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International Seminar on Defence Finance and Economics







DEFENCE ECONOMICS CORE ISSUES:
Revisiting Basic Assumptions of Force Design Economics

Salvador Raza







New Delhi
13 15 November 2006


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DEFENCE ECONOMICS CORE ISSUES:
Revisiting Basic Assumptions of Force Design Economics

Salvador Raza

, Ph.D.

The 21
st
century, this Third Millennium, offers a path to peace. Quite definitely, it offers
it through Defence and security, yet ultimately through words. In this sense, public
criticism on the scale of military expenditure has being exacerbated by perceived
inadequacies on the formulation and implementation of military capabilities to cope
with foresighted security complexities. Simultaneously, the domain of military planning
no longer suffices, if ever it did, to address enormously expanded security demands in
designing future force alternatives. This is altogether unsatisfactory since it leaves
Defence planning considerations either exposed to substantial misunderstandings on the
nature of economics in terms of its practice, or leaves force planning open to ad hoc
building methods and evaluation criteria that disregard the role and nature of economics
in its conceptual formulation.
This paper seeks to qualify a set of basic reasoning and critical ingredients in the current
practice of building military capabilities. The intention herewith is that this approach
will lead to a better understanding of Defence economics core issues, facilitating the
macro analysis and assessment of security related economic developments as critical
ingredients in the coordination of Defence policies. It is, primarily, an assessment of the
difficulties a Defence ministry would have to overcome in order to make force design
capable, setting the bar for success as that of attaining a common vocabulary and a set
of meanings about the specialized function which seems so clear to those who have
stood in command of the assets that defend our countries yet quite vague or tainted
with negative associations in the political arena and in the minds of the populace.
This is a partial result of a research initiative developed at the CeTRIS Center for
Technology, International Relations and Security Studies. It addresses the most
preeminent questions on threat analysis, force design and policy formulation, with a
particular interest on economic and technological factors shaping Defence decision
making processes. It assumes an exploratory posture with a broad focus, questioning
basic assumptions and established practices, hoping for the benefits of thinking
critically over established theoretical constructs.
Throughout the pages ahead, two issues guide this writing: spending and saving. Saving
lives, saving monies, and ultimately the fundamental role of Defence: saving a way of
life by providing adequate security at the least possible cost, short term, medium term
and long term. Yet no approach to Defence analysis can avoid measures of spending.
Todays wives and children can become tomorrows widows and orphans when
Defence is inadequate in providing deterrence and/or competence; no savings result
from an inadequate Defence.

Dr. Salvador Raza is Director of the CeTRIS Institute and professor of National Security Affairs at the
Center for Hemispheric Defence Studies of the National Defence University (CHDS/NDU). Washington,
D.C., USA. The views expressed in this article are those of the author and do not reflect the official policy
or position of the National Defence University, the Department of Defence, or the U.S. Government.

