Falklands War Cost-Benefit Analysis

The late Labour MP Robin Cook remarked in April 1982 that until the war, the Government's stance towards the islands was that they did not 'possess political, strategic, or economic importance'.  Under Edward Heath, Argentina was sanctioned to construct an airport at Port Stanley.  This suggested that his government acknowledged that the islands' future success rested with Argentina's direct involvement and investment.  In 1976, Lord Shackleton indicated that Falkland Islands independence would be economically viable.  Furthermore, the British Nationality Act 1981 denied full citizenship to islanders and the Defence Review of 1980 called for the withdrawal of the Royal Navy ice patrol vessel HMS Endurance despite its annual cost of £3 million being 'negligible in the overall defence budget.'

Admittedly, the Falkland Islands themselves held very little economic value at the time (to strike oil now, however, alters that analysis immeasurably!).  Yet there were many benefits to the UK in going to war in 1982.

The most painful costs in any war are the human casualties: our armed forces lost 255 men with another 777 wounded.  Over 700 of the latter had returned to service by December 1982 (although 47 were medically discharged by June 1984).  Argentine casualties were higher, with 649 killed - almost half of whom died in one blow aboard the ARA General Belgrano.  We cannot, however, morally or practically ascribe value to human life.

The price of defence

From 1978-9 to 1985-6, total UK defence spending increased by 29% in real terms.  Yet in the second half of Mrs Thatcher's premiership the defence budget fell, in real terms, by 12%.  The budget continued to fall in real terms (19%) between the two Gulf Wars.  Part of this decline can be explained by the concerns voiced over how much defence expenditure was impinging on more 'social' spending, e.g. health, social security and education.  Keith Hartley, of the Centre for Defence Economics at the University of York, evaluated that 'defence claims scarce, high technology resources needed by British industry, so reducing both the level and efficiency of industrial investment and adversely affecting the economy's competitiveness and growth rate.'

The price of war

Although the Falklands War had a very noticeable short-term impact on defence expenditure, the impact was not long-lasting.  Notwithstanding the first few years after the conflict, when South Atlantic expenditure was greatly consumed by the construction of RAF Mount Pleasant (operational from 1986), the amount spent wasn't overly significant.  In 1986-7, it was only 2.23% of total defence expenditure, and by 1989-90, a mere 0.33%.  At their height (1982-3), the war's effects represented only 6.76% of total defence expenditure.

Materiel losses

During the conflict, the Task Force lost two Type 42 destroyers, HMS Sheffield and HMS Coventry, and two Type 21 frigates, HMS Ardent and HMS Antelope.  Also sunk was the Atlantic Conveyor, a Cunard ship used as a transporter, and RFA Sir Galahad.  Thirty-four aircraft were lost and vast quantities of weapons and ammunition had to be replaced.  The Statement on the Defence Estimates of 1983 indicated that the two frigates and two destroyers would be replaced by four new Type 22 frigates at £53 million each (2005-6 prices).  Additionally, a replacement would be ordered for the RFA Sir Galahad and for all Sea Harriers, Sea Kings and Lynx aircraft.  G.M. Dillon has estimated the total immediate equipment bill at £1,172 million (1983-4 prices), which in 2005-6 money is approximately £2.6 billion.

Materiel gains

According to The Falklands Campaign: The Lessons, £200 million worth of improvements were introduced during the conflict itself, which equates to approximately £506 million in 2005-6 prices.  For instance, the Sidewinder AIM-9L, a hugely successful heat-seeking, short-range missile, for whom the Nimrod and Harrier GR3 were modified to carry and extras obtained for Sea Harriers.

Important lessons were learnt about a variety of equipment.  The Blowpipe was a man-portable surface-to-air missile used by both sides during the conflict, yet with minimal success - only 9 kills out of 100 missiles fired.  This poor performance resulted in its withdrawal from service.  It was replaced by the Javelin missile, the cost throughout the 1980s being approximately £1,400 million.  In the skies, the British Vulcan bombers struggled to maintain much damage to Port Stanley airfield and 'the need was underlined for an advanced airfield attack weapon such as JP 233' (a submunition delivery system of cluster bombs devised for attacking runways).  This new equipment cost £1,813 million.

Fortress Falklands

On 2nd January 1984, the construction of Mt Pleasant airfield began on schedule, becoming fully operational in 1986.  Notwithstanding the initial outlay to build the new complex, RAF Mt Pleasant would prove to be a cost-saving measure as it enabled transport costs to be cut by over £25 million a year by 1986.  Moreover, when one considers that in 1990-91, the British Army on the Rhine (BAOR) cost £3.1 billion per annum and RAF Germany a further £1 billion, the Falkland Islands 'burden' of just over £5 billion from 1983 to 2006 (ave. £221m p.a.) is small in comparison.

Total Costs

Dillon (1989) put the costs of the war itself at £800 million, which is equivalent to £1,809 million in 2005-6 prices, and the cost of replacing equipment that was expended during the war at £1,172 million, equivalent to £2,637 million in 2005-6 prices.

