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New ways of thinking about the global arms industry: dealing with ‘limited autarky’

Posted By on November 5, 2015 @ 11:00

COLLINS CLASS [1]

As Australia approaches a decision concerning its acquisition of a next-generation submarine, it faces several crucial questions, not least of which is whether to build this submarine in Australia or buy it off-the-shelf from a foreign supplier. The appeal of domestic production is very powerful; ‘security of supply’ is a compelling argument, as are the potentially huge economic benefits that could accrue from manufacturing such a large number of submarines at home. At issue, however, is whether such an approach makes sense from an objective cost-benefit analysis.

Most countries desire producing their own armaments in order to achieve self-sufficiency, or ‘autarky,’ in defense procurement; they wish to import as little as possible, for reasons of national security, balance of payments, jobs, etc. Consequently, achieving a high level of autarky is believed to the goal of any self-respecting arms-producing state—otherwise, it is judged to be somehow a failure as a weapons manufacturer.

Nevertheless, there are many countries that do not aspire to high levels of autarky. Either out of necessity or by design, they’ve chosen to specialise in certain areas of armaments production and have subsequently jettisoned—or never pursued—other areas of arms manufacturing. They follow a defence-industrial strategy of ‘limited autarky’, mainly to preserve at least some capacity for indigenous production, partly for economic reasons (to preserve their existing defence-industrial bases or to protect jobs, their balance of payments or their arms exports) but particularly for reasons of ‘strategic sovereignty’.

In many instances, such limited autarky can pay off. Many times, however, it can be an expensive undertaking that provides little in the way of true self-reliance. Overall, therefore, it’s critical to balance the costs of limited autarky (in terms of costs, technology and foreign competition) with strategic gain, if any.

Justifying the pursuit of limited autarky in armaments production is always going to be problematic. Determining which areas of arms manufacturing are absolutely critical to national security, i.e., their ‘deemed strategic value,’ can be so subjective as to be absurd. Nevertheless, there are cases where limited autarky may make sense in contributing significantly to national security, while also being cost-effective. Those may include the manufacture of small arms and light weapons (where production technology is relatively mature and local demand or the possibility of exports are high); maintenance, repair and overhaul capabilities; and systems engineering and integration skills. It might also make sense to engage in armaments production where technology demands are attainable, competition may be weak, and the export potential is high, such as lightweight aircraft, armoured vehicles, and even some missile systems.

On the other hand, it’s probably ill-advised to enter into armaments productions where the entry costs for new producers are high (in terms of technology requirements and the expense of manufacturing) and where foreign systems are widely available and competitively priced. Those problems are compounded in instances where only a few number of systems are to be acquired, leading to high unit costs relative to foreign-sourced systems. In general, it is difficult to justify indigenous armaments production in such sectors as high-end fighter aircraft, tanks, large warships, and submarines.

For Australia, this conundrum has been nowhere more apparent than in the case of the Collins class submarine replacement program. The next-generation submarine will be the most expensive military procurement effort in Australian history, costing anywhere from $18 billion to $40 billion for 12 boats. While the strategic value of producing the submarines indigenously may be high, most of the other benefits of domestic manufacture—such as performance, keeping production costs down, and export potential—are likely to be quite low. Moreover, any submarine meeting Australia’s range and endurance requirements is likely to be quite different from any ‘readily available’ system, adding additional costs. Consequently, such a high-end, ambitious program could easily be relatively expensive, while providing few benefits in terms of national security, technology acquisition, or jobs.

In sum, decisions to produce arms—even to engage in niche production—need to be continually evaluated and re-evaluated for their costs and benefits. Even if a nation only wants to pursue limited autarky, that can still be a high-risk, low-reward undertaking.



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