Josselin Droff and Julien Malizard published the article « Why we are not (yet) in a war economy »in the magazine The Conversation
The «demand shock» after February 2022 means that industrial supply needs to be adapted. We are in a situation of’offer relatively inelastic in the face of strategic disruptions that change demand.
On a qualitative level, the conflict in Ukraine is indicative of the’the importance of new capabilities in the conduct of operations in a modern high-intensity conflict, such as remotely-operated munitions, small, multi-purpose drones (whether airborne, land-based or naval), cyber or space-based systems (particularly for data transmission and processing).
The identification of a high risk of attrition From an industrial economics perspective, this leads us to focus on the consumables market, i.e. equipment with a very short lifespan (e.g. drones). On the other hand, the show of force between major military powers makes it impossible to give up durable goods, i.e. major equipment with a very long lifespan (aircraft carriers, combat aircraft, hyper-sonic missiles, ballistic missiles, etc.).
This ambivalence is at the heart of current changes in defence, and in particular in the defence industry. Given these changes in demand for defence equipment, our working hypothesis is that’there are two arms markets. The first is made up of traditional players in the defence industry, These include armoured vehicles, artillery systems, aircraft and ships. The second refers to emerging industrial players which meet certain needs not covered by conventional equipment, such as in the fields of UAVs, cyber, space or IT and data processing.
In terms of industrial policy, it is particularly important to understand the structural parameters of these two markets in order to identify the right levers to adapt supply to demand.
