Naval shipbuilding: thinking beyond the cost curve
17 Apr 2015|

Is government prepared to ‘bite the bullet’?

As an early RAN submission to the former Force Structure Committee’s strategic policy consideration of the ANZAC frigate put it so breathlessly, ‘Australia is an island continent surrounded by sea’. The pleonasm notwithstanding, the proposition’s true.

It’s equally true that Australia’s sea lines of communication are highly vulnerable in time of war by virtue of their length, their multiplicity and the value of the cargoes they carry.

The significance of these two obvious features of Australia’s strategic geography is heightened when Australia’s critical dependence on a functioning world economy and the separateness of its political and cultural identity at the bottom of Asia are taken into account.

Yet judging from some of the more recent commentary on naval shipbuilding in Australia, one could be forgiven for thinking that the sole determinant of its strategic value lay in the economics of construction rather than the ability to sustain the delivery of decisive lethality against any potential aggressor.

The RAND Corporation has conducted an in-depth review (PDF) of Australia’s naval shipbuilding, reaching a set of conclusions that aren’t, of themselves, surprising. Its principal observations are:

  • Australian naval shipbuilding attracts a premium of thirty to forty percent over comparable overseas production;
  • the domestic economic benefits of naval shipbuilding in terms of multiplier-effects are unclear, though the industry could sustain an additional 2,000 workers if established on a continuous-build basis;
  • national control over critical production aspects offers both strategic benefits and production flexibility; and,
  • [developing and] sustaining a naval shipbuilding industry will require specific policy decisions, including the adoption of a continuous-build approach that matches the industry base with demand.

What’s somewhat surprising is that the RAND report doesn’t articulate any view on what the Defence—or more precisely the RAN—mission might be. Nor does it reflect on any of the strategic policy assumptions that would underpin the Defence/RAN mission.

Successive governments—including the two for which I worked as a Minister’s chief of staff—have failed miserably to tie Australian naval shipbuilding into a more broadly-based national industry policy that draws together skills, extant industry capacity, economic and employment goals into an overarching national economic and security (in the broad sense) policy.

Countries such as Britain and Sweden, along with the others against which RAND has benchmarked Australia, have extensive naval shipbuilding traditions. In all cases, the industrial policies were embedded in a national security strategy that subordinated costs to strategic outcomes.

The Mary Rose (1545) and the Vasa (1628) may have suffered similar fates for similar reasons, but their loss didn’t deter either England or Sweden from maintaining and expanding their strategic naval shipbuilding capability at investment costs that far exceed present-day levels. At its simplest, failure was not a reason for giving up.

Over the centuries, the ability of nations to wage war and survive has depended on the fact that strategy drives both capability and investment, not vice versa.

The parlous state of Australia’s current naval shipbuilding capability isn’t the result of some intrinsic capability failure of scale, skills or industrial capacity. As the RAND report effectively acknowledges, the problems facing naval shipbuilding are born of critical failures of government policy. These include:

  • the stop/start nature of naval shipbuilding, where so much of the capability investment goes into start-up costs and skills acquisition;
  • the almost total lack of commercial or industrial knowledge on the part of the monopsonist customer—Defence;
  • management practices, particularly the Alliance model currently delivering the Air Warfare Destroyers, that defy any commercial or industrial logic;
  • an approach to naval asset management that fails to comprehend the ‘parent navy’ implications of uniquely Australian platforms—certainly the main problem that’s impacted on the performance of the Collins-class submarines; and,
  • the fundamental doctrinal deficiency that fails to see the Navy as a warfighting system rather than simply a collection of platforms providing the government with ‘options’.

Consistent with its reputation for discretion, RAND doesn’t offer any further exploration of the underlying policy deficiencies that have bedeviled naval shipbuilding in Australia.  But central to the problem has been the inability of recent Australian governments to understand and address the implications of defence self-reliance. This is a failure of both policy and politics.

The 2000 Defence White Paper was the last policy statement by government that came anywhere near setting a long-term strategic direction for capability acquisition, including naval shipbuilding as a key enabler.

Governments since have lacked the political will to correlate defence spending with strategic goals, preferring instead to allow the spending envelope to determine force structure and defence posture. This political failure has been compounded by ad hoc policy decisions that have sanctioned mission creep, major acquisitions without any supporting analysis or argument (the expansion of the C-17 air lift capability is a case in point), and the continued deferral of basic capability decisions—particularly the next generation submarine.

The fundamental question raised by the RAND report isn’t whether Australia should invest in a viable naval shipbuilding capability, as distinct from a naval ship repair and sustainment capability. Nor is it whether a continuous build paradigm should underpin major surface and submarine acquisitions—desirable as both outcomes would be (at least to me).

The fundamental question is whether government’s prepared to ‘bite the bullet’ on the strategic imperatives that should define and sustain Australia’s national defence capability over the rest of this century. The forthcoming White Paper must answer that question.