What’s an Australian defence industry for? Part II
22 May 2013|
Minister for Defence, Stephen Smith talks to one of the ASC (formerly Australian Submarine Corporation) employees during his visit to ASC.

At the state and company level the objectives a defence industry strategy might seek to achieve look different to those at the federal level that were discussed earlier (here and here). They’re broader in scope, worry more about resources and are sharper in bite.

For the states their defence industry objectives are generally fairly pragmatic: bringing in money and/or jobs. This is often somewhat undiscerning in that any kind of money and any kind of jobs are sought—although a premium may be paid (literally) for sustainability as will be discussed later. The net result is that at the state level the defence industry sector is conceptually broader then at the federal level, in encompassing acquisition projects, long-term sustainment and ADF basing.

At one end of the continuum between jobs and money, Victoria perhaps focuses mainly on money, wanting simply a robust defence industry that contributes to Victorian economic growth and prosperity. High-value, innovative manufacturing is favoured, being considered to give the best return on investment. Queensland is at the other end of the spectrum in mainly seeking jobs, as its submission to the White Paper that stressed expanding the ADF presence in South East Queensland, Cairns and Townsville reveals.

With a quarter of the ADF based in Queensland this is good business in terms of bringing regular money to the local economy. And with most base services and deeper level maintenance now privatised, it provides a nice state payroll tax income as well. In this, there’s also extensive local industry involvement in on-going base development. Queensland last year attracted the largest share of the ADF Major Capital Facilities Program funding, some $440 million. (In passing, it should be noted that Queensland is rebalancing, noting that defence manufacturing is a high-value activity.)

South Australia has made the biggest defence play of the States. A decade ago it focussed mainly on money in terms of helping local companies try to win work on major equipment projects—think Collins Class submarines and the Air Warfare Destroyers. Since then though the state has also focussed on gaining jobs from ADF units moving into the Adelaide region. Relocating 7 RAR from Darwin to Adelaide has brought some $600m in facility construction but also some 1200 soldiers and about the same number of dependants, generating about $100m extra local income annually. The State’s ambitions are clearly articulated in its strategic plan: “Increase defence and defence industry annual contribution to our economy to $2.5 billion and employment to 37,000 people by 2020.” This is of course a zero-sum game with SA’s gains being at the loss of another state as the 7RAR move out of Darwin suggests, albeit the NT’s loss in this case is outweighed somewhat by the US Marines moving into the now vacant barracks.

The straightforward economic imperative means that, much more than at the Federal department level, the state defence industry strategies must also be concerned about resources: skilled manpower, money and material. Gaining benefits can require investments in the state’s education system that skills the staff companies need, providing monetary incentives, relaxing regulatory frameworks and even building facilities for industry to use. South Australia has invested some $300m of State money into shipbuilding infrastructure; this might give a good return on investment over time, but isn’t necessarily something the Defence Department would have undertaken by itself.

Economic considerations also impel the states to think seriously about their defence industries being sustainable, resulting in a higher value placed on commercial spin-offs, dual-use production and exports. (As well, it must be said, as trying to lock in as much federal defence work as possible, for as long as possible.) Civil sector work and exports are aspects that the Defence Department is spared from being overly involved in. For Defence if a local defence company fails, so be it; for the state concerned it bites close to home. The flip-side though is that commercial sales and exports can bring the state further money and jobs. Defence gains little tangible from a local company being successful in these fields.

Companies are the targets of the federal and state defence industry strategies and so have a keen interest in them. At this level, the economic imperative looms larger still, although companies have an option denied the other levels—they can opt to leave the defence business altogether.

Company decisions to stay or go hinge on the level of certainty relating to new and existing business. With many Australian defence companies—especially the larger ones—having little income from exports or the civil markets, their investment decisions (PDF) are driven by their perceptions and the realities of how the Department of Defence chooses to spend the money allocated to it. Turbulence in defence budgets, the favouring of off-shore suppliers, reform programs and sudden withdrawals of equipment from service can all have serious commercial impacts (PDF). While there is much talk (PDF) of partnerships, collaboration, innovation, incentives and skilling, these are simply means to an end. The key objective of defence industry strategies from a company perspective is certainty in terms of a predictable flow of work (PDF).

Strategies are simply ways that means are used to achieve ends. Defence industry strategies need to have specific objectives clearly articulated before meaningful progress can be made on ways and means. But these objectives differ between the federal (political and departmental), state and company levels. These levels don’t just interact, but are interdependent, with change at one level positively or negatively impacting the others. The ‘trick’ in making successful industry strategies and avoiding incoherent ones is then having objectives that are sensible and supportive across all levels. Not an easy task!

Peter Layton is undertaking a research PhD in grand strategy at UNSW, and has been an associate professor of national security strategy at the US National Defense University. Image courtesy of Department of Defence.