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Financial Myths: “The Guns, Thank God, The Guns” — Part II

Technology has often made the difference between winning and losing.
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.
Michael McTague, Ph.D., Executive Vice President, Able Global Partners in New York, serves clients in a variety of industries that seek capital for expansion, acquisition, consolidation or re-financing.

Our first installment in this series took a wide view of armaments. The US creates very expensive new weapons; all rely on unrivalled technology. The American strategy also reaches out to share its devastating weapons with close and wealthy allies. The proposed $100 billion dollar arrangement with Saudi Arabia includes the latest fighter planes, ships, bombs and radar. Lockheed Martin’s F 35’s provide a key feature. The Saudis will also get massive Chinnok cargo helicopters. Qatar is expected to purchase $12 billion worth of F 15’s. More huge sales are expected soon.

The general idea is that these weapons are needed to defend nations. That raises the obvious question: Who are we defending against and how good are their weapons? Assuming that North Korea stands out as the corpulent enemy, these highly visible sales weaken North Korea’s threat. More nations friendly to the US will command superior defensive technology while North Korea’s offensive technology remains unproven.

A Look at North Korea’s Technological Capability

Given the current tension and the height of public discourse, one might wonder how North Korea got the talent and material to reach its level of nuclear development. According to, as of three years ago, the twenty-five largest weapons manufacturers are located in the US, UK, Russia or Europe. Chinese companies were not listed because of lack of transparency. The previous Myth Buster entry commented on Number 1 Lockheed Martin (LMT), Number 2 Boeing (BA), Number 3 BAE (BAESY), Number 4 Raytheon (RTN), Number 5 Northrup Grumman (NOC), and Number 6 General Dynamics (GD). Almaz-Antey, which makes missiles, is the largest weapons maker in Russia. Of the twenty-five defense industry giants, four are Russian.

This means that North Korea could purchase weapons and parts openly or secretly from any of a number of manufacturers, most likely from China or Russia. Nuclear technology has also been around for decades. As business people know, high technology will eventually dumb down to a commodity. While nuclear material becomes easier and cheaper to obtain, a small dedicated team might focus on the most difficult aspects of building a nuclear arsenal: obtaining and managing uranium or plutonium.

Nuclear weapons capability might also be built up by unrelated events. A group of students go to a foreign country to be educated, then return home with big ideas. A few talented individuals might be lured to North Korea with attractive housing and living benefits. One can also pick up current knowledge from international conferences and public information.

Gaining knowledge about the latest technology is not easy and North Korea remains outside the international tent, avoiding and defying its neighbors and their directives. Years ago, countries vied to receive “Most Favored Nation” status in trading with the US. The attractive designation meant that a sizeable stream of dollars would flow to the country. In recent years, only two nations stand outside the world community: Cuba and North Korea. The short-lived open door policy with Cuba slammed shut recently. In the interim, Cuba, which attracts tourists from Canada and Europe, tried to beef up its hotels and its tourist industry. This makes North Korea the farthest nation from friendly relations with the US and puts it in last place in terms of sharing the latest technology.

North Korea does not make consumer goods or other products that draw international attention and exports almost nothing to the US. Its Gross Domestic Product is estimated to be $30 billion; about one quarter goes for weapons. While the details of North Korea’s military strength cannot even be found by an F35 flying at night with its lights off with a Chinook helicopter nearby loaded with coffee and donuts, its nuclear weapons appear to come from two sources. They probably own Chinese-made weapons. They may also have made their own weapons, possibly from easily available parts and Russian models. This opens two troubling considerations. First, the rest of the world is powerless to influence North Korea. Second, the development of powerful and dangerous nuclear weapons has become a commodity – much easier to create than they were from the 1940s through the 1980s. A team of smart, well-funded scientists might develop a very dangerous series of weapons.

The New Technology Race

Financial considerations also prove a major concern. New technology – the basis of a credible military system – costs a great deal. “The Guns,” to use the words of the myth, form a critical element of defense. Today’s nuclear submarines and stealth jets are more destructive than a traditional infantry. Defense is very expensive and requires great capability in the firms producing such weapons.

Assuming that North Korea takes an offensive posture on military matters and the US takes a defensive posture, the US holds the more expensive and the more vulnerable position. Even one offensive success is unacceptable. As a result, more research and development and more expenditures will pour into modern technology to detect and deter aggressive decisions by nations with an offensive posture. It should be no surprise that the big players in this industry take part in the stock market surge and weigh in near their 52-week stock price high. Market capitalization is up along with revenue. Investors can expect the trend to continue.

It appears that Rudyard Kipling was onto something in his line about the guns. Technology has often made the difference between winning and losing. The lone superpower will reach Mach 2.5 speed in its race to outrun its opponents and maintain a purely defensive military posture. In the next instalment, we will look at additional aspects of this all-encompassing series of events.


Michael McTague, Ph.D. is Executive Vice President at Able Global Partners in New York, a private equity firm.

As the markets put the debt ceiling debacle in the rearview mirror, more than a few issues remain open.