Economics of Conflict, War, and Peace

Economics of Conflict, War, and Peace Prof. Dr. Jurgen Brauer; Summer 2009 Chulalongkorn University; Bangkok, Thailand Session 3.1 Manpower: official state forces

Admin matters • Make-up class (for midterm exam) • F 19 June, 1:30-4:30pm; Econ Bldg Rm 409 • Sample midterm exam questions [they may not all have the same weight] • 1. Use the PPF model to explain the static guns vs butter tradeoff and show diversion, destruction, and disruption. • 2. What happens in Boulding’s LSG model when the slopes of the strength gradients change? Or when the height or distance parameters change? Or when all of them change simultaneously? How can this model explain arms races? What, if any, suggestions does it contain to stop arms races? Explain and explore. • 3. Should the international arms trade be free but taxed? Illustrate and discuss. • 4. Discuss the Edgeworth Box model of exchange and specialization, and show how the economics of appropriation or security economics can be added into the model. • 5. Discuss transnational and transgenerational public goods (or bads) with special application to the security economics problems facing the world today. Economics of Conflict, War, and Peace Session 3.1

Manpower • (1) official forces • Conscripts • Volunteers (all-volunteer force, AVF) • (2) private forces (“mercenaries”) • Private military companies (PMCs) • Private security companies (PSCs) • (3) irregular forces • Militia, rebels/revolutionaries, uprisings/mobs, terrorists, bandits, organized crime (?) “involuntary” “privates” private vs state employer”? but the state often employs PMCs/PCSs Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Official state forces • Conscription • Volunteers (all-volunteer force, AVF) Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces Green: no armed forces (Costa Rica, Greenland, Haiti, Iceland, Panama); blue: no draft; orange: draft scheduled to be abolished; red: draft; grey: no information Source: Wikipedia “conscription” Prof. J. Brauer; Summer 2009 Chulalongkorn U., Bangkok 5 Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Military manpower decisionmaking • How many resources to expend on military capability? • How many people to bring into the military, both in absolute and in relative (percentage) terms? • Front-line vs back-office staff (tooth-to-tail ratio) • Depends, in part, on the quality of the manpower and the quality of military hardware • Productivity of military manpower helps determine the demand for military manpower • Optimal amounts of • Training • Manpower experience and quality • Active to reserve forces • Volunteer, conscripted, or mercenary forces Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces Active vs reserve force use Source: Simon/Warner; EPSJ 2(1) 2007, p. 20. Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces Source: Simon/Warner; EPSJ 2(1) 2007, p. 21. Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces Source: Simon/Warner; EPSJ 2(1) 2007, p. 22. Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Illustration: promotions • Members of a volunteer force usually compete for promotion (just like in private firms) • Conscripts need more costly performance monitoring • Vertical composition of the force • More weighted toward entry-level positions when lateral entry is restricted; bottom-heavy large base; promotion via “up-or-out” rules; implies large, and costly, force • Junior ranks are based on skills but • … senior ranks are based on a play-off or tournament where many compete but only few succeed to promotion • This can cause incentive problems to obtain optimal performance Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Supply decisions • depend not only on military planners • but on (potential) force members • Enlistment/re-enlistment decisions • Foregone civilian opportunities; post-military civilian opportunities; pay-scales; incentive bonuses; structure of retirement vesting; education, housing, medical benefits; community demographics, attitudes, values, and belief systems, and so forth • tools, means, and incentives made available to recruiters Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Demand side considerations • Smoothing of force levels through peak-load military demands • Voluntary Separation Incentives (VSI’s) • Selective Separation Bonuses (SSB’s) • Cohort planning; demand = 300 members • C1 (old) = 100; C2 (medium) = 100; C3 (young) = 100 • C1 becomes vested in retirement benefits and leaves • Now demand drops to 250 members • C2 (old) = 100; C3 (medium) = 100; C4 (young) = 50 • Thus, the experience (productivity) composition changes • Eventually, C4 will be “old” the leaders, but there are only a few of them Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription • Baseline argument: conscription is involuntary servitude, outlawed in almost every respect – except for the military (“national service”) • In the past, true volunteering was not uncommon • E.g., New Zealanders volunteering to fight with/for Britain in the Boer War (South Africa; 1899-1902) • Conscription became with norm with the Napoleonic wars of the early 1800s; the need to staff mass armies • Only with the end of the Cold War is the pendulum swinging back to volunteer armies (although in the U.S. already since 1973) • In late 2006, of 26 NATO members only 8 still had conscription Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription • Conscription amounts to unequal exchange • Conscript surrenders labor in exchange for which he receives something (subsistence) he would otherwise not have taken • Involuntary trade suggests unequal trade • Lack of freedom usually an indication of inefficiency • Conscription is a (curious) in-kind tax • Reduces budgetary outlays, but only by deflecting the cost to conscripts/draftees • This cost affects just part of the population: young males • Moreover, this cost affects just THAT part of the young, male cohort that is actually drafted; if 10,000 are needed out of a cohort of 100,000, each has a 1-in-10 chance to be drafted • The draft is a lottery; and that means the in-kind tax is imposed by lottery • No other tax in a state is imposed by lottery! Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription • Draft also discriminates by age, gender, skill, and time • Draft is imposed by the old on the young, by females on males, by the unskilled on the skilled, by the present on the future (as the draft delays acquisition of education and work experience) • Draftees’ lifetime earnings tend to be lower than those of non-draftees (5% or more) • Lower education; delayed entry into private work life => human capital not accumulated as much • Dynamic cost (cost over time) accumulates in lower GDP • In the U.S. post-conscript era, there appear no wage and life-earnings differentials Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription • All taxes entail avoidance/evasive behavior • Draft “dodging” (Presidents Clinton/Bush Jr.) • South Africa during apartheid: emigration of young men • Russia today: fake medical certificates, bribery • Turkey today: pay “buy-out” money to state (“commutation”) • This converts in-kind tax to money-tax | conscripts self-select: pay in-kind (no alternative civilian option) or pay money-tax (better alternative civilian option) • Undesirable military effects • Distorts choice between capital and labor (K/L substitution) • Govt’s overinvest in cheap manpower; underinvest in equipment • But modern militaries rely on high-tech modern weaponry perhaps best not left to 2-year recruits • Empirical studies show that professional armies do in fact have higher K/L ratios and are better (more productive) fighting forces Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription • No empirical evidence that • Conscript armies fight less often than volunteer armies • Are more equally drawn from all segments of society • Are subject to a higher degree of democratic control • Display a higher sense of civic duty • Empirical evidence that • Conscript armies fight more often than volunteer armies – and more unpopular wars (e.g., France in Algeria; U.S. in Vietnam; Russia in Afghanistan) • Are often more elitist (the Philippines) than volunteer armies • Democratic states with conscript armies succumb to military coups (e.g., Turkey, repeatedly) • Conscript army: selective tax | volunteer army: broad-based tax => more “civic duty” in the latter case Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription • The particular political allure of the draft stems from its selective effect: • a small group of primary victims: young males, about age 18-20 that pay the in-kind (or commutation) tax … • … and the removal of a conscript army from democratic control • If conscription is so bad, why has it persisted until recently? • Basically, two arguments • Size of the needed force • Military productivity • It can be shown that if the size of the needed force is large AND if the productivity differential between conscripts and volunteers is small, the economic cost may be lower with a conscript army Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription vs AVF • The size argument • n = 3 civilians; n1 = $10/hr; n2 = $15/hr; n3 = $20/hr • AVF: • If there is one military opening, it needs to pay at least $10.01/hr • If there are two: at least $15.01/hr to both (total: $30.02) • Note: MC(L) = $20.01 • If three: $20.01/hr to all three (total: $60.03) • Note: MC(L) = $30.01 => monopsony model later • Conscripts, say, cost $15/hr | now compare … • An army of 1: $15.00 vs $10.01 [prefer AVF] • An army of 2: $30.00 vs $30.02 [~ indifferent] • An army of 3: $45.00 vs $60.03 [prefer conscripts] Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces AVF vs conscription: S/D model Shortage of voluntary supply is remedied by coercion (draft; conscription; forced labor) P SL=ΣMCL under competitive conditions P* Nonmarket solution with below market price (price ceiling) P* DL=ΣMBL DL=ΣMBL Q* Q* Q Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces AVF vs conscription: monopsony model P But first recall monopoly case MCL - under monopsony conditions P MC ATC $20 SL=ΣMCL under competitive conditions D $15 P* P* Q MR DL=ΣMBL Q* Q* Q Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Conscription vs AVF • The (crass) productivity argument • If n=3 conscripts at $45/hr kill 45 enemies => that’s 1 enemy per dollar spent • If n=2 volunteers at $30.02 kill 45 enemies => that’s 1.5 enemies per dollar spent • Empirical studies for U.S. • Post-1973 AVF is more productive • Turnover rates dropped from 21 to 15% • Average length of stay increased from 4.7 to 6.5 years • Average age increased from 25 to 27.6 years • Individual and unit-performance measures improved Economics of Conflict, War, and Peace Session 3.1

Manpower: official state forces • Since 1991 (post-Cold War) • Armies have become smaller and more sophisticated equipment, tactics, strategy are used … • … tilting advantage away from mass conscript armies, certainty for NATO Europe Economics of Conflict, War, and Peace Session 3.1

Economics of Conflict, War, and Peace