Defence Preparedness in a Deregulated Market Economy

Summary of Leif Vindevåg's article in RSAWSPJ no 4 2001.

Following the breaking up of the Soviet Union and the Warsaw Pact and the subsequent phasing out of the Cold War, the Swedish national defence is subject to restructuring. Earlier, the aims and objectives were defined as the capability to mobilise as much as 8 per cent of the population for the national defence effort within a few days. The new strategy encompasses the existence of a small force for international missions. However, it also presupposes a temporary respite - measured in years - for the rebuilding and reactivation of the Swedish national defence forces.

But this policy of a late build-up and reorientation of the Armed Forces will entail new problems. What are the chances that we should have better information in a given crisis than a potential aggressor who may wish to harm us? An open democratic society may in fact "by design" be handicapped when it comes to making early and unpleasant decisions when faced with a crisis. But even if the mandate is clear and the money is available, other problems will arise. Material purchases will have to be made in an increasingly overheated market. Will Sweden as a non-aligned country be able to master the decision-making process, negotiating power and economic resources to procure what is needed? Not even peace-time agreements will be a guarantee since, in the end, international strategic interests may decide the allocations.

In the 1990s, another problem presented itself as a result of the deregulation of the financial markets. Liquid and tradable assets of companies and households have grown much faster than the economy at large. At the turn of the millennium, the market value of Swedish equities was twice that of the same year's GNP. With 40 per cent of the stock market value in the hands of foreign investors, Sweden's foreign exchange reserves can be wiped out very quickly. Add to this the fact that many households have a full year's disposable income as tradable stock and another six months' assets as bank deposits and fixed income securities. They can thus forcefully counteract any public economic policy.

Sweden removed her foreign exchange regulations in 1989 and has chosen to defend the introduction of such regulations as appropriate only when there exists a state of war. Thus, there is no longer an option for a soft transfer from a normal market economy to a command economy in a deep crisis. This is further stressed by the transformation of the Swedish Agency for Civil Emergency Planning (ÖCB) from a primary holder of strategic inventories to a facilitator of planning and emergency contracts.

In sum, globalisation and market orientation have changed the balance of power in industrial nations. Political and public sector power has been eroded following the deregulation of cross-border flows of goods, services and capital. As a result, national policy must aim at creating such conditions that strategic resources, be they people, goods or money, will flow towards and stay in the country and create the basis for a concerted effort in times of crisis.

This article is the inaugural lecture presented to the Royal Swedish Academy of War Sciences, Section for Other Sciences of Importance to the National Defence, on 10th May, 2001, by Leif Vindevåg, Manager of Economic Research