later commercialized output (see further Sect. 2.4 and the competence bloc diagram in Fig. 2 on page 46). More specifically, the commercial outcome of spillovers in the form of net value creation is composed of civilian production; military exports, the origin of which can be traced to a particular procurement from the Swedish military;
and spun off commercial ventures. In our specific calculation, only the development of the Gripen combat aircraft platform, excluding weaponry and manufacturing, is recognized as the spillover generator.9 This definition means that case studies as well as the econometric estimations to be presented are measured in terms of ex post out-comes after the commercialization process has been completed. There is a whole range of civilian net value creation that can be directly linked to performance demands on the Gripen development specified by the government procurer, such as the need to lower the weight to half that of its predecessor (The Viggen) to allow the aircraft to land on, and take off, from reinforced regular highways and still carry the same weap-ons load. Light weight technologies therefore have become a specialty of Saab and Volvo Aero Corporation in entering civilian markets as subsystems producers. A simi-lar example is the “maintenance free” technology necessary to be able to service the air craft and the engines in the field by regular nonspecialist conscript personnel and far away from repair workshops. This means that availability of the Gripen aircraft is very high and downtime very low compared to all competitor aircraft.
The computing and communications (C&C) technology content of the Gripen aircraft development – Gripen was the first fourth generation unstable aircraft piloted to a large extent by computers, and the first networked aircraft in the world (see further Technical Supplement S1) – means that generic spillovers to other industries are particularly intensive (see Sects. 2.3.2. and 5.2.4).
The Gripen development, however, also exhibits several fancy spillovers, and the most spectacular spillover, Ericsson mobile telephony, also illustrates the difficult problem of isolating the spillovers from the Gripen project from those of earlier mili-tary aircraft development. Ericsson happened to be the only telephone systems and equipment producer in the world (possibly including also Nokia) to have an in-house military radio technology in the early 1980s. Without that, Ericsson would not have been the world leader in mobile systems development today, and most likely not an autonomous telecommunications company, I conclude in Chap. 4 (Sect. 4.4). If not a truly serendipitous discovery, Ericsson mobile telephony still is a peripheral capture of military aircraft technology spillovers that was almost lost to the company (see Sect. 4.4). Military radio technology defined the first platform for Ericsson’s entry into the mobile telephony market when its top management had finally under-stood its commercial potential. Gripen dependent antennae and microwave technology defined the later successful Ericsson advance into a 100% mobile systems producer.
1.6 Social Value Creation: The Magnitudes Involved
Technically the spillover values captured in the economy show up in the form of differences between measured social and private returns. There is a large theoretical and econometric literature on how to estimate those differences that will be surveyed
in the main text and in the technical supplements, and the differences are generally found to be very large for advanced and R&D-intensive production. On the whole, Jones and Williams (1998) conclude that social returns to private R&D investments are at least twice to four times the private returns, and probably more, and imply significant underinvestments in private R&D in the US economy. Conservative estimates suggest, Jones and Williams say, “that optimal R&D investment is at least two to four times actual investment.”10 I would add that this may even be the low end since in Chap. 3 I report on even larger estimates. Moretti (2002), furthermore, shows that while most of the estimated spillovers come from high technology, R&D intensive plants, spillovers from low-tech plants are virtually zero.
On this I conclude from the econometric studies presented in Chap. 3 and in the Technical Supplements that the economic value of spillovers around Swedish mili-tary aircraft industry has been very large. The sophisticated and demanding public customer, furthermore, has played a particularly important role behind the intensity of the spillover generation around the JAS 39 Gripen development. An innovative incentive contract (see Sect. 8.4) and the contribution of user competence has made all the difference. Strict customer demands on the Gripen aircraft, furthermore, and notably on light weight of the aircraft to be capable of landing on, and taking off from regular roads and extreme performance characteristics in combination, the in-air flexibility in combat roles (swing-role capacity) and the need to integrate new electronics and software with mechanical functions, have all contributed to an enhanced spillover intensity compared to earlier generations of Swedish combat aircraft. Much more than the entire development investment has in fact been returned to society in the form of additional social value creation, and several Swedish companies owe their existence to these spillovers. Those spillovers have been particu-larly important for the long-term development of Swedish engineering industry for which the aircraft industry has served importantly as a technical university providing both educated and experienced engineers and technologies proven to be practically useful and directly applicable. In addition, several technologies, to be documented in the main text, originating in the aircraft industry have served as technological platforms for new business start ups in entirely different markets.
More specifically, I also conclude that the spillover intensity has increased from the Saab Viggen “third generation” of Swedish combat aircraft to the “fourth generation” JAS 39 Gripen multipurpose aircraft, mostly because of its larger elec-tronics and software content, and despite the fact that procurement conditions for the Gripen aircraft were more parsimonious. Paradoxically the same advanced spillover intensity appears to have its origin in the increased share of off-the-shelf standard components and subsystems used. Again, also here cost considerations forced (Swedish) aircraft industry early in the direction that engineering industry at large is now moving, and not only toward increased outsourcing but also toward the use of standard components and systems available in the market. The military aircraft producers in fact learned early to design advanced, high performance prod-ucts from standard, off-the-shelf components and subsystems. Hence, general engineering knowledge diffusion has become relatively more important compared to the industrial impact of particular and relatively well-defined technological
11 1.6 Social Value Creation: The Magnitudes Involved
innovations. This should mean that the long-term systems dynamics leverage on the entire economy (the spillover multiplier) has increased in importance (see further below in this section).
