Resourcing the Ramp-Up: NATO and the Challenge of a Coherent Industrial Response to Russia's War in Ukraine
On the other hand, European militaries must also rebuild their own stocks and urgently modernize their forces after decades of underinvestment, if they are to prepare for any potential future war involving NATO. After three decades out of fashion, the idea of industrial resilience—part of the “insurance policy” that is a strong defense—has thus found renewed relevance.
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“Many countries have emptied the store cupboard in their support for Ukraine. They now face a dual challenge.”
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A Difficult Inheritance
Boosting industrial capacity and resilience after decades of neglect is no easy task. On both sides of the Atlantic, NATO defense industries are grappling with a confluence of challenges.
Ageing facilities need to be modernized and production lines reopened. Firms need to adapt and incorporate new technologies such as AI or additive manufacturing. New workers need to be recruited and trained, even as the defense industry is facing an image problem and struggling to compete with other sectors on pay. Below the big players, the supply chain of small and medium enterprises needs to be rejuvenated, which entails overcoming bottlenecks in key areas and addressing the dependencies and security risks posed by Chinese control of global supplies for key components and raw materials.
Money Talks
Addressing all of this takes investment. Yet it is hard for defense firms to access the necessary funds, despite all the rhetoric about mobilizing for a war footing.
Within the private sector, accessing capital is still too difficult, given the margins in defense are usually low compared to other sectors. Furthermore, many financial institutions are also now reluctant to engage with defense due to new Environmental, Social and Governance restrictions—a source of increasing concern to businesses and governments alike. And risk-averse firms are not sure where to place their bets, given the fast pace of technological change and the resultant uncertainty about what will be most useful on the battlefield in future, or whether cash-strapped governments will be willing to buy it.
For the public sector’s part, many national governments are stepping up their own investments in defense. In 2022, just nine countries met or exceeded NATO’s 2% GDP target for defense spending, and only Greece and the U.S. exceeded 3%. This has now changed markedly, with 24 of 32 NATO members now hitting 2% and countries including Poland, Latvia and Lithuania leading the way with significant increases in defense expenditure. The EU has also made new funding available, such as through the European Defense Fund or grants handed out to industry through the Act in Support of Ammunition Production.
Getting More Bang for the Buck
Crucially, it is not just a question of how much money is spent, but rather how that money is spent. To date, spending across NATO and the EU has largely been fragmented. According to the European Commission, only 18% of EU members’ defense procurement budgets go to collaborative programs. In the scramble to re-arm European militaries since February 2022, the share of intra-EU defense trade has actually fallen.
As a result, the European defense industrial base remains capable of high quality in some niches. But it is too fragmented to be as efficient, innovative, or competitive as it needs to be.
This reflects the tendency for governments to prioritize “national champions” in industry, both to secure local jobs and to maintain sovereign control over supply. The result is widespread duplication of effort, a lack of industrial consolidation, and less standardization of equipment across European militaries. The continent is home to dozens of different types of tanks and helicopters, in contrast to the U.S.’s much more cost-efficient focus on one or two varieties.
For its part, the U.S. industrial base is certainly far from problem-free and struggling to adapt at pace to the challenge from China. But it has at least retained a steady flow of R&D and procurement funding in recent decades. American firms have also benefited from the economies of scale that come from the U.S. military buying in bulk and from robust U.S. government support for overseas exports through the Foreign Military Sales (FMS) system.
Even still, the United States cannot do everything alone. It must collaborate more closely with allies if it’s to achieve the industrial ramp-up it needs to support Ukraine, bolster NATO, and take on China’s grip on global supply chains for many key technologies and materials.
Crafting a New Role for NATO
Touching on questions of both national security and prosperity, this collaboration requires some difficult political compromises, but it is essential for the collective and long-term good. It can be easier to move further, faster, with a small number of key allies. The AUKUS deal between Australia, the UK, and the U.S. to integrate their industries and collaborate on the most sensitive technologies, including nuclear submarines, is an obvious example. The EU, too, brings strengths in terms of financial instruments and a new European Defense Industrial Strategy.
But the 32-strong NATO has a unique and indispensable role to play. This includes promoting joint R&D, encouraging multinational procurements through the NATO Support and Procurement Agency, promoting further standardization of equipment and munitions across the alliance, and deepening integration of national industries on both sides of the Atlantic to exploit the specialisms of different countries.
Since 2022 NATO has launched Defense Production Action Plan, a new €1 billion NATO Innovation Fund, a new technology accelerator known as DIANA, complimenting the bevy of EU- and national-level schemes. But there is still a long way to go to mobilize industry onto a war footing and match the rhetoric of political and military officials.
NATO’s new Industrial Capacity Expansion Pledge is a welcome sign that the alliance’s 32 members recognize the scale, complexity, and urgency of the industrial challenges that persist, and see the need for deeper collaboration on how they resource defense. As leaders head home from the Washington Summit, it’s time for this pledge to become a reality.
Stuart Dee is a research leader, and James Black and Lucia Retter are assistant directors in the defense and security research group at RAND Europe, the European arm of RAND, a non-profit research institute supporting NATO governments. This article is part of a commentary series on the NATO summit in Washington in which RAND researchers explore important strategic questions for the alliance as NATO confronts a historic moment, navigating both promise and peril, anditis published courtesy of RAND.
