Wednesday, June 8, 2011

US Defence Spending

The Unites States spends some $700 bn on defence. Its spending is more than the combined total of the next 17 countries - a list that includes China and Russia (See The Economist's chart on defence spending here) . It's none of this blogger's business to question whether it should be having so many bombs - that's for American citizens to decide for themselves, although we can have a mild interest as to whether it is sensible to fire a AGM Hellfire II from a drone above North Waziristan at a cost of some $70,000 to hit a donkey in its ass !

This blog, having some pretensions to economic bias, instead ruminates on the sheer scale of cost effectiveness that is possible on defence spending. Without reducing the number of bombs that is. You see, the traditional ingredients by which businesses attack costs are simply not present n the field of defence.

There is very little competition. The best way to reduce costs is competition. But there is little chance of that with US defense. Firstly, no foreign competition is possible. Secondly there are very few domestic competitors and anyway they don't really compete with each other - its all an elaborate dance of a little more or little less - the thought of the chiefs of Boeing and Lockheed Martin in a tango sent me into splits of laughter No chance here of a Walmart equivalent coming and slashing prices.

Then there is almost no innovation to reduce costs. All innovation, and there's plenty, is to build bigger and better bombs. Perhaps targeting a camel's ass or an elephant's ass. Nobody is going to get promoted for reducing the missile cost by half.

Thirdly, no offshoring is possible at all. Outsourcing is possible, but is usually only a measure to take personnel off your headcount (hence the mercenaries in Iraq, Afghanistan and so on).But can production be offshored to China or India, where you can cut costs by 50% ?? Not a chance. 

What about operating efficiencies. Like , what is the cheapest way to hit a donkey's ass in North Waziristan. An old 303 rifle perhaps ? No chance. War is all about "overwhelming military power" - and to hell with the costs.

Transparency in accounting ? Worker quality circles to reduce costs ?  Perish the thought. How about cutting Head Office costs. Like shifting the Pentagon from the middle of Arlington County to Supai, Arizona ? Ha Ha.

Somebody is footing the bill for the missed opportunities in cost reduction. It's the US tax payer , of course. Some of the more common business tools to reduce costs may not be possible to implement in the military. But while the wars in Afghanistan and Iraq are pursued, the US would do well to start another war on costs. It may actually find it more productive than the other two wars mentioned above.

Paul Ryan - Are you listening ?