German Chancellor Angela Merkel killed the proposed union between EADS and BAE Systems, arguing the new company would siphon defense jobs from Germany to Britain. So to save jobs, one of Europe’s most powerful leaders rejected a transaction that would have benefitted overall European industry.
Last week, EADS’ Cassidian defense unit said it would lay off 850 from its force of about 28,000 workers — most from Germany, and some from Britain, France, Finland and Spain — to save 200 million euros annually. The unit cut 900 jobs last year, Agence France-Presse wire service reported, in line with reductions made across virtually all Western defense contractors as military spending declined after the 2008 economic crisis, the end of the Iraq war and the drawdown in Afghanistan.
The fact is, defense spending will continue to drop and globalization of products is essential to corporate survival. Meanwhile, more jobs will disappear.
The questions for policy leaders is where, how fast and how many? Three factors compound the problem:
Governments increasingly seek capability at the best price, even if that means buying outside domestic suppliers.
As multinational cooperation on projects goes up, more nations have smaller slices of larger projects.
Transnational defense contractors shift work and jobs within their global enterprises to meet obligations as efficiently as possible in order to remain competitive on the global stage.
Ignoring these trends does not make them go away.
This down cycle is likely to be prolonged, so governments and the companies that supply them should focus less on saving jobs writ large than preserving and fostering skills critical to national military or industrial competitiveness over the long term.
While governments intimately shape the outlook for defense goods, especially within their borders, global markets may be a good guide: If there’s something you do better than everyone else, invest there instead of trying to prop up historic suppliers already in decline.