of the honesty with which this panel operates we need only say that the decree of March 20, 1975, which established this panel, was never published on the "Gazzetta Ufficiale". Urged to make it public, the government has constantly refused. The executive, according to the current regulations, is not compelled to inform Parliament, not even "ex post" (48). The current situation, therefore, is the equivalent of a warranty of irresponsibility which serves the purpose of protecting everyone: the government, the administration of the Defense, the industries.

It is only logical, therefore, that the appeals to reform the regulations have multiplied in time. Bills have been presented on the subject by almost all political groups for at least three legislatures.

In spring 1985 the government finally tackled the issue and presented its own bill. In itself the fact was welcomed as a positive move because it raised hopes that it would have started the discussion. A year later the situation has made no progress. The government's text, with its pros and cons, remains there.

The preamble talks about "the need to increase the political and administrative control on the marketing activity of military material". This with the purpose "of avoiding flows of arms traffic, originating or intersecting in our country, to foster breeding grounds of unrest and strife" (49). The document then dampens all hopes: the government opposes any "restrictions that thwart exports in this sector", which "for its survival...needs to export". Thus, the bill "is concerned with optimizing, enhancing and reorganizing the government's interventions to support exports". It seems legitimate to wonder whether the governmental text aims to control or back arms exports.

As the text goes on, the wonder increases. It provides for the creation of an "intergovernmental panel for exchanges in the field of defense, at the Presidency of the Council". Formed by representatives of various ministries, the panel defines "the lines of containment of our currents of military material exports". A number of offices of the ministry of defense - with informative functions - and another committee at the Ministry of foreign trade which issues the licenses proper would depend on it.

The creation of an association of exporters is also envisioned, where anyone who wants to sell war material abroad can enrol. The problem, however, is that the activity of all these organs escapes parliamentary control proper as well as the control of the public opinion.

The annual report on exports which the executive should prepare would be forwarded to the "panel established by bill n. 801 of October 24, 1977", i.e. the parliamentary committee of control on secret services. Ultimately, therefore, this array of committees leads to an agency whose purposes and ways of operating are far from clear. "This owing to...the particular regime of secrecy...which is the consequence of the matter that is being dealt with".

The fact that our government feels the need to keep thing secret during negotiations with a foreign government is perhaps understandable. What is not understandable is that it feels this need during the consultive stage, when the decisions have been made and the question is simply assuming one's political responsibilities. The Minister of Defense has gone so far as contending that it is necessary to "exorcise" the "demonization" of the war industry (50). We do not think that the best way to do this is ascribing particular "characteristics" to this industry which, among other things, supposedly require particular "reservation".

A look at the article confirms the above described limits. There is no explicit ban, for example, on exports of military material to warring countries or countries that are the object of U.N. embargos. The definition of war material is too vague: as far as tanks, vehicles, ships, aeroplanes and electronic equipment are concerned, it specifies that in order to comply with the regulations they need to be "specially manufactured for military use" - a difficult condition to prove with absolute certainty in many cases. Lastly, point a) of this questionable classification of war material regards "nuclear, biological and chemical weapons". Would it not have been better to simply write that Italy does not produce - and therefore cannot export - nuclear, biological and chemical weapons?

8. Research and Development in the military sector

A fairly good indicator of the trends of an industrial sector is constituted by investments in research and development (R&D). Regretfully, this is precisely the field in which the Italian disinformation on military affairs hits rock bottom. The data vary according to the source, and there is no logical pattern in such variations. This is the experience of an economist of the Catholic University of Milan, Giancarlo Graziola, in comparing figures taken from the defense budget, the "General report on the state of scientific and technological research" and the Ministry of state participations (51).

Praxis has it that when all options fail, one resorts to foreign sources. According to Sipri data, therefore, in the period 1981-84 R&D expenditures in Italy fluctuated around 2% of total military expenditure and 6% of total government expenditure for R&D. The same institute places the military share of government R&D expenses at about 10%, 35% and slightly less than 50% respectively for Federal Germany, France and Great Britain. Japan, on the other hand, spends between 1 and 2% (52).