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Spending monies does not provide Defence or security, nor do budget cuts equate to
inadequate Defence and security. Monies spent for Defence and security represent the
embodiment and empowerment of choices. It is the choices themselves that determine a
nations level of Defence and security which stem from the collective will of the people
within the borders of the country. People who have chosen a way of life and by their
voting patterns give an imprint to their government.
Defence reform results when sufficient domestic or external change gives cause for a
nations government leadership to revise its assessment. Defence reform addresses these
same issues of spending and saving. In its most simplistic form, it can take the form of a
budget cut by a specified percentage. Or, it can be left to the Armed Services, which all
too often spend as much time and energy assessing how the other branches are faring as
they do buttressing their established positions. Or, the modern economic & management
thought and science can be applied to Defence reform.
It is the hypothesis of this paper that the series of analyses and processes outlined herein
and collectively called force design offers useful thinking regarding that last
alternative. The final goal of force design is to accomplish a system of concept manifest
within a framework which is an open-ended measurement tool capable of: (1) assessing
the changing relationship between capabilities requirements and Defence demands
properly addressing the challenge of Defence planning in an era of uncertainty of threats
and information technology; (2) specifying capabilities to be added that might lead to
different choices under three concurring perspectives - adaptation, modernization and
transformation.
CHANGE: BY DESIGN OR HAPPENSTANCE?
The dynamic change and uncertainty that characterized the security environment is
driven by a complex dynamics of conventional and emerging threats propelled by
technological development and proliferation, and continuing international criminal
activity that can spawn crises affecting national interests. If states are to contain,
manage and respond appropriately to these threats, they need to better understand this
challenging new security environment.
Potential border disputes prompt countries to justify conventional military forces
featuring a mix of Cold War and post-Cold War technologies and concepts. Under the
right conditions, these threats could derail regional peace processes; however, it is a
basic premise that a threat of large-scale conventional military attack is low for the
immediate future.
But there are less direct and more diffuse threats. In this regard, there is little doubt that
terrorism, narcotics, organized crime are linked ingredients playing a major role in the
global security environment. Operating in a battlefield where there is no fixed
infrastructure, Defence organizations expand their concerns from performance indexes
to sources of financing from specific groups for networks and their articulated financing
structures and to ideological and financial patterns that link the nodes of the networks.
Current strategic postures are aimed at longer-term counter-ideological and financial
proactivity against these threats, since the globalization of terror and international crime
reduces the importance of its spatial dimension.
While these strategies tend to increase the degree of uncertainty of terror&crime
planning, they force its specialization with a more careful selection of targets,
exploring the possibility of achieving repeated (sometimes simultaneous) successes
within very short periods through more complex attacks before the opposition forces
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correct their operational failings. At the same time, this creates greater vulnerability for
strategic terrorism&crime: dependence on networked communications for their efficient
operation.
Included in any global security assessment is the migration of knowledge and
manufacturing capabilities influencing the flow of sensitive weapons and technology.
This trend is shaping the cognitive environment in terms of the likely emergence of
capabilities that might affect the ability of threatened nations to defend important
national interests in the future.
Diffuse and asymmetric in their impact, both conventional and non-conventional threats
demand a Defence capable of facing a broad and more complex nexus of old and new
tasks. Efforts to eliminate redundancy and inefficiency in the Defence resource
allocation process must blend seamlessly with the accomplishment of forward-looking
development. To succeed, Defence reforms must correctly design tomorrows military
capabilities in conjunction with present fiscal possibilities that are adequate to meet
future demands for the use (or threat of use) of force in support of Defence missions
embodying national will.
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These requirements have stimulated a broad discussion on acquisition priorities in the
light of the new security requirements and revised military strategies combining a mix
of conventional broad strategically defensive orientation with operationally offensive
capabilities, peace operations capabilities, and constabulary missions. These are high
cost options requiring the capacity to deploy and sustain forces in hostile environments
with implications for required capital investments in armored vehicles, fighter and
transport aircraft, mobile air-Defence, logistical systems, medical services, and
communications, as well as significant investments in intelligence and command and
control capabilities. However, economic and political realities may preclude
maintaining effective force reaction capabilities (active and reserve).
Under these circumstances, establishing regional collective security/Defence should be
a natural choice. Although, formally, most developing countries are refractory to such
initiatives based on their perception of possible inequalities in sharing the burden of a
regional alliance, in practice nevertheless, informal alliances are being constructed
based on security/Defence confidence building measures (S/D-CBM). It is often
suggested that based on these premises, force requirements are a subset or "a lesser
included case" of collective Defence against preemptive neutralizing raids by outside
powers intent on military intervention in the country or neighboring state. Although
such raids are unlikely in the current strategic threat environment, acquiring the
capability of neutralizing such raids becomes the building logic of collective Defence.
In determining the policy and technical challenges that will govern Defence
development, analytical efforts go well beyond conventional force requirements to
examine the underlying goals and objectives embedded in peace operations that are
likely to motivate Defence decision-making during the next years. In this regard,
confronting a reality of scarce resources, decision-makers offer peace operations as a
rationale for both financing military training and retaining/purchasing capabilities for
cross-border limited traditional military operations associated with various types and
levels of regional involvement.
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These are sensible Defence alternatives forging a minimum size force which are
sensitive to long-term economic-technical potential of developing states. The various
trade-offs of different choices are sensitive to sub-optimization of force components,
gradually demanding less costly, more reliable forces, with countries endeavoring
simultaneously to:
Define organizational requirements in association with new decision-
making, control and oversight mechanisms aimed at accomplishing a higher
degree of political control over Defence issues and priorities.
Increase the efficiency, efficacy and economy
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of Defence resource
allocation, with a focus on the processes and criteria used for the formulation,
execution and evaluation of the Defence budget.
Define affordable military forces, balanced against multiple axes, to hedge
against uncertainty in the current and future threat environment.
We are experiencing many changes, broad-based changes, yet what is extraordinary are
not these changes in and of themselves, for Defence has always been a future oriented
evolutionary process. What is truly extraordinary is the scale and scope of current
Defence reforms, making few of the decisions in security requirements and Defence
planning either simple or noncontroversial.
To further complicate the process, while the term Defence reform sounds to some like
budget cutting, to others it foresees an aggressive approach to achieve military
superiority and organizational build up. In fact, in the best sense of the term, it is neither
simply an attempt (often driven by necessity) to break out of a stagnant situation,
generally reflecting recognition that one has fallen behind. In this case, the measure of
behind is not limited to ones neighbors; it can simply reflect a recognition of ones
inability to accomplish previously acknowledged goals or aims with respect to national
Defence in the light of economic failure. This is certainly the most complex threat to be
analyzed and integrated into decision making architecture.
Defence policy formulation and Macroeconomic Analysis
