For Kathleen and my parents
UNIIVEISITY OF FLORIDA LIBRARIES
This Ph.D. dissertation closes the chapter on a long journey in my life
(10 years, to be precise). Since I first came to the United States in 1981 to
pursue my undergraduate studies, so many people have helped me to
mature intellectually and emotionally that it would be impossible to list all of
their names here. I am grateful, though, for their patience and understanding
during my first steps in this "alien" territory, because their friendship
provided the foundation that allowed this work to become a reality.
The task of researching and writing a dissertation is so monumental
that one cannot undertake it without the personal and institutional support
of family and colleagues. I am very grateful for the support provided by Dr.
Steven E. Sanderson in guiding me through the development literature and
in sharpening my argument. His critical mind not only kept me constantly
focused on immediate needs (such as completing the manuscript), but also
forced me to rethink and to defend positions. He has been a true educator.
I also wish to acknowledge the valuable input of other colleagues,
including Goran Hyden, Terry McCoy, Robert McMahon and John Spanier,
who have been involved in the review of this manuscript. While their
insight has greatly enriched the quality of the final product, I take full
responsibility for any errors or omissions that remain. At the research level, I
am thankful to the staff at the ~Jimmy Carter Library (Atlanta, Georgia) who
guided me through countless documents. In Houston, I was able to count on
my father-in-law, Richard K. Siler, who introduced me to many officials of
major defense contractors. In Brazil, Eli Fernandez was extremely helpful in
setting up interviews with company officials and officers of the Armed
Throughout this project, my parents, Gamaliel and Areli, were a
constant source of support and inspiration. As professors themselves, they
greatly influenced my interest in academic work. I am especially indebted to
my mother, who made the dream of a college education in the United States
possible. The dream could not have taken form without her unflinching
financial commitment early on.
I am particularly grateful to my wife, Kathleen Siler Perruci, who has
done an outstanding job as supporter, copy-editor and critic. Her patience and
dedication inspired me constantly: If she could endure me during graduate
school, I could endure the trials of writing this dissertation, as well. Finally, I
would like to thank my "almost" two-year-old daughter, Caroline, for not
destroying the disks where I kept this dissertation stored.
TABLE OF CONTENTS
ACKNOWLEDGMENTS .............................. iii
ABSTRACT ................... ................. viii
1 INTRODUCTION: DEVE1LOPIMENT-POWER LINKAGES .. .. 1
Economic Development and Power Relations .. .. ... .. .. 11
The Agent-Centered Power Argument . .. . . . .. 16
The Structural Power Argument . .. .. ... ... .. ... 22
The Agent-Structure Debate .. ... .. ... .. .. .. . .. 31
Power and the International Economic System . ... .. . ... 36
Concluding Remarks: The Paradox Revisited .. ... .. .. .. 38
Notes ................... .................. 44
2 MIDDLE POWERS IN TH-E INTERNATIONAL
ARMS MARKET ........................... 52
The Measurement of Arms Trade .. .. .. .. . ... .. ... 54
The Structure of the International Arms Market .. ... .. 62
Military Industrialization: "Catch-Up" Mercantilism? .. . ... 94
The Paradox of National Insecurity ... .. ... . ... .. .. 108
Notes ..................................... 118
3 THE COLD WAR ORDER, 1940s-1950s . ... . .. ... .. 127
Antecedents to Brazil's Cold War Military Cooperation . .. .. 130
The Post-war Doctrine of National Security .. .. .. .. ... 140
The 1952 Military Assistance Agreement .. .. .. .. .. .. .. 148
Concluding Remarks: Dependency and Nationalism . .. .. .. 164
Notes ................... ................. 167
4 THE "GREAT POWER" PROJECT, 1960s-1970s . . .. . 174
Shifts in Brazil's Foreign Policy Direction .. .. .. .. .. .. 177
Economic Growth and Power Perception . ... . .. . 184
Indigenous Arms Production . ... . .. .. . . .. 199
An Assertive Middle Power ... .. .. ... .. .. .. . .. 222
Concluding Remarks: Power and Discord . .. .. .. . 239
Notes ................... .................. 242
5 FACING THE PARADOX, 1980-1985 .. .. . .. .. .. .. 253
Science and Technology in Brazil .. ... .. ... .. .. .. 256
The International System and the Brazilian Arms Industry . .. 273
The 1984 Defense Technology-Transfer Agreement ... .. .. 278
The Aftermath of the 1984 Military Agreement . ... .. . 286
Concluding Remarks: Facing the Paradox .. ... ... . ... 290
Notes ................... ................. 296
6 CONCLUSION: POWER AND NATIONAL SECURITY
POLICY-MAKING ................... ....... 303
Technology and Power Politics: Toward a New
ResearchAgenda .........,..,.,............ 308
Confronting Hidden Agendas .. .. .. . .. . .. . . 311
Geopolitics and Market Relations . .. .. .. . . . 317
Concluding Remarks: A Final Word on the Paradox . .. .. .. 324
Notes ................ ..., ...........,.. 327
REFEREINCES ................... ................. 330
BIOGRAPHIICAL SKETCH ................... ......... 354
Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy
THE PARADOX OF NATIONAL INSECURITY:
BRAZIL, AS A MIDDLE POWER
IN THE INTERNATIONAL ARMS TRADE SYSTEM
Gamaliel Perruci, Jr.
Chairman: Steven E. Sanderson
Major Department: Political Science
The theoretical focus of this study lies in the linkage between power
politics (agency) and market relations at the global level (structure). Power
politics is expressed at the strategic level when nations pursue their "national
interests," such as autonomy and political independence. The constant
jockeying for position in the international system underlines the anarchic
character of international relations. The global market constitutes the
environment under which these actors must operate. Shifts in market
relations help explain changes in conceptions of national security, as state
actors respond to new challenges in the international economic system.
Nonstate actors play a critical role in defining the state response to market
shifts. This study uses the defense industry in both developed and
developing countries as an important sector defining a country's "national
security" interests, separate from the political requirements of power politics.
The dissertation uses U.S.-Brazilian military relations since World War
II as the basis for the study of agency-structure interrelations in the
national-security arena. Three distinct phases are noted. First, under the
politics of "uneven attraction" (1940s-1950s), the United States as the new
global superpower used the emerging post-war structure to shape Brazil's
national security perspective, as embodied in the 1952 military assistance
agreement between the two countries. The second phase (1960s-1970s) points
to the process of "liberation" in Brazil's national-security policy-making.
Brazil's power leverage vis-8s-vis the United States was enhanced with the
European recovery and the new international division of labor
(internationalization of capital and production). The development of an
indigenous arms industry became viable, thus leading to the unilateral
cancellation by Brazil of the 1952 agreement. During the third phase (1980-85),
Brazil faced the "paradox of national insecurity." In order for its arms
industry to survive financially, it had to import foreign technology, which
again exposed the country to the political requirements of technology
exporters. In the Brazilian case, we see this paradoxical process in the signing
of the 1984 memorandum of understanding with the United States.
INTRODUCTION: DEVELOPMENT-POWER LINKAGES
In recent decades, the emergence of newly industrialized countries
(NICs) as aspiring powers--here, also addressed as "middle powers"--has
provided fertile ground for international relations theorists.l Ironically,
though, little has been done to incorporate NICs into mainstream
international relations theory. The emphasis continues to be on the balance
of powers, with the great powers occupying center stage.2 Because
balance-of-power is a static model, theorists have missed much of the
dynamic change in political and economic relations between established and
emerging industrial powers. 'Even when mobility is considered in the
traditional literature,3 the focus rests on "already emerged" (rather than
emerging) military powers that directly challenge the status quo, such as
Germany in the 1930s.
Interest in the study of middle powers' behavior rose in the 1970s, as
these actors moved away from the tight bipolar international structure that
characterized the early years of the Cold War. Detente in East-West relations
contributed to renewed attention on the behavior of regional powers in Asia,
the Middle East and Latin America. Such attention was narrow in scope,
however, tending to view middle powers as subordinate to great-power
politics. This perspective has become less adequate as East-West tensions
subside and the socialist world diminishes in global importance.
Whether because of the rising importance of middle powers, or because
of the apparent evolution of post-Cold War regionalism, there is a growing
need to incorporate the economic successes of NICs into the study of power
politics. Perhaps more importantly, a "middle power" perspective is wanting
in the literature--a literature that would understand the processes enabling
and conditioning their rise in international status and the impact that rise
has had on international security in general.
A major analytical difficulty dividing the two key dimensions of middle
power emergence (economic ascendance and power politics) has been the
separation between "high" and "low" politics in the traditional international
relations literature.a At the high end, East-West military and strategic issues
have dominated the literature, while at the low end are situated
socio-economic issues particularly related to the North-South trade and
development agenda. Such a distinction, however, has become increasingly
blurred because of the broadening of a national security conception. As this
study will demonstrate, many of the technological and commercial issues
deriving from NICs' presence in the market are viewed by great powers as
national security threats. NICs' acquisition of missile technology, for
instance, has both commercial significance (satellite launching capability) as
well as military application (ballistic missiles)5
This study seeks to bridge the division between "high" and "low"
politics in international relations .by analyzing the economic rise of Third
World middle powers from a national security perspective. Recent research
about declining U.S. competitiveness and industrial performance also links
economic performance to national security issues, in ways that help bridge
the gap between "high" and "low" politics.6 Many of these studies center on
the decline's potential threat to the country's national security. One U.S.
industrialist, for instance, has suggested that the very concept of national
security is changing in this country, from a military emphasis to an economic
one, following the demise of the Cold War.7
Such a "political economy of national security" is a traditionally joint
set of concerns in the developing world. The Third World state has long been
concerned with vulnerability to great power politics (particularly in the area
of economic rewards and sanctions) and to catastrophic shifts in the world
economy such as the Great Depression of the 1930s or the oil shocks of
1973-1979.8 Since World War II, the structure of the international system has
changed due to the proliferation of sovereign states, many of which possess
severely limited national power capabilities and suffer from weak domestic
political systems. "These states," Stephen D. Krasner points out, "cannot
control transnational flows or easily adjust to changes emanating from the
international environment."9 NICs, however, occupy a special Third World
niche because they are not so "exposed to vacillations of an international
system from which they cannot extricate themselves but over which they
have only limited control."l0 Such an assessment of NIC exceptionalism in
the international system may be too optimistic, considering that NICs'
economic growth is closely tied to their integration into the international
economic system--a source of potential vulnerability to rapid changes in
flows of trade, capital, and technology. The growing importance of regional
trade blocs (e.g., The European Economic Comnmunity) has threatened to
close important markets for Third World goods. Capital flight has continued
to be a major drainage source of fresh investments, while U.S. banks
continue to be leery of lending to the Third World because of the current
economic crisis in some of the major debtor countries, such as Brazil.
Technology export controls in developed countries have slowed the flow of
high technology to many Third World recipients. Nevertheless, Krasner calls
our attention to an important point in theorizing about the Third World:
The foreign policies of those states are grounded in a national security
prerogative dominated by vulnerability aversion and control over
What is new for both great and small powers is the connection of
national security to an increasingly interdependent world market. National
security becomes a complex function of the local economy's position in the
world market. Industrialization enhances a nation's power attributes--a
major source of security in an anarchic state system. "Security," therefore, is
defined here not only to include the traditional conceptions of balancing
power through productive capability, (e.g., the arms industry) but also the
competitive position of such an industry in the world market. These two
sides, the dissertation argues, have become part of the same security game in
the post-World War II political order. The central thesis of this study is that
Third World countries such as Brazil have found the interrelation between
security and interdependence paradoxical because the former has been
conceptualized as a search for autonomy.
The relevance of middle powers' national security strategy after the war
is found in the theoretical relationship that can be established between rapid
economic development and conceptions of power within an increasingly
interdependent world economy. To the extent that upward mobility and
stability have been addressed in the literature, such as A. F. K. Organski's
"power transition" or Robert Gilpin's hegemonic stability perspective, their
application is limited to the nations already possessing a particular level of
industrial might, which enables them to challenge existing hierarchy.ll Such
was the case of Germany in the two world wars of this century.
Although Organski rejects the balance-of-power perspective, his
conception of power transition is rooted in the politics of great powers, which
is really only a slight reformulation of the balance-of-power argument. In
fact, there is little theoretical depth in either Organski's or Gilpin's discussion
about the way development confers power and security, other than the
simplistic observation that industrialization endows the nation with the
means to wage both economic and military war.
On the other side of the theoretical spectrum, NICs' "success" is
addressed in the context of an expanding world capitalist system, divorced
from the international political trappings that the system of sovereign states
entails.12 In the "semi-periphery," Immanuel Wallerstein assigns a
subordinate role to NICs."3 In the "world-system" conception,
industrialization is part of a global phenomenon, which cannot be analyzed
without clearly defining the interests of a core capitalist class, which, in this
sense, only becomes another way of defining great powers. Unfortunately,
this theoretical focus says little about the national security interests of these
so-called semi-peripheral nations, other than to assert linkages between the
interests of the core and the behavior of the periphery.
Between these two theoretical conceptions lies an uncharted analytical
space that NICs have occupied empirically with competitive production and
sale of armaments and used to redefine their traditional military links with
great powers. This dissertation seeks to explore this new ground through a
closer look at the development-power linkages, which are often either taken
for granted or are left unresolved in both traditional and radical international
This study uses the international arms market as an entry point into
this effort for two reasons. First, military capability has traditionally been the
power yardstick in the international relations discussions of "high" politics.14
By examining arms production from a political economy perspective, this
study crosses the divide between high and low politics and reaches for power
conceptions that are expressions of both economic and military concerns.
