Life cycle costs for decision support ‐ a study of the various life cycle costs used at different levels of defence policy and management∗

Debates on many aspects of defence economics ‐ on the scale of defence expenditure, on the allocation of that expenditure to various military capabilities, and on the selection of equipment offering the best value for money ‐ are bedevilled by misunderstandings and misconceptions about the costs of defence equipment. This paper seeks to improve understanding of defence equipment costs by defining a hierarchy of defence equipment within which the direct and indirect life cycle costs of defence equipment may be allocated at different levels. Having reviewed the direct and indirect components of the life cycle cost, this paper then shows how different costing studies for different purposes require different approaches to life cycle costing, and that there is no unique life cycle cost which can be assigned to one particular item of defence equipment. There is instead a range oflife cycle costs, each of which is appropriate for a particular study, and it is important that a quoted cost of an item of defence equipment should be used only in the pertinent circumstances. The paper is written from a UK perspective and accordingly uses British nomenclature, but its principles should be relevant to defence cost studies in other nations.     

The Demand for Military Expenditure in Europe: The Role of Fiscal Space in the Context of a Resurgent Russia

A variant of established work on the demand for military expenditure is developed based on a practical concept of fiscal space from the perspective of short-term government choices concerning public expenditures. A new indicator, referred to as fiscal capacity, is defined and used as a candidate explanatory variable in an empirical model of European defence spending over the 2007–2016 period. Fiscal capacity is found to outperform simpler measurements of economic conditions, notably GDP growth forecasts, in explaining changes in defence spending efforts as a share of GDP. Regarding security environment variables, the results suggest that Russia has recently come to be seen as a potential military threat by European nations, leading to defence spending increases, the more so the shorter the distance to stationed or deployed Russian forces, and particularly so by those European nations that have a land border with Russia. A prospective exercise is then carried out in order to assess the capacity of EU member states that are also members of NATO to reach NATO’s 2% goal for defence spending over a mid-term horizon.     

Increased Chinese and American defence involvement in Africa

There is often a perception put forth of a fight for supremacy between China and the USA. This is often the case when discussing the continent of Africa. Both countries have recently increased their involvement in Africa for a variety of reasons. In 2011, China surpassed the USA as Africa's largest trading partner, with Africa predicted to be Beijing's largest trading partner by 2017. As expected, their bilateral and multilateral defence cooperation with strategic countries and organisations has matured and expanded along with it. Washington's own economic interests, al-Qa'ida and threats to maritime security are some of the crucial elements behind the US's presence on the continent. This article analyses both the USA and China's rising defence involvement in Africa. It compares and contrasts their similarities and differences, and argues that cooperation in certain areas can prove beneficial for all parties involved.     

Defense spending and the macroeconomy

Given Kinsella's (1990, 1991) appeal for analysis to be pursued using sub‐annual level of data, we pursue such an endeavor in this paper. We examime the effect of defence spending on real output, the unemployment rate, price level, and interest rate covering a quarterly time frame 1960:1 to 1988:1 using an unrestricted vector autoregression framework. Our results parallel the findings of Kinsella in that there appears no causal relationship in either direction between defence spending and economic performance.     

THE CASE FOR DEFENCE

What is the case for defence and is it a worthwhile investment? This question is addressed for two contrasting nations, namely, the UK and New Zealand. Economists have a set of standard analytical tools for addressing the question but they are difficult to operationalise. This paper provides policy‐relevant answers.     

A simple and untraditional analysis of western alliance burden‐sharing

The original Olson and Zeckhauser model of alliance burden‐sharing was based on the following four assumptions: (1) alliance defence is a pure public good; (2) allied nations make their security contribution decisions without consulting the other allies; (3) alliances produce only a single public good; and (4) alliance defence is produced with equal degrees of efficiency in all alliance nations. But while the first of these assumptions has received a great deal of attention in the alliance literature, the remaining ones have received comparatively less attention, particularly in terms of empirical analyses. This paper synthesizes a varied literature developed around these four assumptions, both substantively and theoretically, and shows that when these assumptions are brought closer to real world approximations, hypotheses regarding the potential for security cooperation with less free‐riding result. This article also provides a simple test of Western alliance burden‐sharing in the areas of military spending, development resources spending, and research and development spending that supports the hypothesis positing more equitable burden‐sharing.     