Despite the uncertainties of the chains of cause and causality in configuring the security
environment, it is increasingly clear that the evolving threats of the 21st century,
coupled with the dramatic decline of Defence resources, have caused armed forces
around the world to craft Defence policies to maximize efficiency in resource allocation
to satisfy the increased demands for Defence effectiveness.
That demands an intellectual engagement in reflection about what Defence capabilities
are and what they can be, creating the cognitive and conceptual tools for actions that
will bring them forth. In order to define the resources force design might use, Defence
policy should look backwards at the trends that have formed current capabilities and
look forward to as-yet-undeveloped technologies, maintaining or/and bringing forth
different kinds of commitments, opening up a space of communication actions, within
the context of a network of interests, concealment and resistance.
The most telling basis for judging the complexity of policy formulation is the degree of
uncertainty of the Defence objectives defined in terms of a varying policy culture,
evolving technological possibilities and resource allocation priorities.
Traditionally, Defence policies are crafted with the goal of bridging the gap between
economic possibilities expressed in terms of funding political decisions embodied in
an architecture of projects engineered into a programmatic budget - and force design
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requirements expressed in terms of set of articulated Defence capabilities responsive
to security needs. Between Defence feasibility and economic possibility, national
decision making becomes oriented towards quickly identifying criteria that safely
deliver security needs targeted to specific socio-political threat environments.
Defence economics plays an important part in building criteria for Defence planning.
The goal of Defence economics is primarily to help Defence organization invest scarce
resources and commit funds to meet expectations and accomplish security goals in a
constant changing threat environment. One of the heaviest burdens of Defence
economics is to support force design through appropriation cycles systematically
linking strategic goals and outcomes to the activities performed, the products and
services that result from those activities, and the resources consumed by them.
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The fact of knowing the assumptions
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and mechanisms for building Defence
alternatives will allow decision makers to better design sub-optimized force structures
and organizations. Defence economic models, by sorting through and structuring a large
number of possible factors, might help researchers go beyond just intuitive feelings
about Defence and discover more possibilities. One example of a problem Defence
economic modeling might help solve is the measuring of multidimensional security
variables reduced to economic factors - in order to monitor the effects of Defence
alternatives directed to threat treatments.
Sound Defence expenditure requires a feedback loop between macroeconomic policy
and budgeting force alternatives. For the Defence planner of the 1950s and 1960s,
building force alternatives was a complex process of modeling technological
possibilities, industrial capabilities, and political transformational force into a set of
military capabilities. New concepts were created to capture some of its dimensions in
association with macroeconomic theoriesfor example systems analysis proceeds from
a desire for rationality in action (praxeology, which has produced PPBS - or its French
equivalent, RCB; S3P in Spanish, Planning Methodology for the Director Plan in Brazil
- etc.) conceptually articulated with the Rational Expectations Theory
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. Decision-
making emphasized the capability to measure the marginal costs and marginal returns
from various alternative resource mixes, interjecting rational economic analysis into the
budgeting process.
In the late 1970s and 1980s, Defence planners came around to the view that modeling
Defence alternatives was a matter of getting policies right. Defence acquisition policies
had to adapt to fiscal deficit guidelines, to import tariff rules and to international trade
and capital flow regulations. Defence scholars emphasized that financing an indigenous
Defence industry should be considered judiciously, not mechanically, it however took
on a life of its own, becoming the expression of what most economists inside and
outside power circles thought most developing countries needed for growth. The
debacle of such infant industrial complex helped drowning(adjective)
developing countries in the lost decade of the 1980s, pushing democratic
reforms in a complex cross impact process not yet properly mapped and understood,
except for two very basic shortcomings of Defence planning methodologies. First, they
do not ensure program adaptability to the conditions of irregular budget financing.
Second, there are no mechanisms for planned annual correction of various program
indicators in order to ensure a flexible response of the country's Defence-industry
complex to possible changes in the scale and content of internal and external threats to
the national security with due regard for present financial and economic circumstances
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.
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In the 1990s, Defence planning in a democratic environment synthesized the
Washington Consensus policies, encapsulating what global and regional economic and
policy institutions and think tanks considered necessary to rescue countries from the
spectrum of re-approaching low growth and high inflation period, by returning to a path
of sustained growth. As the 1990s unfolded, countries privatized public assets and
stabilized low inflation rates providing larger access of national markets to international
trade and capital under grossly overvalued exchange rates. Sponsored by improved
economic indicators, Defence planners believed that a favorable international
environmentand abundant capital flows would overcome the stagnation of the
financing capacity of the Defence program enabling a wide range of Defence reforms.
The scope and depth of Defence reform proposals in the late 1990s and early 2000s
were unprecedented. Defence White Books embraced projects on Defence alternatives,
adapting force requirements to competitive economies, visions of lower inflation and
reduced fiscal deficits, smaller governments, and fewer restrictions on Defence private
sector activities. The primary changes were not only in the scope and nature of Defence
projects, but rather in the (re) establishment of political oversights of Defence budgeting
processes, which linked Defence programs to the national budgeting milestones, rules
and regulatory processes.
The results, however, were unexpected and traumatic. Costly financial crises [the
Russian Federation (1998), Turkey (2000), Argentina (2001), and Brazil (2002)]
prevent Defence planners from seeing the takeoff that was expected. Some countries
managed to sustain Defence capabilities with just modest reforms; others could not
afford to implement the wide range of proposed reforms, while even others, for instance
Chile, gave in to reforms financed by extrabudgetary transfers yielded by the Copper
Law. Scrutinizing the Copper Law, the IMF came out with an acute observation on
the political oversight of Chiles military funding capacity:
In particular, information on the relevant transfers from the state copper company
(CODELCO) earmarked for the armed forces have been, since October 2003, shown in
the fiscal statistics as extrabudgetary operations the legal basis for providing this
information had been put in place, but the details on the data to be published were still
to be defined and no information had been published yet. The official data now provided
show the amounts transferred and their use to cover primary and interest expenditures,
amortization payments, and net additions to related cash balances. However, the data
on the stock of military debt associated with the Reserved Copper Law continues to be
unavailable.
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The central result was rediscovering that force design was not amenable to simple
forecast based on individual trends. Expectations about the impact of economic growth
on the formulation of Defence alternatives were unrealistic. Economic growth is a
narrow window of opportunity. Cautionary tools should be in place to prevent failures
in the expectations that simply aligning Defence budgets to a projected national
budgetary funding capacity would automatically increase Defence capabilities.
Similar conclusions about failure of expectations hold true throughout the whole range
of Defence policy areas on which reforms focused, including organization, technology,
doctrine and strategy. As economies grow, recruitment and retention of military
personnel should become more complex and costly, but the stock of human capital for
the armed forces increased steadily. In some cases, military professionalization
coincided with deteriorating incentives (as was the case in several South American