Needless to say, the Italian military judge the share of R&D allocated to the Defense to be inadequate. It would take a percentage "similar to that of other European countries...comparable to Italy", i.e. France and Great Britain. Appeals are then made for an "organic and permanent coordination between defense, civilian scientific and technological research centres and productive system", as well as for the attribution to the Defense of "binding powers in the sector (of the arms producing industries)". Lastly, it is necessary to "provide for compensations to the Defense budget for fallouts of military R&D on the civilian production" (53). Let us disregard our military's habit of using French and British models in these stances - as if Italy had the same history, identical security problems, resources and objectives. We will analyse this in the conclusion. It is worth remarking the peculiar idea of reimbursing the Defense for any civilian fallout of military scientific researches. This is an excellent argumen

t to convince civilians to invest in the civilian sector. So far, the implicit premise of any discussion on "beneficial fallouts" was that these were to flow freely, compensating the opportunity costs inherent in giving priority to the military sector. From the point of view of those who have an interest in investing in the civilian sector of the economy there is no advantage in passing through the military sector, not even that of the fallouts. Fallouts which the Defense would want to see "compensated" on its budget.

9. The "strategy" of the Italian military industry

It is unlikely that the Italian government, military or industrialists have a strategy - precise ideas on the future progress on the basis of which to make choices - in the military strategy. In this country governments are destined to be coalition governments: since the Defense can be managed by a single party only, it is unlikely that the others will not raise objections sooner or later to an increase of the influence of the Minister of Defense. This is a sort of natural compensation for the fact that no Italian party has any clue about security and therefore the arms industry. In Italy scholars of this subject should be accustomed to the spectacle of ministers who do little more than voicing the ideas of their military advisers, seeking consent among those who directly or indirectly depend on the economy of the Defense.

As to the military, granted they have opinions, we can find no trace of them. We are saying this because the unanimity with which anyone who has access to the media keeps repeating that more resources are needed, that "the instrument has reached the limit of survival", and so on. Frankly, we cannot remember a single speech in which pessimism and optimism were somehow balanced, in which it was openly acknowledged that in order to obtain something one must give up something else. It is odd to say so about the military, but a strategy is not made of alarm and pressure. This is lobbying, which is normal, but an everyday fact. Throughout the stage of expansion of the Italian military industry, industrialists have followed a single criterion-guide, clear and simple as Cartesian logics: business. Supported in this by the government which, apart from protecting and backing them from within, has allowed them to export worldwide in an unrestrained manner. Something, nonetheless, is moving, and it would be silly to den

y it. Spadolini has found out that the security policy is based on the definition of the threats, that the armed forces should organize themselves by missions, that an "interforce spirit" is necessary, and so on. These are all concepts that have been included in the "White Paper" - another semi-revolution - albit amidst the traditional reticence and military rhetoric, the conceptual confusion resulting from conflicting interests, such as the perduring ones of the single armed forces in competition with one another.

In the field of the relations between the Defense and the industry, we are witnessing an attempt to obtain closer ties: the defense-industry committee was established with a decree in August 1984. Its purpose is coordinating the actions of various ministries in the field of industrial research, development and production that are of "interest for the armed forces". The Committee is chaired by an under secretary of Defense. The military are represented by the Secretary-General of Defense-national director for armaments, with functions of vice-president of the committee, and by the deputy chief of Defense staff. The ministries of industry, foreign affairs and state participations take part with officials acting as director general. Two higher executives represent the ministries of foreign trade and scientific research. Lastly, four representatives of the arms industry participate without the right to vote.

More interesting than the bureaucracy's capacity to combine is the opinion of that part of Italian industrialists who have always proved to have a strategy. We are referring to Fiat.

This group has progressively expanded its activity in the area of Defense over the past years both through associated companies (Iveco, Fiat aviazione etc.) which have long been operating in the sector and by buying new companies (Snia). In terms of size of financial participations (Cf. figure 31) and productive variety, the Fiat group is clearly the standard bearer of the private industry in the military industry. Understanding why this group is so strongly interested in military production, which trends it hopes for - in other words, its strategy - is therefore very important. Already in March 1993, Fiat executive manager Cesare Romiti had given an extremely significant outline of the prevailing trends in the international arms market. It is a long quotation, but it is worth presenting it.

