EVALUATION OF NATIONAL DEFENSE FROM AN ECONOMIC PERSPECTIVE

Abstract

Measuring the defense product (or national defense as a public good) is a necessary step in determining the efficient use of public funds in the defense sector. In this paper, the final product obtained by the military field is analyzed from a macroeconomic perspective. The defense sector absorbs a substantial part of the state s resources, limited resources that could have multiple alternatives uses for society (education, health, infrastructure, etc.). While defense expenditure (considered as input or consumption of resources) is known for each state, for now there is no internationally established standard indicator of the defense product (benefit) obtained. This is in contrast to how performance is evaluated in the private sector economy. In the field of defence, the solution proposed by economists for measuring "defense output" assumes that defense output equals "resource inputs" (a convention widely used in the public sector) or that the value of defense output equals be roughly equal to the expenses incurred to achieve that result. Measuring the value of production in the free market economy is not viewed as a matter of policy. Market economies solve this problem through the method of market prices, and the supply-demand mechanism, which actually reflects the options existing between a certain number of buyers and sellers. However, in the field of defense things differ from the private markets model, which leads to an understanding of the challenge in measuring and evaluating the defense product. Economic theory provides some guidelines for determining the optimal outcome of the defense product. Analyzing these aspects from the perspective of an optimization problem, it is necessary to identify the socially desired level of defense, and to track the resulting (achieved) level of defense. This is done by equating the additional or marginal costs of the proposed defense spending with the additional or marginal benefits obtained. Although the economic approach is difficult to translate into a set of clear policy guidelines, it nevertheless provides a framework for designing defense performance assessment.