^[1]Hard times are upon Defence again, which will have implications for the way the nation’s military capability evolves. As Andrew Davies pointed out recently, much of the ADF’s capability today is thanks to a ramping up of spending after the 2000 Defence White Paper ^[2]. During the 80s and 90s Australian defence spending was held roughly constant in real terms resulting in a steady decline in the size, technical sophistication and preparedness of the ADF. By the end of the 1990s, there were significant shortcomings across the entire force. Much of the Air Force and Navy could not be deployed in other than benign environments, and the Army had to pull out all stops to accomplish the INTERFET mission to East Timor in 1999.

As we apparently enter another era of defence austerity, many are concerned that we are headed down the same road again. Perhaps it was to head off this fear that the Minister promised not only to keep all of the ‘core capabilities’ of the 2009 White Paper but also to maintain the present number of military personnel. ^[3]

As reassuring as this might sound, it creates a dilemma for those trying to pull together the 2013 White Paper. There probably wasn’t enough money to deliver Force 2030 to start with, and now the government says that it wants most of what was planned but isn’t going to pay the bill. It’s no doubt a frustrating time for Defence’s planners.

In what is ultimately a zero-sum game, the only way to do this will be to cut spending in areas apart from military personnel and so-called core capabilities. But military personnel do not constitute military capability on their own, and the so-called core capabilities do make up a coherent joint force. To be blunt, it is difficult to see a strategic (as opposed to political) rationale for quarantining military numbers and particular big-ticket investments.

In any case, the cuts will have consequences. Ex-Army chief Peter Leahy says that there will be increased risks to troops. ^[4] The Minister counters that no funding to deployed troops has been cut, but this misses the point entirely. Professor Leahy is not talking about the troops deployed today, but rather the increased risk inherent in reduced readiness and less capability. There’s no getting around it; less capability is less capability, and less capability means increased risk.

But that’s not necessarily a bad thing. The proper question to ask is whether the increased risk is justified (i.e. outweighed) by the benefits of using the money freed up elsewhere. This may or may not be the case. One thing is certain; there will always be residual risk irrespective of the level of funding. Anyone who thinks that Australia can have a defence force that can handle every possible contingency is deluded; it is simply not possible. This brings us back to the much-maligned 80s and 90s.

Back then, strategic risk was managed around the concept of warning time ^[5]. Preparedness for major contingencies was reduced on the assumption that sufficient warning would arise to allow the gap to be filled to meet an emergent threat. As it happens, we got away with it; Australia’s interests were not compromised and deployments during that period were few, small and limited in intensity.

As reassuring as this might sound, the fact that we survived two decades of austerity proves nothing. If I toss a coin and get heads, it does not prove that I have two-headed coin. Whether the costs and benefits were correctly assessed and balanced back in the 1980s and 90s is a matter for debate. It would be naive to suggest that luck did not play a role. Nonetheless, the relatively low levels of defence spending in the 1980s and 90s were part of a conscious approach to managing strategic risk.

Then, as now, defence planners faced two interlinked questions: first, how much risk to retire and how much risk to accept—which roughly equates to deciding how much to spend on defence. Second, how best to use the available resources to retire as much risk as possible. The goal is to find a capability portfolio (force structure plus a preparedness posture) that minimises the residual risk.

I’ve argued elsewhere ^[6] that the current force provides a suitable basis for building a strategically prudent force that’s smaller than planned back in 2009—but doing so will demand careful use of the available resources. It makes no sense jumping to conclusions. This is a difficult problem that can’t be solved by guessing [1]. Quick and dirty solutions will almost certainly be sub-optimal. In particular, by demanding, up front and absent any analysis, that military numbers remain fixed and core capabilities be retained, it is all but certain that we’ll end up carrying more risk than we need to. Good politics is not the same as good strategy.

That’s not to say that we should just scale down the ADF to create what might be termed a ‘small but perfect’ force. While such an approach would limit the risk to ADF personnel (so long as they are deployed only on missions commensurate with their scale), it would almost certainly be sub-optimal for managing the strategic risks we might face as a nation. Similarly, the bureaucratically expedient approach of salami slicing the budget to share the pain equally among the three services is likely to be as suboptimal as it is lazy.

I hope that there are lots of people with lots of good ideas in Defence about how to manage with less capability. We’ll only get close to an optimal solution by harnessing the experience of those who live and work with military capability day-in day-out. Mothballed assets, greater use of reserve forces, and fitted-for-but-not-with platforms are all likely to have a role to play, and it might even make sense to scrap some existing capabilities entirely. Ultimately, we need to decide what we can do without, and what additional risks to accept in consequence. The result will be ragged and untidy rather than small but perfect, and it will have fewer troops and not all of the supposed ‘core capabilities’ of Force 2030. In fact, it might bear more than a passing resemblance to what we had in the 1980s and 90s.

Mark Thomson ^[7] is senior analyst for defence economics at ASPI.

A geeky footnote

[1] The difficulty of optimising a defence force to minimise strategic risk is great. In general, analogous mathematical problems of even modest complexity are unsolvable in practice. The best we can hope for is an answer that approximates a solution within the limited space of options that our ingenuity and time allows us to explore.