How microeconomically insignificant is Defense R&D?

How microeconomically insignificant is Defense R&D?

[Gregory Aharonian]

 
     For some time I have been arguing that many DoD software initiatives
are a waste of money and should be no longer funded, for the following
reasons - they seem to have little impact outside the DoD (STARS), they
waste money on extravagant services (ASSET), or they duplicate services
the private sector can more cheaply offer (SEI).

     But for all of my arguments, especially in light of the DoD's attempts
to start dual-using everything, the real question is:  How microeconomically
significant is DoD software research?  What exactly is this country getting
for the hundreds of millions of dollars being spent each year?  And more
generally, how microeconomically significant is DoD research?
 
     To shed some light on this, and to give ammunition to those of us who
believe that DoD, and the rest of the government, should not be in the venture
capital business, (i.e. stop using my tax dollars to compete with me - that's
what we fought the Cold War for) consider the abstract to the following
article:
 
 
		DEFENSE R&D, TECHNOLOGY AND ECONOMIC PERFORMANCE
		  A LONGITUDINAL ANALYSIS OF THE US EXPERIENCE
		     by Alok Chakrabarti, C. Lenard Anyanwu
		       New Jersey Institute of Technology
            IEEE TRANS ENGINEER MANAGEMENT 40, 2, 136-145, May 1993
 
    This paper examines the issue of impact of defense expenditure from
    different perspective, i.e., in terms of the direct relationships
    between defense R&D and economic performance as well as the indirect
    relationships via the development of (1) technical and scientific
    skills and (2) new technology.  The model was estimated for the
    period 1955-1988 on a time-series set measured as elasticities. This
    effect of defense R&D is observed particularly through technological
    change as measured by the number of patents granted to US organizations
    and individuals.
 
    There is no statistically significant evidence of resource diversion
    or "crowding effect" on the civilian economy due to defense R&D.
    SIMILARLY, THERE DOES NOT SEEM TO BE ANY STATISTICALLY VISIBLE
    EVIDENCE OF DIRECT EFFECT FROM DEFENSE R&D TO THE ECONOMY. Interestingly
    the non-R&D aspect of defense spending appears to have no statistically
    significant effect on the major components of civilian economic
    performance, technical-skills formation or technological change.  From
    a policy point of view, this suggests that technical spillovers may
    be limited to a specific kind of defense spending and not to defense
    spending in general.  Another interesting implication is the rivalry
    between R&D and non-R&D defense spending is in favor of the latter.
 
===========================================================================
 
    Thus one of the few independent studies of defense R&D spending, unlike
those SDI (and others in the DoD) commission to brag about million dollar
spinoffs from billion dollar investments (can you spell ROI?), we see
evidence that maybe the country is getting little in non-defense return
from the billions of taxdollars being spent each year.

    For software R&D, well VHDL, SGML, CALS, TCP/IP came out of the DoD
and have had much benefit on their communities.  Ada, probably the most
spinoffable, is dead outside the DoD, while much DoD software engineering
methodology (other than maybe SEI's CMM) that has been developed over the
last fifteen years rarely was adopted by the software industry.  DoD software
reuse efforts are economically unsound and function only as long as the
DoD provides welfare money - none know how to transition to private operation,
so not much spinning off there.  Most government software that has been
commercialized has come out of NASA and DOE.  And the music world has not
benefitted much from DoD's subsidy of the Ada Follies.  And ARPA, well since
ARPA doesn't have a directory of all of the software it has funded, it
certainly can't determine how much impact their software has had.  So an
honest study of DoD software R&D's impact on the general economy would
probably reflect the conclusions of the above paper.
 
    In the case of defense R&D for software, given that such software
rarely if ever: appears or transitions to the private sector, is patented,
is used, or is commercialized, it becomes interesting to start speculating
on whether the DoD should stop funding its software R&D activities, and
rely more on the private sector, which for the most part is years ahead of
DoD efforts anyways, and without the spending of taxpayers dollars needed.

    Anyways I highly recommend people get a copy of the article.

-- 
**************************************************************************
 Greg Aharonian                                      srctran@world.std.com
 Source Translation & Optimization                            617-489-3727
 P.O. Box 404, Belmont, MA 02178

Re: How microeconomically insignificant is Defense R&D?

[sdd.hp.com!apollo.hp.com!netnews]

In article <CButuA.HIz@world.std.com>, srctran@world.std.com (Gregory Aharonian
) writes:
|>  
|>      For some time I have been arguing that many DoD software initiatives
|> are a waste of money and should be no longer funded, for the following
|> reasons - they seem to have little impact outside the DoD (STARS), they
|> waste money on extravagant services (ASSET), or they duplicate services
|> the private sector can more cheaply offer (SEI).

   I think the poster may be conflating two different problems.

   The first one, which is indicated by the Subject: line, above
   discusses DoD spending from an *economic* standpoint.  This
   being sci.econ, that's perfectly legitimate.

   But the second one, i.e, whether DoD R&D "*should* no longer be
   funded represents a logical leap from the first one.  The poster
   seems to be assuming that there's some relationship between whether
   something *should* be funded and its *economic* viability.

   DoD's function is to defend the country.   While we would certainly
   hope that this would be done economically efficiently, if a choice
   has to be made between an economically efficient method and a 
   militarily better, but economically less efficient method then
   sometimes it makes more sense to do the latter.  (of course some-
   times it doesn't).    

   I don't know anything about Ada, but the dominant programming language
   in private industry is C, which I do know quite a bit about, and I
   would submit that it didn't at all meet the list of requirements
   laid out by DoD at the time of Ada's inception (and still doesn't).
   While I'm sure that plenty of "$500 toilet seats" are a genuine 
   waste of money, it may also be the case that *some* "$500 toilet
   seats" cost that much for some very good mission-critical reasons.
   
   I don't know anything about SEI, but some services which are "dup-
   licated" in private industry may offer the same functionality, but
   not be as secure or redundant as what the military might require.
   As to whether something has "economic impact outside of DoD", since
   when is this a criterion?   As I noted above, DoD's mission is 
   national defense.   It's a bit dismaying seeing people from all
   over the political spectrum using economic factors (e.g., the impact
   of a base closing on the local economy) to make decisions that
   should mainly be determined by military considerations.


---peter