Over the past three decades, anyone who had found the courage to speak out for adequate investment in the defense sector would have been humiliated in the public square. The Soviet Union had collapsed, the West had won and the “end of history” had come upon us, making attempts to justify investments in the defense sector obsolete and almost anachronistic.
In the last three years, History has come to ask us to account for our irresponsibility. We have finally understood that the security generated by investments in the relevant sector has a function not dissimilar to that of insurance: only if it is not stipulated, when the accident occurs will the true value be understood.
On the occasion of the event “The defense era: capital and innovation in the current geopolitical cycle”, organized by Mediobancaa report was produced on the Defense system in Italy and around the world by the relevant Research Area.
The data is very interesting. It turns out, for example, that the aggregate turnover of the global defense industry is worth approximately 613 billion of euros, with the top 40 companies in the world generating 58% of the total. Among them, two Italian ones stand out: Leonardoin ninth place, and Fincantieri31st. The turnover of the two Italian giants is respectively 11.5 and 2.0 billion euros. The stock market performances are also more than encouraging, with the main European groups recording a +128% from the beginning of 2022 to the end of October 2024.
From the analysis of Mediobanca However, two critical indicators also emerge in the European defense sector, namely a lower focus on innovation and lower investments compared to the United States. This double deficit was also highlighted by Mario Draghi in its report on the “future of European competitiveness”, leading the European Commission to estimate that additional spending of €500 billion is needed over the next decade.
Among the positive notes is the revenue trend, which in the first half of 2024 saw European players recording +12.3% compared to the same period of the previous year, even better than their American counterparts (+7.6%) .
Whether data is the spice of life is debatable, but it certainly represents an excellent indicator, which is why investments in defense are also of fundamental importance for research and development (R&D). Suffice it to say that some of the most well-known civil technologies initially found application only in the military sector: jet engines, computers, radar, semiconductors, GPS and even the internet. The report of Mediobanca also asserts that the increase in Defense research and development activity in countries OECD result in significant increases in private company R&D. The positive effect on the general economy should not be underestimated: with a hypothetical increase of 1 euro in defense spending, an increase in GDP of between 0.6 and 1.2 euros will be obtained.
Employment would also benefit from greater investment. The impulse produced by an additional expenditure of one billion euros in the sector would generate an increase in employment of 2900 workers in Italydespite the fact that the industry is highly capital-intensive and generally requires fewer employees per unit of production.
Finally, the event organized by Mediobanca also saw the participation of Glenn McCartanrepresentative of the Defense Innovation Unit (Diu) at the US European Command. There Diu was created with the precise purpose of acting as a bridge between the private sector and the US Department of Defense, accelerating military innovation by exploiting the knowledge and efficiency of the private sector. Since, as stated by McCartan“the R&D of private companies is three times greater than that of the state in the USA” we need to “use the market to innovate”. An initiative that Europe would also do well to replicate in this period of serious geopolitical upheavals.