countries). Not surprisingly, Defence reviews stimulated hardware augmentation plans
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over personnel incentive projects. Again, expectations proved overoptimistic in
improved Defence decision making. Economic growth expectations are not a shield
against methodological obsolescence and intellectual lethargy.
This situation is potentially harmful for four intertwined reasons:
1. Failing to effectively reshape the armed forces to meet future demands.
Reluctance to re-evaluate Defence reform practices supports the existence of a
culture that accepts redundancy as a synonym of security rather than a symptom
of inefficiency.
2. Harboring inefficiency. Major decisions on force structure, not adequately
identified with force design goals, focused on a wide range of relative near
terms; unconnected issues, ruled by inadequate criteria; and organized
procedures, for integrating and assessing capability requirements.
3. Bureaucratic stovepiping. Causing the breakdown of policy, strategy and
resource allocation into isolated processes.
4. Creating misleading performance evaluation criteria. Masking capability
inefficiencies through methodologies deprived of analytical rigor.
The outcome of this condition entailed risks that are not always recognized, with
Defence planners often trying to purchase a breakthrough model through experiences
taken from other cases. Unfortunately, these models rarely work as anticipated because
they can import neither the conceptual system nor the people who understand it.
Defence reforms in developing countries focused on the efficient use of resources, not
on the modernization or transformation of military capacity. They tried to enable better
use of existing capacity as an interim developmental stage, but failure in economic
growth expectation did not provide sufficient incentives for expanding Defence
capacity. As a result, Defence reforms were revised rapidly, without much concern for
long term enabling mechanisms, for building Defence capabilities responsive to realistic
economic trends. Brazils Defence planning guidelines, for example, were designed to
simply strengthen existing military capabilities and improve the efficiency in the use of
reduced budgetary resource made available by a hostile Executive and apathetic
Congress towards Defence issues, rather than to modernize and create new
indigenous/regional military production capacity. Thus, Defence reforms did not
achieve sustained efficiency gains, by failing to strengthen production incentives and by
not addressing armed forces market failures that undercut efforts to boost technology
and productivity.
In contrast to Germanys, South Africas, and Spains Defence reforms that in the same
period enabled national Defence to restructure under comprehensive policies by
spreading the costs of adjustment over time; developing countries had to face, once
again, traditional macroeconomic problems, including unsustainable fiscal polices, high
government debt in association with weak regulation, and supervision of Defence
planning and programming efforts that do not translate into a unique set of policies?
The multitude of policies sometimes conflicting repeated the frequent mistake of
leaving the armed forces alone/to themselves so that they would not create political
turmoil; whereas, at the same time, strangling them economically. That is the so called
Argentinean Formula, replicated in Brazil, developed on the assumption that the less
Defence changes made, the better.
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Getting the right set of policies does not translate into efficient resource allocation. The
last years also show that the gains expected from technological development of the
armed forces were unrealistically high and the risks underestimatedthe danger was
not so much financial flows moving out during normal times, but inflows of private
capital that eventually destabilized projects on Defence alternatives which did not have
restrictions on opening their capital account in place .
If anything, current examples show that sustaining long-term Defence development
requires the alignment of Defence policies and macroeconomic policies that reduce the
risk of impact of financial crises. This alignment differentiates and complements foreign
policy and Defence policy alignments which in itself has been a major challenge for
developing countries. Moreover, the triangular alignment foreign policy,
macroeconomic policy and Defence policy - will become the key element for
successful ability to reduce the volatility of Defence programs, which in turn will reflect
foreign policy responses to shocks and macroeconomic policies that reduced security
vulnerabilities and, hence, the costs of Defence.
Encroached in the disconnected relationship of these policies, developing countries
Defence ministries exercise inefficient force design decision, introducing procedures
that reduced government discretion and minimized checks and balances on economic
analysis that lead to better Defence decision making. Supported by the Barcelona
Consensus
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- recognition that an economic system may not always respond as predicted
- Defence decision making uses economics to justify results instead of scrutinizing
decision criteria. Formulaic analysis subordinates economic reasoning to Defence
policy.
INTEGRATING ECONOMIC ANALYSIS INTO POLICY FORMULATION
THROUGH FORCE DESIGN
Emerging from a millennium capped by a half century of Defence thinking dominated
by Cold War-era necessities, now tainted by the aftershocks of September 11
th
and
aware of the inadequacy of traditional rigid Defence structures (whatever their military
might), every nation state is finding a need for a new concept and framework for
Defence planning. Force design a complex-yet-taxonomic decision-making process
which amalgamates policy formulation, modernization of military hardware, and
organizational restructuring with changes in the decision-making processes fulfills
that need.
What is force design? Its foundation is capability-based Defence planning. Upon this
foundation is a set of coherent concepts and a framework that makes them practical in
both term and significance. The resulting analytical construct abstracts military
capabilities into their component elements, explaining concept and relationship.
Framework and conceptual system integrate to form a hierarchy which articulates
processes that allow ways and means to develop and choose Defence alternatives
even when limitations of knowledge and information exclude the possibility of
assessing all expected outcomes. Framework and conceptual systems underlying
assumption is that Defence reform demands emerge as the differential between current
Defence capabilities and the fluctuating synthesis of Defence planning in the light of
perceived future conditions.
The logic of force design transfers the traditional challenges of Defence economics from
determining the economic efficiency of the various military alternatives to deciding how
to allocate human, production and fiscal possibilities among various competing
programming outcomes.
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Human resource allocation, in force design modeling, begins with the assignment of
qualified personnel to oversee the complexities of force design, thus providing the
crucial linkages between macroeconomic trends and fiscal resources within which
schedules are developed and modified as the programs proceed and develop. Beyond
that, the acquisition and deployment of valuable human resources should be well
integrated with control management requirements in order to strength the Defence
establishments ability to identify and negotiate acquisition opportunities, fighting the
unwelcome fusion of projects and divesting lines that are inappropriate for the
envisioned goals.
The ultimate function of skilled human resources in force design is deliberating critical
decisions that involve complex economic, technological and capability requirement
tradeoffs, cutting though the complexities of scheduling activities while avoiding the
quagmire of detail, moving quickly in repositioning production resources either to
orchestrate the acquisition or divestiture of function.
Production resource allocation is just as important as human resources allocation,
exercising interaction among Defence industrial possibilities and operational functions.
It consists of creating a pattern of decisions that affects the manufacturing of military
assets and should be reflective of policy -- with careful attention to the potential
interaction and driving forces within the national and international Defence industrial
base. If properly allocated, production resources can play a unique role in defining,
supporting and enhancing the success of a Defence project, operating in concert with all
its functions.
Budgeting is the process of fiscal resource allocation in order to assure that the required
set of military capabilities attends the objectives they should serve. When addressing the
new security environment, it would be a precautionary measure to make Defence
budgets reflect an incremental, moderate risk force design, reflecting the most urgent
priorities, and deferring some of the more challenging requirements to later increments.
One way of testing for a high standard of budgeting appropriateness is the measure of
