Publication: defence THINK Date: 2005-04-08 Reporter: Leon Engelbrecht Reporter:

Offsets - The Big Lie



defence THINK




Leon Engelbrecht


Joseph Goebbels best articulated the idea of the "big lie" when he said the more often a falsehood was propagated, the sooner it would be believed. One such convenience, for government spin-doctors at least, is defence offsets. The theory is simple: Defence acquisitions are expensive, controversial and are often seen as unnecessary. How to make them cheap, uncontroversial and necessary, short of starting a war, is the essential question then. A cynic, somewhere, responded with the concept of offsets. For every doubloon spent on a buy, one could advertise reciprocating investment of the same or a greater amount. In the South African case, offsets of up to three times the amount spent on the strategic defence package was offered. Economist Mike Schussler early on called the scheme "voodoo economics" and since little has happened to prove him wrong. Offsets are the snake-oil of our day and achieves the same purpose: It bamboozles the public and brings defence companies into disrepute.

Offsets have done the business world no good. In fact, it does them double harm. The public sees it as a bribe, a modern version of the brown envelope passed in the men's room. No amount of denials can wish that perception away. Rather, the more vociferous the denial, the stronger the belief. Secondly, proving one has fulfilled one's obligations may actually call for the use of the dark arts. After Enron and Worldcom many believe the auditing and accounting professions had joined that category, again raising public doubt on the matter.

Offsets are not a defence industry core-function. It is not something they are good at, and it should not be. Their expertise lies in applied engineering, not condoms or tea plantations. Arms deals with offset provisions require them to have these skills. This comes at a price: the expertise is acquired and the cost is built into the contract. Ultimately it is passed on to the taxpayer.

Why do we tolerate offsets then? The problem lies in the fact that offsets represent a hidden cost to all concerned. People are quite tolerant of costs they do not immediately feel or bold statements they cannot immediately disprove. And this is largely what offsets are: big claims to offset large expenses. Once the genie was out of the bottle there was no putting it back. One government copied another. With the international precedent set, states started demanding offsets by right. Some, like South Africa, even enacted the requirement, meaning that companies that will not, cannot, or may not offer the inducement do not even get to the bidding starting block. This is the perverse incentive that forces defence industries to get involved in a dubious scheme that invariably becomes a rod for their own backs -- just to buy some government some political cover.

It is time to put our collective foot down. It is not a defence industry core function. The defence industry should therefore not be involved in such schemes. It is a distraction. It pushes up costs, creates parasitic cottage industries and otherwise distorts the economy. It is time to return honesty to the business: military acquisitions in peacetime are as popular as politicians in wartime who shirked on defence preparations. Live with it.

With acknowledgements to Leon Engelbrecht and defence THINK.

*         Viva Saul, I mean Paul, I mean Leon.

With acknowledgements to Nicola Jenvey and the Business Day.