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Are we Spending too much on Defence?
South Africa’s defence spending and effort has come to be judged purely in monetary terms or as a percentage of Gross Domestic Product (GDP). But is either method sufficient to conclude whether the country is spending too much or too little on defence?
The Defence Budget for the 1995/96 financial year is R9,8 billion with an additional R700m under consideration. This amounts to defence spending equivalent to 2,1 per cent of GDP. In monetary terms, South Africa’s defence spending is usually higher than any other state in the Southern African region. As a developing country, its spending is close to the two per cent average recommended as the upper limit by the World Bank and the International Monetary Fund.
Defence expenditure reflects the extent to which a country will go to protect its sovereignty, territorial integrity and society. When one uses these statistics to conclude whether South Africa’s defence expenditure is either too high or that it has reached such a low mark that any further cuts could jeopardise national security, its expenditure is in reality compared to countries that may differ vastly or against international standards. Even if it is assumed that South Africa does not face a conventional enemy, it may not be completely appropriate to determine acceptable levels of defence spending either in monetary terms or as a percentage of GDP without regarding the theoretical and practical problems experienced when such comparisons are made.
In the first instance, there is no accepted conceptual standard of what constitutes defence expenditure. The standardised definition of defence expenditure used by the North Atlantic Treaty Organisation (NATO) includes military personnel, civilian pay, procurement of major equipment and supplies, construction and infrastructure costs, and pensions to retired military personnel. The United States Department of Defence includes the NATO classification within its definition, in addition to items such as research and development, military assistance to other states, civil defence and family housing. The definition of the Stockholm International Peace Research Institute (SIPRI) provides for paramilitary forces, and the military aspects of atomic energy and space research. In France, salaries of the gendarmerie, the civilian police force, are included in the defence budget, while in other Western countries, research and development costs, much of which has military use, are excluded from the defence budget. In the former Soviet Union, the concept of national security was widely defined with military production taking precedence over civilian production and consequently no clear distinction between these two sectors in the economy existed. South Africa’s case is further complicated by extending the conceptual understanding of security to include non-military concerns, while simultaneously expecting the defence force to protect life, health and property, maintain essential services, uphold the law and assist with socio-economic upliftment in peacetime.
Various countries, furthermore, use different methods to determine defence expenditure. In some countries defence expenditure is classified by the type of input - for example military wage costs and costs of procurement of weapons. Other countries determine defence expenditure by function (maintaining a core capability force) or by output (the level of security required).
The coverage and structure of military budgets vary with the system of public financing in different countries with the main problem being double counting. Depending on the kind of public financing system, a decision has to be made on the goods and services that are to be included in the valuation process of a budget. For example, paramilitary forces that also perform internal policing functions, and the use of research and development for both civilian and military purposes, give rise to problems when it has to be decided what to include in a defence budget.
All payments also do not reflect the value of the resources used. For example, the use of conscripts by some countries is bound to underestimate the costs of the armed services when compared to countries that rely on volunteer forces who receive higher remuneration.
Relating defence expenditure to GDP, Gross National Product (GNP) or total government expenditure is problematic, as all economic activity is not captured by the GDP measurement and not all GDP measurements reflect the value of the resources used. A related problem is that much of government output has no monetary equivalent such as is the case in the private sector. Moreover, it is not clear whether the GNP and the defence burden should be measured at market or factor prices. Depending on the choice, differing price weights could distort defence expenditure or any comparative analysis.
Conversion of defence spending to a singly currency such as the US dollar attracts three problems. In the first place there are no official valuation rates for military products. Secondly, exchange rates of market economies often poorly reflect domestic purchasing power and may change over short periods of time. Finally, a different evaluation of defence effort and spending could be derived if it is converted to British Sterling or the Japanese Yen.
With long term projects or procurements, price increase rates differ over time and from country to country. In addition, rapid technological development exacerbates the problem of separating price and quality changes. There could be a vast difference between the initial and eventual cost of a project. Depending on which point in the process an average percentage of GDP or acceptable defence effort is calculated, the actual result could be a distortion.
Calculating defence spending as a percentage of GDP implies that richer countries are entitled to spend more on defence without taking their specific security concerns into account. Conversely, developing and, in many cases, poorer countries are pegged to the two per cent limit irrespective of the nature, intensity or form of anticipated threats. Bland comparisons can often become meaningless. For example, when comparing two per cent of US defence spending with two per cent of Zambia’s has no meaning in attempts to understand the defence concerns or spending of either country.
The usual practical problems accompanying the determination of an average acceptable defence expenditure, such as the selective use of data, bias, sampling methods and assumptions, generally compound the problem of comparing defence expenditures.
However, all is not lost. It may be possible to determine the defence effort and expenditure of South Africa through a combination of purchasing power parity calculations and constant rates of exchange expressed in a single currency. The local or international buying power of the South African Rand would have to be calculated in comparison with an equivalent calculation in constant terms of the buying power of the US Dollar (or Pound or Yen).
Although superficial, purchasing power parity calculations help to overcome the attendant problems of comparisons and achieve an acceptable level of defence expenditure. Simple conclusions - be it in money terms or percentages - are insufficient.
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