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The Economics of Defence Spending: An International Survey.

In this book Professors Hartley and Sandler present case studies of the economic, political and social causes and consequences of defense spending for nineteen nations.(1) The central theme of the book is the diversity of international experience in national attitudes and policies toward defense: some nations join military alliances (e.g., former Warsaw Treaty countries); others pursue independence (e.g., France) or neutrality (e.g., Sweden); some acquire large stockpiles of nuclear weapons (e.g., U.S., U.S.S.R., U.K., France); others have nuclear weapons potential but have not acquired large stockpiles (e.g., India, Pakistan); some defense policies are driven primarily by external threat (e.g., Israel) while others seem partially designed to protect the regimes in power from their own citizens (e.g., Argentina, some former Warsaw Pact countries). Hartley and Sandler's book successfully displays the special characteristics and motivations that drive defense resource allocation within nations.

Each case study begins with descriptive statistics of economic and military indicators (e.g., GDP, growth, inflation, unemployment, government budget, military spending, defense burden). The foreign policies and military backgrounds of the nations between 1960 and 1987 are discussed with special attention paid to external or internal threats, arms rivalry, foreign commitments, alliance membership and the arms trade. The role of the military-industrial-complex within the nations is also considered. Most of the chapters present an empirical estimation of the country's demand for military expenditures. Throughout the chapters, distinctive features and problems for each nation are highlighted.

One of the most interesting chapters is Daniel N. Nelson's on the political economy of military effort in the former Warsaw Pact nations. Instead of focussing on the usual theme of the negative economic impacts of defense spending, Nelson explores the interplay between a failed economic and political system and higher military effort. Nelson's thesis is that the fundamental political and economic failure of socialism leads to higher military spending by insecure political elites. The higher military spending, however, further erodes the political and economic legitimacy of the system. The reduced capacity of the political elites to ensure their leading role leads to further extraction of resources for military protection or coercion. This negative dynamic must give way somewhere - in a Tiananmen-type crackdown or overthrow of the old order (or both). Consider the case of Poland:

Because of the political insecurity of the communist regime in Poland, military effort increased when socioeconomic crises surfaced. Yet such added commitments of resources when coupled with heightened activity by military and security forces, had debilitating effects: they cost billions of zloty, disrupted domestic transport and communications, lowered the availability of foreign high-technology imports, and exacerbated already bad relations between the regime and workers, intellectuals and students.

Martial law in Poland followed by the replacement of the communist party seems consistent with the negative dynamic hypothesized by Nelson. The model also seems relevant for the East European, Soviet and Chinese experiences.

Another interesting chapter is James C. Murdoch and Todd Sandler's study of Sweden. In spite of its neutrality, Sweden maintains a significant commitment of resources to defense. At the time of the study (mid-1980s) Sweden had seven-and-a-half months conscription, active forces just under twice those of Norway, and when reserves were counted Sweden could mobilize 9.3 percent of its population within 72 hours.

Murdoch and Sandler use a joint model to test whether Sweden implicitly relied on NATO for part of its defense. In the joint product model, a nation's military spending yields a private defense good (e. g., protection of coastal water resources, control of social unrest) and an international public defense good (i.e., deterrence). Murdoch and Sandier maintain that NATO's adoption of the flexible response doctrine in the early 1970s led to conventional force build-ups by the smaller NATO allies, offering greater freeriding possibilities for Sweden. Murdoch and Sandier conclude from their empirical tests that prior to the flexible response doctrine, Sweden was self-reliant for its defense. During the flexible response era, however, Sweden began to rely, to some extent, on its NATO neighbor Norway.

Thomas Sheetz studies military resource allocation decisions in Argentina, Chile and Peru. While "border disputes have historically provided the principal pretext for arms procurement in the region," Sheetz believes that the attainment of internal security by the military governments and the special interests of the military branches have also been important motivators for military spending. Sheetz work implicitly raises the question, what is "national defense"? Is it protection of a nation's citizens from external threat or protection of the rulers of the nation from any conquest, external or internal? The latter definition of "national defense" seems appropriate for Argentina, Chile and Peru for at least some of their histories. (It also seems appropriate for some of the former Warsaw Pact nations and China).

Other case studies not mentioned here generally provide useful statistics, descriptions and analyses.

There are a few problems with the book. Some of the empirical specifications of the demand for military spending are ad hoc (as Hartley and Sandier recognize in their introduction). A few authors put too much faith in the reliability of their empirical measures and draw fairly strong conclusions from them. These are typical problems in the military spending literature.

The book would have benefitted from a case study of China. Hartley and Sandler were not able to come up with an expert to do the Chinese study. The Chinese case is important because the Chinese political elites have been able to use their military power to maintain control, in spite of their illegitimacy among much of the Chinese urban population. What distinctive political, economic, military, geographical, and cultural forces prevented the negative dynamic described by Nelson from overcoming the Chinese political elites while the East European leaders fell? A Chinese case study would help answer this question.

Another weakness of the book is that much of the material is outdated. The data run up through 1986 or 1987 in most cases. Some of the nations in the study no longer exist (e.g., E. Germany, Soviet Union). The world stage radically changed, altering the military underpinnings of most of the nations in the study. I don't consider this a major drawback. Almost every book written in defense economics between 1989 and 1991 became at least partially outdated within a few months. Our world maps had lifespans measured in weeks. The Hartley and Sandler book provides a diverse picture of the political economy of military spending just prior to and, in some cases, during the cataclysmic international events of the past few years. It is important analytical history. Defense economists, international relations specialists and anyone interested in trying to unravel and understand the economics and politics of defense issues that confronted many nations of the world in the mid-to-late 1980s will want to read this book.

(1.) The nations in the sample are the United States, the former Warsaw Pact countries (Soviet Union, Poland, East Germany, Czechoslovakia, Hungary, Bulgaria, Romania), United Kingdom, France, West Germany, Sweden, Israel, India, Pakistan, Argentina, Chile, Peru and Japan.
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Author:Anderton, Charles H.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jul 1, 1992
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