its ability to comprehend the political environment (grass roots to head of state) in
which it was developed. The inability to sustain this claim of comprehension gravely
compromises force design outcome. When a ceiling budget drives the design of
capabilities, fiscal resource allocation tends to be equated between Services, leaving
them to identify Defence requirements alone. When it occurs, the Government abdicates
its prerogatives of specifying how, when and for how long its instrument of force should
be used. The outcome is the risk of each Service procuring material accordingly to its
own perspective, promoting the absence of interoperability with statements of
requirements detached from empirical assessment of concrete or potential threats.
Since any given potential instrumentality of the use of force by the military exists
notwithstanding the range of purposes for which it could be used, the coherence
between military capability and Defence objectives is always at stake. Because budgets
tend to be evenly distributed between branches, balancing the force becomes the
implied policy, with equity often serving as the only rationale justifying policy and with
the services pledging assured interoperability through more resources.
ARCHITECTURE OF DEFENCE DECISIONS
For any modern state, the provision of Defence is one of the most complex activities
that exist, without a prospect of modification or the need of this role or its complexity in
the near future. This complexity is originated in three interrelated factors.
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The first refers to the instability of future projections (where Defence alternatives obtain
their planning reference), which demand flexibility in the specification of Defence
capabilities in order to adapt themselves to the uncertainties of these projections. This
first factor imposes a degree of randomness to the demands for Defence. Interests may
arise, disappear or be modified in terms of political dynamics, contingently changing
not only Defence objectives but functional assignments and Defence responsibilities as
well, and even the particular concept of Defence.
The second factor refers to the ever present competition for scarce financial resources,
which together with the increasing costs of weapon systems demands far more precision
in the specification of Defence capabilities. On the other hand, even having met the
required specificity in the qualification and quantification of necessary means,
uncertainties still remain. For example, initially designated financial resources may be
transferred to other government needs, production structure may be modified in terms of
new technologies, industrial inputs may not be available, etc.
The first factor refers to the uncertainty of ends and, to cope with it, there is a need for
flexibility. The second one refers to the uncertainty of means and, to cope with it,
specificity is required. Within this conflict between flexibility and specificity comes the
third factor, the uncertainty of the relationship between means and ends.
Uncertainties regarding the relationship between means and ends refer to the correlation
between the acts of force that conception of means of force anticipates and the
alternative ways of use of means of force allowed by political ends. This third factor
points out the uncertainties about the alternatives of the concept of employment of
means of force (strategy) in order to meet political purposes, translating tactical
possibilities and strategic alternatives.
When alternatives for a Defence policy are proposed by governments and discussed
with society in order to jointly define a way of better providing a desired state of
security, there is a switch from one situation where actions result from decisions based
on a set of previously established rules to another situation where the object of decisions
are the rules that will structure future decisions.
Switching from one decision-making process within a set of rules to a decision-making
process among future rules reflects a transformation of the interaction level between
actors that creates conditions for building up a political consensus on Defence.
In conjunction with effective decision-making processes that recognize long-term goals
(as well as procedures that can guide its execution), force design provides the two-way
flow of critical information and assessments needed both at the political level and
within the Defence ministries and their sub-elements. Through force design, a
professional Defence sector can be created; be appropriately sized, be based on an
efficient use of resources, work within precise guidelines and be therefore subject to
democratic control.
When force design is absent, decisions are taken based on a set of foundations seen as
axiomatic and absolute only because they remain unexamined; as a result, ministries
and the political leadership often appear to respond to events as they unfold. When
problems arise, the problem becomes the focus of attention. In such situations, the
urgency of decision-making in and of itself pushes aside the seemingly abstract notion
of force design.
The final goal of force design is to accomplish a system of concepts manifest within a
framework which is an open-ended measurement tool capable of:
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1. Assessing the changing relationship between capability requirements and
Defence demands properly addressing the challenge of Defence planning in an
era of uncertainty of threats and information technology.
2. Specifying capabilities to be added that might lead to different choices under
three concurring perspectives adaptation, modernization and transformation.
Lacking an existing force design capability, inappropriate Defence decisions taken on a
tight timetable generally fail to take into account the various tradeoffs and cannot
systematically examine their interaction(s). That is, decisions made tend to result in
capabilities later to be found incapable of meeting Defence objectives, i.e., operational
failure.
The collective pattern of the decisions taken into force design follows a logic stream
regulated by its own results; each one stimulated and derived from the other. As
programming is developed to satisfy capabilities requirements, inconsistencies among
requirements and lack of balance among requirements (some very lax and others
stringent in similar area) become apparent.
This knowledge will be manipulated and transformed through the architecture of
Defence decisions. The requirements for new processes and products change constantly,
the architecture of Defence decisions change only with great deliberation and much
effort. Yet, it is essential to ensure that the best decision in Defence policy formulation
be supported by coherent program-evaluation
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practices.
This installment is even more prominent when making the costs and consequences of
Defence decisions as explicit as possible; insisting upon the use of the best practices to
systematically validate capability requirements (field-test, games and simulations, etc.),
ensuring that deficiencies uncovered are corrected with appropriate modifications, and
compelling a rationale for Defence expenditures fully integrated and balanced with
Defence programs.
Multiple and simultaneous feed-back between the architecture of Defence decisions
show how their processes are not truly neutral in that their substantive content affects
the independence of the purposes they serve. As one, they belong to an elaborate
complex of related activities that crystallize around a common goal designing the
appropriate composite of military capabilities. Their great need is to make all
operational processes work together, expanding and contracting their relationships as
needs develop, managing knowledge through process networking on a vast scale in
order to influence the powers that control it.
The table below summarizes and integrates policy topics that must be correct in the
coordination of Defence policies
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. It is an attempt rather, an endeavor to offer an
articulating logic for Defence policy formulation that can be used to compare and
contrast other methodologies, providing the general elements that any methodology
relevant to the same purpose would need to include, thereby helping to generate
questions that need to be addressed in order to diagnose problems, explain processes
and predict outcomes. Thus, it might help in allowing precise assumptions to be made
about a limited set of parameters and variables, which simplifies the process of multiple,
interacting cycles involving numerous decisions at multiple organizational and
economic levels. Perhaps, it could also help build a stable conceptual environment in
which stability and change coexist, alternated with either a number of modest
adjustments that have the same attributes used in structuring a choice or major changes
in choices, with a radical departure from the past. But ultimately permit parallel
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processing within the Defence system so that operational process can be conceptualized
as being linked to economic and social outcomes, thus allowing the decision-making
process to move outward, from the crafting of a narrow list of alternatives from which a
choice is to be made, to the actual choice itself.