1) The presence of two opposed blocs will continue...to hinder our country in gaining access to the more advanced technologies, in the operative definitions of equipment, in the possibility to explore traditional exportation channels.

2) This political situation, combined with the international financial crisis and with the more recent oil crisis...will continue to enhance the importance of the role of the United States and of the Soviet Union in the weapons market.

3) ...On the whole the two countries control over 70% of the market (Italy ranks fourth with 4,3% after France with 9,7%). A further rise in the exports of the U.S. and of the Soviet Union is likely in the near future, while the market will tend to be static or even worse experience a recession.

4) These increases will be probably subtracted to the defense industry of the European countries (Great Britain, France and especially Italy) which are also threatened by the penetration of recently industrialized countries such as Brazil, Spain and South Korea into poorer and less demanding markets.

5) A recent EPIN study, which is the agency that finely coordinates the initiatives in the naval sector, analyses the future of this market: the prospects do not point to an expansion, and the total size of the medium-term market is likely to diminish both owing to the quantity and to the size of the new constructions. The second-hand market, sold at low prices and occasionally even gratis, will be controlled by the two or three richest and better-equipped countries. This does not concern the Navy alone: it applies also to aircraft and combat tanks.

6) Moreover, the attention which the International Monetary Fund has already shown towards the debt of certain countries because of their arms purchase policies, leads us to think about future pressure to "freeze" this type of import. Those countries will be left with the only possibility of being content with supplies in terms of military aid to be paid in the essentially political currency of the bond of affiliation to one or the other bloc. This type of supply Italy cannot plan alone, but will need to solve in the framework of precise roles to be agree upon with our "main ally".

However, Romiti continues, there are also interesting strategic-military prospects that deserve some attention. With the evolution of the American strategy towards the so-called Airland Battle, which pursues the strategy of in-depth flexible attack through the coordinated integration of the air and land forces, we can foresee a greater U.S. commitment in the arms industry towards a more effective, sophisticated and widespread market. The density of weapons/soldier ratio tends to basically increase also in terms of quality. In part, this program is already being run by the U.S.: the new tank, transport and exploration vehicles; the new anti-tank helicopter; the saturation rockets; the anti-air communications control and warning systems. The American industrial capability, relaunched on the conventional armament by these new programs, will then tend to find outlets on the international markets, and possibly also on products of the previous generation. Without considering the surplus of material which the U.S.

government can make available for aid to the Third World. Lastly, we should not forget the Japanese government's recent decision to open the sector of defense to its industry. In a few years' time the effects of this will be visible on the international markets (54).

We saw that over the last two years Romiti's forecast in the sense of a general contraction of the international arms market was basically correct. Likewise, it was correct to indicate Italy as one of the most highly exposed countries, from the suppliers' side, to this contraction. However, the real intention of the Fiat executive was another one: relaunching the U.S. leadership in the Western field in the production of conventional weapons. Romiti seems to hint that the most appetizing market for Fiat once again becomes that of the developed countries. The attempt is to try to cling to the train of new technologies, and this can be made only thanks to the American engine. It should be recognized that Fiat's subsequent choices were perfectly consistent with these aims: the obvious interest shown towards the Strategic Defense Initiative as of July 1985 (55); the decision to acquire part of the shares of the British Westland helicopter manufacturer together with the United Technologies in February '86, after

the long struggle against the European consortium (Agusta, Aerospatiale, Mbb, British Aerospace and British General Electric) are two important examples in this sense.

It is also likely that Fiat will view the "partnership" with the U.S., albeit in a secondary role, as the best way to maintain its positions on the inner market. By so doing, the Turin-based company would obtain a sort of monopoly on the production under license to be carried out on behalf of the Italian armed forces. In fact, what Fiat seems to cherish most is the market of the industrial countries, of which an expansion of the military expenditure is foreseen - and what's more, in the direction of ever sophisticated and expensive equipment. Our country is one of these: thus, why not exploit its protectionist practices, achieving the condition of acting as filter between the Defense and the U.S. companies?