On the social values created around the JAS 39 Gripen R&D investments I have brought together material from external studies and my own estimates to construct a range. At the minimum end, using a method similar to that of Fölster (1993), the current estimate of the social values created by the JAS 39 Gripen R&D investment from 1980 through 1992 is at least 1.5 times the original development investment.11 This compares with Fölster’s (1993) estimate of 1.15. The reason for the difference is that Fölster’s forecasts of social value creation for the period 1992 through 1998 (obtained from the firms) were significantly lower than my estimates based on actual records, the explanation being Ericsson’s phenomenal and not expected surge into mobile telephony during those years. Continuing my calculations through 2007 I have documented a spillover multiplier of at least 2.6 times over and above the original development investment in the form of additional social value creation based on some 45 interviewed and/or researched spillover-receiving firms. This is a smaller number than the 208 firms Fölster (1993) questioned in a postal survey. The differ-ence, furthermore, is that I have interviewed and studied my smaller number of firms individually and evaluated their dependence on the Gripen project, rather than asking firm management to make their own assessment as Fölster (1993) did.
My larger estimate depends to some extent on the larger electronics content in the post 1992 development investments in the JAS 39 Gripen but most importantly on the fact that some spillovers, notably into Ericsson mobile telephony have taken longer to develop, and continue to grow in importance. This is, however, still a low-end estimate. A large number of small firms that have benefitted from Gripen spillovers have not been identified and therefore are not included. Furthermore, it has not been possible to directly estimate long-term dynamic systems effects and peripheral technology diffusion throughout the entire industry beyond 2007. The missing firms are small firms and won’t add much to the spillover multiplier. Long-term dynamic systems effects and peripheral technology diffusion throughout the economy are not possible to estimate using my case study aggregation to mac-romethod. Those systems effects may, however, be very large (see below).
These micro-based estimates are however small compared to what you arrive at when deriving the social values created indirectly from estimated differences between social and private rates of return to the private investment. Applying the econometric estimates on the social returns to private R&D investments in the USA, notably the summary evaluation of Jones and Williams (1998), such peripheral spillovers can to some extent be captured, and I then come up with much higher estimates of the spillover multiplier for a US type economy, or two to four times as a minimum, probably extending into an upper range of some five times the original development investment. The difference probably depends to a large extent on the fact that peripheral technology diffusion is particularly sensitive to the local com-mercialization competence. In an entrepreneurial economy of the US type you would therefore expect the spillover multiplier to be larger than in Sweden.
Furthermore, the probability of losing spillovers is much lower within the larger
capture area of the US economy compared to that of Sweden (More on this in the European discussion in Chap. 7). One reason for the large differences between social and private rates of return estimated on US data therefore must depend on the higher incidence of peripheral technology diffusion in the US economy through new firm establishment and that peripheral technology diffusion is particularly sensitive to the local commercialization competence.
The numbers on the US economy may however still be underestimates because the underlying econometric models used do not properly pick up long-term dynamic systems effects on the allocation of resources. Those effects may be large.
As mentioned, my own simulation analysis of those effects on the Swedish micro- to macromodel suggests that another 30% should be added to the spillover multiplier to capture the long-run effects (see Sect. 3.3.2 and Technical Supplement S2).
My cautious estimate of the spillover multiplier for Sweden of at least 2.6 takes us above the absolute lower end of the US estimates.
On the whole, however, my conclusion is that even though JAS 39 Gripen spill-over value creation won’t reach US levels because the Swedish economy does not possess the US entrepreneurial capacities to capture spillovers, I would not hesitate to use a multiplier of 4 to 5 for Sweden in a social profitability calculation on this or a similar public procurement project. But it is not necessary to go that high since
“at least 2.6” will be sufficient to make a project of the JAS 39 Gripen type socially very profitable. The case studies, furthermore, suggest that spillovers from the future developments of the Gripen platform that are more intense in their use of electronics and software technologies, for instance the Next Generation Demonstrator (See Technical Supplements S1 and S2), will be even larger.
To put it bluntly. These numbers should be sufficient to motivate the public procurement of domestic technology platforms for advanced military aircraft on a large scale. And those who don’t like this conclusion and rather want to see the money go to technical universities and/or government-run laboratories or institu-tions (The “Arrow 1962 proposition”) will find that the evidence is against them.
This may be considered a strong proposition that needs further empirical testing to convince. True. To compare the spillover multiplier of technical universities and advanced firms is also the further research agenda that I propose in Technical Supplement S3.