The Frazier Institute
Privatize the Army
It is not as if the armed forces are not crying out for reform. They are a classic bureaucratic monopoly, a huge organization answerable only to themselves. They exhibit the usual symptoms of such a governmental monopoly: a bloated and complex hierarchy; an unwillingness to downsize in response to a reduction in demand; excessive employee benefits; and a lack of fiscal control, as demonstrated by the excessive prices paid for equipment. Only the discipline of the market can cure these flaws. The solution is obvious: the armed forces must be privatized.
The idea is not as radical as it might first appear. In fact, throughout history many nations have provided for their defense through independent military contractors (sometimes referred to as "mercenaries").
These freelance soldiers, whose livelihoods (and lives) depended on their military prowess, were cost-effective suppliers of military services for centuries. After all, the term "freelance" itself was coined to refer to the independent knights (free lances) who offered their contracts to the highest bidder. It was only with the rise of the over-taxed bureaucratic state in the eighteenth century that this efficient, market-oriented system of military supply was discarded completely.
A privatized armed forces would offer many benefits to the taxpayer. Under the pressure of making the lowest bid for military contracts, individual units would be forced to find efficiencies in their operations. Unneeded staff would be laid off, and wages and benefits would be kept in line.
Meanwhile, units would have a strong incentive to make sure that equipment suppliers were themselves as efficient as possible. Overpriced procurement would become a thing of the past, as many independent military units scrutinized equipment prices carefully and played off suppliers against each other to find the best equipment at the lowest price. Mot only would taxpayers save billions of dollars through competitive bidding, but they would get a more efficient army in return.
Finally, outsourcing military services would give the nation the flexibility to adapt the amount of military services it purchased according to demand. During peacetime, contracts could be cut back, while they would be expanded during times of tension or war. No longer would the nation have to maintain a huge army during periods when there is little demand for military services.
In many ways, the armed forces are a natural fit for the free market. After all, what could be more competitive than warfare? The incentive to keep a unit at its maximum efficiency is even higher than in business - life or death, rather than merely wealth or bankruptcy. The winners and losers become apparent much more rapidly than in business, as inefficient competitors are destroyed and the most efficient seize ever more territory. In many ways, such a system is a much more satisfactory arbiter of effectiveness than share price, which can be subject to so much manipulation.
The additional benefit to the taxpayer is that, if a unit that has been contracted to supply military services turns out to be ineffective, it will not have to be paid, as its individual military service providers ("soldiers") will have been mostly killed or captured, while any who survive will be subject to financial penalties because they quite obviously did not fulfill their contract.
Whiny bureaucracy-loving liberals may complain that a privatized army might use its power to take over the government. It is true that military contractors have taken this course of action occasionally in the past. However, the mistake has always been making a monopolistic contract, where defense is supplied by a single contractor. The problem can be easily solved by contracting many different units to provide different elements of military service. That way, if one independent military contractor tries to take over the nation, it will be quickly stopped by others, who will not want to see their contracts in the hands of a competitor.
In fact, such a system would be far safer than leaving military affairs in the hands of a government bureaucracy. In recent decades, there have been many examples of government-controlled militaries taking over their nations. This danger would be eliminated by ensuring a free, competitive market in military services.
It is time that the last bastion of bloated bureaucratic monopoly was subjected to the rigors of the free market. The armed forces must be privatized. Taxpayers deserve a bigger bang for their buck.