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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8 thoughts on “A budget more Keynes than Kissinger — at least on Defence

  1. Tom Beem

    “mostly flow to foreign companies that own the intellectual property”
    That is for the Commonwealth to negotiate – sharing of intellectual property so that we can maintain the subs and re-develop hi-tech manufacturing capacity.

  2. Roger Clifton

    The British Navy beseiged France in the Napoleanic wars and Germany in WW1, in the latter case to the point of starving the populace. But in those days, freight travelled by sea. Around the Gulf Wars, the Navies of the coalition blockaded Iraq, effectively choking its oil trade.

    With the future growth of global commitments to zeroise use of fossil carbon, we must expect that Navies of coalitions will blockade sea traffic in coal, oil and gas. Winding down our carbon exports may be cheaper than developing naval strength to defend it. It would be wiser for us to join the righteous than the beseiged.

  3. Andrej Panjkov

    Perhaps the correct figure to use is not $50B, but 30%, or $15B, which is the claimed extra cost of building the submarines in Australia and not in France. That still works out to $5M per job.
    We might instead ask what else we can get for $15B, as a prudent money manager might do. (Yes, that’s a passive-aggressive snipe.) Well, Holden was getting about $150M a year in subsidies. So we could subsidize, oh, maybe, three car companies for a decade, buying tens of thousands of jobs, not 3000. (And we’d still have all those submarines, just built in France, so the wiper control would be on the wrong side of the steering wheel. Oh well.)

  4. James O'Neill

    “And if that money is in any way compromising the defence capability we need,” Isn ‘t the outstanding characteristic of both the 2016 Defence White Paper and the submarine building policy announcements is that we have not actually analysed the defence capability we need. Implicit in Defence’s “thinking” on the subject is that China, our largest trading partner by far, is also our worst potential enemy.
    Perhaps our policy “thinkers” can pause in their maritime fantasies long enough to consider the capabilities of the Dongfeng-41 ICBM missile with its multiple warheads that will render Australia’s involvement in a war with China as our shortest in history; about 30 minutes to be exact.

  5. magnet

    Why would China attack Australia when the buy big chunks of it, including ports,for less.

  6. AR

    As part of reducing our (exported) carbon footprint we could also lower the emissions of the subs by making them solar powered.
    Now that would be cutting edge technology.
    I am fascinated by the threat of China maybe, kinda-sorta restricting our mineral exports to our biggest customer and reducing our access to imports from our biggest source of consumer toys.

  7. Rpinglis

    Andrej is correct in that the cost of these jobs is the difference between the local build and an overseas purchase. It’s disappointing for a publication that aims for a more intellectual niche in the media market place that the article takes the intellectually lazy approach it has.
    Also, by building in Australia the value of the multiplier effect (not all of that is in SA) should be deducted from the cost and wouldn’t an on-shore build means more of the ongoing maintenance will be on shore too (more multiplier)? None of this means that there isn’t a premium for an on-shore build. If low cost is the only consideration, there’s a large proportion of the Australian economy that could be shut down and what it provides sourced overseas and that includes services and workers. Regarding workers, to my mind, Australia already sources too large a proportion of it’s workforce with skills for our new and emerging economy from overseas. Sure it’s cheaper than educating and training / re-training Australian’s, but society is more than an economy. In the long term, cheap isn’t always best.

  8. Geoffrey Heard

    Channel Kissinger? You mean become a two faced psychopath with arrest hanging over his head if he visits certain countries? Nope don’t like that one.

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