Policy Topics
Conceptual Framework. Provide guidance for the development of a coherent
conceptual framework and an associated planning methodology in order to achieve
rigor in designing, developing and evaluating Defence capabilities.
Up-front analysis (Reforming for what?). Provide guidance for the analysis of key
features of the security and Defence environment, setting objectives and priorities in
the face of uncertain futures and evolving Defence functional responsibilities.
Decision environment. Provide guidelines for the Defence decision-making process,
establishing assumptions and parameters, the planning timetable, the negotiation
process with other governmental and non-governmental agencies, and the distribution
of responsibilities.
Scenario formulation. Provide design guidelines and evaluation criteria for reference
scenarios with elements for the selection and prioritization of mission areas.
(Re)Engineering the force. Provide capability-based guidelines, including
peopleware, software, informational and hardware requirements based on sound
macroecomic analysis.
Performance Budgeting. Define major programs, establish priorities and define
funding procedures for a performance based budget.
Managing transition. Build commitment to reform within ministries and
organizations directly affected by change, re-baselining programs impacts and
providing guidance for the extent and scope of contracting out Defence services to
private sector suppliers.
Test and evaluation. Set out "baseline" criteria against which to assess the extent to
which their Defence systems meet designed standards, including (where appropriate)
the specific requirements of transformation for the armed forces to face new threats
that have surfaced in recent years (terrorism challenges, for example).

