Norwegian defence industry rebuts finance committee’s critique of spending

A debate has emerged in Norway over the massive investment in the armed forces and the national defence industrial base.

On 3 February, an advisory committee to the Ministry of Finance published a report on the sustainability of the public finances. The committee questioned the scale and structure of planned investment in both the armed forces and the defence industry.

Defence spending is among the fastest-growing areas of the state budget. Part of the increase reflects military support to Ukraine, but Norway is also implementing a substantial force build-up under its revised long-term plan.

The long-term defence plan for 2025–2036 provides for an increase of around NOK 700 billion, equivalent to around 62 billion euro, over twelve years, bringing total planned spending to NOK 1,700 billion, or around 150 billion euro.

However, the report cites analyses pointing to an imbalance between operating costs and capital investment, weaknesses in the governance of defence materiel procurement, and limited fiscal headroom.

Ambitious procurement

As in other countries, Norway has previously encountered difficulties with ambitious procurement programmes, partly because operating costs were underestimated and partly due to inter-service competition for resources.

Higher appropriations alone will therefore not be sufficient, the committee argues.

Clear efficiency requirements and more realistic planning assumptions are needed to ensure that equipment is not acquired without sustainable funding for through-life operation and support.

The committee also cautions against an active and selective industrial policy in which security and preparedness become grounds for targeted support to individual companies. 

Such measures, it argues, are financed through higher taxation or reallocation from other sectors and risk encouraging lobbying and market distortion.

In its view, industrial policy should instead rest on predictable and uniform framework conditions rather than ad hoc schemes, even in a more demanding security environment.

Swift response

The report has drawn a swift response from the Norwegian defence industry.

On 15 February, Torleiv Opland, chief executive of the Norwegian Defence and Security Industries Association, wrote that the report demonstrates, in several respects, a limited understanding of defence markets and the industry’s role in national security policy.

He argues that the fiscal policy committee underestimates the distinct characteristics of defence markets and the strategic function of the defence industry within Norway’s security architecture.

While the committee criticises protectionism, subsidies and selective industrial support from a classical market economics perspective, Opland maintains that defence markets do not operate as free markets.

They are politically directed and often protectionist, with the state typically acting as the dominant or sole customer, shaping both research and development and long-term investment decisions.

In the current security environment, he contends, state support to expand production capacity is necessary to ensure credible national deterrence and security of supply.

From this perspective, the committee’s criticism is fundamentally misplaced, as it applies general market theory to a sector that is inherently politically regulated and strategically governed.