The Allocation of Military Resources
Implications for Capital-Labor Substitution
Clarifies the economic issues involved in allocating military resources between (1) capital and labor, (2) military and civilian labor, and (3) more and less highly skilled labor. Traditional methods of budget submission and force planning tend to promote inefficiencies; attention is paid only to labor compensation and procurement costs, rather than to the actual costs of labor and capital. An analytic framework is presented and applied, showing that the cost of capital has been falling relative to the cost of labor. Capital costs can be substituted for labor costs by (1) labor-saving equipment, (2) replacing rather than repairing parts, and (3) cutting down on maintenance as far as compatible with force capability. Since costs of military labor have risen more than costs of civilian labor, further use of civilian contract service is advisable. Resource allocation could be improved either by centralized planning, with a restructured budget and with manpower planning in the early stages, or by decentralized decisionmaking with each mission commander allocating his budget.