Redback, industrial diversification, nation building and the opportunities

Despite the ongoing debate around the global handling of the COVID-19 pandemic, for many nations, the pandemic served as a form of divine intervention, revealing foundations of sand and the vulnerability of over-dependence on the lowest cost proposition and globally, interdependent “just in time” supply chains.

The Russian invasion of Ukraine and the subsequent impact on critical supplies of liquid energy, grain, nitrate fertilisers, chemical precursors, and a host of other supply chain constrictions, coupled with the rapid depletion of Western munitions stockpiles, has further reinforced the inherent vulnerability across the globalised supply chains and industrial base.

The reality of this vulnerability has only been reinforced as the post-pandemic world has given way to an era of renewed great power competition and the emergence of an increasingly multipolar world defined by further constraint on globally, interdependent supply chains, mounting grey zone warfare, and a myriad of national security challenges impacting the security and sovereignty of many nations, including Australia.

This global shift towards multipolarity is only reinforced by the increasing multipolarity of the world beyond the “main event”, that is the US-China competition, as the increasing prominence of the BRICS member states, namely Brazil, Russia (albeit somewhat limited), India, South Africa, and the emerging list of BRICS “partners” or “adjacent” states eager to hasten the collapse of the post-Second World War order.

With each of these nations nailing their respective flags to the mast of this new era of great power competition, they have taken action to align their domestic and international policies behind a unified, yet nationally-focused strategic intent: the collapse of the post-Second World War economic, political, and strategic order and the rise of a contested, autocratic-heavy, deglobalised, and multipolar world.

Each of these factors combine to form one absolute and uncomfortable realisation: Australia’s record period of economic stability and prosperity, buoyed by the immense mineral and resource wealth, coupled with the benevolence of the post-Second World War political, economic, and strategic order is at an end, and it is time to respond accordingly.

Indeed, the last time Australia’s public policy community was called upon to respond to such a predicament was the combined challenges of the Great Depression and the Second World War, both of which had a dramatic impact on the national psyche and the post-war period of rebuilding and expansion.

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But what does all of this have to do with Hanwha’s success in the multi-billion-dollar LAND 400 Phase 3 program? Well, surprisingly quite a lot, if the long-term objectives of Hanwha, as explained by Hanwha Defense Australia’s Richard Cho in an interview in late-2019 are to be believed: “One of the key benefits for both Australia and Korea is the proximity of Australian manufacturing centres to potential markets, combined with Korea’s pursuit of an advanced infantry fighting/armoured fighting vehicle, which the AS-21 Redback – Hanwha’s proposal for LAND 400 Phase 3 – will serve as the basis for, while the potential offering of the AS-9 self-propelled howitzer to the British Army provides further opportunities for Australian industry.”

Understanding our past failures and learning the lessons

Perhaps one of the most consistent criticisms of Australia’s historic manufacturing capacity and industrial development plans has been the disconnect between costs, export associated economies of scale, competition, and the value for money proposition – this holds true whether in the defence space or in consumer goods like cars.

Simply put, Australia’s domestic demand has constrained the nation’s ability to effectively compete on cost, quality, and quantum of production, at least for much of the last five decades.

Critically, the narrative seems to be shifting in recognition that only a robust, innovative, and globally competitive industry is critical to any national security equation – clearly identifying and supporting the strategic industries Australia needs for prolonged national security supports the development of a holistic national security and sovereignty strategy.

While the often-central planning approach taken by authoritarian, or authoritarian-adjacent nations stands anathema to the broadly individualistic nature of nations like Australia, embracing the whole-of-nation response and using it as a guideline can begin to tip the scales back in our favour.

That is where initiatives like the Defence Strategic Review (as broad brush as it is) and the National Reconstruction Fund can begin to play a role in preparing the nation to weather the coming economic, political, and geostrategic challenges on the horizon.

However, while the individual parts, in this instance, the Defence Strategic Review and the National Reconstruction Fund, serve as a good foundation, the whole is still lacking a coherent, considered plan for the nation. Furthermore, these individual platforms, at least publicly, appear to be light in detail and high on optimism.

Arguably, both the Albanese government’s Defence Strategic Review and the National Reconstruction Fund, respectively, represent two of the most ambitious, and to paraphrase the government, “consequential” policy initiatives of the Albanese government, rhetoric and action seem to be mismatched.

In the case of the Defence Strategic Review, we see: “National Defence must be part of a broader national strategy of whole-of-government coordinated and focused statecraft and diplomacy in our region. This approach requires much more active Australian statecraft that works to support the maintenance of a regional balance of power in the Indo-Pacific.

“Key to successful outcomes in implementing National Defence will be: national leadership, statecraft and diplomatic proficiency; accelerated military preparedness; economic stewardship; scientific and technological prowess; and climate change action and domestic resilience. It will be challenging to effect ... Australian statecraft now requires a consistent and coordinated whole-of-government approach to international affairs and the harmonisation of a range of domestic and external national security portfolios, from trade and investment to education, minerals and resources, clean energy, climate, industry, infrastructure and more.”