Arms production in many middle powers has had the dual purpose of
promoting technological transformation and enhancing national security,
the assumption being that a nation with high technological capability is
economically and geopolitically secure. Powerful nations, after all, are
associated with advanced technologies and skills that enhance their market
competitiveness and their ability to manufacture weapons, a critical
component of geopolitical security.l
The second reason for using the international arms market as an entry
point to the study of development-power linkages is that NICs' involvement
in the arms export business in recent years connotes deep changes in the
international economic system itself, which has direct political consequences,
such as the inability of great powers (e.g., the United States) to monopolize
the flow of arms technology across regions and the dependence of Third
World arms producers on export markets and foreign technology. Therefore,
"low" politics also filters into the discussion of the interrelation between
local development and power politics at the global level. Indigenous arms
production is essentially an import-substitution industrialization (ISI)
strategy, insofar as it seeks to reduce the political dependence associated with
arms imports.16 But if the local industry needs to export the bulk of its
production in order to survive (a cost-cutting strategy), ISI and "export-led
growth" become intimately related.l7
Both high and low politics are used in this study to provide new insight
into a "paradox of national insecurity." Growing participation in the
international market helps local arms manufacturers reach economies of
scale and consequently reduce unit costs. Efficient economic performance
enhances the competitiveness of the local product and the prospects of higher
revenues, which may be invested in the development of more sophisticated
products. Regardless, in national security terms, such economic efficiency
leads to an improvement in indigenous military capability--a major factor
insulating the country from simple trade-based reliance on foreign suppliers.
Nevertheless, the fast pace of technological change in the international arms
business requires that local producers quickly innovate in order to remain
While NICs are busy assimilating new technology, producers from
highly industrialized nations are creating the next generation of military
technology. Unable to innovate fast enough through local means, producers
in developing countries must seek foreign sources of technology. For many
NICs, technology transfers have become the main source of "indigenous
The paradox is apparent: In order to realize a national security goal (the
development of an independent local source of armaments), many middle
powers have to substitute foreign ties of technological dependence for
previous dependence on final product. The question is whether this helps
national security or merely replaces one kind of dependence with another.
A closer look at the international arms market reveals the tenuous
character that development-power linkages assume once emerging powers
choose to deepen the local economy's integration into the arms trade system.
More importantly, though, the paradox of national insecurity points to the
importance in conceptualizing power both as a national attribute and as a
structural phenomenon. Power is a product of the enhanced economic
position of a country, but the price of that enhancement is measured in
growing vulnerability to systemic forces shaping its direction. What is
important about this particular case, however, is in identifying the way
power is exercised at both levels: the way nations shape their environments
(the development of indigenous arms production and redefinition of
military alliances), and the particular historical circumstances constraining
and enabling their national security strategy (expansion of the world
economy through foreign direct investment and financial links).
The underlying dynamics of this paradox are found in the way these
nations arrive at any particular national security strategy. The state may seek
to develop an indigenous arms production capability so as to escape the
vagaries of power politics. This is consistent with traditional conceptions of
security in world politics. The Hobbesian dictum regarding human fear of
violent death applies to nations in an anarchic state system. To Hobbes,
security is the overriding human motive, so the attainment of power is the
surest way of deterring the depredations of others.19 As a national security
strategy, therefore, international links are to be minimized whenever they
promote high levels of external dependence. The local arms producer,
however, operates on the basis of profit-motive. Thrust into the vagaries of
the international market, the producer must remain competitive. If such a
compelling dictum necessitates the establishment of external links with
foreign technology suppliers, so be it. We can thus easily see the inherent
potential of conflict between the state and local producers in the formulation
of a national security strategy.
The remainder of this first chapter addresses the growing interest in the
international relations literature in the national security content of economic
issues such as competitiveness. This interest provides the basis from which
two theoretical conceptions of development-power linkages are presented:
agent-centered and structural. The last section of this chapter suggests a
theoretical framework that combines elements of these two conceptions to be
used in the case study of U.S.-Brazilian military relations since World War II.
The central thesis of this study will be that Brazil's arms production program
has suffered from the paradox of national insecurity. While Brazil has been
successful in reducing its dependence on U.S. arms, the Brazilian arms
industry has depended heavily on the international market for defense
technology. Such a dependence has limited Brazil's leverage in security
negotiations with the United States in recent years.
Economic Development and Power Relations
Power as an "essentially contested concept" covers many facets in social
science research.20 While settling this contestation falls beyond the scope of
this study, integrating some diverse elements of power provides additional
insight into the complexity of the issue in hand: the national security
implications of rapid economic growth for middle powers.21
Traditionally, power has been associated with agency, as in the
community studies of the 1960s that focused on decision-making--one actor's
response to another's behavior.22 As a rejection of the elite theory of power,
which rested on a reputational basis,23 the emphasis of Robert A. Dahl's
model was on the control of behavior: "A has power over B to the extent that
he can get B to do something that B would not otherwise do."24
Nevertheless, Dahl's framework came under attack for failing to
address the structural dimension of power, or, in P. Bachrach and M. S.
Baratz' words, the "second face" of power.25 The criticism centered on Dahl's
emphasis on decision-making, which neglected to explore how power was
exercised whenever actors ensured that certain decisions were not made. The
"non-decision-making" aspect of power was manifested through the
mobilization of bias by those in dominant positions. Structure occupied the
central theme in the mobilization of the bias debate because differing levels
of resources were available to actors in the social system. Those actors with
the most resources manipulate the system toward desired outcomes.
The structural component of power is linked to the relationship
between dependency and vulnerability. Structure calls attention to the locus
of power, as concerning freedom: "who can control whom?"26 Countries
avoid external dependency, not because it embodies a link to another
country, but rather because dependency contains a vulnerability--a capacity to
be hurt should that link be broken. Albert O. Hirschman in his classic study
of the interrelation of power and trade, National Power and the Structure of
Foreign Trade, argues that it is the concentration of external ties (rather than
the magnitude of those ties per se) that counts in assessing power relations in
the international trade system.27
From these two conceptual frameworks (decision-making and
non-decision-making ) there has been in recent deca des a growing interest t in
the nature of power relations in social theory. For instance, Steven Lukes's
Power: A Radical View extended that debate to include three dimensions to
power analysis. Apart from behavioral and non-decision-making aspects,
Lukes added the conception of hegemony as an overarching dimension of
power relations. Anthony Giddens has taken up the dialectics of agency and
structure found in Lukes' work and transformed it into a dualism under
which the two components become part of a single conception of power.28
Both Giddens and Michel Foucault treat power as a highly generalized
capacity to produce effects that would not otherwise have occurred.29 The
advantage of this conception for the present study lies in regarding
compliance of others as a special case of an actor's "transformative capacity"
in achieving outcomes. This fundamental link between action and power
dissociates the latter from any inherent connection with conflict and clashing
interests, a common proposition in international relations studies of power
relations.30 Giddens and Foucault's view challenges the notion that power is
necessarily coercive, always involving the imposition of sanctions in order to
Giddens' view of power, in particular, is a "power to" conception, of
which the behavioral treatment of "power over" is only one component
among many. Dennis H. Wrong agrees with Giddens that power is action
that deploys means in order to achieve outcomes. Power should not be
regarded as a resource; but instead as the mobilization by an actor of resources
to produce effects. "Since these resources are unequally distributed," Wrong
argues, "individuals and groups are unequal in their power although equal
in their ability to act in a generically human way."32 Inequality of power
resulting from inequalities of the resources that make possible the exercise of
power is a distributive rather than a relational phenomenon. As such,
development carries as its central component distributive changes (e.g.,
creation of an indigenous advanced technological capability) through which
power may be exercised (e.g., the enhanced position of local producers in the
The linkage between development and power can be established at
these two power levels (agent and structural). At the agent micro level,
power becomes the deployment of resources (industrialization) so as to
achieve security in an anarchic international system. As nations develop,
they achieve higher levels of economic capability through which political
goals may be secured. Development strategies call to our attention a
conception of agency that resembles Max Weber's own view of power, which
stresses the element of intention, or "will."33 Weber defined power as the
probability of carrying out one's will despite the resistance of others in a
social relationship. NICs' own developmental policies have been placed in a
setting that evoked resistance from already industrialized nations. Much of
the literature about NICs' trade conflicts centers on this aspect.
In an asymmetrical environment, however, it is misleading to assume,
as some realists do, that all politics (including development politics) is a
struggle for power.34 As Wrong correctly points out, "Politics includes both a
struggle for power and a struggle to limit, resist and escape from power."35 A
central issue in power asymmetry is not only the dependence relation it may
create, but also the potential "liberating" force it unleashes. The pursuit of
economic and political autonomy became a driving national security
perspective for many aspiring powers as they broke away from the Cold War
order. Hirschman's argument that great powers often take advantage of the
trading system to forge ties of domination with weaker nations is well taken.
However, Hirschman's National Power--a pioneer work on the relationship
between trade politics and dependence--missed the liberating dynamics that
trade dependence unleashes at the domestic level, a point the author later
recognized.36 In his conception of national power and the international
structure, the distribution of power remains relatively unchanged over time.
Hirschman's notion of dependence does not include the lesser powers'
pursuit of "liberation," which is inherent in any industrialization policy.
The struggle to escape from power is undertaken at the structural level,
as nations attempt to redefine their subordinate position in the power
hierarchy. While development may lead to increased power in the
international system by virtue of enhanced economic capability, power
cannot be analytically understood unless placed within a specific historical
context in relation to other actors in the system. Such a context is found at the
macro level, structural power, which works as a "hidden hand" molding the
very preferences actors assume. While development widens the actor's
alternatives and ability to transform the environment, developmental
policies are never formulated in a vacuum. The context of developmental
choices lies in the placement of actors in the international system, with each
exhibiting different resource capabilities.
Before we propose a framework for incorporating both agent and
structural elements in the study of development-power linkages, it would be
helpful to gain some notion as to the way each has been used in the
international relations literature. While some analysts have focused their
attention on power as an agent attribute (level 1), others have uncovered the
power dynamics operating at the structural plain (level 2).
The Ag~ent-Centered Power Argument
The agent-centered power argument focuses on the direct implication of
development on an actor's increased capability to pursue foreign policy
interests separate from the contextual structural demands. The development
of a naval industry, for instance, allows a country to expand its maritime
links without depending on others for transportation services. The linkage is
established in the following sequence: Development leads to an actor's
increased power in the international system, thus promoting national
security. Development, therefore, confers power by deploying the means
(naval industry) through which a nation enhances national security
(self-reliance in maritime transportation). This sequence is a classic
representation of such international relations studies that focus on the
domestic components of mobility in the international system.
Proponents of this argument see the state as a dominant figure in the
establishment of development/power linkages. As the motor of internal
economic and military change, the state plays a central role in the
transformation of the local economy. The agent-centered argument sees the
actions of individual nation-states (agents) as defining international
structure. Unlike structuralists, who see the international system as defining
and constraining the character and possibilities of the agents (either
dominant or subordinate actors), the agent-centered proponents assign
greater freedom to actors in their effort; to change the structure of the
Systemic transformation comes from domestic industrialization. In this
view, power is derived primarily from domestic attributes. Natural resources,
population size, and arms production are often cited as the components of a
state's position in the international system. This view of the
development-power linkage poses state agency as the defining element in
international structure. Changes in an individual country's capability (e.g.,
development of an indigenous arms industry) lead to an improvement in its
position in the power hierarchy.
In the 1960s, Organski provided a standard agent-centered
interpretation, which found its way to contemporary studies of war and
peace.37 His "power transition" concept fits within the argument that
internal attributes determine the nature of national power, which in turn
shapes the character of international relations. Organski identifies two major
determinants of power: national (geography, resources, and population) and
social (economic and political development, and national morale). Political
development is particularly crucial, because, as he suggests,
it is largely through governmental direction that the
human and material resources of a nation are mobilized to
influence the behavior of other nations. Political
development increases internal unity, stimulates economic
development with all its important consequences for power,
and organizes men and material into effective fighting
In evaluating the determinants of power, Organski ranks the three most
important elements of power: population, political development, and
economic development. The indicator of power capability is closely related to
industrialization. As Organski argues, "The most powerful nations in the
world today are all politically modern and industrial. The established leaders
are those who industrialized first, and those who challenge them for
leadership are nations that have industrialized more recently. This is not an
accident."39 Organski believes there are three stages of power transition: 1)
potential power (small industrial output, although a nation in this stage may
benefit from expectation of future world power status); 2) transitional growth
in power (growth in industry and productivity, with nationalism running
high and sometimes aggressive action toward the outside); and 3) power
maturity (fully industrialized with high economic efficiency, but relative
power declines because other nations are entering the second stage of
transitional growth).40 The gap between nations in the second and third
stages often closes in sprints, as industrializing powers challenge the
dominance of those in stage three. As Organski argues,41
It is these sudden sprints that keep upsetting the
distribution of power in the world, threatening the
established order of the moment and disturbing world
peace. It is the differential spread of industrialization
throughout the world and the resulting power transition,
not some automatic balancing process, that provides the
framework of modern international politics.
Any nation undergoing power transition may upset the existing order
by becoming a challenger. As Organski suggests, "World peace has coincided
with periods of unchallenged supremacy of power, whereas the periods of
approximate balance have been the periods of war. .. Wars occur when a
great power in a secondary position challenges the top nation and its allies for
control."42 For nations undergoing power transition, the rise in power
capability induces the nation to seek a greater share of the benefits the
existing order provides. Satisfaction, therefore, is related to the response a
challenger receives from the top of the hierarchy:43
Industrialization is the source of much of the international
trouble of the present period, for it expands the inspirations
of men and helps to make them dissatisfied with their lot,
while at the same time it increases their power to do
something about their dissatisfaction, that is, to wrest a
greater share of the good things of life from those who
currently control them.
Another recent agent-centered interpretation of the linkages between
industrialization and international power is found in Guatam Sen's The
Military Origins of Industrialization and International Trade Rivalry, which
tries to explain the roots of international trade disputes in manufactures.44
Existing theories, Sen argues, are unable to explain the systematic pattern of
such disputes. The author finds a more persuasive interpretive schema in
the division of the international political system into competitive
nation-states. His notion of national security, which is closely related to the
conception pursued in this dissertation, is derived from this competitive
environment. As he suggests,45
The insecurity of existence in an international political
system, characterized by the competitive relations of
nation-state actors, prompts latecomer countries to pursue
the goal of industrial transformation once the distribution
of power has been dramatically altered by the concurrence of
industrialisation in firstcomer countries; military capability,
on which the distribution of power and the status of
countries is predicated, being heavily dependent on the
level of industrialisation.
Sen suggests that competitive relations between countries in the
international political system lead each government to play "a crucial role in
fostering and maintaining .. a self-sufficient industrial structure."46 The
author's thesis rests on the premise that the desire for such economic
autonomy is ultimately "a function of perceived national security
Such a pattern of state intervention was seen in the 19th century as
Britain became the "firstcomer" in the process of industrialization.
