The next time Defence Minister Andrews gets up to speak about the government’s deliverables around the forthcoming Defence White Paper, he will be sporting a brand new lexicon. No longer will there be the promise of a fully-funded Defence Capability Plan, but instead a highly-filtered Defence Investment Plan that will have consolidated by urgency (for savings) all of the military’s capital expenditure functions – not just those associated with warfighting platforms.
What now becomes of the promise to publish a new Defence Industry Policy Statement is also up in the air, as – having previously declared a new approach to broad industry policy aimed at “ending the mentality of government knows best and heavy government intervention in industry through endless cash programmes and handouts” – more recent statements have seen the government contemplating a demand-managed sectoral plan to set the course for naval shipbuilding over the next 30 years, while at the same time, hiving off responsibility for the defence-industry interface to the Department of Industry and Science.
Australia came out of World War 2 with the bulk of its defence materiel production base owned by the Commonwealth. It was not until the late-1980s that a report by Labor parliamentarian, Dr Roger Price, made a convincing case that it was likely industry would be more efficient at manufacturing weapons and munitions, thus setting off the corporatisation of the former Office of Defence Production into Australian Defence Industries Ltd, and then the full privatisation of that entity (purchased by Thales).
Even though government was prepared to give up its direct ownership of the means for war production, the notion that those producing critical combat goods and services for the Australian Defence Force were deserving of some form of ‘special’ relationship with Defence – to help it better communicate its unique requirements – remained popular. Economists generally question the use of the words ‘unique’ and ‘special’ when attached to business relationships, as more often than not the end result is the growth of an elite of rent seekers trading on inside information, a lack of public transparency in major transactions, and ultimately, higher costs than those associated with the normal course of business.
After all, if you were a Canberra-based desk officer responsible for ensuring troops on the front line had everything they needed to do their job effectively, one often referenced career-enhancing move was to maintain on your desk a card index of special contacts in industry that at a push could help make things happen quickly, when in the normal course of business, they wouldn’t have. Over the years, Defence has jealously guarded its lead role in the setting of strategic policy for defence industry, and generally, to the exclusion of all others.
As the sell-off of the government’s defence materiel production assets gained pace in the late-1980s, the idea that military interests would be better served by developing a more formalised and sophisticated relationship with industry took root. As a result, the first substantive Strategic Policy for Defence Industry was launched in June 1998 by Bronwyn Bishop, then Minister for Defence Industry, Science and Personnel.
It’s perhaps instructive to recap on what Australian Defence Business Review reported in June 1998 when new arrangements governing defence-industry relationships were announced, as – in essence – similar thoughts have just re-emerged by way of the First Principles Review. In 1998, the Australian Industry Defence Network was “recognised as the peak industry body for small-to-medium sized enterprises operating in the defence sector, while new mechanisms are to (be implemented to) support earlier industry involvement in the capability development process under revised defence industry policy planning.”
The June 1998 Strategic Policy for Defence Industry went on to promulgate a series of behaviours for domestic and foreign-owned defence companies, which ultimately became known as ‘Bishop’s Rules”. But just to reinforce the sense of déjà vu with the content of the First Principles Review, Australian Defence Business Review in June 1998 also reported “the new Strategic Policy for Defence Industry proposes a number of new consultative structures to improve communications between Defence and Industry, as well as a range of reforms to procurement processes, including the initial contracting out of project management.”
Since Minister Bishop’s seminal work in 1998, defence industry policy has progressively become big business as each successive Defence Industry Minister has sought to stamp their own mould on defence-industry interactions. Programs now stretch across the nomination of priority and strategic industry sectors through to specialised grants to help firms innovate and stimulate innovation via subsidies for R&D.
The peak of the craft was reached in June 2010, when Greg Combet, as Minister for Defence Materiel and Science, launched ‘Building Defence Capability: A Policy for a Smarter and More Agile Defence Industry Base’. Combet’s document consolidated close to 40 industry support measure interventions spanning the military capability life cycle, with an estimated cost of $445.7 million over the period 2009/10 to 2018/19.
In a number of these cases the subject programs duplicated extant measures generally available to industry, yet have persisted due to having being justified on the ‘unique’ or ‘special nature’ of the defence-industry relationship.
Accordingly, the effectiveness of these programs has gone largely untested, however, the Productivity Commission in its June 2014 ‘Trade and Assistance Review 2012/13’ reflected on the growth of defence-industry programs, noting they “do not appear to have been reviewed (externally and using an economic framework) to the same extent as many other industry assistance programs. … All defence programs with material industry assistance objectives, explicit or not, should be separately reported to Parliament, and from time to time reviewed to ensure relevance to strategic and government priorities.”
In September 2014, Prime Minister Abbott launched a new Industry Innovation and Competitiveness Agenda that is set to guide the framing of industry assistance programs in the forthcoming budget. In short, the document said of future industry policy, “the government is refocusing industry policy to drive innovation and entrepreneurship, not dependence on government handouts and protection. Industry policies will be re-targeted to capitalise on Australia’s strengths and accelerate growth prospects for our high-potential small and medium sized enterprises and most promising sectors.”
According to the Prime Minister, “we will consult with industry and researchers on a plan to focus the government’s $9.2 billion per year investment in research to get a better commercial return.” At the heart of new approaches to promote innovation was a $188.5 million (over four years) initiative to create Industry Growth Centres, initially around five key endeavours: food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; and advanced manufacturing.
Defence was not specifically mentioned in any of the background argument relating to the selection of the above five sectors for innovation promotion. Nevertheless, the statement sought on several occasions to make clear where industry policy was heading – “the government intends to foster excellence, not entrench dependence, and to tailor industry policy to help capitalise on emerging opportunities.”
This editorial first appeared in the March-April 2015 issue of Australian Defence Business Review.