THE BEST WAR MONEY CAN BUY By Raul Madrid Raul Madrid, co-author of U.S. Arms Exports: Policies and Contractors, is a research analyst with Investor Responsibility Research Center. IF THE 1970s witnessed the explosion of the arms trade, the 1980s has witnessed its commercialization. Faced with a declining worldwide demand for arms and an increase in the number of suppliers, arms merchants have been forced to push harder simply to maintain sales levels. And to win the highly- competitive export contracts, weapons suppliers have hawked their wares with increasing aggressiveness and abandon. The Roots of Commercialization The primary roots of the commercialization of the arms trade lie in poor economic conditions in the Third World. The Third World has imported more than three-fourths of the weapons sold since the early 1970s. In recent years, however, developing nations have been strapped for cash. Many countries have been forced to reduce their arms imports. Arms transfer agreements with developing nations fell from an average of $48 billion per year in the early 1980s to $37 billion in 1985 and $29 billion in 1986. As one executive of an arms-exporting company lamented, "We're all down now to nibbling crumbs...The damn oil boom has gone, and there's not much money around anymore. The world in general is bankrupt." The debt crisis and the drop in commodity prices have forced many nations to cut back arms imports and pursue programs of fiscal austerity. In the most indebted region, Latin America, arms agreements with Western countries declined from $6.3 billion between 1979 and 1982 to $3.8 billion between 1983 and 1986. Because of debt-related problems, Peru reduced its order of French Mirage fighters, while Argentina cancelled the remainder of its German submarine orders and asked for permission to resell the submarines it had already purchased. The debt crisis has also forced a tightening of credit, making it difficult for many Third World countries to finance large arms imports. But the leading cause of declining Third World arms purchases has been the drop in the price of oil. Throughout the 1970s and early 1980s, oil-rich nations used their expanding oil revenues to fund ever increasing imports of weapons. By the 1980s, OPEC nations accounted for 40 percent of all Third World arms imports. In the early 1980s, however, oil revenues among OPEC nations began to drop, falling from $280 billion in 1981 to $80 billion in 1986. One of the recession's first casualties was arms imports. According to U.S. govemment sources, OPEC nations accounted for $8.5 billion of the $11.6 billion drop in Third World arms imports between 1984 and 1985. OPEC nations have also contributed to the general decline in Third World arms imports because they have been less willing to finance the arms imports of other nations. In prior years, Saudi Arabia, for example, heavily subsidized Jordanian and Syrian arms imports. With less money available for arms imports, however, many Third World countries have simply started producing their own arms. By the mid-1980s, 56 developing nations were manufacturing some type of military equipment, and 19 of these countries could produce advanced weapons systems. Today, Third World nations such as India, Brazil, and South Korea have reached the point where they can develop and produce military aircraft, armored vehicles and missiles. As Third World nations have achieved self-sufficiency in some areas of military production, they have been able to substitute domestically produced arms for imported equipment. In this way, Brazil reduced its arms imports from $230 million per year in the late 1970s to an annual average of $75 million in the 1980s. Similarly, Israel reduced its foreign arms buys from $1.3 billion per year in the late 1970s to an annual average of $860 million in the 1980s. Saturation has also played a role in the decline of Third World arms imports. The massive purchasing binge of the late 1970s and early 1980s fully stocked many Third World military arsenals, particularly with the high-profile fighter aircraft favored by many leaders. Other Third World countries such as Syria and Libya have cut back arms imports temporarily to allow their militaries the time to learn how to operate, maintain and repair the new weapons systems. While worldwide demand has dropped off steadily in recent years, the number and capacity of arms suppliers has continued to increase, heightening competition in the international arms market. Western European arms exporters have led the way. By cutting into U.S. and Soviet markets, they have forced the superpowers to change their traditional ways of doing business in order to keep up with the competition. Many nations such as Iraq, Mozambique, the Philippines and Jordan that used to be heavily dependent on the superpowers for arms now buy significant quantities of arms from Western European suppliers. France, Great Britain, West Germany and Italy are the big four among the European arms exporters. In some years, France and Great Britain displace the United States from its normal position as the second largest arms supplier to the Third World. The top four European exporters have been joined by a growing array of second-tier European suppliers. In recent years, Spain has done a brisk business with sales of its military trucks, armored cars and transport aircraft. Neutral nations such as Sweden and Switzerland have also joined the fray. Despite ambivalent and somewhat restrictive official attitudes toward the Third World arms trade, these nations have sometimes found arms sales to developing nations too profitable to be eschewed. Sweden recently completed a $1 billion sale of howitzers to India, while Switzerland has delivered a major air defense system to Egypt. The most significant of the new breed of weapons suppliers are the Third World arms exporters. Over the last 15 years, some Third World arms industries have become so proficient that they can now export their indigenously produced weapons. Third World arms exports rose to an annual average of almost $3 billion in the 1980s compared to $1.1 billion per year in the late 1970s. These emerging exporters have provoked change on the international arms market by intensifying competition for orders of all but the most sophisticated weapons systems. Third World arms exporters have outmaneuvered their counterparts in the industrial nations by selling to almost any nation, placing no restrictions on their sales, and by frequently underbidding the other suppliers with low labor costs and technologically simple weapons systems, the Third World arms suppliers have proved to be tough competitors. Their products are often more suitable to Third World terrain and more durable. The Effects of Competition For illegal arms traffickers, the new arms market means big business. Some sources estimate that the black market for arms has grown to as much as $9 billion annually. Bribery has facilitated illegal sales to South Africa, Libya and Iran, and has been used to grease above-board deals such as Sweden's sale of howitzers to India. More significant, however, has been the commercial reorientation of officially-sanctioned arms traffic. Arms-exporting countries with industries and trade balances dependent on weapons exports have been reluctant to allow their sales to decline. Many arms- exporting nations have lifted or relaxed bans on controversial sales of weapons, and have begun to promote the sale of their military equipment vigorously. This has been true for socialist governments in France and Spain as well as conservative administrations in the United States and Britain. To make sales to developing nations, the arms suppliers increasingly ignore human rights violations in those countries. The emerging suppliers such as Spain and most Third World nations have indicated no more interest in human rights considerations than established suppliers such as the Soviet Union and France have shown in the past. Even those suppliers that in the past occasionally took human rights considerations into account are now showing little restraint. (balance of this article omitted here; unscannable)