Playing to our strengths, creating new opportunities and mobilising our national industrial base

It is no secret that over the last four decades, Western nations, beyond a few outliers, have effectively undergone a period of rapid and ever-accelerating de-industrialisation, driven in large part by the period of hyper-globalisation that characterised the decades immediately following the end of the Cold War and the heady days of the “End of History”.

Well now the chickens are coming home to roost as Australia, like so many others is confronting the realities of the post-COVID world, marred by the ongoing conflicts in Europe and the Middle East, mounting public and private debt, combined with the increasing designs for global hegemony and resulting belligerence by the People’s Republic of China, which ironically enough is widely considered to be the primary beneficiary of the post-Cold War epoch of economic, political and strategic engagement and stability.

For Australia in particular, this period has seen the slow, but gradual transformation of the national economy to become one of the least diverse, least complex economies in the world and by far the least complex of the national economies that make up the G20 group of economies, despite the raw potential the nation possesses.

This has seen the nation plunge in the global rankings of “sophisticated” and “complex” economies now falling to 93rd in the world (behind well-known industrial powerhouses like Uganda, Kazakhstan, Trinidad and Tobago and Bosnia and Herzegovina), according to the Harvard Growth Lab’s Country Rankings Country & Product Complexity.

By now, it is well known that Australia’s economy is a shadow of its former self, with much of the nation’s traditional industrial base now skating along on a subsistence level as the nation rapidly slides towards banana republic territory, as predicted by former Singaporean statesman Lee Kuan Yew in the 1980s.

Reinvigorating this potential, particularly in the defence industrial context has emerged as one of the central priorities for both sides of politics both at home and abroad as the post-Second World War order comes under increasing assault, to varying degrees of success.

Various policy mechanisms have been developed and introduced in an effort to correct this glaring lack of complex industrial capacity through initiatives like the Albanese government’s signature “A future made in Australia” policy and mechanisms like the AU$15 billion National Reconstruction Fund (NRF) along with the recently released Defence Industry Development Strategy (DIDS), respectively.

VIEW ALL

Entering the debate is the Melbourne-based Institute of Public Affairs, working in partnership with Strategic Analysis Australia's Peter Jennings, Michael Shoebridge and Marcus Hellyer to develop their 'The Defence Of Australia: A Blueprint For The Next Government' series focused on presenting a coherent and integrated plan for the next Australian Government to better equip the Australian Defence Force, build a resilient industrial base and secure our long-term national security.

The latest of this comprehensive series of policy development in particular, titled 'Right Here Right Now: Unleashing Australian Know-how To Grow Military Power Fast' outlines a series of initiatives designed to mobilise the national industrial base, rebuild the advanced manufacturing capacity at the centre of contemporary defence industry and prepare the nation to confront an unpredictable future.

At the core of this report is a series of recommendations that take aim at the defence procurement ecosystem, Australia's dependence on large "prime contractors", declining access to capital investment, well documented workforce constraints and the nation's regulatory frameworks amongst others that impact the development of a competitive and resilient defence industrial base.

The report begins, stating, "Australia faces a use it or lose it moment for our struggling defence industry base. Little or no investment from the Defence budget means that, in time, there will be little or no defence industry."

While this overlooks the broader industrial base, workforce and capability required to support the defence industrial base, the point is well made and is representative of the broader structural issues within the national economy.

But how do we address these challenges?

Be ambitious and addressing the regulatory burden

In order to respond to these challenges, the IPA and Strategic Analysis Australia have proposed a series of recommendations, that are designed to, "change the Defence approach to working with Australian companies and equip our military with the things it needs, in the quantities needed to sustain itself in war."

The first of these recommendations focuses on a commitment from the next Australian government to ensure the Australian design and delivery in Australian service of "at least one type of armed combat drone" in the next-term of office.

This accelerated, or perhaps compressed timeframe from capability design, through development, manufacturing and delivery would mark a significant shift in the status quo, with the report stating, "This is a symbolic shift in behaviour and speed of action, but if the political will exists it is not even a demanding ‘stretch’ objective, as Australian designed and produced armed drones exist now although they are not yet being acquired for our own military."

The second of the recommendations, and perhaps the most wide reaching and consequential of the proposed recommendations, being an emphasis on bringing "non-traditional firms" into the defence market through a comprehensive suite of deregulation and the establishment of an Australian Industry Mobilisation and Resilience Council drawing on the best and brightest leaders and thinkers from across the broader economy.

This recommendation recognises that the Cold War-era, siloed approach of research and development in the military domain is no longer fit-for-purpose, with the private economy conducting, significantly larger research and development programs that have broader applications, particularly within the defence industry.