"Latecomers" followed British footsteps in two waves: in the first round
came countries such as the United States, Japan, and several of the Western
European nations; the second round of "latecomers" arrived after World
War II in the form of NICs (including Brazil). Along with the arrival of each
"generation," Sen suggests, came greater tensions over international
manufacturing. Sen reflected much of earlier views on waves of
development, as expressed in the development economic literature. The
economic historian Alexander Gerschenkron, for instance, provided a classic
study about latecomers in which he argued about the "advantages of
backwardness."48 Drawing on past experience, particularly in the area of
science and technology, developing countries have achieved sustained
development at a shorter time span.
The existence of a group of strategic industries (i.e., from steel to
semiconductors) leads Sen to reject the Heckscher-Ohlin theorem of trade
specialization by stressing "self-reliance" as the key issue in a country's trade
policy. Self-reliance is crucial in Sen's analysis, because he not only relates the
role of the state in the national economy, but also the relationship between
national defense and strategic industries--a proposition Stanley E. Hilton
makes in presenting the role of the Brazilian military in trade policy in the
1930s.49 The Brazilian military was particularly interested in the possibility of
Germany supplying military technology in exchange for raw materials. Sen
establishes a linkage between national defense and economic policymaking:50
Whatever the constitutive structure of the international
political system, barring universal empire which would
transcend the system of territorial states, the dominant
reality is rivalry and competition between national actors,
and the currency of transaction between them is power; and
the highest denomination of this currency of power is
The agent-centered argument makes a contribution in viewing the state
as an important actor shaping the process of international change. The
dynamics of trade rivalry among nation-states in the post-World War II
period has led scholars to explore a new area of research called strategic trade
policy. Robert Gilpin defines it as "an attempt by a state to change the
international strategic environment in ways that give advantage to the home
country's oligopolistic firms."51 In essence, strategic trade policy has been
used, as Gilpin suggests, in two main forms: "industrial preemption"
(blocking access to domestic markets so as to develop one's domestic
industrial capability); and "import protection for export promotion" (the use
of entry barriers to allow domestic firms to acquire advantages, such as
economies of scale, in order to enable them, in turn, to dominate world
Aspiring powers have taken advantage particularly of the first form
("industrial preemption") as a way of developing domestic industries.
Subsequently, however, many of these industries have become competitive
in world markets and have increased a country's export potential. Middle
powers have been careful to promote a strategic trade policy that addresses its
national security concerns. Several heavy industrial sectors have been
targeted as "critical" (e.g., steel). The arms industry, however, has become a
source of intense import substitution, while some middle powers such as
Brazil and South Korea have turned it into a profitable export sector. This
interrelation between strategic economic imperatives and national
security policy-making has become a central issue in the development/power
linkage literature as addressed in the agent-centered argument.
The Structural Power Arg~ument
The structuralist argument finds in the distribution of capability the
essence of an actor's national security perspective. The existing structure
shapes and constrains the developmental possibilities of each actor. In this
study, the literature on structuralism will be divided into three camps:
realism, revisionism, and postrevisionism. While some might argue that
each camp does not reflect a progression from the other, they do present
different analytical directions that are important in international relations
theory-building. The first camp draws on the classical realist tradition of the
1940s and 1950s when scholars such as Hans Morgenthau conceptualized the
emerging bipolar international order. Realism, however, did not gain a
structuralist bent until the 1970s, when interdependence and neorealist
schools formally integrated realist premises into a structuralist model.
Kenneth Waltz has become the most outspoken defender of structural
realism.52 The behavior of state-actors--regardless of individual
characteristics--can be understood by looking at the structural arrangement
under which each actor finds itself. Therefore, U.S. containment policy can be
explained not as a holy crusade of capitalism against communism, but the
natural behavior of superpowers balancing each other in a bipolar structural
arrangement. Waltz's focus on realism differs from that in Sen's military
rivalry conception because Waltz does not account for the changes the
international system undergoes once nations acquire new power capability--a
contribution Sen's work makes. After all, a consideration of development as
a domestic phenomenon would violate the structuralist integrity of Waltz's
theory. As a result, structural realism has been criticized as static and giving
little attention to the dynamic nature of international relations.53
Another shortcoming in Waltz' structural realism is its sole emphasis
on symmetrical relations--a concern with balance-of-power in the post-war
East-West military confrontation. Such a focus neglects the importance of
asymmetry ih~ international relations, a concern that the revisionist literature
examines in the context of North-South economic relations. The revisionist
camp, which became popular in the 1970s, addressed structural patterns of
dependence between center and periphery. Although this literature has come
to be known as dependency theory, "revisionism" seems to be a more
appropriate term in this dissertation because it places the literature in the
context of an evolving progression in international political economy
studies. Revisionists did not necessarily break away from structural realism,
but they did challenge the conventional thinking of their time by bringing
the North-South dimension to the forefront of international relations.
Like the conventional theorists, revisionists also suffered from the
same predilection for a static view of international relations. By dividing the
world into center-periphery, there was little room for overlap. Just like the
conventional view of structure as defining the character of individual action,
revisionists also saw the center-periphery as establishing rigorous norms of
dominance and subservience. Conceptualizing development, therefore, was a
difficult exercise if it meant a transformation in power relations.
The revisionist camp--as a structuralist argument--sees domestic
development as part of a global phenomenon. The individual power of a
nation-state can only be ascertained in relation to how its local economy is
integrated into the international system (either as a dominant or as a
subordinated economy).54 While development transforms the local
economy, it does not necessarily change the character of the international
system. Consequently, the power of newly developed nation-states may
continue to be limited by a constraining structure, if their subordinate role
persists.55 Further, development may simply be the expansion of a
system whose control is found in only a few dominant nations. As a result,
development in weaker nations may become a tool of imperialism by
Fernando Henrique Cardoso and Enzo Faletto conceptualize the
development-power linkages in those revisionist structural terms.57 They
see a close association between local and international dominant classes in
shaping the developmental process of a local economy. By viewing
capitalism as an evolving system with global reach, Cardoso and Faletto
suggest that domestic class relations are closely related to the economic
processes taking place at the international level. The transformation of the
international economic system leads to changes at the domestic level, with
new class interests emerging. Such a transformation took place in Brazil at
the turn of the 20th century, as a merchant and urban bourgeoisie replaced a
landed aristocracy at the onset of Brazil's Industrial Revolution.
Even if a country experiences development, revisionists argue, a nation
is not necessarily moving upward in the international power hierarchy.
Immanuel Wallerstein's "world-system theory" does not discount the
possibility of a peripheral country moving up in the structural hierarchy and
becoming a core nation.58 The debate about mobility in Wallerstein's
conception, nevertheless, has remained predominantly functionalist in
character, with these aspiring powers becoming part of a sub-imperialist
"semi-periphery," functioning as enforcers of core interests and rules within
the periphery.59 In describing the function of Southern Europe in the
world-system, Wallerstein asserts that "Suddenly it became of interest to the
core states to have Southern Europe play a strong semiperipheral role in the
world-economy, especially if they could be closely linked to the core in
political and ideological terms."60 This simplistic view of development
reflects a bias toward viewing peripheral transformation only as a function of
Revisionists argue that conditions of dependency often persist, as local
dominant classes serve the interests of international forces. As a result, the
nation finds itself trapped in the world capitalist order in a subservient role.
Nationalism and populism do constitute social and political forces of
development, according to Cardoso and Faletto, but they participate in the
phase of domestic market consolidation, under which the developmentalistt
state" prepares the ground for the internationalization of the domestic
market.61 The new nature of dependence linked "the production sector
oriented toward the domestic market to dominant external economies."62
Such a link reveals the structural limits on the process of national
industrialization with the opening of domestic markets to external control.
As Cardoso and Faletto suggest, "The peripheral economies were linked to
the international market at the time when the center of capitalism no longer
acted solely through control of the import-export system, but acted also
through direct industrial investment in the new national markets."63
Therefore, the direct participation of foreign enterprise cast a new structural
arrangement for the development of industries in the periphery.
In this new form of development, which Cardoso and F~aletto call
"dependent development," the public sector also plays a dominant role in
local economic transformation. Peter Evans has made an important
contribution in the conceptualization of "dependent development" by
viewing the structural relations in post-1964 Brazil as a triple alliance: public
sector, the multinational corporation, and the modern capitalist sector of the
national economy."4 The "tripod," in Evans' term, is the result of a careful
balance among diverse interests. The state enterprise is incorporated into the
network of international capital, while the participation of multinationals is
carefully negotiated.65 A nationalist state continuously attempts to pull the
multinationals more deeply into the process of local accumulation, while the
latter pursues a globalist strategy.6
The emergence of NICs in the 1970s placed the revisionists in the
tenuous position of having to explain the economic success of those
countries in the context of peripheral capitalism. While "dependent
development" constituted a viable analytical direction, revisionists found
themselves more and more concerned with explaining exceptional cases
even as late as the mid-1980s, such as the East Asian NICs' successful entry in
the trade system. Hyun-Chin Lim, for instance, in looking at dependent
development in South Korea, makes the common assumption in the
revisionist perspective: a country's structural position in the world capitalist
system is a main determinant of development and underdevelopment.67
An area that came to dominate the discussion in the late 1970s through
the 1980s involved the apparent increase in political strength of governments
in the "periphery" in negotiating foreign direct investment terms that
conformed to strict local guidelines (e.g., export requirements, labor laws, use
of local components and management). Studies about bargaining power
between multinational corporations and "host" states moved the literature
in the 1980s from revisionism to a "postrevisionist" camp. The focus of these
studies centered on the relative bargaining strength of the two parties (the
transnational corporations, or TNCs, and the state) with specific attention to
the latter's capacity to break away from structural constraints and to become
an "autonomous actor" in the developmental process (e.g., the ability of state
managers to successfully pursue policies that might be in conflict with TNCs
and local capital interests). Douglas C. Bennett and Kenneth E. Sharpe, for
instance, observe that "the experience of Mexico shows that interests of the
auto TNCs often led them to pursue courses of action that were detrimental
to Mexican welfare, but it also shows that the state was able to alter their
behavior to make them contribute more to industrialization and economic
Evans himself has questioned his "dependent development" approach
in a recent study of Brazil's computer policy.69 The author argues that
technological change offers certain "moments of transition" that may
provide Third World states with the opportunity to preempt policy
initiatives. "At moments of transition," Evans suggests, "when the interests
of local capital are still undefined and international capital may be caught off
balance, state action may be decisive."70 Such an interpretation leads Evans
to consider the importance of a "state-centered model" to explain the crucial
moment of an industry's origin, during which the state plays an
entrepreneurial role. The use of such a model produces an effective
argument for the interrelation between structural constraints and state
"autonomous" action: "States cannot make industrial policy as they choose,
but neither must they accept local industrial structures as exogenously
determined."7 The slow revisionist conversion, however, has not dissolved
its static center-periphery roots. Evans, for instance, while granting some state
"autonomy" during the developmental process, has called attention to the
way dependency has been "transformed" rather than "overcome."72
Postrevisionismn has emerged as a competing conception of Third
World development within the dynamic of international capitalism.
"Postimperialism" has become the main theoretical contribution found in
postrevisionism. The concept of postimperialism grew out of two bodies of
thought: political theories of the modern business corporation and class
analyses of political power in the Third World. As a theory of international
oligopoly, postimperialism stresses the move toward a transculturall
bourgeois class coalescence"--the transnational class domination of the world
as a whole.7
Transnational enterprise is not viewed as a new form of imperialism,
tailored to suit the postcolonial era--the "core" imposing structures of control
on the "periphery." Rather, in an increasingly global market, transnational
firms find it in their self-interest to include localization of labor and
management. Whenever corporate policy deviates, the local state effectively
imposes indigenization. The conception of state autonomy goes much
further than the revisionist position, while at the same time separating the
transnational firms from any particular "core" country. This perspective fits
well within the recent interest on the internationalization of production and
the evolving international division of labor.74 Postrevisionism poses
challenging questions about the interrelation between the state system (with
its developmental state) and the global economic system (with an ever
expanding capitalist class). In fact, the postrevisionist position destroys
geographical parameters (East-West, North-South) in favor of a single global
view of market processes, regardless of the stage of development of local
Postrevisionism includes some elements of the agent-centered
argument (the power of the state to break away from structural constraints),
while retaining the importance of structural processes in defining the context
of economic development. These combined elements (state power and the
context of development) are part of an increasing interest reflected in the
postrevisionist literature with the evolving international division of labor,
which will be more closely discussed in the last section of this chapter. With
the breakdown of the old relations of industrial and "backward" worlds and
the emergence of NICs in the global market, there is a new analytical
direction toward unraveling the intricacies of state autonomy and market
processes. Before we delve into this topic, the following section will provide a
summary view of the agent-structure debate, drawing from the last two
The Agent-Structure Debate
What the previous discussion on agent-centered and structural
arguments suggests is that each side makes its own contribution, but in
different analytical domains. The agent-centered conception of
development-power linkages concentrates on the causal aspect of power
relations. By capitalizing on resources accrued from development, actors can
improve their power performance in the international system. The structural
argument, however, focuses on the constraining character of structures in
defining the parameters of an agent's freedom. The power of a structure lies
in shaping the developmental alternatives for aspiring actors.
The two domains are often perceived as in opposition--a dialectic
producing an unresolved dualism.75 This study, however, seeks to
incorporate both perspectives into a single framework exploring both the
voluntarism found. in agency-centered arguments and the determinism of
structuralism. The interconnections between the various power conceptions,
as reviewed earlier in this chapter, provide the basis from which to explore
the impact of development at the agency and structure levels. Agency
produces structures that simultaneously serve as the conditions for
reproduction of agency in a continuing process.76 In other words, agency and
structure can be viewed as interpenetated.
A central problem in social theory, which is directly applicable to this
study, lies in adopting a balance between voluntarism and determinism.
While the former stresses agency as creative and knowledgeable, the latter
concentrates on the constraints surrounding social action. One way of
overcoming such a problem is to expand our conception of structure so as to
capture agency's voluntarism. The "enabling" character of structure provides
such a perspective. The mechanical view of social action--as something
externally caused--stresses reproduction of social action, while enablement
focuses on production, which is the key to understanding structural
transformation Structure is both the medium, and the outcome of the
re reduction of social practices. Structures both constrain and enable social
Practices, while practices both embody and modify structures.78 In other
words, structure and action presuppose one another. Structure is often
pictured as the anatomy of a social organism or the girders of a social edifice.
