Programme Budgeting and the Economics of Defence
| Date | 01 March 1974 |
| DOI | http://doi.org/10.1111/j.1467-9299.1974.tb00165.x |
| Published date | 01 March 1974 |
Programme Budgeting and
the
Economics
of
Defence
KEITH
HARTLEY
Mr.Hart1y
is
Lecturer
in
th
Department
of
Economics
at
Tork
Universi~.
I
NTR
0
D
U
CT
I0
N
Between
1964
and
1972
major changes occurred in British defence policy
and in the organizational, budgetary and financial arrangements for
planning and controlling defence expenditure. In
I
964
a unified Ministry
of Defence was established, the aim being to create
‘.
. .
an organization in
which Defence, rather than single Service, considerations will be para-
mount’ and which will lead to
‘.
.
.
the efficient and economical provision
of
our
military forces.’2 These organizational arrangements were reinforced
in
1965
with the formal introduction of functional costing and cost-
effectiveness techniques into Britain’s defence decision making. Functional
costing or programme budgeting is a means of identifying the functions
of
the defence forces and the costs of these functions. The system is designed
to
‘.
. .
assist
in
planning and co-ordinating the Defence Budget’,
so
that
decision makers
‘.
. .
will have much more information than in the past
about the relative costs of planned forces and weapons sy~tems’.~ Functional
costing provides the framework for undertaking cost-effectiveness studies.
These assess the costs and defence effectiveness of alternative force
arrangements and alternative weapons systems in relation to some specified
objective.
KO
attempt is made
to
place a monetary value on the measure
of
defence effectiveness, the aim being to select the least-cost method of
‘destroying
a
target
or
protecting a city or military installation.
In
1972-73,
Britain’s defence budget was estimated at
&2,854m.
A
budget
of
this size with its ‘sacrifices’ of goods and services is obviously a
source of public concern. Questions have to be asked about the ‘appro-
priate’ size of the defence budget and whether increases in defence
expenditure are worth the extra costs (i.e. allocative efficiency). In view
of the policy differences between the two major political parties, further
questions arise about the allocation of a given defence budget between sea,
land and air forces, between nuclear and conventional forces and between
Europe, the Mediterranean and the Far East. Society is also interested in
the technical efficiency with which defence resources are used and whether
55
PUBLIC ADMINISTRATION
it
is
possible for Parliament and the taxpayer
to
assess
such
effi~iency.~
It
is not the purpose of this article to answer all these questions. Instead, we
shall examine the extent to which programme budgeting provides an
appropriate
framework
for considering the resource implications of defence.
We start with the problems of traditional input budgets, after which we
examine and critically assess the functional costing system.
THE
PROBLEMS
OF
INPUT
BUDGETS
Efficiency in the allocation and utilization
of
resources is central to
economics. In this sense, defence problem are not unique. Ikfence can
be regarded as an industry which uses resources of land, manpower,
capital equipment (e.g. weapons, bases) and entrepreneurship. The industry
consists of
a
large number of military units (firms) of different sizes, each
producing
a
variety of different products (e.g. sea, land and air forces in
different locations) and all concerned with supplying defence ‘output’ or
‘security’. For example, there is the problem of combining fighter aircraft,
missiles, pilots, ground staff and airfields to produce an air defence force
which will maximize the number of enemy bombers and missiles destroyed.
This problem does not differ from that encountered by, say, car firms in
arranging resources to maximize profits. In both cases, decision makers
are confronted with objectives and constraints and the task of using limited
resources in the best possible way to achieve their objectives. But defence
differs from the British car industry in one resource-relevant way. There
are no private markets to establish the price of the industry’s ‘output’ and
hence society’s valuation of the activity. The absence of rival suppliers
of
defence in the British market also means that comparative cost data are
unavailable, nor can profitability be used to assess the efficiency with
which the Ministry of Defence and its military commanders use scarce
resources. In these circumstances, it is vitally important to examine the
available techniques for assessing and improving efficiency in resource use
in defence. The budgetary framework provides
a
starting point. Questions
arise as to whether the traditional methods of budgeting focus attention
on costs, outputs and performance. In particular, does the budgetary
framework not only assist the Ministry’s decision makers, but also reveal
to Parliament the information required for public debates about resource
allocation decisions in defence? Table
I
shows an example of the
traditional form of the defence budget.
The input budget of Table
I
does not supply the type of information
required for an assessment
of
efficiency. Apart from the vague heading
of ‘defence’, spccific outputs are not shown, nor is it possible to relate
inputs to outputs. It is also suggested that current defence decisions only
involve the use of resources for
a
one-year budgetary period. Furthermore,
it is not at all clear that the expenditures on inputs reflect the scarcity
value of resources. Some
of
these points require further explanation.
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