Fiat's dynamic approach is offset by the other companies' relative inactivity. In this sense, we need only think of the endless debate over the aeronautical pole, i.e. the idea of regrouping the major Italian aircraft manufacturers, Agusta and Aeritalia, into a single financial conglomerate. It is self-evident that this agglomerate has by now become indispensable to avert the waste of resorces caused by duplicating identical functions. However, no one is in the condition to make the decision because there are diverging party interests (56).

Typically, the alternative to the privileged relationship with the United States are European co-productions. Often the problem is seen, wrongly in our opinion, as an opposition between Europe and the U.S. The reality is that the dilemma is between a cooperation with the Americans in sparse order - as suggested by Fiat - or the same cooperation, only after putting some order among the Europeans. Thus, it seems reasonable to privilege European coproductions, not in order to displease Washington, but precisely in order to offer the Americans a more serious and credible partner. All parts would gain benefits from such a process of rationalization. The fact of seeing the problem of arms production on the European scale has been for years the suggestion of the moderate parts and of the "doves" (57). The hope is adjusting the military industry to a market wider than the various national markets. This would diminish - and perhaps end - the national industries' drive to seeking outlet markets among the developing co

untries. It would also avoid waste and duplicates, releasing resources for more useful purposes. Together it would perhaps be possible to keep the growing prices of the weapons system from spinning out of control. It would increase the defensive capability of the alliance and at lower costs, owing to the fact of relying on standard and inter-operative equipment. It would ease the pressure on the single governments on the part of the respective industrial-military lobbies, with the consequence of confronting the problem of arms control with greater poise. This would clearly not mean "disarmament". However, it would represent a step in that direction.

What is dramatically absent is the political imagination to accomplish this. On a European scale there are the same lack of strategy and confusion on the objectives of security policy which prevail on the Italian scene. Once it is the British (launching the United Technologies in the Westland deal), more often it is the French (withdrawal of the European fighter project): no one can shun his responsibilities in continuing short-run protectionist practices. Even less so can we Italians.

10. Conclusions

Following are a series of remarks we can draw from this review of the Italian arms industry.

First of all, production and employed persons in the military sector are still a secondary phenomenon considering the whole of the Italian economy. To make an example, France has 310,000 people working in the military industry, Federal Germany has 225,000, Great Britain 435,000, with an incidence of the sales revenue on the total national industrial respectively of 9,3%, 3,5% and 10,9% (58). Therefore, the order of magnitude of the Italian case is still rather contained. This is not to minimize the phenomenon. Simply, the question is realizing that in Italy a conversion into the civilian field would be less difficult and less painful than elsewhere - which we hope will sound like an encouragement, at any rate to study the problem.

Having said this, we must recall that - as we saw - the appeals in favour of the expansion have multiplied recently. We also tried to prove that the arguments to support the military industry are usually scarcely convincing. For example, the question of self-sufficiency as a guarantee of national independence is ludicrous, because: a) it is beyond the possibilities of the country, at least in the short-medium run; b) because it has an autarchic and nationalist ring.

The question of the fallouts on the economy that would occur by protecting and subsidizing the national industry and by promoting its expansion also by means of R&D investments is slightly more complex. Frankly, this Keynesian militarism is too much, and has lead to exaggerations and paradoxes such as generals of the army who feel they have the right to make choices of economic policy. We would not know how to interpret the statements of General Jean, who believes it is perfectly normal to pay high prices for low-quality weapons, or else the Italian (arms) industry will be ruined. It is not up to the generals to decide which sectors to invest public funds in. They should concern themselves about the security policy and help decide which type of organizations and means are necessary to defend the country. That is their institutional role.

In other words, the issue of the military economy should be seen from the opposite standpoint (59): it is necessary to insist to maintain the priority for the choices of security policy. According to these, and as a second stage, it is necessary to verify whether and how much to invest in the military sector. Vice versa, if the problem pertains to economic policy, the arms industry is only one of the possible sectors in which resources may be used, and it is not self-evident that investing in this sector will have unquestionable advantages. Prominent economists in fact believe that investing in the military sector can damage the economy of a country.

