I read with interest the contribution of my colleague Patrick Walters regarding the end of domestic car manufacturing and its implications for Australian defence industry. My point is that if we had a healthy defence industry sector to begin with, the travails of another part of the economy—albeit a related one—would be of no concern. Given the size of our annual defence spend, the size of our industry sector is appallingly small, and in many other countries would be considered a national embarrassment. During the past decade, Australia has spent $24 billion just on FMS purchases (Super Hornets, C-17s airlifters, MH-60Rs naval helicopters etc) and our industry involvement via various global supply chains is something around $650 million—a pathetic 3%.
Having just returned from South Korea, I’m at a complete loss as to understand why ‘offsets’ is such a dirty word here. For the past 30 years the RoK has spent almost exactly the same as Australia does on defence—and they have combined that with a very smart, targeted and long term offsets strategy. Not only do they field a military massively more capable than our own—certainly in terms of equipment—they also have a thriving defence industry sector that is now exporting submarines, frigates, heavy armour and advanced jet trainer aircraft, to name just a few items.
OK, labour costs in South Korea have been lower than ours until recently, but that’s only a small fraction of the story. The country seems to have adopted a thoughtful long term strategy about how to build up skills in well-defined areas. All bids for contracts in South Korea must have a comprehensive technology transfer package if they’re to have any hope of success—consequently the country has developed world competitive companies in domains such as aerospace and naval shipbuilding. Anecdotally, it seems that South Korea doesn’t appear to have paid much more for their hardware than we do, though direct comparisons are difficult. South Korea has achieved what a generation of Australian economic purists have told us is impossible.
Finally, I was discussing the virtues or otherwise of Australia re-introducting some form of offsets with a senior US industry figure recently. To my slight surprise her response was favourable. She said that because Australia’s guidelines are so vague they’re almost meaningless, so companies stumble around trying to do the right thing. Her point was: give us a simple target in percentage terms and that will make life easier for us—just tell us what you want.
With car making down the gurgler, surely the time has come to have a serious look at defence industry policy. If offsets are good enough for trading nations all the way from Canada to Switzerland through to South Korea, then surely they should at least be reconsidered for Australia.
Kym Bergmann is the editor of Asia Pacific Defence Reporter & Defence Review Asia.