CONCLUDING REMARKS
Unless force design is addressed head on, unless a system competent enough to address
force design is already in place, choices offered by ministries to the political leadership
are often no broader than between building more of the same (easier and quicker than
doing a comprehensive review) and developing an entirely new approach (generally
hinged imprudently on some form of technology).
Force design encourages early formal and rigorous validation of concepts that will be
used to develop Defence alternatives, ensuring that deficiencies uncovered during the
processes it instructs are corrected with appropriate modifications. To achieve these
purposes, a stock of new Defence economic knowledge foundered on the incremental
development, iterative refinement, and ongoing evolution of process description is
needed.
14
This role of Defence economics in force design is to make these processes function
effectively, reflected in three aspects: the speed of problem solving, the accuracy of
problem solving, and the adequacy of the solution proposed for the problem depicted.
Policy can then assume choices, being expected to control process dynamics at all levels
of aggregations, with clear causal chains and assumptions for making specific
predictions for particular policy issues, taking into consideration the magnitude and
facets of the problem, its causes, and the probable impacts of various solutions. Policy
can act discretionarily in deciding exactly how national policy gets translated into
dominant programs with an increased knowledge of problem parameters and the factors
affecting them.
The architecture of Defence decisions makes a major contribution in reducing the
transaction costs involved in reaching a common understanding of the problem and
identifying the means for resolving it, since subsystems will be interpreting the evidence
using a similar set of assumptions and concepts. This role carries a larger share of the
responsibility to provide transparency to the Defence management and resource
allocation process, assuring that the required data is provided to attend control and
oversight requirements, whilst also assuring that the processes involved fulfill their role
in identifying, developing, organizing, fielding and supporting military capabilities, i.e.,
that all is properly accomplished effectively, efficiently and economically.