Such images suggest that structure is rigid and static, as in Waltz's and
Wallerstein's conceptions of the international system. But, in truth, it exists
only in action, and action always has place and time.7
Equally, action should not be conceived apart from structure. Although
every society has a structure of domination, all actors draw on it and bend it
to their own use. Thus structure (rules and resources, organized as properties
of social systems) and system (reproduced relations between actors or
collectivities, organized as regular social practices) are two sides of a unifying
concept, dubbed by Giddens as "structuration."80 Actors draw on structures to
produce systems. Gidden's subjectivist ontology widens the concept of power
to include all interaction as involving the use of power---drawing on
resources in order to affect and order the environment.8
Giddens has had his share of critics because of his stress on agency
voluntarism, an "illusory freedom of the constituting subject."82 Actors
remain at the center stage of his theory, therefore, compromising the
perceived interpenetration, or "duality," of agency and structure.83 We
notice this theoretical bias toward voluntarism particularly in his conception
Giddens sees dominant actors as benefiting from the "enabling"
character of structure. Those in power establish a structure of domination
through their own enabling process of resource deployment. This
domination, in turn, constrains those over whom power is exercised.
Giddens pays little attention to the ways in which the structure of
domination may constraint the dominant actors themselves. This is an
important point because the source of constraint may constitute in itself an
"enabling" factor for weaker actors in their own process of liberation. In other
words, weaker actors may use the existing structure to liberate themselves
from the existing order, thus, helping transform the social system.
The "enabling" character of structure is particularly important in the
study of middle-power politics, because it elucidates the way through which
weaker states have used the existing world order to transform their position
in the international system. What this dissertation seeks to show is that
although the United States--as the post-war hegemon--established new rules
in the international economic system (e.g., the General Agreement on Tariffs
and Trade, the International Monetary Fund, and the World Bank), this
system had a dynamic of its own as part of a centuries-old world capitalist
system. To say that the United States established the capitalist system after
World War II is ludicrous. It is fair to argue that the hegemon reshaped the
rules of the game so as to benefit itself and dominate others. However, the
United States was not able to retain its dominant position, as the world
capitalist system moved toward an internationalized network of production
and the continuing diffusion of technology across borders.
A careful understanding of "enablement" is required as one defines the
limitations of dominant powers. Structurationists have become harsh critics
of structural theorizing, particularly neo-realism, because structuralists tend
to neglect the agent's ability to bring about structural transformation.
Structuralism insists on viewing structures as constraining the choices of
pre-existing state actors, while failing to account for the enabling character of
David Dessler's "transformational model," for instance, suggests that
structures are "media through which action becomes possible and which
action itself reproduces and transforms."85 While structuralists have tended
to see structures as an environment or "container," Dessler offers structure as
a means to social action: "An office building, in this view, is not so much a
setting for the activities of workers as it is an enabling structure that workers
make use of to get their jobs done."8
Dessler, however, does not examine how "workers" come to be
employed in the office building in the first place. NICs, as new "employees"
in the building, are integrated into the workforce through a complex process
of "workload expansion" (the internationalization of production). Although
one might argue that U.S. employment status in the building may be much
hi her than that of NICs, the United States iS nevertheless only an
employee--subject to the same labor laws that encircle all office occupants.
The laws operate at the market level under which efficiency and
cost-effectiveness are supreme.
Powerful states may attempt to bend the rules because of national
security requirements, but ultimately local producers respond to market
signals, rather than nationalist demands. Much of the current debate about
the decline in U.S. competitiveness focuses on the painful realization that
the country is only one employee among many in an increasingly crowded
Power and the International Economic System
What the previous discussion suggests is that one has to look at changes
in the international economic system in order to understand the evolving
power relations in world politics. After all, Brazil could not seek an end to its
military alliance with the United States unless it felt secure in its position as
an arms producer. Such security, however, is grounded in Brazil's deepening
integration in the world capitalist system--ground that is not always firm.
This section outlines the context of aspiring powers' development policies,
with particular attention to the role of technology in the promotion of
The post-war rise in foreign direct investment (FDI) gave a new
impetus to capital accumulation in underdeveloped societies. The advent of
worldwide industrial production led to the flow of commodities between
plants of the same company. These "world market factories" drew on cheap
labor in the creation of industrial enclaves in underdeveloped regions. The
new conditions for the valorization and accumulation of capital generated a
world market for production sites and labor, which included the use of both
traditional industrialized and underdeveloped countries. Therefore, the
emerging system destroyed the traditional division of labor under which
underdeveloped economies supplied raw materials to industrialized
countries, while the latter supplied manufactured products.
Foker Frabel, Jilrgen Heinrichs and Otto Kreye use the term "the new
international division of labor" to designate that tendency that:8
(a) undermines the traditional bisection of the world into a
few industrialized countries on one hand, and a great
majority of developing countries integrated into the world
economy solely as raw material producers on the other, and
(b) compels the increasing subdivision of manufacturing
processes into a number of partial operations at different
industrial sites throughout the world.
The authors see NIDL as an "institutional" innovation of capital itself.
It is a consequence, rather than a cause, of the new conditions that emerged
after World War II (e.g., the requirements of the world market for industrial
sites), prompting countries and companies to tailor their policies and
profit-maximizing strategies to these new conditions. For aspiring powers,
the evolving international economic system presented itself as an
opportunity to promote fast industrialization, import substitution, and
export promotion. The economic transformation, in turn, set the stage for the
development of indigenous arms industries with a proliferation of suppliers
in the international arms market.88
Technology transfer has occupied a central place in this sequence of
developments, as multinational corporations sold technology to aspiring
countries as a way of establishing a foothold in the new market.89 As a means
to perform a particular activity, technology has been identified not only as a
process, but also as a national asset. As such, it becomes a critical part of
economic policy-making with far-reaching implications to world trade.90
Those nations with high technological capability enjoy greater prestige in the
international arena, while the ones that fall behind in the technological race
find themselves downgraded in the power hierarchy. Technology transfers
are thus used to close the gap.
Third World nations, however, are ambivalent about the transfer of
technology from advanced industrial centers. On the one hand, it promotes
domestic economic transformation and improves the competitive position of
national companies in the international market. On the other hand, reliance
on foreign technology leads to a dependent position that national security
policy-makers find difficult to accept. Brazil's solution was to diversify the
sources of technology so as to avoid excessive concentration from a single
country. At the same time, the government promoted indigenous research
and development. Such a strategy reflects what postrevisionists have
theoretized as the combined elements of state autonomy and the context
of development (transnational capital and technology) in a continuing
interpenetration at the global level.
Concluding Remarks: The Paradox Revisited
National security policy-making in the post-World War II order has to
take into account both the increasing importance of high technology in
weapons production and, at the same time, the internationalization of
production, which encourages the diffusion of technology. Because of
competition in the international market, suppliers are not always eager to
transfer technology.91 The state often imposes technology export controls
under national-security prerogatives (e.g., fear of advanced arms technology
proliferation in the Third World). As a result, the level of technology
available for exports is under tight scrutiny.92
Control over technology exports, coupled with weaker powers'
insufficient domestic technological capability, has led some scholars to view a
well-defined division of labor in the international arms market, "in which
the advanced suppliers specialize in sophisticated systems and the
developing country suppliers emphasize manufacture of older generation
military systems, often under license or coproduction arrangements."93
Helena Ttiomi and Raimo Viiyrynen have made a similar argument,
viewing the NIDL as the expansion of "northern" transnational corporations
(TNCs) worldwide.94 The authors argue that the present international
economic system increases aspiring producers' dependence on northern
These authors present a contradictory conception of NIDL by making a
geographical argument ("northern" technology), while stressing the
autonomy of the arms industry in an internationalized production process.
Rivalry among U.S. and Western European producers has become in recent
decades a major factor in the continuing transfer of sophisticated technology,
regardless of the geographical destination. This factor (rivalry among
technology suppliers) constitutes an "enabling" power resource for NICs in
their effort to remain competitive in the world market. By threatening to
change suppliers, NICs are able to extract technology-transfer agreements
from unwilling trade partners.
The argument used in this study does not take the same "voluntarist"
road as in Giddens ontology by arguing that NICs are free to rearrange the
international trade system so as to dominate the market. There are limits to
NICs' developmental goals. Changes in the technology--particularly in the
arms business-are so rapid that such a search for foreign suppliers becomes a
continuing developmental priority. "Indigenous innovation" has to depend
on external sources of technological change. This dependency is clearly a
paradox in the state's national security strategy, given its interest in severing
those dependent ties. Even if local producers diversify their sources of
technology, they do not set the pace of innovation. They are technology
takers. Such a dependecy only invites fears of catastrophic events, such as the
withholding of critical technology by a hostile foreign government in the
middle of a national-security crisis. This possibility, in fact, was witnessed
during the Falklands War in 1982, when the European Community cut
technology transfers to Argentina, crippling its defense industry.
Such a paradox does not constitute a drawback for local producers. As
long as they remain competitive in the global market, the source of
technology is of no interest. For the state in aspiring powers, though, there is
always the possibility of subordinating political interests for the sake of
economic ones. This dissertation explores such a case in Brazil's decision to
sign a new military agreement with the United States in 1984, despite the
former's proclaimed "independence" in the late 1970s. While the signing of
this agreement does not necessarily imply an intention to implement it,
there was a clear demonstration that economic interests (as articulated by
local producers under the influence of market forces) took precedent over
The Brazilian military's perception of a geopolitical threat during the
Cold War (i.e., "communist subversion" of the domestic political process),
along with its vision of Brazil as a potential great power, led to the
development of an indigenous arms industry. The United States, however,
did not attach the same strategic importance to the Southern Hemisphere.
After the war, the United States transferred a significant amount of arms
technology to Western Europe and Japan so as to counter the Soviet military
presence in Europe and Asia.
U.S. efforts in South America, in comparison, were insignificant,
although Brazil did sign a 1952 Military Assistance Agreement as part of the
U.S. containment policy. Military assistance to Brazil consisted mainly of old
technology and aging equipment. Even after the military came to power in
1964, the United States did not transfer any significant technology or
Brazil's decision to turn to the newly modernized European arms
industry for help proved beneficial. The transfer of European technology
allowed the Brazilian industry to develop a complex arms production
capability to the point of a successful entry into the export market in the
mid-1970s. The newly found sense of military independence led to the
cancellation by Brazil in 1977 of the military assistance agreement it had
signed twenty-five years earlier with the United States.
Brazilian integration into the international arms market, however,
exposed its development policy to the paradox of national insecurity. The
need to acquire ever more advanced arms technology to compete in the
world market led Brazil to agree in 1984 to a new military agreement with the
United States, this time seeking the transfer of sophisticated arms technology
from U.S. sources. While Brazilian local producers welcome technology
imports from the United States, the state does not encourage it because of the
political stipulations attached to them, such as not allowing the export of
arms built with U.S. technology to countries hostile to U.S. interests.
Although the United States would like to build closer relations with an
emerging power, it is wary of sophisticated arms technology transfers to the
Third World. As a result, the states on both sides have signed an agreement
of which they do not intend to make extensive use. Suppliers in the United
States see arms sales as a commercial deal rather than as an instrument of
foreign policy. This pragmatic position creates a direct conflict between
commercial and strategic interests. The signing of the agreement for the
United States represents the dilemma that exists between these two interests.
For Brazil, as an emerging power, the signing of an agreement with a
technology supplier represents an important additional source of innovation
which improves the competitive position of local producers in the
international market. Nevertheless, dependence on a dominant power such
as the United States requires a political and strategic commitment that Brazil
has avoided since its "declaration of military independence" in 1977. The
ambivalence found in the implementation of the 1984 agreement represents
the bargaining process that exists in Brazil's national security policy circles
between commercial and strategic interests.
This study is divided into two parts. The first part considers theoretical
propositions found in the development-power linkages (Chapter 1) and
applies them to the study of the post-World War II international arms
market (Chapter 2). The second part takes the specific case study,
U.S.-Brazilian military relations since World War II, and explores (Chapters
3-5) the theoretical underpinnings developed in the first part. The last
chapter (Chapter 6) broadens the case study to include a comparative view of
other middle powers under a suggested analytical framework.
Before the case study is fully developed, the next chapter details the
expansion of the international arms market after World War II. Much of the
discussion in the present chapter about development and power is applied to
the issue of arms trade. The next chapter discusses the effort of many NICs to
develop indigenous arms production as a critical national security strategy.
This effort reflects the agency-level argument as discussed in this chapter. At
the structural level, the expansion of technology transfers is presented as an
"enabling" factor in Third World arms producers' competitiveness.
1. For the purpose of the present study, the term "NIC" is an economic
description of a country which has attained a level of development which
sets it apart from other Third World countries, while the political-strategic
expression of the same development is found in the term "middle power."
For a discussion of the position of NICs in the international trade system, see
Dominick Salvatore, ed., The New Protectionist Threat to World Welfare
(New York: North-Holland, 1987); and Christopher Saunders, The Political
Economy of New and Old Industrial Countries (Boston and London:
Butterworths, 1981). For a more detailed look at the way the term "middle
powers" is used in the international relations literature, see Steven L.
Spiegel, Dominance and Diversity: The International Hierarchy (Boston:
Little, Brown and Company, 1972); and Carsten Holbraad, Middle Powers in
International Politics (New York: St. Martin's Press, 1984).
2. See, for example, Kenneth N. Waltz, Theory of International Politics
(Reading, Mass.: Addisson-Wesley Publishing Company, 1979).
3. A.F.K. Organski and Jacek Kugler, The War Ledger (Chicago and
London: The University of Chicago Press, 1980). Organski and Kugler portray
mobility as a "power transition," with fundamental consequences to
international security. This concept will be discussed in greater detail in this
4. Both proponents of realism and interdependence have made this
distinction in their textbooks. For a realist perspective, see John Spanier,
Games Nations Play, 7th ed. (Washington, D.C.: Congressional Quarterly Inc.,
1990). For an interdependence viewpoint, see Robert O. Keohane and Joseph
S. Nye, Power and Interdependence (Boston: Little, Brown and Company,
5. For an excellent study of Third World acquisition of missile
technology, see Janne E. Nolan, Trappings of Power: Ballistic Missiles in the
Third World (Washington, D.C.: The Brookings Institution, 1991).