By my own calculations, the UK has spent in excess of £23 billion on what President Reagan called 'that little ice-cold bunch of land down there.'

The Benefits of the Falklands War

Aside from the wider benefits of a strong defence base, the UK gained from retaking the Falkland Islands in four key areas.

1. The political motive of standing up to and successfully defeating Argentine aggression, thereby enhancing the UK's diplomatic standing and safeguarding the future of other small, vulnerable, disputed territories (e.g. Gibraltar).
2. Saviour of the British armed forces, especially the RN, from the crippling reductions detailed in John Nott's 1981 defence review.
3. Increased demand for British manufactured materiel, contributing favourably to defence exports.
4. Valuable lessons learnt by the British armed forces.

Defence is an example of a pure public good.  It is non-excludable.  Indeed, the first duty of Government is to safeguard Britons in peace and freedom.  According to Keith Hartley, defence also offers 'potential technology benefits through promoting leading-edge technologies, advancing the frontiers of knowledge and providing spin-off for the civil economy.  Furthermore, it provides jobs and contributes to the balance of payments through exports and import savings.'

In employment terms, in 1980-1 the MoD supported 740,000 jobs; in spite of steady cutbacks, in 1990-1 this was still as high as 555,000 and in 2000-1 the lower yet still substantial amount of 300,000.

The Statement on the Defence Estimates 1984 spoke of the requirement of a 'strong indigenous defence-industrial base, as was illustrated vividly during the Falklands crisis.'  Benefits include self-sufficiency, specialised equipment and readiness for war.  Defence expenditure ought not to be viewed as an unnecessary extravagance; conversely, it is a key component of the UK economy in terms of security, industry and employment.

Political motives

In the House of Commons on 3rd April 1982, Julian Amery, MP for Brighton Pavilion, exclaimed that the Government 'must wipe the stain from British honour.'  The Leader of the Opposition, Michael Foot, stated that it was Britain's 'moral duty and political duty and every other duty' to vanquish the Argentine occupation of the islands.

It had to be shown that smaller, vulnerable territories could not simply be overrun by larger, belligerent nations.  President Reagan made a speech to Parliament in June 1982, declaring: 'Voices have been raised protesting their sacrifice for lumps of rock and earth so far away.  But those young men are not fighting for mere real estate.  They fight for a cause, for the belief that armed aggression must not be allowed to succeed.'

The much reviled junta, which had caused the 'disappearances' of thousands of its own people, was deposed soon after the war, heralding a new era of democracy in Argentina.  This has been as much an important benefit as any.  As a result of the Falklands War, Argentines no longer had to live in fear.

The reputation of the armed forces

The war was fought 8,000 miles from home against an enemy of greater size.  The reputation of the Royal Navy, which led the expedition, and the Army and RAF, was enhanced at home and around the world through their professionalism, courage and skill.  Overall it was a tremendous victory and throughout 'the quality and reliability of much Service equipment was proved, as was the ingenuity and capacity for improvisation of the Services, defence establishments, and British industry.'  This success made British manufactured armaments more attractive than before and as a result the UK's role as an exporter of defence equipment was enhanced appreciably.

UK Defence Exports

From 1980 to 1997 the UK earned approximately £46.7 billion from defence exports.  In 1987, the UK's world market share was nearly 9% and by 1993, the UK was second only to the US.

The £4.2 billion received in 1997 was 137% greater than the £1.8 billion received in 1980.  Strong demand for British defence equipment benefited the UK's defence-industrial base 'by lengthening production runs and spreading overheads.'  It was partly the success of British minds and materiel in the Falklands in 1982 that put the UK defence industry in such a strong position in later years.

Military advantages

A Defence Committee report in 1987 was devoted to explaining how 'the experience of the campaign offered the opportunity to make further improvements in the effectiveness and capability of British forces in the future.'

It was concluded that the use of aluminium in ship superstructures was a reason for the damages to the RFAs Sir Galahad and Sir Tristram, as aluminium melts at 650C.  It was decided that steel, which melts at 1,500C, would be used in future.

Further improvements were made as a result of the war.  By the time of the fire on HMS Illustrious in 1986, 'the improved provision of breathing apparatus and the use of thermal imagers enabled the fire to be fought successfully and without casualties.'

Although replacing equipment was a costly process, it was beneficial long-term since additions were generally superior to equipment lost (e.g. Javelin replacing the Blowpipe).

Moreover, John Nott was wrong to believe that the Falklands War was unique.  As the Cold War thawed, the requirement for an out-of-area capability became more important.  Indeed, the UK's chief military expeditions since 1982 have been Iraq (twice), Afghanistan, the Balkans and Sierra Leone.  The Statement on the Defence Estimates 1992 revealed that 'the lessons [of 1982] proved of immense value for the preparation and conduct of Operation Granby [the 1991 Gulf War].'

Conclusions follow in next post...