Reducing Armed Forces spending
Since the government took special steps to save human lives and faced the economic crisis during Covid-19 pandemic, it would not be over stated, "government's timely efforts and leadership's forethoughts have made it possible to maintain normal economic situation in Bangladesh". Thanks to the administration, particularly to Prime Minister for her direct involvement to monitor the situation. Amid the pandemic crisis, many countries suffered economic recession, but Bangladesh has largely been able to avert the probable severity.
The 21st Century World no longer encourages the power of using guns but to have skilled labour-forces and democratic administration for ensuring harmony & tranquillity among its population country-wise and beyond. And underpinning the theme, today many countries have been reducing its budgets of spending for defense and encouraging programs for private and public consumption and investment opportunities. In other words, most countries today initiate programs that can increase resources available for the production of consumption and investment goods.
The United States, United Kingdom, Russia, China, India, Pakistan and many more countries in the globe are bright examples that are reducing budgets of defense-spending. In this drive, the leadership of defense country-wise is coming forward with ideas on how and where the reduction can be done for the greater interest of its nation. A bright example is India. Recently, the Indian Army conveyed to the Defense Ministry that its military areas within cantonments can be converted into "exclusive military stations", with it exercising "absolute control" over them, while the civilian areas are handed over to local municipal authorities for maintenance and using for greater benefit of the nation. In other words, the Indian generals have acknowledged "nation is first". All these raise a question, how does it sound in terms of economics?
In economics, a trade-off is commonly expressed in terms of the opportunity-cost of one potential choice, which is the loss of the best available alternative. No matter which country we talk about, in case of society as a whole, society faces a trade off between more consumer goods (low taxes) and more public goods (defense, social programs). On the same token, trade-off between competing uses of resources implies that a reduction in the real Armed Forces spending would provide a dividend in the form of increased real private and public consumption and investment opportunities --that is increased resources available for the production of consumption and investment goods. To quantify this increased opportunities over time, the policy dividend per year is defined here simply as the annual reduction in real spending of Armed Forces, these are the common scenarios of policies in most developed and developing countries in the 21st Century World.
Speaking about domestic-policy dividend to Bangladesh-economy, the redistributive effects of reduced Armed Forces spending should not be dismissed as unimportant or irrelevant in choosing how the domestic-policy dividend ultimately will be used. This is because, on benefit-cost perspectives, the referred agency or Defense Department poses "surplus manpower".
Again, the statistics show that there are over 260000 active personnel - Army, Naval and Air Forces, in which over 204000 are Army. There are over 63900 reserve personnel of Armed Forces in which currently little over 6000 are assigned as UN Peacekeeping Forces. In 2019, the budget was $4.36 billion, which was 18.3 percent higher than that in year 2018. In 2017, the budget was $3.27 billion, which was 15.08 percent higher than that in year 2015. Over these years, on an average over 1.41 per cent of GDP was for Armed Forces spending. Matter of fact, over the 49-year period, the percentage of GDP for Armed Forces spending in Bangladesh was the highest in year 1977 and the second highest was in year 1976, which was equivalent to 1.53 percent of the GDP.
The opportunity cost of providing a specific level of national security is the lost production of nondefense goods. Conversely, if the economy was originally operating at a point where cutting Armed Forces spending out of entirely would imply increased production of nondefense goods further. Thus with a reduction in Armed Forces spending of taxpayers' money, the annual dividend would imply increased opportunities for the production of nondefense goods. For example, it can be invested for addressing crucial issues that the society has been facing for awhile now. Specifically, transferring or relocating manpower to Law Enforcement Agency can be a win-win for parties involved where no job losses will be seen and budget of spending will be justified without wasting taxpayer's money.
On welfare assessment aspect, it would yield higher level of welfare than the one Bangladesh is currently having. If current preferences remain unchanged, majority here hope not, a move to production of any other combination would result lower the level of national welfare.
There are two scenarios, however, under which a decline in Armed Forces spending could enhance welfare by creating increased consumption and investment opportunities. A cut in Armed Forces spending could generate welfare gains, if it were associated with unanticipated decline with the severity of external threats. This seems to be the example most relevant to the current situation in all of the countries in the globe. Accordingly, curtailing the budget of spending for defense and putting more for domestic production & consumption can ensure countries with modern lifestyles and solving its social problems for ensuring tranquillity thru democratic government. These alternative effects of domestic-policy dividend can also have implication for the amount of resources available for production in general. Specifically, any additional investment adds to the future resource base, thereby it enhances future output growth and investment and consumption opportunities. Thus even if the decline in the Armed Forces spending were temporary, for example, last only one year, its benefits in terms of increased productive capacity could be realized over many years. This longer-term effect can be a model in the framework presented above.
Under the proposal, some analysts believe that in recent decades of Bangladesh, Armed Forces spending taxpayers' money have been excessive. It has been reducing the residual supply of productive resources, i.e. capital and labour, available for private and nondefense public investment and thereby weakening the economy. According to this "depletion theory" the effects of higher level of Armed Forces spending are reflected in a lower rate of economic growth. It has been here for so long. Thus the principal result of reduced the proposed spending would be greater investment and economic growth for the interest of the nation we love most.
Dr Akim M Rahman is Assistant Professor, Economics Department, and Canadian University