A friend who lives in an isolated area and therefore in need of good reading material, recently asked me to recommend some geopolitical oriented thrillers. I immediately thought of decent, new writers in the field like David McCloskey and Charles Beaumont, the interesting recent James Stavridis/Eliot Ackerman books that straddle fact and fiction, as well as the scary ‘If Russia Wins’ by Carlo Masala.
However, many of my favourites are from different eras, Laurence Durrell’s ‘White Eagles over Serbia’ set during the Cold War, and then in a bygone period of great power competition, the works of Eric Ambler and of course, Erskine Childers (‘Riddle of the Sands’ ).
The end of globalization and the onset of great power competition means that those works remain relevant though, if on the fourth anniversary of the war on Ukraine European policymakers wanted reading recommendations, I might well propose a book like Sebastian Mallaby’s ‘The Power Law’, or Azeem Azhar’s ‘Exponential’, and to be cheeky, even ‘The Art of the Deal’.
My reasoning, with Europe (the EU, UK, Nordic nations) finally starting to mobilise its factories and innovators to bolster its war economy, is that there remain several missing elements in the quest to build the industrial champions of the European war economy. Europe’s politicians are very good at high minded rhetoric (there are repeated calls to build the European Google, Palantir and Anduril), and even better at racking up debt, but less gifted at spurring large scale innovation.
For instance, the response to the hostile American message to the EU at the 2025 Munich Security Conference was the lifting of the German debt brake, while the recent threat to ‘take’ Greenland has prompted multiple calls for the issue of ‘euro-bonds’.
However, with German military spending and defence related industrial production now taking off, the secret to defence and security innovation lies more in business school texts, than in war college. There are a few elements to highlight here.
The first one touches on a perennial problem for Europe, the lack of depth in financial markets. Amidst an epidemic of defence start-ups and fund launches across Europe, there are still relatively few investment funds focused on the kind of later stage investing required to scale security focused companies to a size where they can become part of the growing industrial infrastructure in Europe. This lacuna owes in part to the failure of Capital Markets Union (now Investment Savings Union), such that few pension funds and institutional managers are investors in ‘strategic autonomy’.
It also reflects a labour market problem – there are simply few investors in Europe who have good knowledge of the defence and dual use ecosystem.
The idea of an ecosystem is the second aspect of the defence investment riddle. A small number of countries have cracked this – the US and France stand out. In the US, like France, the education system provides a rich supply of engineers and technologically capable graduates (e.g. Onera Labs in France), many of whom have a layer of business school training, and in a good number of cases have ties to or experience in the military.
Ecosystems encompass large firms, divisions of the military and defence establishment (i.e. SpaceForce), as well as sector specialist investors. When the elements of such an ecosystem are connected and work together, they can propel an interesting start-up to a viable enterprise in a few years. A developed pan-European ecosystem does not exist, and its cultivation needs to surmount cultural obstacles (as the recent Future Combat Air System (FCAS) debacle has shown), tax and incentive policy, and a more open approach to innovation from large European firms.
Then, the element that is to my observation missing in many new defence focused start-ups and first-time investment funds is the presence of seasoned business operators who have experience in scaling businesses and advising on how best to navigate the various complex government procurement pathways across Europe.
This is a critical omission in the defence sector because government led procurement can help start-ups survive, but not necessarily grow. This is doubly so in dual-use technologies such as cyber security and hardware (including new materials), where ‘go to market’ is a more important imperative than ‘go to war’. Compared to the US, Europe has a short supply of such operators, and in general governments have not done a good job of encouraging them to become part of the ‘strategic autonomy’ economy.
Europe faces a diplomatic disengagement by the US, a grave security threat from Russia and industrial dislocation by China. As such, Europe’s war economy needs to add up to much more than guns and drones, but must rest on innovation, entrepreneurship and ambitious capital.
Have a great week ahead, Mike
The Levelling 