AS two icons of Australian manufacturing, Ford and Holden, wind up their operations, doubts inevitably will arise as to whether, with Australia's relatively high cost structure, we will be any good at making anything. Despite high costs, Australia seems to have some sort of future in manufacturing premium-quality foods and beverages such as cheese, infant formula and wine. And if one expert is right, we also may have a future in producing lots of a highly sophisticated manufactured good: submarines.
No golden rule dictates that nations must make things. Standardised manufacturing has been shifting from advanced countries to the developing world for several decades now. But sophisticated, high-value manufacturing still takes place in many advanced countries. It can be based on natural attributes such as a mineral base, though mineral processing, too, is searching for cheap energy and the lower environmental standards available in the developing world.
Yet Scandinavian countries and Germany lack natural endowments for manufacturing but have acquired attributes such as excellence in design and engineering that give them a comparative advantage in sophisticated design and manufacturing.
Australia also has enjoyed success in sophisticated manufacturing. Boeing's largest footprint outside the US is in Australia. One expert, Australian National University professor Hugh White, argues Australia should be able to go like the clappers making submarines.
In an appearance on my podcast, Emmo Forum, White claims $15 billion worth of defence spending is being wasted on buying the wrong equipment to achieve the wrong military objectives. White views the vast expanse of water around Australia as a natural barrier to sustained attack and argues that Australia's key defence capability must be to sink other people's ships. Submarines are particularly good at doing that.
If we as a country decide we are serious about being a middle power in the more demanding strategic environment of the Asian century, then submarines will be a key capability, and we would need many more of them than the 12 being planned.
White argues that 24 or even 36 submarines would be needed, and that we should start building them fast. A force of that size greatly enhances the economics of building submarines in Australia. Indeed, building and maintaining that kind of capability would require two yards operating continuously.
White contends that a program such as this, based on a big, long-term program to meet core enduring strategic priorities, would provide a much better basis for a defence industry in Australia than smaller-scale, stop-start projects driven more by short-term political imperatives with no serious strategic rationale.
White is not just any old expert; he is the principal author of Australia's 2000 defence white paper. That doesn't make White right. But it does make his views credible.
Critics will point to the Collins-class submarines, arguing their noisiness and other faults render them a failure. White acknowledges these problems but says they are being or can be fixed. Asked whether it would be better value for money to buy overseas-built submarines off the shelf, White says no, we are better off building our own capability.
He says it makes sense to develop the present Collins design rather than build to another overseas design or create a new concept from scratch. We already have a huge investment in the Collins design concept and it remains a boat whose basic characteristics - especially size and range - meet Australia's needs very well. And, of course, working with the existing design that is now well understood reduces the risks of costly stuff-ups.
The current defence white paper commits to building 12 "evolved Collins" submarines in Adelaide. White's proposal of 24 to 36 submarines is far more ambitious and, for a given level of defence spending, requires the abandonment of other equipment acquisition programs. It also would be a stretch for the navy to crew and operate large numbers of boats when it has struggled with today's fleet of six. Arguably, however, many of those problems have resulted because the fleet is too small to sustain critical skills and capabilities.
A large-scale, continuous program of submarine design and construction would enable the development and retention of a core skills base. The Coalition government has committed to spending 2 per cent of gross domestic product on defence. That's about $30bn a year. If the economy were already fully employed, there might not be a great difference between buying Australia's required defence equipment from overseas or making it here. But we have acquired expertise in the design and construction of submarines, thanks to the much-criticised Collins-class design and construction program.
It may make sense for the government to review the defence equipment acquisition program with a view to ensuring the right objectives are being set and the right equipment is being procured to achieve those objectives. We should at least take seriously the possibility that White is right.
Craig Emerson was a minister in the previous government and now runs his own consultancy, craigemersoneconomics.com.
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