Defence Economics: An Overview

Defence is a time-honoured function of a government and an essential attribute of sovereignty for a state. Thus, to meet its national security requirements, there is an irreducible minimum that a country must spend on its defence forces.  Resources being limited, particularly in a developing country like India where demands of economic growth and social welfare compete with defence, the question of resource allocation becomes fairly complex.  In fact, in the foreseeable future, “pay any price, bear any burden” will not apply even for the “richest” group of countries. Given the enormity of expenditure on defence ($1118 billion or 2.5 per cent of world GDP or an average spending of $173 per capita in 2005) it is but natural for military planners as well as peaceniks to evince interest in issues concerning military expenditure.

Prof. Keith Hartley defined Defence Economics as the application of economic concepts and methods to evaluate security related questions to understand how a country’s security interacts and fits in with that of others in the international system.  This encompasses examination of defence policies and industries, conflict, arms race, disarmament, peace keeping, insurgencies, civil wars and terrorism.

Despite its manifest utility, defence economics faces epistemological problems for three reasons.  One, because the legacy of the Cold War when defence related decision-making was guided more by politico-strategic rather than economic considerations still largely prevails.  Secondly, military planners and thinkers, as indeed the decision-makers in civilian structures, are not hard core economists. Therefore, application of economic concepts and methodology to defence-related issues does not come naturally to them.  Thirdly, there is lack of awareness of the possibilities that defence economics provides for more effective defence planning.

Defence spending worldwide has come to represent a mandatory level of insurance in order to preserve the innate economic, social, civilisational strength of nations. The evolution of an appropriate and economically sustainable blend of defence strategies and capabilities to fulfill this role is the objective of all nations.  Optimising the aggregate resource base of all nations and addressing the root causes of conflict such as poverty, social alienation, religious fundamentalism etc. can contribute towards keeping defence deterrence levels within affordable limits. But, neglect of essential defence capability build-up can have perilous consequences.  The challenge before economic planners, therefore, is to assess these mandatory levels of national insurance and earmark concomitant resources.

The military expenditure of a given country may be determined by its economic robustness.  But, there are other factors, such as competing demands from other sectors that determine it too.  So, only a finite amount can be available for defence spending that military strategists and thinkers may not always consider adequate.  Also, hostile immediate and extended neighbourhood (Israel) is another factor influencing defence outlays.  Meanwhile, those not surrounded by hostile neighbourhood may be compelled by the imperatives of power projection (China). Others may be prompted by perceived or real threat of international terrorism (Saudi Arabia) and defence of own strategic interests.  Then there are those (India) that are driven by all these factors.

The next challenge confronting leaders, planners and defence economists concerns the optimal use of allocated resources for defence.  This requires identification of a diverse and cost effective blend of defence capabilities against the backdrop of mission objectives, likely duration of wars based on potential threats, and current state of defence related technologies.  This calls for a comprehensive and integrated planning process spanning the long, medium and short terms. Issues of intra-service, inter-service prioritisation, contemporariness of technologies, national military industrial complex, optimal utilisation of existing defence and other assets, programming/outcome efficiencies, jointness and inter-operability of war-waging capabilities and resource management concerns at the macro and micro levels come to the fore in this process.

The ultimate organisational goal of defence is to maintain national security, which flows from an appropriate blend of diplomacy, economic power and military strength.  In a developing nation, where problems of state legitimacy, political stability, capital accumulation and equitable economic distribution of wealth are of major concern, a more realistic and comprehensive view of national security is necessary, as provided by the Administrative Reforms Committee of India,

                 “National security is a comprehensive and dynamic concept and is related to the capability of the country to maintain its sovereignty and independence.  Apart from the military power, it represents the balance sheet of a nation’s achievements in diplomatic, economic, technical, social and other fields of national endeavours”.

For India, which faces tangible and manifold threats, there is a Hobson’s choice. Clearly, we may have to make heavy sacrifices in the short and medium term to defend our borders, even at the cost of development. In fact, the quantum budget availability for defence in relation to the overall performance of the country’s economy was quite explicitly linked by Prime Minister Manmohan Singh, “If our economy grows at 8 per cent per annum, it would not be difficult for us to allocate about 3 per cent on GDP for our National Defence.  This should provide for a handsome defence budget”.

Undoubtedly, defence is not an end in itself.  In fact, development and defence expenditure must not be considered as opponents.  Defence bears a close relationship to all other macro socio-economic parameters, especially in developing nations.  Development of our border states, construction of border road networks, opportunities for employment, research and technological advancement provided by defence R & D establishments are but a few examples of the benefits of development accrued from defence costs.  These intangible gains must not be ignored.