6. Charles Herzfeld, "Technology and National Security: Restoring the
U.S. Edge," The Washing~ton Quarterly 12 (Summer 1989): 171-83; and Edward
A. Olsen, "A Case for Strategic 'Protectionism,'" Strategic Review 15 (Fall
7. Lamar Bowles, interview with author, Houston, Tx., 22 May 1990. Mr.
Bowles is a senior advisor to the President of Rockwell International.
8. Stanley E. Hilton, Brazil and the Great Powers, 1930-1939: The Politics
of Trade Rivalry (Austin: University of Texas Press, 1975); Stephen D.
Krasner, Structural Conflict: The Third World Against Global Liberalism
(Berkeley and Los Angeles: University of California Press, 1985), 19.
9. Krasner, Structural Conflict, 115.
10. Ibid., 4.
11. A.F.K. Organski, World Politics, 2nd ed. (New York: Alfred A.
Knopf, 1968); Robert Gilpin, War and Chang~e in World Politics (New York:
Cambridge University Press, 1983).
12. For a representative sample of this tradition, see Immanuel
Wallerstein, "Dependence in an Interdependent World: The Limited
Possibilities of Transformation Within the Capitalist World-Economy,"
African Studies Review 17 (April 1974): 1-26; Immanuel Wallerstein,
"Semi-peripheral countries and the contemporary world crisis," Theory and
Society 3 (Winter 1976): 461-84.
13. Immanuel Wallerstein, "The Relevance of the Concept of
Semiperiphery to Southern Europe," in Semiperipheral Development: The
Politics of Southern Europe in the Twentieth Century, ed. Giovanni Arrighi
(Beverly Hills: Sage Publications, 1985), 31-9. The term (semi-periphery),
however, has remained vague and obscure. See Ruth Milkman,
"Contradictions of Semi-Peripheral Development: The South African Case,"
in The World-System of Capitalism: Past and Present, ed. W. L. Goldfrank
(Beverly Hills: Sage Publications, 1979), 264, in which the author suggests:
"Wallerstein has done little to specify what is distinctive about a
semi-peripheral location in the world-system. .. The category seems to serve
as a catchall for all of the countries that includes such diverse cases as Canada,
China, Iran, and Poland, as well as Brazil and South Africa." Even the
Ivory Coast has been included in the "semi-peripheral" zone: see Karen A.
Mingst, "The Ivory Coast at the Semi-Periphery of the World-Economy,"
International Studies Quarterly 32 (Sept. 1988): 259-74.
14. Martin Wight, Power Politics (London: Royal Institute of
International Affairs, 1948).
15. Paul M. Kennedy, The Rise and Fall of the Great Powers (New York:
Random House, 1987).
16. Ron Ayres, "Arms Production as a Form of Import-Substituting
Industrialization: The Turkish Case." World Development 11 (Sept. 1983):
17. For a good discussion about ISI and export-led growth, see Paul
Streeten, "A Cool Look at 'Outward-looking' Strategies for Development,"
The World Economy 5 (Sept. 1982): 159-69.
18. Curt Gasteyger, Searching for World Security (New York: St.
Martin's Press, 1985).
19. Dennis H. Wrong, Power: Its Forms, BasesadUe(CigoTh
University of Chicago Press, 1988), 220.
20. Steven Lukes, Power: A Radical View (London: Macmillan, 1974).
21. Lukes himself has argued in an edited volume, Power (New York:
New York University Press, 1986) that perhaps the search for a generally
satisfying definition of power is a mistake: "What unites the various views of
power is too thin and formal to provide a generally satisfying definition,
applicable to all cases." (pp. 4-5)
22. Robert A. Dahl, Who Governs? Democracy and Power in an
American City (New Haven: Yale University Press, 1961).
23. C. W. Mills, The Power Elite (Oxford: Oxford University Press, 1956).
24. Robert A. Dahl, "The Concept of Power," Behavioral Science 2 (1957):
25. P. Bachrach and M. S. Baratz, "Two Faces of Power," American
Political Science Review 56 (Dec. 1962): 947-52; P. Bachrach and M. S. Baratz,
"Decisions and Nondecisions: An Analytical Framework," American
Political Science Review 57 (Sept. 1963): 632-42; P. Bachrach and M. S.
Baratz, Power and Poverty: Theory and Practice (Oxford: Oxford University
26. Lukes, Pgwer, 10.
27. Albert O. Hirschman, National Power and the Structure of Foreig~n
Trade (Berkeley and Los An eles: Universit of California Press, 1945).
28. Anthony Giddens, New Rules of Sociological Method (London:
Hutchinson, 1976); and Anthony Giddens, Central Problems in Social Theory:
Action, Structure and Contradiction in Social Analysis (Berkeley and Los
Angeles: University of California Press, 1979).
29. M. Foucault, "Disciplinary Power and Subjection," in Power, ed.
Steven Lukes (New York: New York University Press, 1986), 229-42.
30. See, for instance, David A. Baldwin, Paradoxes of ]Power (New York:
Basil Blackwell, 1989).
31. Wrong, Power: Its Forms, Bases, and Uses, viii.
32. Ibid, ix.
33. Max Weber, Economy and Society, trans. G. Roth and C. Wittich
(Berkeley and Los Angeles: University of California Press, 1978).
34. Hans J. Morgenthau, Politics Amongr Nations, 5th ed. (New York:
35. Wrong, Power: Its Forms, Bases, and Uses, 13. Italics in original.
36. Albert O. Hirschman, "Beyond asymmetry: critical notes on myself
as a young man and on some other old friends," International Organization
32 (Winter 1978): 45-50.
37. Organski, World Politics; Organski and Kugler, The War Ledger.
38. Organski, World Politics, 183.
39. Ibid., 339.
40. Although Organski presents these stages as a logical outcome of
international processes, they should be viewed more as a historical outcome,
particularly linked to two world wars in this century.
41. Organski, World Politics, 344; emphasis in original.
42. Ibid., 364.
43. Ibid., 367.
44. Guatam Sen, The Military Origins of Industrialisation and
International Trade Rivalry (New York: St. Martin's Press, 1984).
45. Ibid., 249.
46. Ibid., 7.
47. Ibid., 77.
48. Alexander Gerschenkron, Economic Backwardness in Historical
Perspective (Cambridge, Mass.: Harvard University Press, 1962).
49. Stanley E. Hilton, Brazil and the Great Powers, 1930-1939; The
Politics of Trade Rivalry (Austin: University of Texas Press, 1975).
50. Sen, The Military Orig~ins of Industrialisation, 66.
51. Robert Gilpin, The Political Economy of International Relations
(Princeton, N.J.: Princeton University Press, 1987), 215; for a sample of this
literature, see Paul R. Krugman, ed., Strategic Trade Policy and the New
International Economics (Cambridge: The MIT Press, 1986).
52. Waltz, Theory of International Politics.
53. Alexander Wendt, "The agent-structure problem in international
relations theory," International Organization 41 (Summer 1987): 335-70.
54. Peter Evans, Dependent Development: The Alliance of
Multinational, State, and L~ocal Capital in Brazil (Princeton: Princeton
University Press, 1979); Theotonio dos Santos, "The Structure of
Dependency." American Economic Review 60 (May 1970): 231-6.
55. Wallerstein, "Dependence in an Interdependent World."
56. Ruy Mauro Marini, Subdesarrollo y revoluci6n (Mexico City: Siglo
Veintiuno Editores, 1969).
57. Fernando Henrique Cardoso and Enzo Faletto, Dependency and
Development in Latin America, trans. Marjory Mattingly Urquidi (Berkeley
and Los Angeles: University of California Press, 1979).
58. Immanuel Wallerstein, "The Present State of the Debate on World
Inequality," in The Cap Between Rich and Poor: Contending Perspectives
on the Political Economy of Development, ed. Mitchell A. Seligson (Boulder
and ILondon: Westview Press, 1984), 119-32.
59. Immanuel Wallerstein, "Semi-peripheral countries and the
contemporary world crisis," Theory and Society 3 (Winter 1976): 461-84; A. D.
Roberts, "The sub-imperialism of the Baganda." Journal of African History 3
60. Wallerstein, "The Relevance of the Concept," 38.
61. Cardoso and Faletto, Dependency and Development, 143.
62. Ibid., 140.
63. Ibid., 160.
64. Peter Evans, Dependent Development: The Alliance of
Multinational, State, and Local Capital in Brazil (Princeton: Princeton
University Press, 1979).
65. Ibid., 227.
66. Ibid., 276-7.
67. Hyun-Chin Lim, Dependent Development in Korea, 1963-1979
(Seoul, South Korea: Seoul National University Press, 1986), 13.
68. Douglas C. Bennett and Kenneth E. Sharpe, Transnational
Corporations Versus the State: The Political Economy of the Mexican Auto
Industry (Princeton: Princeton University Press, 1985), 253.
69. Peter Evans, "State, Capital, and the Transformation of Dependence:
The Brazilian Computer Case," World Development 14 (July 1986): 791-808.
70. Ibid., 805.
72. Ibid., 804.
73. David G. Becker, Jeff Frieden, Sayre P. Schatz and Richard L. Sklar,
eds., Postimperialism; International Capitalism and Development in the Late
Twentieth Century (Boulder & London: Lynne Rienner 'Publishers, 1987).
74.~ Folker Fraibel, Jilrgen Heinrichs, and Otto Kreye, The New
International Division of Labour, trans. Pete Burges (Cambridge: Cambridge
University Press, 1980).
75. Such is the dialectical position we find in Lukes, Power: A Radical
76. Giddens, New Rules.
78. Stewart R. Clegg, Power, Rule and Domination: A Critical and
Empirical Understanding of Power in Sociological Theory and Organizational
Life (London: Routledge and Kegan Paul, 1975).
79. Giddens, Central Problems.
81. Anthony Giddens, The Constitution of Society (Cambridge: Polity
82. Stewart R. Clegg, Frameworks of Power (London: SAGE: Publications,
1989), p. 147)
83. J. M. Barbalet, "Power, Structural Resources, and Agency," Current
Perspectives in Social Theory 8 (1987): 1-24; D). Layder, "Key Issues in
Structuration Theory: Some Critical Remarks," Current Perspectives in Social
Theory 8 (1987): 25-46.
84. Alexander Wendt, "The agent-structure problem in international
relations theory," International Organization 41 (Summer 1987): 335-'70;
Alexander Wendt and Raymond Duvall. "Institutions and International
Order," in Global Changes and Theoretical Challenges, eds. Ernst-Otto
Czempiel and James N. Rosenau (Lexington, Mass.: D.C. Heath and
Company, 1989), 51-73.
85. David Dessler, "What's at stake in the agent-structure debate?"
International Organization 43 (Summer 1989): 467.
87. Friibel et al., The New International Division, 45.
88. Rodney W. Jones and Steven A. Hildreth, Modern Weapons and
Third World Powers (Boulder, Colo.: Westview Press, 1984), 64.
89. Katherin Marton, "Technology Transfer to Developing Countries
via Multinationals," The World Economy 9 (December 1986): 409-26.
90. Anne G. Keatley, ed., Technologrical Frontiers and Foreign Relations
(Washington, D.C.: National Academy Press, 1985).
91. Norman A. Graham, "Security Dilemmas in the Sale and Transfer of
Pacing Technologies," in Marketing Security Assistance; New Perspectives on
Arms Sales, eds. David J. Louscher and Michael D. Salomone (Lexington,
Mass.: D.C. Heath and Company, 1987), 218.
92. William J. Long, U.S. Export Control Policy (New York: Columbia
University Press, 1989).
93. Jones and Hildreth, Modern Weapons, 7; see also Stephanie G.
Neuman, "International Stratification and Third World Military Industries,"
International Organization 38 (Winter 1984): 16'7-97.
94. Helena Tuomi and Raimo Viiyrynen, Transnational Corporations,
Armaments and Development (New York: St. Martin's Press, 1982).
MIDDLE POWERS IN THE INTERNATIONAL ARMS MARKET
Chapter 1 outlined two important aspects of power relations that we
will explore now in the context of the international arms trade system. At the
structural level, we will deal with the enabling power of structure, which
facilitates middle powers' participation in the international arms market.
Indigenous capability expands as new technology flows in, thus
strengthening a country's security position in the international system.
Structural relations, as we shall see, also restricts the drive for self-sufficiency
by reinforcing patterns of dependence on external sources of technology. At
the agent level, the development of an indigenous arms business transforms
the patterns of military relations between middle and dominant powers as
the former reassess their relations with powerful allies. Subsequent chapters
will discuss this dimension within the context of U.S-Brazilian military
relations since World War II. TIhe power of the weak, if such a term may be
used, lies in exploiting the enabling resources in the international system,
such as the proliferation of defense technology suppliers, so as to break the
links of dependence with traditional suppliers. Whether they are successful
in their affirmation of political independence depends on their ability to
expand market interrelations beyond their local patterns of subservience.
Middle powers, in general, have found such a goal harder to reach than
anticipated because of their continuing dependence on foreign sources of
technology in a highly competitive environment.
That is not to say, however, that the "dependent development" analysts
of the 1970s are vindicated. Rather, this chapter attempts to show that
changes in military relations follow patterns associated with an increasingly
interdependent market. Even dominant powers reassess their position in the
market, as middle powers reshape their priorities. The paradox of national
insecurity extends beyond the realm of middle power politics to include the
great powers' response to an internationalized arms market. Such a response
conditions and enables the national security goals of those nations that are
struggling to break old patterns of dependence.
Middle powers participate in the international arms market both as
suppliers and recipients. As exporters, they are critically linked to the
competitive nature of the business, in which demand for sophisticated
products prevails. Their limited ability to generate indigenous technology
reinforces old (or creates new) sources of vulnerability. As recipients, they
exploit the competitive market by striking advantageous arrangements to
obtain foreign technology. While the transfer may be gained easily through
pitting one supplier against another, the middle powers' eagerness to secure
foreign supplies underscores the difficulty they find in attaining their goal of
self-sufficiency. The paradox of national insecurity is revealed in their
attempt to secure the establishment of an indigenous arms industry while
integrating into a global process, which ultimately drags its producers toward
interdependent relations beyond its borders.
