An employee works on a Raybird long-range surveillance drone at the Skyeton drone-manufacturing company, in the Kyiv region, in February, 2024.ROMAN PILIPEY/AFP/Getty Images
Fiona E. Murray is Professor of Entrepreneurship at the MIT Sloan School of Management and Chair of the NATO Innovation Fund.
Robert Murray is a professor of practice at Johns Hopkins University.
When the Second World War began in 1939, Canada had almost no meaningful military industry. Six years later, Canadian factories had produced thousands of aircraft, hundreds of naval vessels, and more than 800,000 military vehicles. A country of just 11 million people had become a military-industrial powerhouse.
Heavy government investment was vital to this transformation. But that spending would have meant little if Canada had not also built institutions, financing mechanisms, and physical structures capable of rapidly transforming political commitments into large-scale industrial output. As NATO’s leaders gather in Ankara for their 2026 summit on July 7-8, they should be taking this lesson to heart.
Across Europe and North America, governments are ramping up their defence spending. But converting resources into military capabilities will require the development of industrial capacity.
Ukraine has demonstrated that modern wars are financed before they are fought. Since Russia’s full-scale invasion in 2022, Ukraine has mobilized billions of dollars to expand drone development and production. The returns have been extraordinary: drones costing just a few thousand dollars can destroy military equipment worth hundreds or even thousands of times more. None of this would have been possible without financing for the factories, engineers, software, supply chains, and production capacity needed to produce drones at scale.
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NATO countries do not lack resources, technological expertise, or political will. What they lack are market structures capable of converting these strengths into military capabilities.
If NATO allies are to build the industrial capacity required for deterrence, they will need to deliver wartime levels of industrial responsiveness, without adopting wartime levels of economic control. This requires a new approach to market-making.
The first challenge is creating reliable long-term demand. This means that national governments must make credible, multi-year procurement commitments, both independently and with allies.
The second challenge is financing this new demand. Even when future orders exist, industrial expansion requires access to affordable long-term capital. Manufacturers typically borrow from commercial banks to fund these investments. Where commercial finance is unavailable or too expensive, governments often have little choice but to step in.
A market-making approach would be both more cost-effective and more productive than the current system. It begins with a purpose-built multilateral institution that serves as a dedicated financing platform for defence industries and related supply chains. This is precisely the role that the Defence, Security and Resilience Bank (DSRB), now under discussion, is designed to play.
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By creating a sovereign-backed market for defence finance, the DSRB would help to reduce the cost of financing industrial expansion.
This would go a long way toward easing pressure on defence budgets. Committing more resources is good, but doing more with the resources that have already been committed is better.
The DSRB represents more than another lending institution. Over time, it would create a dedicated AAA-rated defence, security, and resilience yield curve. Firms, banks, and governments could thus secure financing conditions specifically designed for the long investment horizons required.
Strengthening defence capabilities is not only about security policy. It is also industrial policy. The same investments that strengthen deterrence can also support manufacturing, innovation, exports, and economic growth.
With multi-year procurement delivering the demand signal, and the DSRB providing the financing platform, allies can finally build a functioning defence market.
In 1939, Canada did not become a military-industrial powerhouse simply because it spent more money than everyone else. Rather, it built the institutions, financing mechanisms, and industrial structures that turned spending into production.
Copyright: Project Syndicate, 2026.