Since the tragic events of September 11th, 2001, the provision of defense services has been a topic of much debate. People have been discussing the proper role of the military, and what type of missions it should engage in, as well as where it should be involved and for what purpose. Lost in all this debate, however, is the fundamental question of the dynamics of state provided defense services, and whether this solution carries inherent problems which run counter to the desired result.
Most people would argue that defense on a national scale is a classic case of a public goods scenario. What this means is that people will not adequately fund defense services, since if one person provides funding, then others around this person benefit whether or not they contribute. Hence, it is said, people within a given geographic region must be forced, through taxation, to supply the resources necessary for their common defense. The problems with this logic have been covered before, for example in John T. Kennedy's outstanding article The Fundamental Fallacy of Government, and will not be reiterated here. Instead, the purpose of this article is to outline what the negative effects of having defense services provided by a state are, so the question of the public goods problem will for the most part be set aside.
An immediate point that needs to be dealt with is that even if a state does overcome the public goods dilemma, doing so merely raises the public choice question. Since a state does not operate in a free market for defense services, it cannot rely upon the same type of market data which other firms use. This may not seem very important at first glance, but is actually a problem which cannot be solved. To illustrate, it must first be pointed out that defense is not the homogeneous product which many people conceptualize it as. It is a heterogeneous collection of goods and services, each being supplied in a certain, discrete quantity, and distributed across a large land mass. Defense can be anything from a single lone tank with the task of defending the entire area of the United States, to a personal bodyguard assigned to each citizen, with all other devices and services such as missiles, missile defense systems, and the like similarly allocated.
Now that it is clear that defense cannot simply be collectivized into a single lump, the problems inherent with state provision can more lucidly be explained. A state is faced with several questions, most notably those of which defense goods and services to produce, in what quantities, and how to implement distribution. Furthermore, investment must be directed into lines of development for future goods and services to be provided, which raises the question of which lines, and how much into each. Also, how will it be determined whether a decision is correct or not, devoid of the profit/loss signal which exists on the market? Given the way states gain their funding, it is impossible to answer these questions in the manner a private firm would, that being analysis of pricing data and its corollary profit and loss. A state does not sell defense and receive resources, in other words a price, in return. It forces the resources from its citizens which prevents meaningful market prices reflecting the desires of its constituency from forming. This leaves it in a limbo of sorts, or economic chaos, that it cannot escape from. Instead of an efficient military, a state will always provide highly inefficient defense services which will only vaguely represent what the populace at large would prefer to have produced.
Another problem with having a state provide defense services is that since it has the power to force resources out of people's hands, it will have the incredible urge to use this to its own advantage by taking ever greater amounts from people and building a larger and larger defense network. Those who work in the military, along with those politicians who sign the legislation which funds them, will have an economic incentive to justify their existence, or face losing their livelihood. Consequently, the agents of a state will seek any kind of rationale to extend the purview of the military. Where earlier a domestic army was sufficient, later it will be argued that it is necessary to be involved with outside countries and their internal affairs, thus extending the power and welfare of politicians and military leaders alike.
Earlier in this article, the public goods argument for state defense was outlined. This argument rests on the concept of the free rider, or economic externalities, whereby a person benefits from the actions of another without having to compensate them. It is therefore the height of irony that having a state provide defense itself creates another problem of externalities. This is a result of taxation, which divorces the amount of resources contributed by a particular individual from the amount of defense that person receives. This means that a person may pay a sum for defense, but receive much more than another person who may have paid higher taxes. Therefore, it is possible for certain factions within society to influence the policy of the state through political action to meet their own ends and have other people contribute the bulk of the resources to implement them. In fact, it is precisely this form of political activism which takes the place of the market price system that burgeons naturally on the free market to direct resources.
For example, if it would be profitable for a certain foreign market to be opened up for entry by American business, but the only way to do this would be to overthrow the current regime governing that area, it is possible for those interested businesses to gain the political clout to have the military invade, conquer, and erect a more friendly government in the area, and have virtually all of it done at the expense of other people, the taxpaying public. Given the tremendous financial rewards which one can gain from such activity, there will be an irresistible incentive for those who have such interests to use the apparatus of the state to meet those ends. So, instead of defense services which respond to the wishes of its "customers", the taxpayers, the government will direct defense according to the wishes of whatever group has political connections.
Indeed, this form of corruption eventually works its way down to the everyday person. Once the legitimacy of coercion to provide defense is granted, everyone will feel that it is acceptable to have the military engage in activities which they find beneficial. This can be seen most starkly with people who are adamant that it is a good thing to invade other countries in order to "free" their people. Implied in such statements is the belief that not only is it good to strive for noble ends, but also that these ends can legitimately be externalized onto people who do not wish to promote them. While a foreign people may possibly end up being made more free (although it is highly possible they will not), the domestic population necessarily becomes less free due to unwilling citizens being forced to support endeavors which they find objectionable.
This, unfortunately, is not the worst effect of such thinking. The average person carries little influence over the actions of policymakers, but the aforementioned special interests do. In order to gain popular support for their foreign escapades, the rhetoric of liberation becomes most effective thanks to the corrupting effect coercion based defense has on a people's moral sense. It matters not whether a foreign populace will in fact be freed, only that people can be convinced they will be, so the citizens will wholeheartedly support the actions of the military which are being done for the benefit of certain interested parties, all while commandeering the resources necessary to do so.
Over time, the problem becomes acute as a state becomes increasingly involved in foreign affairs. In fact, the cycle is self-reinforcing. This happens because in order to have the goals of factions within a country attained, it is necessary for the military to switch from defensive tactics to offensive tactics, which entails the identification of a greater number of enemies, or the fabrication or exaggeration of threats from known enemies. These enemies will seek retaliation against the aggressor state. When they do, their actions will lend greater justification to expand the scope of "defensive" measures, which makes it easier to expand their actions even further, which creates even more enemies, who eventually strike back, and the vicious circle continues building like a snowball down a mountainside. The net result is that actions made in the name of security will paradoxically create ever more insecurity.
Unfortunately, these problems are chronic and caused by dynamics which will tend to intensify over time, not lessen. The long term outcome is a gradual reduction in the quality of protection services, to the point of increased insecurity being a direct result of the state's actions. Where the goal is more safety, the state will produce non-safety. Since this is inherent, the only way to avoid the negative effects is to eliminate the system itself and start fresh by developing voluntary solutions.