The second remarks concerns arms exports. We believe the engine of the expansion of military industry has been and continues to be the inner demand, not the exports. Also, the phenomenon of the exports of Italian weapons has often been extoled or criticized in overly generic terms. The establishment, dodging any questions on the nature of certain clients, have often turned into the epitome of the "beneficial fallouts" on the national economy. The doves have all too often committed the mistake of exaggerating the economic importance of this sector. Not unlike the military industry as a whole, arms sales abroad should be discussed on the level which pertains to them: that of foreign and security policy. Thus, we discover that the economic aspect corroborates the argument against certain supplies (Lybia, South Africa, warring countries such as Iraq and Iran) that damage our security and the country's international image. It corroborates it because while not negligible, it is clearly limited. To make an example

of the opposite: if one of our allies, e.g. Belgium, were interested in purchasing an Italian weapon, what purpose would there be to oppose the supply? Regretfully, however, the entire question continues to rest on its head rather than on its legs. To realize this, we need only read the above mentioned bill on arms exports. Ultimately, when Italy discusses the military industry, it does so with the same limits with which it discusses military policy. The fact that the examples to be followed are the major European countries (France, Great Britain, Federal Germany) is taken for granted. These countries, on the contrary, have different historical backgrounds, ambitions and, especially in the case of Germany, different threats. As far as the industry in particular is concerned, little notice is taken of the typical counter-proof: Japan. A country with military expenditures in very low percentages - around 1% of the GDP - and a very limited production of weapons and yet an advanced technology and a flourishing e

conomy which are the basis of that country's growing international stature.

After insisting so much on the lack of a coherent strategy with which most of the industrialists, military and political executives of the defense operate, we would like to conclude with a look at the opposition. By this we mean the movements and political forces that oppose an expansion of the military sphere in the economy and society. We can detect the same lack of strategy - alternative strategy. It is self-evident that opposing something is not enough. It is necessary to indicate: a) what one is willing to accept and what one is not willing to accept; b) what one wants to replace and what one rejects. It would be already very useful to locate sectors to be promoted - for which to gather consent and adhesions - in alternative to the military one. As we saw, the latter has an ever compact lobby.

Even better would be to gather the not enormous resources necessary for a serious survey on the conversion - total or partial - of the Italian arms industry. Systematically finding alternatives would finally provide the opposition with a strategy, and the establishment with an interlocutor worthy of being called such.

NOTES

1. MINISTERO DELLA DIFESA, "Libro bianco della Difesa", Roma, 1977, p. 305.

2. ISTITUTO AFFARI INTERNAZIONALI (Iai) (edited by), "L'Italia nella politica Internazionale 1980-81", Milano, Edizioni di Comunità, 1982, p. 196, note 73.

3. For the budget items that form the weapons expenditure, see note 7 of chapter 5. With respect to the criteria indicated therein, we have added the chapters of budget relative to the purchase of weapons of the Carabinieri For the distinction between cash and outlay, Cf. the paragraph of chapter 5.

4. The distinction between Italy and foreign countries of the orders relative to the promotional bills is in enclosures "c" to the yearly reports on the progress of such bills; reports attached to the Defense budget. Cf. table 12 of the national budget, draft bill, years 1980-86. Acna advances more contained estimates, placing the Italian arms imports in 1983 at about $170 billion (some 260 billion lire). However, these figures do not include imports passing through Nato agencies. Cf. U.S. ACDA, "World Military Expenditures and Arms Transfer 1985", p. 109.

5. They are: Fiat, Finanziaria Breda, Finmeccanica, Agusta, Snia-Bpd, Fincantieri, Stet, Oerlikon, Aeronautica Macchi, Elettronica, Borletti, Bastogi. Cf. ROSSI S.A. "Il sistema economico della Difesa", report at the national conference on the defense industry, Rome, July 3-4 1984, Ministry of Defense, p. 38.

