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Why Do Governments Outsource: The Reasons Why

Governments sometimes purchase goods and services from the non-government sector to use them as inputs into their own supply chain. We will talk about the reasons why governments do this in this article.

We have seen many governments do this in the past.

To explain this, we first need to understand the economic logic of supply chains, and why governments tend to outsource.

Supply chains are chains of economic transactions, or inputs to a chain, and outputs to a chain, connected and interdependent.

At each stage in the chain, all components of the input are required, and the unit value of each input determines the unit price of each output.

When one of the outputs is sent to a component of the output chain, the price of the output is increased, and so each of the inputs from this component also becomes more expensive, and the total output goes down.

As such, when there is any kind of chain failure, the link between the inputs and the outputs no longer works as it was designed.

On the other hand, a strong link between the inputs and the outputs can act as a backup, or, as we will see, also act to break a chain, if needed.

The global economy has many supply chains

Marketing workflow strategy

These supply chains are interconnected and interdependent.

It is unlikely that the component input to a major component of the chain, such as transportation costs, will change significantly from one point in time to another.

This is also true for the components in most countries and corporations, such as steel, oil, and agriculture.

To transport the raw materials and intermediate outputs of a manufacturing company from one state to another, trucking, shipping, shipping containers, etc., have to be cheaper and more efficient than air transport.

This means that many countries and corporations can benefit from sharing their most important input. Air transport, as well as shipping and trucking, are very expensive.

The US military is the best-known example of a government that has been dependent on outsourcing

The US Army outside of the Lincoln Memorial (IG: @clay.banks)

The success of the US military, and the rise of the US as the leading military power in the world, has been based on the military-industrial complex.

For instance, during the Korean War, the US armed forces were stretched to their limits, and could not cover all of Korea, especially the North, with its large population.

Rather than risk heavy casualties, the US chose to outsource. Boeing was contracted by the US government to fly bombing missions from Japan to Korea.

The decision to outsource bombing missions to Boeing was made by the US government to save lives, while also using military aircraft at a time when many other countries were lacking military aircraft.

With the help of Boeing’s airliners, the US Army and Marine Corps could cover the whole of Korea, and the effort was so successful that the army’s contribution to the Korean War has been largely forgotten in history.

The US government did not change the cost of each mission or the units they needed. As such, even though the flight time was much shorter for Boeing’s B-29s, the costs were much higher, as we have seen above.

The military-industrial complex that the US developed became one of the world’s greatest success stories

Police Squad at the George Floyd protests in Uptown Charlotte, 5/30/2020 (IG: @clay.banks)

It became a multi-billion dollar operation with production sites all around the world.

Some of the Boeing planes were produced in Boeing’s factory in Wichita, Kansas, a decision that saved hundreds of thousands of people from the employment they would have had in the state of Kansas had the production plants been located there.

This was an example of the market economy doing its job. The US government set the terms of the contract that Boeing was to fulfill, and Boeing delivered on that contract, saving thousands of people in Wichita, Kansas.

To return to the ‘global supply chain’, a major component of the components of the global supply chain is the central government or at least the military-industrial complex.

Today, it may be more accurate to say that the US military, and the US intelligence agencies, which depend heavily on technological advances that are driven by the free market, are the ‘global supply chain’.

If the US Air Force needs some of its planes, they can be bought on the market and sold on the market. What has to be done is that they must be allowed to explore every opportunity to avoid wasting money.

In the case of Boeing’s Boeing B-29, the US military could have spent $3 million less to purchase the planes in question, which is the amount that Boeing quoted the US government for the cost of the B-29s.

The planes were bought at a loss of $1.7 million, and it would have cost $600,000 more to purchase the planes on the open market.

If the US government had not decided to buy the planes, the planes would have been sold on the market at the value at which the US government purchased them.

As such, the US government would have saved $1.7 million, but the Boeing planes would not have been sold for the additional $600,000, and the market would have turned them into scrap metal.

The market would have done its job, just as it has done so well with the Boeing B-29 and the entire Boeing military-industrial complex.

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