Australia's regulatory framework as it stands, whether it is our national energy policy or our industrial relations framework act as effective barriers to cross-economy and cross-industry collaboration and pollination, with the IPA and Strategic Analysis Australia identifying, "Current policies and regulation create large disincentives for companies operating in non-defence markets and protect the incumbents from competition. Left unchanged this will continue to prevent Australia’s military from getting its hands on some of the best systems and technologies."

Spreading the love, build stockpiles and simplify our contracting framework

One of the often cited complaints anyone who has spent any period of time in and around Australia's defence industry will no doubt be familiar with is the "crumbs" Australia's small and medium-sized businesses have "trickle down" through the global, multinational primes, with Governments on both sides seeking to encourage the development of Australia's own sovereign industrial base through concepts like Australian Industrial Content (AIC) mandates, offsets and a host of other mechanisms.

In order to deliver this, the IPA and Strategic Analysis Australia recommends, that "Government must direct Defence to contract directly with medium and small Australian companies instead of its current practice of working almost solely with big traditional defence primes."

Building on this, is the report states, "An initiative to buy Australian first where it is sensible to do so will give Australian companies acquisition contracts for militarily meaningful quantities of equipment, instead of drip feeding them on small development grants and pushing them to try to sell their IP or businesses to the big incumbent primes."

This seeks to shake up and break up the culture of dependence Australia's Defence apparatus has steadily built (like many of it's counterparts across the Western World) on the large, "establishment" defence industry power players, forming an almost monopolistic level of control over Government decision making and the subsequent capability outcomes.

However, this doesn't mean cutting out the primes all together, rather it is designed to provide significant uplift to Australian SMEs via the quantum of defence spending, and feeds into the next critical recommendation, that being an emphasis on rapidly expanding Australia's war stocks of critical munitions and other consumables.

While the report emphasises the "consumables of war", the reality is, in any regional or global conflagration of significant size, the reality is, the nation will need to rapidly accelerate the establishment of critical supplies, across a range of metrics, not just the "traditional" defence space, because even seemingly unrelated supplies like pharmaceuticals, liquid fuels, medical supplies and food will become critical in a wartime environment.

In recognising this challenge, the IPA and Strategic Analysis Australia state, "Australia’s war stocks are tiny, designed for an earlier era of deep peace and make us dependent on overseas supplies which, in all likelihood, will not be available in times of conflict or heightened tension. We need to substantially increase our stockholdings of items which could be consumed very quickly in wartime."

Bringing us to the contractual framework and environment that has long been identified by both primes and Australia's defence SME base as being a major burden to quickly, efficiently and effectively delivering capability to the warfighter, in recognising this, the report articulates a need to simplify Defence's existing contractual framework, along the lines of the currently underway ASDEFCON review.

The report stresses the importance of working with the private sector to " radically simplify Defence’s over-complicated contracting documentation and provide entirely new simple, short form contracts
based on the core Commonwealth purchasing principle of value for money" in order to maximise the impact of the previous recommendations for Australian industry.

Finally, the report recognises the importance of battle testing materiel in order to constantly evolve the capability, ensuring its efficacy in the contemporary battlespace, particularly against peer competitors, which is where the continued and expanded support of Ukraine comes into the fore.

To this end, the IPA and Strategic Analysis Australia identify closer ties between Australia and Ukraine, to leverage the "direct experience" of the battlefield, while also allowing for the co-development of technology, systems and capabilities with the Ukrainians that will "grow the capacity and effectiveness of these Australian companies and their products, while contributingto Ukraine winning its war for survival."

Final thoughts

Without sounding like a broken record, it is important to both understand and accept that Australians are going to be asked to confront and accept a number of uncomfortable realities in the coming years.

First and foremost, Australians will have to accept that while the world is increasingly becoming “multipolar”, the Indo-Pacific, in particular, is rapidly becoming the most hotly contested region in the world, and this will fundamentally reshape the position, role and security of the nation.

This period of multipolarity competition has been underpinned by the emerging economic, political, and strategic might of powers like China, India, Pakistan, Thailand, Vietnam, and the established and re-emerging capability of both South Korea and Japan, in particular, are serving to create a hotbed of competition on our doorstep.

Second, both the Australian public and our policymakers will have to accept that without a period of considered effort, investment and reform, or as I like to colloquially refer to it, our “Rocky montage” moment, current and future generations of Australians will be increasingly impoverished, living in a nation pushed around by the region’s now rising powers.

The most important question now becomes, when will we see a more detailed analysis and response to the challenges and opportunities facing Australia, and when will we see both a narrative and strategy that better helps industry and the Australian public understand the challenges faced and opportunities we have presented before us?

Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific region and what you would like to see from Australia’s political leaders in terms of partisan and bipartisan agenda setting in the comments section below, or get in touch at This email address is being protected from spambots. You need JavaScript enabled to view it. or at This email address is being protected from spambots. You need JavaScript enabled to view it..