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Rising Prices, Rising Costs

By Taylor Marvin

The Economist has an absolutely great graph illustrating the constantly increasing price of combat aircraft over the last century. This shows one of the most interesting paradoxes of new aircraft development — while the technological advancements that allow for vastly increasing speeds, endurance, and capabilities raises the price of new fighter programs in advanced aircraft industry, unlike almost any other, the same technological advancement doesn’t ever contribute to falling production costs. This is due to two main reasons: first, governments nearly exclusively chose their fighter acquisitions based on performance, not cost. This choice is encouraged by the world’s long recent peace — in peacetime a less urgent immediate need for aircraft gives government the luxury of sacrificing low cost and short development cycles for the most advanced capabilities possible. Defense contractors simply don’t have any real incentive to aggressively control costs once they’ve secured their contract. Secondly, fighter aircraft, unlike almost any other product, don’t benefit from any meaningful economies of scale. Fighter technology advances so quickly that modern designers are unable to benefit from any of the experience or manufacturing techniques their company acquired from previous efforts — while the experience that McDonnell Douglas gained from developing the F-4 its successor the F-15 was so advanced in every way that any of its technology wasn’t comparable to its predecessor. Even massive programs like the F-35 are really too small to see meaningful economies of scale. Fighter programs will always be more expensive than even their ridiculous level of technological sophistication would suggest. This makes them rarer and rarer; while new and exotic aircraft seemed to appear every day during the fifties and sixties today’s development cycles last decades.

The other great insight this graph illustrates is the diminishing returns fighter development has shown. I don’t mean that recent fighter programs have shown less advancement over their predecessors than earlier ones — the difference in capabilities between a F-15 and F-22 are staggering. Rather, the ability of military aircraft to deny adversaries the capacity to hamper their operation has fallen. At the start of World War Two Germany enjoyed a conformable lead in aircraft technology — the German airforce was able to easily operate within the territory of any adversary. The only way the British were able to deny the Germans this capability was to develop their own costly advanced fighter programs and challenge the Luftwaffe on its own terms, a long contest where the UK just managed to succeed. Today the situation is different. While building a modern fighter aircraft costs billions and billions of dollars and takes decades the ability to prevent air power’s full use by your adversary can be had for the price of a few hundred anti-air missiles. In Afghanistan the Soviets had full air superiority — the mujahideen had no planes. But armed with cheap Stinger ground-to-air missiles Afghan fighters prevented the USSR from fully exploiting its advantage; through the end of the war being a Soviet pilot over Afghanistan was a very dangerous job. This is the problem with the rich world’s military technological advancements: its become much easier to deny your enemy use of a technological dominance than it is to harness it.

Note: The Economist’s excellent Democracy in America blog has a good older post that touches why programs that governments contract out to private industry tend to less inefficient than either full government control or outright privatization. The post is mostly about the rise of private prisons in the US, but the basic economics are the same. Of course, if there was any real alternative to private sector contracts for military acquisitions the government would have done them by now, so it really doesn’t matter much.

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    “Practicing Humanity Without A License”…

    October 23, 2010

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