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Hat Tip to the Marginal Revolution Blog and the Prior Probability blog for referring me to the referenced article.

The privatization of defense services could hypothetically reduce the occurrence of military conflicts. This is achieved by realigning the incentives to engage in warfare by making the costs more evident to the taxpayer. The direct costs of war are generally obscured due to a lack of clarity of how tax dollars are allocated. Operating as a form of indirect fiscal illusion. Either by design or by the context of the broad and imprecise nature of public expenditures. If a would-be taxpayer could not transfer or distribute the costs of war to the collective contributions of the tax base, frivolous objectives such as “spreading” democracy would be off the table. Military action would shift from being offensive or even preemptive to being purely defensive. Whether defense services should be provided by the local neighborhood watch or a private corporation is another matter.

There is some historical evidence suggesting that eliminating a mechanism for distributing the costs of violent conflicts makes them less apt to transpire. Per a recent paper written by Rosolino  Candela, and Vincent Geloso the French settlers of the  Bay of Fundy had virtually no violent conflicts with the Mi’kmaq tribe. Why?  The European settlers of the 18th century known as, Acaridans, had to directly bare the costs of violent conflicts. Since they received little institutional or financial support from the mother country. Having adopted informal decision-making procedures, living along aside the Mi’kmaq, they lived in a state of near-anarchy (Candelaa & Geloso, 2020, p.3-4). Providing some credence to the inference that a strong central government operates as a mechanism for reducing the transaction costs of armed conflicts. Skewing the incentives of constituents to be more lackadaisical towards the costs of unnecessary military campaigns. Often reducing transaction costs is viewed as being a positive economic development in this case it is not. The evolution of the robust warfare state in the U.S. has amounted to profligate spending, a treacherously hazardous foreign policy, the growth of government, and ample opportunities for rent-seeking.

The Acadians received virtually no support from the homeland. Outside of a “symbolic” tax that was only sporadically collected by officials, they were primarily left to their own devices (Candelaa & Geloso, 2020, p.3). Leaving the settlers able to only rely on local militias to provide the defense of the colony. Leaving the “…costs of using violence would be concentrated on the beneficiaries themselves and could not be passed on to wider groups..” (Candelaa & Geloso, 2020, p.10). Through the colonists and the natives having to fully bare the costs of violent conflict, this was one of several factors that prevented the development of interest groups (Candelaa & Geloso, 2020, p.16). Stifling the potential for wartime profiteering by removing the incentives to fabricate needless conflicts for the sake of drumming up business.

While there may be contextual characteristics that do not apply to modern times. It should be noted that a highly centralized government does have an impact on the frequency of war. Through disbursing the costs across a large number of taxpayers, the true costs of military intervention are obscured. Hence why for the Acadians, the lack of financial and military support from the motherland shifted incentives away from violent forms of conflict resolution. Making it plausible to surmise that having a centralized government is what makes war so easy to initiate. It acts as the middle-man connecting constituents with service providers (the military). Alone, a centralized government reduces the costs of coordinating complex military campaigns.  Never mind the fact that it collectively distributes the costs of the capital required for military conflicts. To truly demonstrate this point, consider the highly extravagant cost of a private citizen purchasing a tank or a submarine. Individually most people could not afford to purchase the instruments of sophisticated warfare. Combing the fact that a central government obscures the direct costs of war and provides the institutions that make the coordination efforts of armed conflict more efficient, it shouldn’t be a mystery why the size and scope of military conflicts have now become global. Providing some firm insights as to why the Acadians preferred the bargaining table to the sword in resolving conflicts with the Mi’kmaq.

4 thoughts on “Privatization of Defense- Central Government. The Transaction Costs Reducer.

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