NOTES

1 See Raza, S. Terrorism in the Southern Cone: 'Prosfictional' View and Power Politics.
http://www.comw.org/tct/terrorism.html.
2 Efficacy is defined as a measure of task accomplishment: the degree to which the
activity/process and resulting output delivered meet the desired expectation.
Efficiency translates the best combination of resources to maximize efficacy. It is
measured as a relationship of output to input, usually expressed in terms of a ratio. A
higher efficiency ratio translates a situation where changes in Defence capabilities for
a small change in resources are balanced across all resources used to produce those
capabilities. The economy reflects the degree to which efficiency is obtained with
lesser fiscal spending.
3 Wood, F.S Risk-Based Resource Management Integrating Risk-based decision
making with performance Budgeting. USCGHG, Washington, D.C. January 2002.
p.2.
4 For a discussion about the role of these assumptions and mechanisms see Korb, L.
U.S. Defence Spending After the Cold War: Fact and Fiction. In Williams C. (ed.)
Holding the Line: U.S. Defence Alternatives for the Early 21st Century. Cambridge,
Ma: The MIT Press, 2001. p.45 This assumptions, according to Korb, may be placed
into four categories: assumptions about the overall size of the Defence budget
appropriate for the first decade of the twenty-first century, about the operations the
military prepares for and participates in, about investments in equipment and military
readiness, and about the spending and conditions needed to attract and retain the best
people to serve in the armed forces.
15

5 Formulated by American economist John Muth, Rational Expectations Theory states
that individuals and companies, acting with complete access to the relevant
information, forecast events in the future without bias. Errors in their forecasts are
assumed to result from random events. Rational expectations theory has emerged as
an important aspect of new classical economics. http://www.economyprofessor.com/
economictheories/rational-expectations-theory.php.
6 See Moskovskiy, A.M. Modern theory and practice of arms development planning:
main conclusions and lines of improvement. Military Thought, Jan-Feb, 2003.
http://www.findarticles.com/p/articles/mi_m0JAP/is_1_12/ai_102903198`.
7 IMF Country Report No. 05/262. Chile: Report on Observance of Standards and
CodesFiscal Transparency ModuleUpdate. http://www.imf.org/external/pubs/
ft/scr/2005/cr05262.pdf#search=%22copper%20law%20chile%22
8 In September 2004, 16 well-known economistsOlivier Blanchard, Guillermo Calvo,
Daniel Cohen, Stanley Fischer, Jeffrey Frankel, Jordi Gal, Ricardo Hausmann, Paul
Krugman, Deepak Nayyar, Jos-Antonio Ocampo, Dani Rodrik, Jeffrey Sachs,
Joseph Stiglitz, Andrs Velasco, Jaime Ventura, and John Williamsongathered in
Barcelona and issued a new consensus on growth and development. The "Barcelona
Consensus" echoes many of the findings of the World Bank's work, which, in turn,
reflects recent academic research by several of the signatories.
9 Program evaluation practices are rooted in system analysis and cost-effectiveness
analysis. Quade and Boucher explain system analysis as a systematic approach to
helping a decision-maker choose a course of action by investigating the complete
problem, searching for objectives and alternatives, and comparing them in the light of
their consequences, using an appropriate framework as far as possible analytical to
bring expert judgment and intuition to bear on the problem. Quade, E.S and Boucher,
W.I. System Analysis and Policy Planning: Application in Defence. New York:
Elsevier, 1968. p.2. Cost-effectiveness is a technique (analytical) seeking to evaluate
the effectiveness for the resources expended across various optional programs.
System analysis and cost-effective analysis must be supplemented by informed
military judgment for the treatment of the broad questions typical in force designing,
showing that the consequences of various approaches might be different from what
they seem.
10 For similar attempts of establishing the relationship among such decision making
elements, see Kent, A.G. A Framework for Defence Planning. Santa Monica,
California: RAND, R-3721-AF/OSD, 1989. This framework is dated and focused on
relatively Cold War stable threats and missions. Goals and the Defence environment
are much more fluid today. Notwithstanding, this framework is useful for identifying
and relating notional procedural steps among broad national interests and specific
force components.

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