Before we explore the intricacies of the paradox of national insecurity,
the first section of this chapter discusses the general limitations found in the
use of data on the arms trade. Problems of measurement are critical, and
outlining them in the beginning should serve as an early warning of the
shortcomings the researcher faces. The second section provides a broad
historical overview of structural changes in the modern arms market since
its first inception in the mid-19th century. This section serves as the basis
from which we can assess the enabling character of structure; namely, the
existence of multiple suppliers willing to transfer defense technology to the
Third World. The third section deals with the way middle powers have taken
advantage of technology transfers so as to develop an indigenous capability.
The last section assesses the dynamics of the paradox in relation to middle
powers' participation in the international arms trade system.
The Measurement of Arms Trade
Ever since the systematic collection of military data began in the 1930s,
researchers have faced the growing challenge of developing reliable data
banks amid a burgeoning arms trade. After World War II, arms transfers
became a critical component of the Cold War, and much emphasis was placed
on detecting the direction and extent of the arms trade in remote regions of
the world. The complexity of data sources deepened accordingly. Interest in
arms transfer data "coincide[d] not only with the behavioral revolution of the
late 1960s but also with a surge in the use of arms transfers as an instrument
of foreign policy."l More recently, as the internationalization of production
reached the military sector, determining the market share of the world's
arms exporters has become even more complicated. Stephanie G. Neuman
suggests, "As weapons systems incorporate more foreign intellectual
properties, components, and materials--tracing their origins and
disaggregating their dollar value will become a futile task. The 'world tank'
will soon follow the 'world car."'2
The use of military data in any international security research is a
delicate proposition. Although several respectable sources are available, we
have to critically evaluate their limitations while incorporating dimensions
such as technology transfers that may not be adequately addressed. Three
well-known institutions provide standard data used both in media accounts
and in scholarly research today. First, the U.S. Arms Control and
Disarmament Aency (ACDA) has published annually since 1971 the World
Military Expenditures and Arms Transfers. ACDA has some access to
intelligence data, especially from the Defense Intelligence Agency. Recently,
however, ACDA has relied on estimates from International Monetary Fund
statistics, particularly for gross national product. As Nicole Ball argues, it is
surprising that ACD)A makes little use of budgetary documents given its U.S.
government connections, which might facilitate contacts with U.S. embassies
and consulates.3 Nevertheless, ACDA is one of the few sources that uses
primary intelligence data sources, while the others rely more heavily on
Second, the Stockholm International Peace Research Institute (SIPRI)
publishes the yearbook World Armaments and Disarmament, which deals
with a variety of issues ranging from Third World arms transfers to arms
control between the superpowers. SIPRI relies on publicly available
information only. Its main focus is on transfers of major weapons systems
(aircraft, armored vehicles, missiles, battle tanks, and ships) and transfer
agreements (the recipient nation, the specific weapon system, the type of
weapon, the number of units ordered and produced for each year the system
was in production, and the manufacture involved). SIPRI's data collection
amounts to an "arms trade register," an idea first developed by the League of
Nations after World War I.4
The third data source comes from the International Institute for
Strategic Studies (IISS), which annually publishes The Military Balance. The
IISS uses some confidential information, but its military expenditure series is
drawn from data national governments make public. IISS publishes its data
in local currency for only the most recent years. The Military Balance has
been widely used in the popular media because of its simple presentation of
Aside from these three main sources, others cover more specific areas of
concern for arms trade research. Jane's Publications (All the World's Aircraft,
Armour and Artillery, Fighting Ships, Avionics), established for over 90
years, is an internationally acclaimed publisher of reference works on defense
and transport. Revised annually by leading commentators and analysts,
Jane's Yearbooks represent an accessible reference source, particularly for
evaluating the foreign content of "indigenous" production. The United
Nations' Statistical Yearbook and the International Monetary Fund's
Government Finance Statistics Yearbook provide data on government
expenditures, with a functional breakdown that includes the defense sector.
These sources will be extensively used in subsequent chapters of this study, as
the development of Brazil's arms industry is assessed.
SIPRI and ACDA have been the most reliable and widely quoted of all
the sources in scholarly research, and they will be used in this chapter to
demonstrate changes in market structures. Nevertheless, their limitations
should be explained. There are two main types: those due to difficulties in
operationalization and those derived from systemic changes. The first relates
to the way military expenditures and arms transfers are defined and
measured. National governments define military expenditures differently,
which presents a problem for those conducting interstate comparisons.s Since
1975, the United Nations has attempted to standardize military data reporting
from its members, but with limited success.6
NATO countries have used similar definitions, but for those
researchers dealing with non-NATO countries, reliance on a national
government's own definitions creates discrepancies.7 These differences have
become particularly evident as non-NATO countries have increased their
participation in the international arms trade system. There are also
differences in the list of weapons the data sources themselves include in their
transfer calculations. While SIPRI focuses mainly on major weapons systems,
ACDA includes small weapons as well. Differences in sources and definitions
lead to a wide range in data reporting, as Table 2-1 indicates.
A second operational limitation is verification. Both ACDA and SIPRI
report the value of shipments and deliveries as their indicator of arms
transfers, rather than agreements or financial transfers used to pay for
weapons. While deliveries are easier to verify than financial flows and
consummation of signed agreements, the governments can, and often do,
withhold information on delivery of arms based on secret agreements.
Expecting data manipulation by governments should be the rule rather than
the exception. Michael Broska outlines a range of government considerations
that may lead to additional data distortion.b For instance, a government
perceiving threat may have an interest in making military expenditure
figures appear higher than they actually are so as to indicate military strength.
A third operational limitation is found in the development of time
series. Each edition of sources tends to revise past figures as additional
information becomes available.g For a researcher interested in the nuances of
fluctuations, revised numbers break the flow of time series. Arms transfer
figures tend to increase as subsequent editions revise previous calculations.
The need for revisions also reflects the ever-present possibility that certain
transactions have escaped formal, accounting provisions. Ball identifies
Comparisons of Military Expenditures by Source, 1980
($ million, at current prices)
a SIPRI figures were converted by the author from national currency to dollar
amounts using market exchange rates given in the International Monetary
Fund, International Financial Statistics Yearbook 1985 (Washington, D.C.:
Sources: Stockholm International Peace Research Institute (SIPRI), World
Armaments and Disarmament, SIPRI Yearbook 1985 (London: Taylor &
Francis, 1985); U.S. Arms Control and Disarmament Agency (ACDA), World
Military Expenditures and Arms Transfers, 1985 (Washington, D.C.:
Government Printing Office, 1985); International Institute of Strategic
Studies, The Military Balance, 1982-1983 (London: IISS, 1982).
several mechanisms for obscuring arms expenditures in the Third World:
double bookkeeping, off-budget financing (special military funds
independent of the national budget), highly aggregated budget categories,
repayment of military-related debt, and manipulations of foreign exchange
and trade statistics.10
While the operational limitations listed above can be monitored to
some extent and compensated for with cross-data source analysis, the second
type of limitation (systemic) is a reflection of the recent changing nature of
the international arms trade system. First, the increased use of offsets--such as
license production and technology transfers--in recent arms sales make it
difficult to track the value and size of transfers. Arms transfer analyses
continue to emphasize end items, while offset arrangements are becoming
critical when one studies a country's arms export policy.ll
Governments tend to stay out of offset agreements, leaving the industry
to negotiate them. Industry has proven even more reluctant than
governments to publicize dollar amounts and details of these arrangements.
This change in the way arms sales are conducted has led Edward J. Laurence
and Joyce A. Mullen to suggest that "the traditional approach of assigning
values to arms sales based on the announced contract is becoming
obsolete."12 While the government may announce the actual number of jet
fighters being transferred to another country, the details about offsets
included in the package have to be drawn from industry officials, sometimes
a hopeless proposition.
The second limitation due to systemic change relates to the increased
use of multinational production, particularly in Europe. While the transfer
may be assigned to a particular country, a researcher has to take into account
the political and economic impact these ventures have on all producers
involved.l3 Laurence and Mullen point to the case of the Tornado, an
aircraft built by Panavia, a multinational company set up by the United
Kingdom, Germany, and Italy.14 While the UK is in charge of marketing the
aircraft, thus technically making it a UK transfer, the other two partners share
in the profit. In recent Tornado sales to Saudi Arabia, Chancellor Helmut
Kohl of Germany came under public criticism for sending weapons to an area
of tension, even though it was officially a UK transfer.
A third source of limitation due to systemic change involves the
expanding applicability of advanced technology in the armament business.
As recipients grow in levels of industrial sophistication, data sources must
pay closer attention to the changing importance of the "grey market."l
Systems, such as helicopters and computers, can be used for both military and
civilian ends. Recent Third World attempts to import supercomputers, for
instance, have met considerable opposition in the United States Congress
because of their application in designing sophisticated weapons.l6 Brazil has
argued that the supercomputers are to be used in meteorological surveys
intended to protect the Amazon.17r Although sales of supercomputers would
not fall under the category of arms transfers, their application to indigenous
industries in new suppliers countries have a direct impact on the structure of
the international arms trade system.
The Structure of the International Arms Market
The limitations due to systemic change, as discussed in the previous
section, should give us a good indication of the significant restructuring of
the international market over the decades. The armament industry as we
know it today is the product of many slow changes, dating back to the wake of
the Industrial Revolution. Creative entrepreneurs armed with the science of
guns and explosives revolutionized European wars in the second half of the
19th century. The steel industry developed armor plates that drastically
changed both the cannon and naval industries. With the end of the railroad
boom in the mid-century, many entrepreneurs, such as Edward Vickers,
founder of the British Vickers company, turned to the armament business.'
The Prussian Alfred Krupp became known as the "Cannon King"
throughout the world.l9 British entrepreneur William Armstrong
dominated the armaments world along with Krupp in the second half of the
century with the production of armor plates. American steel companies, such
as Carnegie Steel of Pittsburgh, also benefited from the growing interest in
the military application of the emerging heavy industries.
The early armament industry was truly internationalized in the sense
that private entrepreneurs marketed their products to a global market under
minimal state intervention via export control. Patriotism often worked as an
informal measure of control, but in the Austro-Prussian War of 1866,
Krupp's weapons were used on both sides of the battlefield, despite protest
from the Prussian government. Business was conducted on a personal basis
with celebrated arms salesmen, such as Basil Zaharoff and James Rendel,
traveling around the world and displaying their amazing inventions in
international industrial exhibitions.
Toward the end of the century, with the arms industry growing in
firepower and technological complexity, the state began to play closer
attention to the value of domestic producers. Bismarck's final step in the
completion of German unity during the Franco-Prussian War in 1870 drew
heavily on domestic private arms producers. In fact, the Prussian victory was
the first industrialized war for Europe, and it established the worldwide
reputation of Bismarck's main supplier, Krupp.20 As the instruments of
destruction progressively became more powerful, the state also began to
assert itself because of the national security threat it represented for a
domestic company to sell weapons to potential enemies. In 1909, for instance,
Krupp offered to build eight warships a year for the British navy, but the
Kaiser vetoed it.21
The horrors of World War I brought to light the extent to which these
private entrepreneurs had proliferated an industry of destruction. Calls from
all points of the globe demanded stricter controls over the private armament
industry. The head of the Krupp firm, Gustav Krupp von Halbach, was even
declared a war criminal after World War I.22 Nations tightened their
regulation of the industry's conduct in selling weapons abroad. Arms sales
were no longer negotiated independently by private firms free of
government control.23 The Covenant of the League of Nations itself
expressed "grave objection" to the private manufactures of armaments. The
mood of pacifism swept the nations as the League in 1933 passed a resolution
"that it is contrary to the public interest that the manufacture and sale of
armaments should be carried out for private profit."24 Disarmament became
a popular subject as arms salesmen received harsh criticism as "merchants of
death."25 Hearings in both Washington and London in the mid-1930s
pondered what was perceived as the cynical greed of the arms makers.
State efforts to control the private armament industry also stemmed
from the former's interest in tapping sophisticated weapons that might give
an advantage over its opponents. In turn, producers eagerly embraced the
opportunity to monopolize the domestic market. In the 1930s, Krupp became
the Nazi's most important supplier.
Nationalist fervor during World War II contributed to a close
association between government and local arms entrepreneurs. In addition,
the increasing sophistication of the weapons, particularly in the booming
aircraft industry, necessitated deeper state involvement. The arms industry
that emerged after World War II contained both elements of private
entrepreneurship and state intervention. The 19th-century revolution in
armaments had been one that favored heavy industry. In the 1940s, however,
the war had changed direction to an alliance of pure science and light
industry. The old arms businesses, such as Vickers, were offshoots of the steel
industry and played very little part.26 The new arms industry, with vast
research costs and long development programs, welcomed government
involvement, particularly in the area of finance and research.
The state significantly increased its control over the domestic arms
industry after the war, also reflecting the ensuing Cold War between the two
superpowers. Because so much was at stake, including the very survival of
each nation, the state closely scrutinized the movement of arms across its
borders. In fact, U.S. rules governing commercial arms transfers reflected a
tight control over the industry.27 As James Everett Katz points out,28
Before a commercial vendor or U.S. government employee
can even begin to demonstrate or discuss selling weapons
technology with a potential foreign buyer, he must receive
permission from the State Department to do so. This only
involves permission to try to market the equipment abroad,
not to sell it.
Following the destruction of German military capability, Britain's arms
industry shared a dominant role with the emergingUnited States. In the Cold
War, British influence diminished, and the United States moved into the
spotlight against the Soviet Union. The United States was particularly
mindful of pursuing arms transfers as part of its containment strategy.29 The
Mutual Security Assistance Act of 1954 repealed and superseded the
isolationist Neutrality Act of 1939.30 The containment strategy included the
transfer of some technology to close allies, particularly in Western Europe
and the Far East, although the United States prized its technological
superiority in the world market.31 State control of the arms trade followed
strict foreign policy guidelines. Unlike the "merchant of death" perception of
the 1930s, the government's efforts to link national security interests with
arms sales lent some degree of legitimacy to the business.
Arms transfers as an expression of national security strategy came to
play a significant role as the Soviet Union entered the market in the 1950s. In
1955, Czechoslovakia announced it would supply Egypt with Soviet arms in
return for cotton and dried dates. Soviet entry into Egypt marked a historic
development in the history of arms sales: "It was the first time that Russia
had sent major arms outside its own area of influence."32 Soviet entry in the
arms trade led to a new monopoly between the superpowers, while the West
European powers struggled to recover economically.
