Arms industry reacts to cuts in public spending

As the national budget for 2009 had to be amended due to the global economic crisis, many companies relying on state contracts found themselves in an increasingly difficult position. The arms industry is linked to economic sectors severely affected by budget cuts. Due to the critical economic situation, social tensions in the arms industry are growing. Trade unions have been organising strike action, while employers have entered into negotiations with the government.

Background

With the continuing economic slowdown precipitated by the global economic crisis, the Polish government was forced to amend the national budget and reduce its expenditure plans for 2009. Subsequently, the Ministry of Defence (Ministerstwo Obrony Narodowej, MON) announced that the funds allocated to modernising the army – including the purchase of new equipment – would amount to only PLN 2.2 billion (€485 million as at 3 June 2009) instead of PLN 4.7 billion (€1 billion), as planned initially. The Ministry of Internal Affairs and Administration (Ministerstwo Spraw Wewnętrznych i Administracji, MSWiA) also lost a considerable share of its originally planned budget.

As a result of these budget cuts, the ministries’ suppliers are likely to experience substantial losses, as their existing contracts with the state are being renegotiated. Bearing in mind that exports have not been a substantial source of income for the vast majority of enterprises in recent years, their existence primarily depends on domestic sales in an essentially monopolistic market.

Enterprises in trouble

In the first months of 2009, a number of enterprises in the arms industry asked the government to clarify its position on state contracts that would be actually fulfilled.

In February, the leading personal weapons manufacturer, Łucznik, announced that it would suspend its production process due to an expected decline in state orders. Meanwhile, the Bumar Group – the largest entity in the sector, comprising 17 companies and employing some 9,000 workers – expected the total value of state contracts planned for this year not to exceed PLN 300 million (€66 million). By way of contrast, in 2008, the total volume of supplies delivered by the group to the state amounted to about PLN 2 billion (€440 million).

Reactions of social partners

Since the beginning of 2009, social partners in the arms industry have repeatedly voiced their concerns regarding the future of domestic enterprises. In February, trade unions from the Independent and Self-Governing Trade Union ‘Solidarity’ (Niezależny Samorządny Związek Zawodowy ‘Solidarność’, NSZZ ‘Solidarność’) and the All-Poland Alliance of Trade Unions (Ogólnopolskie Porozumienie Związków Zawodowych, OPZZ) established an All-Poland Protest Committee of Defence and Aerospace Industry Employees (Ogólnopolski Komitet Protestacyjny Pracowników Przemysłu Obronnego i Lotniczego) as a joint platform for the coordination of protest actions. The committee decided to launch a strike alert, effective as of 16 February.

Indeed, in February 2009, the first signs of discontentment became apparent, as trade unions began to organise protests at company level.

Both of the major national trade union organisations issued positions calling for the withdrawal of the radical financial cuts plan, which could jeopardise the survival of companies in the sector, and possibly lead to a loss of more than 40,000 jobs throughout the country.

In early March, several thousand employees arrived in the capital city of Warsaw to hold a massive rally; however, it had no effect on the government. Seeing their efforts prove largely fruitless, the trade unions decided to employ more drastic measures. In late April, a strike referendum was held in companies in the sector. In a ballot, an overwhelming majority of employees (about 90%) – voting in almost 30 enterprises – opted for a strike.

Despite having issued no official position on the current situation, the Employers’ Union of Defence and Aerospace Industry Enterprises (Związek Pracodawców Przedsiębiorstw Przemysłu Obronnego i Lotniczego, ZPPPOiL) has entered into negotiations with the government, hoping to resolve the stalemate.

Assessment of contracts

In a statement released in April 2009, the Ministry of Defence announced that 56 contracts were being renegotiated and estimated that 160 contracts required an ‘assessment’, 88 of which had already been reviewed. The ministry noted that, out of a total number of 69 companies working in the field of national defence, only 12 enterprises remain under the direct control of the state. Moreover, the ministry challenged the idea of a strike being perpetuated by sectoral trade unions and being quietly supported by the companies. This suggests that the government expects more initiatives to be taken towards the resolution of the current industrial unrest on the part of the management in those companies.

Commentary

Over the coming months, a wave of company closures and social disturbances is likely to occur unless the government alters its current policy. In the most pessimistic scenario, as much as 80% of enterprises in the arms industry might not survive as a result of the cut in public expenditure.

Jan Czarzasty, Institute of Public Affairs (ISP)