By: dr. Igor Kovač
You have likely heard the popular legend that during the Space Race of the 1960s, NASA spent millions of dollars developing a special pen that could write in zero gravity, while Soviet cosmonauts simply used a pencil. Although this story is widely shared, it is not entirely accurate. Still, it carries several underlying messages. One of them raises a meaningful question about the practicality and purpose of tools used for the same function: Should we rely on high-tech, precision-engineered products or low-tech, mass-produced alternatives?
Economic models tend to favour one or the other – depending on the product – based on the relationship and balance between supply and demand. To maintain relevance in complex situations, these models treat products as distinct, as though each has its own supply and demand curves. This conveniently avoids a theoretical challenge: the existence of multiple simultaneous equilibria for products serving the same function.
The war in Ukraine, however, provides concrete examples where political decisions generate precisely such situations. Perhaps the clearest example is the use of drones. On one hand, Ukraine and Russia deploy mass-produced drones that are not technological marvels – devices one could buy in a store for a few hundred euros. On the other hand, both countries also use smart drones, larger, technologically advanced, and costing tens of millions of dollars. Both types are effective, and both are essential. We are thus witnessing two supply-demand equilibriums coexisting in the military drone market. The former destroy command centres, the latter hunt tanks. Both products serve the same market – nations – and contribute to the same tactical ideas and strategic goals.
Economic theory studies the coexistence of multiple equilibria through game theory, which suggests that politics can influence the outcome by encouraging coordination. However, this is not a game of Ukraine versus Russia, but rather a case of Ukraine and Russia both needing products at different equilibriums. Reality is signalling to economic theory that the concept of multiple equilibria is no longer confined to behavioural decisions in game theory, it also applies to the real-world economy of military production.
In light of anticipated and necessary increases in defence spending (3.5% to 5%), revising the economic framework for Europe’s military industry is highly desirable. For a long time, Europe’s defence industry prioritised quality over quantity. Over the past decade, EU countries have spent $3.1 trillion USD on defence. That may sound like a lot, but it includes the costs for 1.5 million soldiers. Europe also maintains 178 weapons systems, compared to only 30 in the United States. For example, the U.S. has two types of howitzers, while Europe has 27. Europe has (too) many small and independent armed forces that consume resources but deliver low military efficiency.
The international situation demands a restructuring of the European military industry’s organisation and financing. At the same time, it challenges economic theory to reconsider its models and what “economisation” really means. The war in Ukraine shows that we need both high-tech and low-tech weapons. In a war of attrition, the side with less weaponry, even if it is based on the latest technology, will be at a disadvantage. Europe could soon find itself without adequate reserves, because its industrial model is built around long production cycles and expensive systems.
We need the coexistence of two military industries: one focused on developing high-tech systems, and another on maintaining the capacity for simple, large-scale production. If we want to ensure long-term security, we must invest across the full spectrum of capabilities. Not just in developing new weapons, but also in maintaining stocks of low-tech systems. Being the most advanced is not enough, we must also be pragmatic. Victory favours those who know how to combine technology with scale, speed with innovation, and strategy with improvisation. Political reality has presented economic science with a profound challenge: to theoretically model multiple equilibria.