By the 1960s, as the U.S. position in the world economy weakened, arms
sales gained a commercial dimension apart from their containment
perspective. The Kennedy administration, for instance, was deeply worried
about the deficit in the balance of payments, seen as a grave threat to the
stability of the dollar in the international market. In 1961, the Pentagon set up
the "International Logistics Negotiations," an organization in charge of
selling arms overseas, thus moving the United States away from grants in
arms transfer decisions to military sales. Its first head, Henry Kuss, resembled
the old arms salesman. This time, however, it was the government urging
companies to sell.3 Most sales first went to members of NATO and Japan, as
the United States countered the growing Soviet military influence in Europe
and Asia. Here, both commercial and foreign-policy requirements
intertwined. Ironically, though, U.S. national security interests in Europe and
Asia helped erode its competitive position in the world market in the
long-run. In rebuilding these two regions after the war, the United States
helped build modern factories, which became formidable competitors to
aging U.S. industries.34
In England, when the Labor government under Harold Wilson came to
power in 1964, British arms sales increased under the argument that foreign
currency was needed to allow additional arms imports. In January 1966, the
new minister of defense, Denis Healy, announced to parliament his decision
to appoint an arms salesman under the pragmatic pretense of winning back
While the Government attaches the highest importance to
making progress in the field of arms control and
disarmament, we must also take what practical steps we can
to ensure that this country does not fail to secure its rightful
share of this valuable commercial market.
The new post, the Head of Defense Sales, reflected the same concern
that was emerging in an economically recovered Europe--keeping domestic
arms industries commercially viable. Their small domestic market hampered
their ability to reach economies of scale, therefore leading them to seek sales
abroad. In addition, large sales allowed companies to recover some of the
research and development costs in an increasingly expensive industry. As
sophisticated arms producers emerged in France, West Germany, and Italy,
the international arms business became highly competitive. Although the
development of arms industries in Europe followed national security
calculations (political independence), their survival came to depend on
commercial considerations. As Ulrich Albrecht points out, "In contrast to the
global calculus of the superpowers, the European nations are regional powers
with limited foreign policy objectives."36 Therefore, arms exports can be
structured along economic lines (reaching economies of scale, for instance)
without the dominance of international political arguments, such as the
search for clients and allies: "The flow of arms exports from European
countries, as opposed to those from the superpowers, must be interpreted
primarily as an outgrowth of economic and industrial policies, rather than of
A crowded European arms market created an eagerness to open markets
iri the Third World. In the first decade of the Cold War, the United States had
controlled the Third World market by transferring its World War II-vintage
surplus weapons through mutual security agreements. As Table 2-2 indicates,
the United Kingdom lost some of its market share in the 1950s, while the
Soviet Union increased its presence in the Third World market. What is
peculiar about structural change during that period is the steady increase in
France's market share. By the late 1960s, there were four main players (the
US, USSR, UK, and France) playing a significant role in the Third World
market. Both Germany and Italy showed only modest increases in market
Source: Stockholm International Peace Research Institute (SIPRI), World
Armaments and Disarmament, SIPRI Yearbook 1969-1970 (London: Gerald
Duckworth & Co. Ltd., 1970), 341.
Note: Excluding exports to North and South Vietnam. Parenthesis indicates
percentage of total exports of major weapons to the Third World.
Exports of Major Weapons to the Third World by Supplier, 1950-1968
(US$ million, at constant 1968 prices)
Latin America, in particular, benefited from U.S. transfers. In fact, in the
1950s the region consumed a high percentage of major weapons sent to the
Third World, as Table 2-3 indicates. In the wake of decolonization and the
growing conflict in the Middle East, other regions gained in importance.
What was distinct about the 1960s was that arms sold to the Third World
were increasingly more sophisticated, replacing World War II technology.
Latin America, traditionally a U.S. sphere of influence, found increasing
resistance from the United States to its acquisition of major sophisticated
weapons. As late as 1968, no Latin American country possessed supersonic
fighters. The French sale of supersonic Mirage 5 fighters in 1968 to the new
defiant military junta in Peru drew strong protest from Washington. Many
military leaders in Latin America, as Sampson argues, "were increasingly
resentful of this [U.S.] restraint, and they looked to Europe for alternative
suppliers."38 In 1973, Peru placed another order for sophisticated weapons,
this time for 200 Soviet T-55 tanks, the first major purchase of Soviet arms by
any South American country.
In 1973, under pressure from American arms companies, the Nixon
administration reversed the policy of restraint and allowed sales of U.S.
sophisticated arms to Latin America. Nixon encouraged arms transfers in
general as part of an attempt to improve balance of payments amid the oil
shock. Nixon also had allowed some degree of technology transfer under his
"Guam Declaration" of 1969, which encouraged the creation of regional
powers to work as U.S. close "clients."39 The so-called "Nixon Doctrine"
Imports of Major Weapons by Central and South America, 1950-1968
(US$ million, at constant 1968 prices)
Year America (%) America (%)
1950 5 (2.40) 40 (19.04)
1951 --)80 (25.80)
1952 20 (9.52) 20 (9.52)
1953 10 (1.85) 60 (11.11)
1954 10 (1.92) 110 (21.15)
1955 10 (1.69) 140 (23.72)
1956 10 (1.33) 90 (12.00)
1957 5 (0.67) 90 (12.16)
1958 10 (0.77) 110 (8.52)
1959 10 (1.28) 30 (3.84)
1960 30 (3.44) 120 (13.79)
1961 90 (12.00) 140 (18.66)
1962 150 (17.04) 50 (5.68)
1963 20 (2.35) 40 (4.70)
1964 20 (2.98) 20 (2.98)
1965 10 (1.05) 50 (5.26)
1966 10 (0.95) 70 (6.66)
1967 5 (0.40) 60 (4.87)
1968 (--- 80 (7.76)
Source: SIPRI, World Armaments and Disarmament, SIPRI Yearbook
Note: Parenthesis indicates percentage of total Third World imports of major
weapons. The symbol "(-)" indicates nil, or less than $2.5 million. Central
America indicates 11 countries from Panama northwards up to the United
States; South America indicates the rest of Latin America.
signaled U.S. defeat in Vietnam and the decline of U.S. direct
interventionism in the Third World.
The creation of client/regional powers required some transfer of
defense technology so as to boost domestic arms production capability. In
addition, some U.S. administration officials argued that the decline in the
domestic arms market following the Vietnam War made the export market
all the more important for local producers.40 In 1973, President Nixon
invoked section 4 of the Foreign Military Sales Act, which allowed the
president to waive congressional restrictions on the transfer of sophisticated
weapons, in order to allow sales of Northrop F-5E supersonic fighters to
Argentina, Brazil, Chile, Colombia, and Venezuela.41
The policy, while not as coherent in its application as its European
counterpart, was short lived. In 1974, Congress adopted the "Nelson
Amendment" to the Foreign Assistance Act, giving the legislative branch
tighter control over major Foreign Military Sales transactions. Congress
passed the Arms Export Control Act in 1976, "the first comprehensive piece
of legislation to establish formal policy guidelines for the military sales
program,"42 further tightening its control over arms sales.
Such an effort reflected the same disarmament concerns that were
voiced in the 1930s as the "merchants of death" roamed around the world in
search of profitable markets. This time, however, governments also had a
commercial stake in the arms business. The oil crisis in the 1970s had
propelled arms sales to an important position as a source of revenues,
particularly for the European countries. The Carter administration continued
the assault on arms sales with policy directive (PD-13), calling arms sales an
"exception" rather than an established mechanism of foreign policy.
President Carter's failed attempt to establish an international regime to
control arms transfers (CAT) during his presidency further strengthened the
argument that the arms market had swelled beyond the control of even the
world's main producer.
By the end of the 1970s, the United States had lost its commanding lead
in major weapons sales to the Third World, while the four main European
producers, along with the Soviet Union, had established themselves as
serious competitors (see Table 2-4). Detente in the 1970s diluted the U.S.
foreign-policy strategy of arms transfers while legitimizing the commercial
reasoning behind sales abroad. After World War II, the Soviet-American
monopoly gave recipients little control over the arms flow. With detente and
the oil crisis in the 1970s, European suppliers turned to the Third World for
markets, thus causing a significant breakdown of U.S. and Soviet control
over sophisticated weaponry flows. As Table 2-5 indicates, the arms export
market share of major producers underwent a significant change by the early
1980s. The "other" category in the table, in particular, highlights the entry of
non-traditional producers, such as Third World middle powers, into the
Decolonization in the 1960s had an immediate impact on the demand
side of the arms market, as the new nations attempted to exert control over
Exports of Major Weapons to the Third World by Supplier, 1969-1989
(US$ billion, at constant 1985 prices)
Source: Stockholm International Peace Research Institute (SIPRI), World
Armaments and Disarmament, SIPRI Yearbook 1988 (New York: Oxford
University Press, 1988), 204-5; Stockholm International Peace Research
Institute (SIPRI), World Armaments and Disarmament, SIPRI Yearbook 1990
(New York: Oxford University Press, 1990), 252-3.
Note: The values include licensed production of major weapons in Third
World countries. The symbol "--" indicates nil. Parenthesis indicates
percentage of total exports of major weapons to the Third World.
Arms Export Market Share, 1963-1984
Year US NATO USSR Pact Others
1963 36.9 18.6 37.6 4.5 2.4
1964 35.3 20.3 345 8.3 1.7
1965 39.1 11.8 34.2 8.2 6.7
1966 40.6 12.0 35.6 6.8 4.9
1967 44.1 7.0 38.0 6.9 4.0
1968 50.3 11.5 29.8 4.8 3.6
1969 59.7 13.2 18.8 4.7 3.6
1970 53.3 12.0 25.8 4.6 4.2
1971 53.5 11.3 25.2 4.6 5.4
1972 38.4 19.1 27.9 4.4 10.2
1973 39.4 14.7 38.7 4.2 2.9
1974 41.0 15.8 33.6 5.7 3.8
1975 38.0 16.6 31.0 6.4 8.0
1976 35.3 19.8 31.7 5.4 7.7
1977 34.0 18.8 33.5 6.5 7.2
1978 27.9 23.4 33.1 8.0 7.5
1979 21.9 18.4 45.6 6.5 7.7
1980 22.0 25.4 39.3 5.3 8.0
1981 23.5 29.0 30.7 6.0 10.8
1982 24.4 22.9 29.6 7.9 15.2
1983 28.4 25.8 26.2 6.6 13.0
1984 22.0 24.3 26.9 8.0 18.8
Source: ACDA, World Military Expenditures and Arms Transfers, 1985, 20.
their territory. The oil shocks in the 1970s also had the dubious benefit of
creating a surge in arms demand from oil exporters in the Middle East. These
factors, matched with the growing European interest in opening new markets
for its weapons exports, thus explain the sharp upward thrust in arms sales in
The importance of the Middle Eastern arms market, however, should
be placed into perspective. As Table 2-6 indicates, while OPEC countries in the
1970s significantly increased their share of total world arms imports, during
the same period, they reduced their market share of the Third World imports
of major weapons. In fact, South America managed through heavy
borrowing to increase its share of major weapons imports, as shown in Table
2-7. Latin America became an avid consumer of European weapons, as the
United States lost its grip on the region's import policy.
The importance of the Third World market, along with the
proliferation of suppliers in Europe, moved the trade from a "supplier's
market" to a "buyer's market," at least as far as recipients' latitude to dictate
the terms of the exchange. Rather than being constrained to accept political
conditions attached to arms transfers, recipients began to include in the sale
agreements technology transfer requirements so as to stimulate indigenous
arms production.45 In addition, European suppliers became notorious for
their generous technology transfer offers without strict political guidelines,
such as the prohibition of exports to third parties. Through the production of
arms for exports, European countries recouped R&D costs.
a Total arms imports (including major weapons) in constant 1982 prices;
market share in parenthesis.
b Imports of major weapons in constant 1985 prices; market share in
Sources: For 'OPEC' figures, see ACDA, World Military Expenditures and
Arms Transfers, 1985, 89-93; for 'Middle East' figures, see SIPRI, World
Armaments and Disarmament, SIPRI Yearbook 1988, 202-3.
Arms Imports-Market Shares, 1973-83
Middle East b
OPEC Countries a
Imports of Major Weapons by Central and South America, 1970-1989
(US$ million, at constant 1985 prices)
Source: SIPRI, World Armaments and Disarmament, SIPRI Yearbook 1990,
Note: The values include licensed production of major weapons in Third
World countries. Parenthesis indicates market share (percentage of total
Third World imports of major weapons). Central America indicates all
countries from Panama northwards up to the United States; South America
indicates the rest of Latin America.
For some Third World countries with considerable industrial
infrastructure, this "buyer's market" offered an enticing opportunity to
establish a sophisticated arms industry which would reduce its dependence
on foreign suppliers. The next section details the efforts of many of those
Third World countries to develop indigenous arms production. It is
important to note that their attempts came at a time when the Cold War
showed signs of weakening and the superpowers had lost control over the
flow of sophisticated technology.
As a result, the market had become once again truly internationalized.
Even during the Reagan administration, which reversed many of its
predecessors' arms sales policies, the United States lost more share of the
Third World market, while Europe and the Soviet Union sped ahead (see
Tables 2-4 and 2-5). The increasingly competitive international arms market
has led some analysts to refer to the phenomenon as the
"commercialization"' of the arms trade. Ferrari, Madrid and Knopf
summarize the new dynamic this way:4
In order to win contracts, nearly all suppliers have been
offering some of their most sophisticated equipment along
with extensive technology sharing and logistic support,
cut-rate financing, and offset arrangements that sometimes
exceed the purchase price. Suppliers also have been
increasingly willing to sell to any nation, with the result
that nations widely censored for human rights violations or
engaged in protracted wars have had relatively little trouble
obtaining sophisticated weaponry. Similarly, political and
ideological differences among sovereign nations have not
prevented arms transactions between them.