Influence without power? Reframing British concepts of military intervention after 10 years of counterinsurgency

British attitudes towards military intervention following the campaigns in Iraq and Afghanistan have undergone what appears to be considerable change. Parliament has voted against the use of Britain's armed forces in Syria and the public are unenthused by overseas engagement. Conscious of the costs and the challenges posed by the use of British military power the government has been busy revamping the way it approaches crises overseas. The result is a set of policies that apparently heralds a new direction in foreign policy. This new direction is encapsulated in the Building Stability Overseas Strategy (BSOS) and the more recent International Defence Engagement Strategy (IDES). Both BSOS and IDES set out the basis for avoiding major deployments to overseas conflict and instead refocuses effort on defence diplomacy, working with and through overseas governments and partners, early warning, pre-conflict prevention and post-conflict reconstruction. Developing a number of themes that reach from across the Cold War to more contemporary discussions of British strategy, the goal of this special edition is to take into account a number of perspectives that place BSOS and IDES in their historical and strategic context. These papers suggest that using defence diplomacy is and will remain an extremely imprecise lever that needs to be carefully managed if it is to remain a democratically accountable tool of foreign policy.     

Corporate performance and military production in South Africa

With the end of the Cold War and apartheid, a process of demilitarisation and dramatic cuts in military spending has marked the transition to democracy in South Africa. Between 1989 and 1997 the South African defence budget was cut by more than 50% in real terms, with most of the cuts coming from the procurement budget, which was cut by nearly 70% in real terms during the same period. These cuts have had a significant impact on the country's defence industrial base. However, there has been surprisingly little research on the changes to defence companies that have taken place since the late 1980s. This paper makes a start at rectifying that deficiency by providing an analysis of the restructuring of the major defence‐dependent companies over the period 1988–97. It uses a number of financial ratios and other measures of corporate performance to compare their experience with non‐defence companies in the rest of the South African economy during the same period.     

The future of European defence policy: An economic perspective

European defence policy has been dominated by politics. This paper shows how economic principles can be used to derive guidelines for the formulation of European defence policy. The inefficiencies of the EU's existing defence arrangements are identified. It is shown that there is scope for efficiency improvements in the EU's Armed Forces and its defence industries.     

Estimating defence budget saving from disarmament: the United States’ case

Probing the technology in the production of US national defence by using a dynamic cost‐function model with adjustment costs, this paper evaluates the effect of reducing the level of national defence on the defence budget saving. Our inquiry involves estimating the defence production structure without output data for non‐market goods that are normally unavailable. Our findings include: (i) the United States behaves rationally to minimize cost in the production of national defence; (ii) the adjustment costs are larger in disarmament than in military build‐up; (iii) due to the adjustment costs peculiar to disarmament, the defence budget saving from disarmament appears small, but cutbacks allow great savings on the defence budget.     

Guns for Butter? Empirical Evidence from China

Abstract

This study examines the causal nexus between defence spending and education expenditure in China using the bootstrap Granger full-sample causality test and sub-sample rolling window estimation. The full-sample result indicates that there is no causality between defence spending and education expenditure. By adopting a time-varying rolling window approach to revisit the dynamic causal relationships, this article identifies a negative unidirectional causality running from education expenditure to defence spending. The finding suggests that it is the education expenditure crowds out defence spending in China rather than reverse. No causality is demonstrated from defence spending to education expenditure, indicating that an increase in military spending will not crowd out expenditure on education. The results could be partly explained by that the education expenditure in China is below the requirement of corresponding economic growth, urging for more financial budget. Whereas the findings support a negative trade-off between defence and education expenditures, they refute the theory of ‘guns for butter’.     

British and German initiatives for defence cooperation: the Joint Expeditionary Force and the Framework Nations Concept

At NATO’s 2014 Wales Summit, the UK and Germany unveiled two new initiatives for European defence cooperation, known, respectively, as the Joint Expeditionary Force (JEF) and the Framework Nations Concept (FNC). Both were the result of economic pressures and the need to exercise intra-alliance leadership, but they represented very different approaches to cooperation. The JEF was to be a UK-led contingency force for short-notice operations, selectively incorporating forces from allies and partners. The FNC sought to coordinate capability development between groups of allies, centred on larger framework nations, to develop coherent capability-clusters available to meet NATO’s force requirements. The common denominator and novelty of the initiatives was the building of forces and capabilities multinationally by having major states act as framework nations for groups of smaller allies. The UK and Germany have ownership and continue to provide leadership to these initiatives. This is one key reason why they continue to evolve to accommodate changing circumstances and are likely to endure.     

RETROSPECT AND PROSPECT: TRENDS IN COST AND THEIR IMPLICATIONS FOR UK AEROSPACE

This paper, intended to stimulate debate, suggests that we are at a turning point in the history of the UK military aerospace industry. It argues that there is urgent need for a fresh vision as to how the UK military aerospace industry can both prosper and make its maximum contribution to the defence of Britain. Further, the resulting plans and policies must emphasise the robustness of defence capabilities in a future in which the only thing we can be certain is that it will be very different from the present – especially whenever defence most matters.     

