COVID-disrupted supply chains mean its time for a strategic industries act: Hastie

Driven by an unprecedented economic transformation, propelling once developing nations onto the world stage, the region, the globe and its established powers, including Australia, have enjoyed a period of previously unseen economic prosperity and stability. 

Australia in particular has been buoyed by the immense mineral and resource wealth of the landmass and the benevolence of the post-Second World War political, economic and strategic order, namely the tactical and strategic freedom enabled by the US to capitalise upon the immense economic opportunities, with little concern for national security and supply chains. 

However, across the Indo-Pacific, competing economic, political and strategic interests, designs and ambitions are beginning to clash, flying in contrast to the projections of many historians at the end of the Cold War – further compounding these issues is the continued instability caused by COVID-19, economic disruption through the advent of automation and artificial intelligence and, of course, concerns about ecological collapse.

For Australia and comparable Western nations, like the US, UK and increasingly across the European Union, the outbreak of COVID-19 has only served to further hasten the economic decline, stagnation and political malaise experienced throughout the developed world, with many once-powerful, world-leading nations beginning to feel the pressure.

It has also given rise to an increased shift towards economic nationalism, with a focus on protecting individual national interests and restoring local manufacturing, industrial bases and economic opportunity in light of increasingly exposed and vulnerable global supply chains. 

In particular, recent incidents of economic coercion, made by Beijing's ambassador in Canberra, Cheng Jingye, combined with growing domestic sentiment about breaking Australia's economic dependence on the rising power has prompted many within Australia's public and strategic policy communities and the Australian media to begin expanding the debate.

Looking to the future

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For example, John Coyne of the Australian Strategic Policy Institute (ASPI) has penned a piece, titled 'Making our own luck in the face of a pandemic', calling for Australia to use the impact of the global pandemic to take advantage of the moniker of the 'lucky country' and establish a semblance of national resilience and security, learning the lessons of over-dependence on global supply chains and blind faith in 'market forces' to secure national interests. 

"Australia, like many countries, failed to heed such warnings. Critical pandemic readiness policies were overexposed to short-sighted budget cuts underpinned by the dogged pursuit of efficiency. The long-term development of critical infrastructure was left to the whims of market forces. Nation-building efforts were underpinned by a user-pays model," Coyne states. 

"COVID-19 has already shown that market forces don’t promote adequate national resilience in myriad areas, from broadband bandwidth to the capacity to produce basic medical supplies, and that far too much of our preparation for pandemics, along with national resilience, was predicated on good luck."

Additionally, Chris Uhlmann writing for The Sydney Morning Herald has stated, "we can't return to business as usual with China", prompting increased debate in light of the rapidly evolving geo-political and economic environment Australia finds itself in. 

Uhlmann is scathing in his positioning of the argument, something that has been long overdue as the nation embodies the very definition of the Lazy Country, something Donald Horne, author of The Lucky Country, considered was a far more accurate descriptor of Australia. 

"To date Australia’s business captains and university chiefs have shown they can’t handle the truth. As long as the rivers of gold flowed, they were happy to urge silence in the face of the militarisation of the South China Sea, industrial-scale cyber theft, the arbitrary arrest of our citizens, rampant foreign interference and the imprisonment of a million Uighurs in Xinjiang," Uhlmann states. 

Rising star calls for Strategic Industry Plan

Now, influential Liberal backbencher and chair of the influential parliamentary joint committee for intelligence and security Andrew Hastie has called for closer collaboration between the Five Eyes allies, the US, UK, Australia, Canada and New Zealand, with a focus on developing and enhancing increased economic capacity. 

Contributing an essay to the London-based Henry Jackson Society's 'Breaking the China Supply Chain: How the Five Eyes can Decouple from Strategic Dependency' report, Hastie has revealed Australia's startling dependency upon Beijing, thus exposing itself unnecessarily to economic coercion and further compromise. 

Encapsulating this, Greg Sheridan writing for The Australian has quoted Hastie, saying: "Hastie’s most striking policy response­ is to call for the Morrison government to create a 'strategic industry plan'. The purpose of this plan would be 'to build self-­reliance in key pharmaceuticals, medical supplies and other critical goods'. He advocates some departure from recent economic orthodoxy for this effort: 'Encouraging firms to build and expand domestic­ production­ capacity will require government support, such as time-limited tax incentives. This should be a bipartisan effort.'"

This is particularly concerning as the Henry Jackson Society's report reveals the startling level of Australian dependence upon Beijing, when compared with its Five Eyes partners:

• Australia is strategically dependent on China for 595 categories of goods. 167 of these have applications in critical national infrastructure;
• New Zealand is strategically dependent on China for 513 categories of goods. 144 of these have applications in critical national infrastructure;
• The US is strategically dependent on China for 424 categories of goods. 114 of these have applications in critical national infrastructure;
• Canada is strategically dependent on China for 367 categories of goods. 83 of these have applications in critical national infrastructure; and
• The UK is strategically dependent on China for 229 categories of goods. 57 of these have applications in critical national infrastructure.

Hastie's approach and concept of a 'strategic industry plan' is similar in many ways to the concept of a 'National Strategic Industries Act' suggested by Defence Connect, namely – using the legislative power of government to counter-balance industry development policies of allied, yet still competitor nations like South Korea.

Such an act would aim to leverage the industrial development policies of export-oriented industrialisation (EOI) to develop its economy into a major economic and modern, advanced manufacturing powerhouse. 

Further supporting such an agenda would require significant policy initiative and structure to draw together the individual components, namely both private and public sector R&D programs driven by organisations like the CSIRO – traditional areas of high wage-costs and low productivity in Australia's manufacturing industry, exemplified in the failure of Australia's domestic car industry and in the series of cost overruns and delivery delays on both the Collins and Hobart Class programs, have characterised Australia's reputation as a manufacturing economy. 

Enter Industry 4.0 – the combination of additive manufacturing, automated manufacturing and data sharing, with a coherent national strategic Iidustry development policy can compensate and in some cases overcome the traditional hindrances faced by the Australian economy, with public-private collaboration essential to ensuring the long-term sustainability and success of Australia's defence industrial base and broader manufacturing economy.

While industry largely provides the technological expertise, government policy provides the certainty for investment – particularly when supported by elements of Australia's innovation and science agenda combined with grant allocation and targeted, contractual tax incentives (signed between the Commonwealth and the company as a memorandum of understanding) linked to a combination of long-term, local job creation, foreign contract success, local industry content, and R&D programs, which are critical components that can be used to empower and enhance the overall competitiveness.

Your thoughts

Australia’s position and responsibilities in the Indo-Pacific region will depend on the nation’s ability to sustain itself economically, strategically and politically.

Despite the nation’s virtually unrivalled wealth of natural resources, agricultural and industrial potential, there is a lack of a cohesive national security strategy integrating the development of individual yet complementary public policy strategies to support a more robust Australian role in the region.

Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability, serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.

However, as events continue to unfold throughout the region and China continues to throw its economic, political and strategic weight around, can Australia afford to remain a secondary power or does it need to embrace a larger, more independent role in an era of increasing great power competition?

Further complicating the nation’s calculations is the declining diversity of the national economy, the ever-present challenge of climate change impacting droughts, bushfires and floods, Australia’s energy security and the infrastructure needed to ensure national resilience. 

Let us know your thoughts and ideas about the development of a holistic national security and sovereignty strategy and the role of a minister for national security to co-ordinate the nation’s response to mounting pressure from nation-state and asymmetric challenges in the comments section below, or get in touch with This email address is being protected from spambots. You need JavaScript enabled to view it.or This email address is being protected from spambots. You need JavaScript enabled to view it..