After World War II, two superpowers dominated the "seller's market,"
as the mode of exchange for middle powers was primarily ideological
(capitalism versus communism). In the 1960s, such an arrangement began to
break down in Third World regions as European companies began to offer
sophisticated weapons with no attached political strings. Such was the case of
the French sale of jetfighters to Peru in 1968 as mentioned earlier. In the
"buyer's market" of the 1970s and 1980s, the number of suppliers multiplied,
although the two superpowers continued to play a dominant role in the
What made this structure different from the previous one was that the
superpowers no longer had a monopoly on the flow of advanced arms
technology. As Michael C. Sekora, a former official of the Defense Intelligence
Agency, said: "It used to be that the U.S. was the storehouse for all
technology. Now advanced technologies are ending up in third world
countries. It's no longer simple to control."47
In the seller's market, a bipolar order constrained aspiring powers to a
bilateral dependence under an either /or allegiance proposition.
Nevertheless, competition between the two superpowers allowed aspiring
powers to strike favorable arms transfers deals which led to increased
hardware capability in the Third World. Both superpowers encouraged an
arms race in the Third World, leading to an increased hardware capability for
many industrially weak nations. The superpowers, however, transferred
As the world economy expanded and new suppliers emerged, aspiring
powers freed themselves from traditional military relationships and sought
new ones. Nevertheless, they continued to experience dependence not on
specific suppliers but on foreign supplies (e.g., capital, technology). The
proliferation of suppliers allowed aspiring arms producers to use technology
transfers as a bargaining strategy. Buyers often required some degree of
technology transfer with each purchase of hardware. Sellers had little choice
in a buyer's market. The breakdown in role rigidity was particularly evident
as Third World middle powers entered the arms export business in the 1970s
and became themselves part of the chain in the process of technological
The downturn in the global economy during the early 1970s with the oil
crisis and increasing fiscal hardships suffered by major and aspiring powers
alike heightened the importance of competitiveness in the international
market. This conjunctural dimension brought two results to the
international arms market. On the one hand, the United States, as a major
technology supplier, began to explicitly link cooperative defense-sharing
issues with economic issues, including trade balances.48 On the other hand,
the increasing cost of research and development brought companies together
in joint ventures (particularly between Third World middle powers and
European producers), such as the Brazilian participation in the development
of the AMX jet fighter with two Italian companies. While the former shift
has restricted aspiring powers' options, the latter has opened new avenues
for the production of sophisticated armaments--and consequently, further
advancements in "indigenous" production. By the mid-1970s, as some of
these Third World arms producers entered the arms export market, there
were additional signs that the commercial motive had overtaken
foreign-policy objectives in the sale of armaments. Countries such as Brazil
and Israel became famous for their low-cost weapons, many of them ideal for
combat in the Third World. By the early to mid-1980s, the popular media
gave wide coverage to the emergence of Brazil's arms exports.49
In the early 1980s, several factors contributed to a decline in the arms
market, which considerably stiffened competition and jeopardized the
commercial position of middle powers as arms suppliers. The oil glut in the
early 1980s and the debt crisis reduced Third World demand for weapons due
primIarily to the scarcity of foreign exchange. Klare also attributes the decline
in new military orders to the saturation of many Third World armns
inventories, following the buying binge of the 1970s.50 In addition, some of
the decline could be explained in relation to indigenous arms production in
the Third World.
The thawing of the Cold War in the late 1980s after Gorbachev had
solified its power in the Soviet Union also meant domestic defense budget
constraints in the United States, which made the American defense industry
even more eager to sell abroad. Concern about the mounting U.S. trade
deficit bolstered the arguments of proponents of U.S. arms exports, while
further crowding the market with potential sellers. As a representative of an
American arms exporting company bluntly surveyed the arms market,
"We're all down now to nibbling crumbs. .. The damn oil boom has gone,
and there's not much money anymore. The world in general is bankrupt."51
Currently a lively debate rages in the arms trade literature over the U.S.
market position. Stephanie G. Neuman promotes the view that despite the
post-World War II proliferation of suppliers, the United States continues to
dominate the market. She adds: "contraction [of the arms market in the
1980s] has exposed the relative weaknesses of other supplier states--often
concealed in a rapidly expanding buyer's market-and highlighted the size
and strength of the U.S. economy with its potential for increased influence in
the world's arms trade."52 While Neuman offers a compelling argument for
continuing U.S. economic might, she does not carefully evaluate the internal
dynamics that post-war market restructuring has had in the United States.
Faced with the same demand contraction at home, U.S. arms
manufacturers are reevaluating their position in the global market. U.S.
export control policy has been at the center stage of this debate. Both
manufacturers and policy-makers have attempted to adjust their position to
the new post-Cold War environment. Although the Reagan administration
presided over an increase in arms exports to the Third World, technology
exports controls, particularly to the East, were tightened. During the Reagan
administration, as the United States experienced a deteriorating commercial
position, many loudly questioned the principles underlying export control.
Much of the restricted technology was available from other Western
European countries. The argument, therefore, went that restricting U.S.
technology exports only hurt U.S. companies' competitive position in the
international market, given the emergence of a buyer's market. Some
analysts have argued that attempting to control technology is a waste of time
and energy because it attempts the impossible task of slowing down other
producers: "What one has to do is to run faster."5
A 1987 National Academy of Sciences study recommended that the
Department of Commerce be placed in charge of technology export licensing
rather than the Department of Defense (DoD).54 Because the United States
has a market advantage in advanced technology, the study found that
restricting its flow abroad only imperils its competitive performance.
Obviously, the national security dilemma rests on the fact that much of the
United States' advanced technology has military application. In fact, defense
contractors have been complaining that DoD is discouraging commercial
The decline of the Cold War has created its own dynamic in the
superpowers' position in the arms market. For one, U.S. arms contractors are
faced with the grim prospect of a shrinking domestic market. Long insulated
from the whims of the international market, they are now faced with the
difficult question of developing a new business strategy for the 1990s. Defense
conversion to civilian production is a possibility many analysts find "an
empty promise," although some, such as Rockwell International
Corporation, have successfully diversified production in the 1980s.5 Using
foreign sales -to compensate for lower domestic demand does not seem
promising either because the growth rate of the global arms market seems
insufficient to accommodate all producers. Richard F. Grimmett, a defense
specialist at the Congressional Research Service, has asked: "Where is the
market for arms suppliers? If the cold war continues to wind down, you will
see increasing competition over a much more reduced pie."5
In this new environment, some analysts have expressed serious
reservations about the United States' ability to monopolize technology. Klare,
for instance, argues that these recent changes suggest a "fundamental
restructuring" of the international arms traffic
in the 1970s this traffic was dominated by a handful of major
suppliers that generally sold finished military
goods--including large numbers of sophisticated, front-line
systems--to avid customers in the Third World. Today, we
see a much more heterogeneous trade involving a larger
number of suppliers offering a wider assortment of
products, a more cautious pool of buyers, and a growing
emphasis on technology transfers, modification and
upgrade kits, logistical gear and other non-weapons items.
In 1987, the United States, Canada, the United Kingdom, France, West
Germany, Italy, and Japan signed the nonbinding Missile Technology Control
Regime to keep the Third World from developing ballistic missiles.59 But
compliance with regime restrictions has proven elusive.60 As Aviation
Week & Space Technology reports,**
In a recent solicitation for satellite launch services, Brazil
required bidders to present a detailed proposal for export of
liquid-state rocket motors. The French, party to the
restrictions, nevertheless seized the edge in the competition
by offering Brazil their Ariane Viking motor. McDonnell
Douglas is prohibited by U.S. law from going that far with its
Delta 2. But it hopes to win with a counteroffer, approved by
the State Dept., which would permit Brazilian engineers to
learn about propulsion by taking part in the space station
In essence, competition among suppliers (regardless of geographical origin)
drives the transfer of technology, even with the opposition of the state.
Klare suggests three consequences of this restructuring directly related
to the middle-powers' ability to compete in the arms market.62 First, he
points out the sharp increase in the intensity of supply-side competition. As
new exporters on the bloc, middle powers increasingly have to use the latest
techniques in marketing and advertising to secure new orders, a difficult task
given their limited budgets. Second, with increased competition, many
well-established suppliers, particularly in Western Europe, have relaxed arms
export controls. Third, a "buyers' market" has endowed recipients with
greater leverage when negotiating terms for new purchases. One, should not
forget, however, that middle powers play both roles as recipients and
suppliers. Therefore, although they may benefit from import credit
allowances and concessions such as offset agreements, they must also be
prepared to offer them when in the supplier role.
The fundamental characteristic of the new arms market is the
increasing use of technology transfers as a marketing device for suppliers. As
argued earlier, the evolving structure has benefited middle powers in their
efforts to develop an indigenous arms industry. The remainder of this
section will provide a more detailed account of the use of offsets in the arms
Technology is identified not only as a process, but also as a national
asset. As such, it becomes a critical part of economic policy-making with
far-reaching implications for world trade.63 Those nations with high
technological capabilities enjoy greater prestige in the international arena,
while those that fall behind find themselves downgraded in the power
hierarchy. While efforts to develop indigenous technology top the
development agenda of many Third World countries, technology transfers,
or offset agreements, are frequently used to close the North-South gap.
Offset requirements have become a "necessary evil" or an "inescapable
fact of life" in today's arms business, an agreement that exporting companies
do not enter into by choice.64 So why do transnational companies actively
participate in the diffusion of arms technology? Ball outlines four possible
explanations.65 First, arms producers seek to expand or protect their markets
in the Third World. Because competition between suppliers of technology is
often quite fierce, offset agreements are sometimes the only way they can
make a sale. As a U.S. industry official argued, companies tend to take the
short-sighted view of business. Because the immediate pressure is orders,
sales and profits (keeping the shareholders happy), if sale opportunities to the
Third World come along, companies will probably jumpp at it, because if they
don't, their competitors will."66 Another industry official place the dilemma
The transfer of technology issue is somewhat overrated in
the minds of our politicians. I certainly am aware of the
possibility that we can transfer technology to a foreign
company which then can use it against us, either militarily
or economically, but if we don't supply that technology I
think somebody else will. I believe we are just cutting our
own noses to deny helping other countries in developing
their technology, even if it does mean transferring some of
ours to them.
One of the strategies used to transfer technology is by setting up
cooperative arrangements. During the 1970s, the most important foreign
partner for Brazil's Embraer was the U.S. company, Piper. While Piper used
Embraer to enter Brazil and export markets in third countries, Embraer
extensively subcontracts for the U.S. producer. "The program," as Tuomi and
V~yrynen correctly point out, "successively increases the domestic content of
Embraer's products and hence makes the Brazilian aircraft industry more
Second, the transfer of technology may be an effective way to evade
restrictions imposed by one's own government on arms exports. Subsidiaries
in middle powers often bypass arms exports restrictions imposed in the
company's home country. Some analysts have referred to this process as the
development of a "worldwide production network," in which a company
takes advantage of its network of subsidiaries to bypass restrictions from its
home country. Despite the U.S. embargo against Turkey in 1975, Northrop
continued to supply Turkey with spare parts produced in Taiwan.69
TThird, Ball argues that relatively cheap labor provides an attractive
alternative for foreign investment, particularly in the production of
components, which includes some degree of technology transfer. Finally, a
fourth explanation as to why offset agreements come to play a major part in
the arms market lies in an attempt by the supplier's government to gain
political influence in the recipient nation. The United States transferred
much technology to NATO countries as part of its effort to standardize the
weapons, given some hesitation by European governments to readily accept
U.S. political influence in production decision-making. The U.S. transfer of
technology to Western Europe also followed the containment strategy, which
envisaged an economically recoveredEurope under the U.S. sphere of
There are two types of offsets used in international transactions.70
"Direct" offsets include the production of some equipment in the recipient
country as a way of offsetting the cost of importing the weapons. The
agreement may consist of co-production, licensed production, subcontracted
production, or joint venture. The most widely used form of direct offsets by
the United States has been co-production, involving a
government-to-government agreement to transfer technical data for the
production of defense items overseas. Licensed production is usually a
firm-to-firm or firm-to-government agreement for the production of
components, or even a final weapon system.n1
"Indirect" offsets consist of a strategy used by weapons supplier to raise
cash on behalf of a potential arms buyer. Because the prospective buyer does
not have the cash to purchase weapons, the arms producer agrees to market
other products (e.g., coffee, beans, shoes) as a way of raising the necessary cash
for the purchase of weapons.72 Grant T. Hammond argues that in some cases
U.S. contractors are becoming international trading companies, supplying a
diverse list of products (from Brazilian shoes to Yugoslavian ham) as an
effort to raise cash for the arms purchasers.73 While indirect offsets have
become an important part of the arms business, this study will concentrate on
the direct form of offsets since they are at the heart of middle powers'
industrialization and national-security strategy.
Offsets became an important business strategy after World War II, as
European powers faced foreign exchange shortages.74 Despite Europe's
economic recovery, offsets continued to be widely used in the booming arms
industry. U.S. technology was eagerly sought. Western European producers
took advantage of Cold War politics to secure the latest in defense
technology. Probably the best known offset arrangement involving U.S. and
European producers consisted of the 1975 Memorandum of Understanding
among several NATO countries for the co-production of F-16 fighter
aircraft.75 Although the United States welcomed this agreement and others
as part of NATO standardization efforts, many European countries have
complained about the United States' reluctance to release technology even to
allies, particularly after European economic recovery. Klare summarizes well
the wavering uncertainty of U.S. policy: "On the one hand, U.S. leaders
sought to promote political cohesion and military standardization within
NATO through collaborative arms programs; on the other hand, they wished
to prevent further erosion of America's technological leadership through
curbs on technology exports."76 Considering that many of the European
producers became fierce competitors in the international market, the United
States' reluctance should not be surprising.
Although demand for offsets has come primarily from European
countries in their attempt to acquire U.S. defense technology,"7 middle
powers have followed similar strategies. Many of the Asian middle powers,
for instance, are known for their tough bargaining in the acquisition of
foreign technology. South Korea, in particular, requires that on defense
import purchases of over $1 million at least 50 percent be offsets, with a
minimum 20 percent in the form of direct offsets with technology transfer.7
In the early 1970s, when the Nixon administration approved the sale to
Brazil of 42 F-5E fighters, Brazilian officials did not accept the deal until it was
agreed that some of the subsystems in the supersonic fighter would be
produced in Brazil.7
Middle powers have found Europe a rather accessible source of
technology because European producers are much more dependent on the
export market than U.S. suppliers. Therefore, European producers are easy
prey in a predominantly buyer's market. For instance, Argentina's light tank
named TAM (Tanqlue Argentino Mediano) drew on a modified version of