Turkey’s strategic choice: buy or make weapons?

Turkey has been investing in its national defence industrial base since the 1980s. As with other developing countries, Turkey’s motivations for investing in national defence industries can be boiled down to the pursuit of defence autarky, economic benefits and international prestige. However, after 40 years of investment, Turkey is unable to reach the primary goals of defence industrialisation. We argue that three factors are important to understanding Turkey’s persistence in these primary goals. First, Turkey believes that there is an overall improvement in its defence industrial capabilities and the goal of autarky is still reachable. Second, increased defence exports support the belief that Turkish defence industries have become sustainable and the trend will continue in the future. The third reason, perhaps most important of all, has to do with the domestic political gains of defence industrialisation: the AKP uses defence industry and indigenous weapon systems for prestige and, therefore, garners broader support.     

Military Spending and Income Inequality:Evidence on Cointegration and Causality for Turkey,1963–2007

This paper investigates a series of unit root, cointegration and causality tests to ascertain the direction of causality between the growth of GNP and defence expenditure in Turkey for the years 1955–2000. The main conclusion is that there is a long‐run equilibrium relationship between GNP and defence expenditures. Furthermore, the short run causality test indicates that there is a unidirectional causality between variables, from defence expenditure to economic growth. In order to see the effect of a shock, we employed impulse response analyses. The results show that GNP decreased during the period then output finally recovered from the initial shock to defence expenditures.     

The rising unit cost of defence equipment — The reasons and the results

This paper constructs a conceptual model for the selection of defence equipment providing best value for money. It then shows how the unit cost of the chosen equipment increases between one generation of equipment and its successor because of developments in the perceived threat, the available technology and industrial productivity, and demonstrates that unit cost increases can arise from a logical and rational procurement policy and are not necessarily caused by technological chimeras and military vainglory. The resulting persistent rise in unit cost is unlikely to be significantly slowed by any of the counter‐measures yet proposed.

The paper then discusses the policies which nations have adopted to accommodate past increases in unit cost, and the options which confront any nation at the point when it can no longer afford to re‐equip a particular element of its armed forces.     

Panel Causality Analysis Between Defence Expenditure and Economic Growth in Developed Countries

There is much controversy in the literature over whether military expenditures have a positive, negative or no relation impact on economic growth. The aim of this paper is to determine the relationship between GDP and defence expenditure. The study analyses GDP and defence expenditures of the developed countries with cross-sectional ADF and SURADF unit root tests using annual data for the years 1980–2007. We conclude that in the long term, according to the Pedroni cointegration test, there exists a relationship between defence expenditure and economic growth. Furthermore, by utilizing the Granger causality test, we find that defence expenditure is a factor in economic growth. In other words, our study validates the hypothesis that defence spending by economically developed countries positively contributes to their economics.     

The Demand for Turkish Defence Expenditure

Although a number of studies concerning Turkish defence-growth relation have been published in recent years, little attention is given the demand for Turkish defence expenditure. This is an important issue for understanding which variables contribute to the determination of the demand for military expenditure. However, it is difficult to develop a general theory or a standard empirical approach for the determination of the demand military expenditure. This study models and estimates the demand for Turkish defence expenditure for the period 1951-1998 using autoregressive distributed lag approach to cointegration (ARDL) following the methodology outlined in Pesaran and Shin (1999). This procedure can be applied regardless of the stationary properties of the variables in the sample and allows for inferences on long-run estimates, which is not possible under alternative cointegration procedures. The findings suggest that Turkish defence spending is determined by NATO's defence spending, Greece's defence spending and some security considerations.     

城市防空中需掩护目标的重要性层次分析

城市防空中 ,需要掩护的重要目标多 ,分布范围广 ,必须将众多需要保卫的目标按其重要程度进行分类和排序 ,以便科学部署防空力量 ,提高城市防空综合效益。以目标价值作为衡量各种目标重要性的基本尺度 ,给出了目标价值的层次结构模型和数值计算方法     

An enterprise portfolio approach for defence capability planning

Capability-based planning (CBP) is considered by many defence organisations to be the best practice for enterprise-level planning, analysis and management. This approach, loosely based around investment portfolio theory, is premised on balancing the cost, benefit and risk of capability options across the defence enterprise. However a number of authors have recently noted limitations of its current applications. The authors propose a more general, insurance-based approach, which can support the evolutionary improvement of the current CBP approach. This approach is implemented as hedging-based planning and aims to better reflect the enterprise nature of defence organisations, capturing both force structure and force generation aspects of military systems.