How a Fighter Jet Paid for Itself: The Hidden Economics of Military Spending

When a new military jet screams across the sky, it’s easy to see it as a symbol of immense public cost – a black hole for taxpayer money. The price tags on advanced defense systems dominate headlines and fuel debates about national priorities.

But what if this view is incomplete?

A deep body of economic analysis presents a counter-intuitive argument: beyond these “visible costs” lie massive “invisible benefits.” These benefits, in the form of technological spillovers into the civilian world, can be so significant that they radically change the entire cost-benefit calculation.

The 2.6× Payback: A Jet That Paid for Itself

The most startling finding from economic analysis of military R&D is that major development projects can generate so much civilian value that they essentially pay for themselves. This isn’t theoretical – it’s measured through what economists call the “spillover multiplier”: the ratio of total social return to private return on development investment.

The Swedish Gripen combat aircraft program serves as the case study.

An in-depth analysis found that the Gripen project generated a spillover multiplier of at least 2.6. The value of civilian spillovers – new companies, new products, productivity gains in existing industries – was so large that it covered:

1. The entire development cost of the aircraft
2. The manufacturing cost
3. And still returned 1.6× additional growth

“Swedish society has got the entire Gripen development during the period 1982 through 2007 ‘for free’ and an additional growth benefit of at least 1.6 of the development investment.”

This fundamentally challenges conventional debates about defense spending. And remarkably, this 2.6× multiplier is consistent with (and sometimes smaller than) spillovers measured from less technologically advanced civilian R&D projects. The economics of innovation, not just military spending, are widely misunderstood.

The Myth of the Passive Buyer

Standard economics imagines an anonymous customer buying a finished product from an autonomous supplier. In advanced military procurement, this model collapses entirely.

The Swedish military procurement agency (Försvarets Materielverk, or FMV) wasn’t a passive buyer – it was a “professional and demanding customer” that actively participated in the innovation process.

Here’s why this matters: military products are often not well-defined when development begins. The agency contributes:

• User knowledge about operational requirements
• Demanding but realistic performance standards
• Technical challenges that force suppliers to solve new problems

This contribution isn’t advisory – it’s a direct input to innovation. The customer’s expertise becomes a measurable component of the technological advancement itself.

This dynamic is so potent that it breaks standard economic models, which assume clear separation between buyer and seller. When the customer is a co-creator of value, traditional competitive bidding theory fails to capture what’s actually happening.

The implication: a sophisticated, demanding government buyer isn’t a cost center – it’s an innovation engine.

Why “Buying Off-the-Shelf” Is a Trillion-Dollar Mistake

When a country develops a military system from the ground up – indigenous development – it creates a “spillover cloud” of new technologies and industrial capabilities. This is where the economic benefits come from.

The alternative is off-the-shelf procurement: buying existing, standardized equipment from a foreign supplier. It appears cheaper on the spreadsheet.

It’s a massive missed opportunity.

The reasoning is straightforward: off-the-shelf products are already developed. Buying them doesn’t require solving new, unique problems – which is precisely the activity that sparks innovation and generates spillovers.

This approach is often rooted in simplistic “cost-minimization” thinking that assumes a fully known product. But as the analysis warns, when you optimize for upfront cost, complex product quality is inevitably the first casualty.

There’s also a strategic dimension: an effective defense cannot rely on weaponry with which an enemy is already familiar.

The short-term “savings” from buying off-the-shelf sacrifice profound, long-term, economy-wide benefits from investing in domestic innovation.

From Missiles to Your iPhone: Military DNA in Everyday Tech

The “spillover cloud” isn’t abstract economics – it’s the source of world-changing civilian products. The technological DNA of military projects hides in technologies you use daily:

The Internet

The world’s most important modern technology has military origins. In 1957, the US Defense Department’s Advanced Research Projects Agency (ARPA) was tasked with developing a communication network that could survive a nuclear war. The result: ARPANET, ancestor of the internet.

Your Dental Implants

The revolutionary titanium implants developed by Nobel Biocare were made possible by precision machining and materials science expertise that Bofors had originally developed for manufacturing cannons and ammunition.

Apple’s 3D Maps

The technology C3 Technologies used to create three-dimensional maps from aerial photos – later acquired by Apple – was derived directly from targeting systems of the IRIS-T air-to-air missile.

Mobile Phone Networks

A cornerstone of Ericsson’s world-leading mobile telephone system was a product called “Mini-Link.” This critical component was created by combining military microwave communication technology with civilian innovations.

These aren’t coincidences. High-stakes military problem-solving – where failure isn’t an option and budgets allow pushing boundaries – seeds civilian markets with transformative technologies for decades.

The Commercialization Gap: Why Invention Isn’t Enough

Creating a cloud of new technologies is only step one. For spillovers to translate into actual economic growth, a crucial second ingredient is required: an entrepreneurial economy with deep commercialization infrastructure.

The process of turning raw technology into a viable business is brutally difficult. The analysis describes this “commercialization phase” as a “competence- and resource-demanding and highly ‘fragile’ economic process.”

A country can be brilliant at invention but poor at commercialization.

Sweden itself exemplifies this paradox. The analysis notes Sweden’s “extraordinary capacity to come up with new and innovative industrial technologies.” But many of these technologies “failed to be transformed into economic growth in Sweden, because of lacking commercialization capabilities.”

This reveals that successful innovation policy requires two distinct capabilities:

1. Procurement sophistication – commissioning projects that generate spillovers
2. Entrepreneurial infrastructure – venture capital, skilled managers, market access to turn inventions into businesses

Without both, spillovers evaporate. The technology exists, but the economic growth doesn’t materialize.

Seeing the Invisible

The true cost of a major public project cannot be judged solely by its price tag. To make informed decisions, we must learn to see beyond visible costs and account for potentially larger invisible benefits.

This analysis reveals that military procurement, when approached as a partnership between a demanding customer and an innovative domestic industry, can function as a powerful – if accidental – innovation policy.

It challenges us to:

• Re-evaluate where technologies come from – your smartphone, your dental work, your maps all carry military DNA
• Question “cheaper” alternatives – off-the-shelf procurement sacrifices long-term benefits for short-term savings
• Recognize the customer’s role – sophisticated government buyers drive innovation, not just consume it
• Invest in commercialization – spillovers only become growth when entrepreneurial infrastructure exists to capture them

The Gripen wasn’t just a fighter jet. It was an accidental innovation policy that returned 2.6× its cost to Swedish society.

If such immense hidden value can be unlocked from military spending, what other major “costs” should we be re-examining for their own invisible benefits?