When It Comes to Israel’s Defense Budget, It’s Guns vs. Butter

Israel’s defense budget should be set at 6% of GDP, and the defense minister should be responsible for developing the best force and acquisitions structure within this constraint.

Moshe_Arens_cropped-150x150By Moshe Arens

Each year, after the earth has orbited the sun another time, the perennial debate begins about the size of the Israeli defense budget. How much is enough, and how much is too much? It is a chance for everybody who knows a little about defense — and who in Israel doesn’t? — to join everyone who knows a little about economics and put in his or her two cents. By this I don’t mean to belittle the valuable advice provided by committees of experts over the years. And then, after just about everything on the subject has been said, the prime minister decides and the matter can be put to rest for another year.

Those like myself, who received their basic education in economics from Paul Samuelson’s book “Economics,” well remember the guns vs. butter graph that appeared there. The economy can presumably produce only so much, and a decision has to be reached on how many pounds of butter are going to be traded for a gun. By now we have learned that the matter is a little more complicated than that simple curve might suggest.

It is true that increasing the defense budget will generally mean decreasing the allocations to other budget items, like education, social welfare and investments in the economy. But bear in mind that a not-inconsiderable part of defense expenditures contributes to these very items. Defense research and development helps in the long run to promote Israel’s high technology sector, the motor that has been propelling Israel’s economy in recent years. The Israel Defense Forces is Israel’s best educational institution, and some of the budget allocated to defense should be seen as contributing to education in Israel. Well known is the IDF’s contribution to social welfare and immigrant absorption.
And not least, the feeling of security and stability in Israel provided by a strong IDF reduces the risk factor that foreign investors include in their calculation before investing in Israel, and thus encourages investment in Israel and contributes to the growth of the economy.

Nevertheless, decreasing the defense budget might contribute in the near future to improving the standard of living, but as Menachem Begin famously said: There is one thing more important than the standard of living, and that is life itself. And here the IDF’s contribution goes unchallenged.

So how much is enough, and how much is too much? Paul Kennedy, in his famous book “The Rise and Fall of the Great Powers,” showed that excessive defense spending can over time lead to a serious deterioration of the economy. In other words, not only will it negatively impact the economy but it will also impact the ability to sustain defense spending. Overspending on defense now will lead to an inability to sustain the defense establishment in the years to come.
Has Israel reached this limit? Evidently not, judging by the economy today. But it did come pretty close in the years after the Yom Kippur War, when defense spending reached 30% of Israel’s GDP and economic growth stalled in the years that followed. Only in 1985 as defense expenditures decreased to 15% of GDP and then continued to decrease to 6% of GDP, the current rate, did the economy pick up and grow at a steady pace. It is now able to provide the support for the defense needs of the country.

Considering the dangerous Middle East environment, there would seem to be good reason to continue to maintain the defense budget at 6% of GDP in the coming years. So what is all the annual argument festival all about? Cut out the fat, dispose of the inefficiencies, people say. Worthy objectives, no doubt. But who is responsible for doing just that? The defense minister. It is his responsibility, and he and his staff are best placed to do just that, no doubt better than the officials in the Finance Ministry.

The proper procedure should be for the government to determine that the defense budget be maintained at 6% of GDP until such time as major changes in the threat environment occur. The threat environment should be defined by the government with the aid of the national security council each year, and it should be the defense minister’s responsibility to develop the best force structure of the IDF and the complementary weapons acquisition strategy each year that can be fitted into this budget constraint.

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