Industrial policy for defence: Lessons from history

• Being underprepared for war is dangerous. The supply needs of defence and war require the help of industrial policy to bring about the changes in the structure of our economy that we need for the sake of security.

• The twentieth century has left us ten lessons for industrial policy for war. Industrial policy has two rationales. Fixed capital for defence will be under-

provided without public funding (Lesson 1). Mobilization requires speed and will be slowed by numerous frictions in the absence of policy interventions (Lesson 2).

• Among further insights, most war plans were useless, but war planning was nonetheless essential: the productive aspect was the process, more than any paper plan that resulted (Lesson 3). Victory at any cost is a good slogan but, in a long war, costs mattered and it was important to mobilize efficiently (Lesson 4). Prices mattered too; the impulse to control prices could impede adaptation to changing shortages (Lesson 5). Autarky was a delusion: trying to achieve it would incur very high costs (Lesson 6). Once a war of attrition began, there was no technological escape from it based on miracle weapons (Lesson 7). Incompetence and self-dealing were luxury goods; only wealthy countries could afford to waste resources on incompetence or rent seeking (Lesson 8). Getting policy right was all very well, but GDP also mattered and could be the decisive factor (Lesson 9).

• History suggests a caution: war was not the only risk. Industrial policy for war could store up obstacles to postwar prosperity (Lesson 10). Still, that would come later; today’s problem was – and is – to be ready for war if it should come tomorrow.