Economy

May 5, 2016

A budget more Keynes than Kissinger — at least on Defence

Spending $50 billion for around 3000 jobs works out at a bit over $16 million each.

Jason Murphy — Journalist and economist

Jason Murphy

Journalist and economist

The federal budget seemingly could not mention defence without references to the economy. Everywhere our armed services popped up, there swiftly followed a mention of their jobs impact. Is this just spin? Or has our defence policy truly become more Keynesian than Kissinger-esque? Australian Strategic Policy Institute’s Mark Thomson sounded a warning: defence policy is an expensive way to create jobs -- and one that even appears to be all about jobs has real risks. “Building ships is an incredibly expensive way to go about priming the pump,” he said. The tens of billions of dollars Australia pays for submarines, for example, mostly flow to foreign companies that own the intellectual property, not the local employees doing the coding and welding. Spending $50 billion for around 3000 jobs works out at a bit over $16 million each.

J Murph submarines graphic

The government’s focus on the jobs aspect of defence could create problematic feedback loops. For example, via industry, which will make sure future bids maximise Australian jobs, Thomson says. “The people who bid for defence projects, they have their ear to the wall ... the clear message from the last couple of months is jobs, jobs, jobs.” The other is internal to defence. “The navy knows damn well that once you get a continuous build program in Australia they will have a whole bunch of allies in the state governments, the trade unions, the industrialists who will fight tooth and nail against any retrenchment of the size of the navy. The navy has a whole bunch of fellow travellers in the nation-building basket,” Thomson said. The army, navy and air force were, until 1976, separate government departments that fought against each other for money. They were combined into a single Australian Defence Force, but competition between the three branches remains strong. Each arm has a proud history and is reluctant to cede ground to the others, despite what evolving strategic rationale might say about the future of warfare. And the future of warfare is likely to be very different to the past. The argument for a strong local defence industry rests mostly on a conception of the kind of conflict Australia might face in the future. One where we can’t rely on outside help during a conflict. For example, because lines of supply to this country are at risk. Is that likely? Even in World War II where German U-boats surrounded Britain, most merchant traffic made it through. Australia has far more coastline than Britain; maintaining a naval cordon would be nearly impossible. And trade via plane is far more economical than it was. Preparing for a siege of Australia seems like fighting the last war (or indeed one of the ones before that). Furthermore, the kind of total war where one major country lays siege to another belongs to a pre-nuclear era. It is somewhat unlikely a scenario will develop where a major conflict goes on long enough that building more ships, or even doing maintenance on our existing fleet, matters. Lastly, Australia is so open to trade that cutting our trade lines will cause huge problems before defence industry becomes a problem. We import around $30 billion worth of goods and services a month, a number that has doubled in the last 12 years. Without a holistic (and very expensive) focus on self-sufficiency, a few small patches of defence self-sufficiency seem redundant. If the government wants to prime the pump, it should. A budget released on a day of a rate cut is one that should spend big. But local spending on defence will last far longer than any economic cycle. The government is going to still be spending money on jobs in Adelaide throughout the next several booms and busts. And if that money is in any way compromising the defence capability we need, we may rue the day we ceased to channel Kissinger in our considerations.

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