6. Cf. "Panorama Difesa", n. 4, 1983.

7. "Le 3000 principali società italiane", supplement to "Il Mondo", Nov. 11, 1985.

8. "Informazioni Parlamentari Difesa" n. 34-5, 1985, p. 50. It does not specify which branch of Parliament the session was held in, nor the date.

9. We cannot help underlining the confusion between the various sources on the results of the Breda group. Sergio A. Rossi places the group's sales revenues for 1983 at 1,100 billion (Cf. ROSSI 5. A., "Il sistema..., op. cit.", p. 38): more or less the 1,067 above, plus 97 billion resulting from the sales of Ototrasm, Breda Fucine and Breda Fucine Meridionali - the difference, 64 billion, can be due to the rounding off. However, Rossi himself places the incidence of export on the sales revenue at 65%, which cannot coincide neither in absolute figures not in percentage with the figures indicated by Lattuada: Ototrasm, Breda Fucine and Breda cannot have exported more than their revenue, which is to say the difference between 600 billion and 422. But there is more: if Rossi took the sales of the group gross of the sales among associated companies, then why didn't he do the same with the export? We cannot see how the entire group exported 600 billion while Oto-Melara alone supposedly exported 730 billion, i.e. t

he aforementioned 84% of its sales revenues, the equivalent of 869,8 billion. The fact is if we take the results of the fiscal year of Oto-Melara with a grain of salt, the Italy-foreign countries component tend to rebalance itself.

10. Cf. "Ipd", n. 11, 1983.

11. Once again, the figure indicated by Rossi, 700 billion, does not coincide neither with one nor the other, perhaps because of the deduction of the group's civilian productions. Cf. ROSSI 5. A., "Il sistema..., op. cit.", p. 38.

12. Cf. "Ipd", n. 16-17, 1984, p. 43.

13. Cf. ROSSI 5. A., "Il sistema..., op. cit.", p. 39. The same author, in an interview with the review Difesa Oggi (n. 77, Sept. 1984) mentioned the 6000 billion of "net revenues, i.e. eliminating the supplies and interchanges of components" at 1983. Exactly 20% less, compared to the 7400 "gross" billion..

14. U.S. ACDA, "p. cit." p. 143. Our translation.

15. Cf. CICCIOMESSERE R., "Italia armata. Rapporto sul Ministero della Guerra", Gammalibri, Milan, 1982, p. 281 e p. 296.

16. Cf. NONES M., ``Le prospettive di collaborazione dell'industria militare europea'', "Ipd", n. 6-7-8, 1985. The source is the same also for the data on France that follow in the text 17. In billions of current dollars, the military expenditure of Federal Germany amounted to 22,375; that of France to 21,654, that of Italy to 9,698; for year 1983. Cf. INTERNATIONAL INSTITUTE FOR STRATEGIC STUDIES (Iiss), "The Military Balance 1985-1986", London, 1985, p. 170.

18. Cf. ROSSI S. A., "Il sistema..., op. cit.", p. 48.

19. "Ipd" n. 18-19-20, 1985, p. 56.

20. Cf. U.S. ACDA, "op. cit.", p. 109.

21. Cf. "Le 3000 principali società italiane, op. cit."

22. Cf. ROSSI S. A., "Il sistema..., op. cit.", p. 38.

23. N. 48246, 27-12-1983, "concerning the purchase in Italy and/or abroad". National budget, table 12 (defense), draft bill, 1986, p. 366.

24. Panel for the implementation of bill 16/06/1977, n. 372, papers of the meeting of February 9, 1981.

25. Cf. "Ipd", n. 14-15, 1984, p. 43.

26. "Ipd", n. 9, 1983.

27. Cf. "Difesa Oggi", n. 79, Nov. 1984, p. 503.

28. Cf. "L'industria Italiana della Difesa 85-86, annuario di "Difesa Oggi", Publi Consult International, Roma (1985), p. 503

29. "Ipd", n. 16-17, 1984, p. 44.

30. JEAN C. (generale di brigata), "La strategia industriale del sistema difesa", report held at the national conference on the industry of defense, Rome July 3-4, 1984, Ministry of Defense, Rome, p. 20.

31. Cf. "SIPRI Yearbook 1985", pp. 424-39.

32. Cf. ``Battle Tanks'', supplement to "International Defense Review", n. 9, 1985, pp. 64-71.

33. Cf. ATTI PARLAMENTARI, Camera dei deputati, 9ª legislatura, discussioni, allegato al resoconto della seduta del 23 luglio 1984, ``Risposte scritte ad interrogazioni'', p. 1884.

34. Cf. "Ipd", n. 14-15 del 1984, p. 44.

35. Cf. "L'Industria Italiana della Difesa 85-86", op. cit.", p. 105.

36. Cf. "International Defense Review", n. 6, 1985.

37. Cf. U.S. ACDA, "World Military Expenditures and Arms Transfer", 1970-79.

38. Cf. U.S. ACDA, "World Military Expenditures and Arms Transfer", 1985, pp. 131-34.

39. Cf. SILVESTRI S., ``Fiat voluntas Reagan'', "L'Europeo", 3 ago. 1985.

40. Cf. "Aviation Week and Space Technology", 20 Jan. 1986.

41. Cf. in this same book the text by Marco Carnovale.

42. ROSSI S. A., "Il sistema..., op. cit.", p. 2.

43. ``Intervento del Sen. Giovanni Spadolini, ministro della Difesa, all'apertura dei lavori'', in "Atti della Conferenza nazionale sull'industria della Difesa", Roma, "3-4 luglio 1984", vol. 1, Ministero della difesa, Roma, (1984), p. 1.2.

44. Cf. DEVOTO G., ``L'espansione dell'industria bellica italiana nell'ultimo decennio: esportazioni, fatturato, occupazione'', in AAVV, "Il complesso militare industriale in Italia", Rosenberg e Sellier, Torino, 1979.

45. Cf. "SIPRI Yearbook 1984", pp. 197-99. In particular, it is mentioned along with USSR, France, Spain and Egypt "among the major suppliers of weapons to Iraq".

46. Cf. "L'Industria Italiana della Difesa 85-86, op. cit.", p. 29.

47. Cf. LOOSE WEINTRAUB E., ``Spain new defence policy: arms production and exports'', in "SIPRI Yearbook 1984", pp. 137-49.

48. Cf. CICCIOMESSERE R., "op. cit.", pp. 285 e sgg.

49. This and all following quotations taken from the text published by "Ipd", n. 12-13-14, 1985. As usual, this source omits to specify the date of the original document.

50. "Ipd", n. 9-10-11, 1985, p. 100. Spadolini was visiting the Beretta factory.

51. Cf. "Ipd", n. 9-10-11, 1985, pp. 110-101.

52. Cf. "SIPRI Yearbook 1985", pp. 288-289.

53. JEAN C., "op. cit."

54. ROMITI C., ``Concentrare le risorse su pochi e definiti obiettivi'' (relazione al convegno di "Città e Regione", Firenze, 19 March 1983), "Ipd", n. 9, 1983, pp. 26-28.

55. Cf. KRAUSE A., ``Fiat Says It Wants to Compete for Work on SDI'', "International Herald Tribune", 17 July 1985.

56. Iri, which Aeritalia belongs to, is traditionally a monopoly of the Christian Democratic Party. The Efim group, which Agusta is part of, is socialist and sociademocratic turf. No one wants to give in, accepting a merger under the other group's aegis. In the meahwile, Fiat proposes the purchase of 40% of the shares of Agusta. Cf. ``Italy Weighs Reorganizing Aerospace Manufacturers'', "Aviation Week Space Technology", 3 March 1986.

57. Even a "hawk" such as former Oto-Melara chairman Gustavo Stefanini recently declared that "there is cause to believe that Italy will cease being an exporting country...So that the Italian business will have to concentrate on Europe: on European defense". Cf. "Mondo Economico", 5 Aug. 1985.

58. NONES M., "op. cit."

59. ``The Case for Military Investment is Upside Down'' is the title of an article by Flora Lewis, on the "International Herald Tribune", 10 Feb. 1986.