This is further reinforced by the rather light National Reconstruction Fund, which is, according to the Albanese government, designed to “provide finance for projects that diversify and transform Australia’s industry and economy”.

Yet in spite of this lofty rhetoric and the ambitions identified by the government, there seems to be little in the way of actual progress, and where can we look to draw inspiration or successful models?

The US Defence Production Act

Established in the early days of the Cold War, the Defense Production Act of 1950 was established to secure the US industrial base after the production height reached during the Second World War while also supporting the broader civil defence and mobilisation programs established by respective US administrations.

Indeed, the “long title” of the act defines it thus: “An act to establish a system of priorities and allocations for materials and facilities, authorise the requisitioning thereof, provide financial assistance for expansion of productive capacity and supply, provide for price and wage stabilisation, provide for the settlement of labour disputes, strengthen controls over credit, and by these measures facilitate the production of goods and services necessary for the national security, and for other purposes.”

The act is broken down into three main, individual components, each designed to support the broader national security objectives of the US in response to a range of national security and/or sovereignty challenges and provides an interesting model for future Australian consideration as the public discourse continues to trend towards enhancing Australia’s national security and sovereignty.

These individual components include:

1. The President is hereby authorised (1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defence shall take priority over performance under any other contract or order, and, for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contracts or orders by any person he finds to be capable of their performance, and (2) to allocate materials and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defence.

2. In order to prevent hoarding, no person shall accumulate (1) in excess of the reasonable demands of business, personal or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation. The President shall order published in the Federal Register, and in such other manner as he may deem appropriate, every designation of materials the accumulation of which is unlawful and any withdrawal of such designation. This section shall not be construed to limit the authority contained in section 101 of this act.

3. Any person who willfully performs any act prohibited, or willfully fails to perform any act required, by the provisions of this title or any rule, regulation or order thereunder, shall, upon conviction, be fined not more than $10,000 or imprisoned for not more than one year, or both.

The ‘Korean New Deal’

In keeping with the overall Korean theme of the broader conversation, the north Asian powerhouse has rapidly transformed itself in the aftermath of the disastrous and devastating impact of the Korean conflict to emerge as one of the world’s premier economic and industrial powers.

South Korea’s foundation of industrial and economic development, an economic concept called “Export Oriented Industrialisation” (EOI), which focused upon export-led growth designed to speed up the rate of national industrialisation by focusing on the sectors in which the nation has a comparative advantage.

One thing that is often overlooked in the debates about the implementation of such a policy is the fact that prior to its implementation, Korea was still a largely agrarian society and economy, with little-to-no major modern industrialisation or manufacturing capacity, thus requiring significant government investment in education and training to establish said comparative advantage.

In response to the mounting tensions and pressures of the post-COVID-19 era, the South Korean government has moved swiftly to develop an integrated and truly national approach to securing Korea’s economic prosperity, employment opportunities, national security and competitiveness in the post-COVID-19 economic order, with what former South Korean president Moon Jae-in describes as the “Korean New Deal”.

As part of this national strategy, former South Korean president Moon establishes rather lofty ambitions for the implementation of this Korean New Deal, stating, “The Korean New Deal will set the foundation for Korea’s next 100 years.”

The new strategy identifies a number of key focuses for the structural transformation of the nation’s economy and shifting focus as the nation, like many others, including Australia, seeks to navigate the “severe economic recession”, particularly as it faces two major challenges.

“In the face of the COVID-19 pandemic, the Korean economy has encountered two major challenges: aiding recovery from a severe economic recession while addressing the structural transformation,” the Korean government’s strategy document articulates.

“The unforeseen shock of the pandemic has resulted in the worst economic downturn that the world has seen since the Great Depression. Border closures and travel restrictions have affected economies and job markets around the world, and the Organization for Economic Cooperation and Development (OECD) has predicted that the income loss by the end of 2021 will exceed that of any previous recession over the last 100 years outside wartime.”

Further to this, the Korean government has recognised the following: “The unparalleled challenges of the pandemic have completely changed the world’s overall economic and social structures. In addition to the increased use of ‘untact’ services accelerating the transition towards a digital economy, there has also been a growing demand for a green economy, making it a common consensus in the international community.

“Delayed action against such structural changes, therefore, may hurt productivity and result in a lower growth path.

“Against such backdrop, the Korean New Deal was introduced as a national development strategy to support the country’s recovery from the pandemic crisis and lead the global action against structural changes. Its three main objectives are as follows:

• First: The Korean New Deal aims to minimise the economic shock by creating jobs. It creates not only government-supported jobs for low-skilled workers, but also jobs that support the structural transition towards a digital and green economy;
• Second: This strategy supports the Korean economy’s quick return to its normal growth path by building the necessary infrastructure for a digital and green economy that will restore investments and support job creation; and
• Third: It sets the groundwork for Korea not only to adapt to the structural changes but also to lead the global community in the post COVID-19 era.”

Building on these factors, the Korean New Deal focuses on three important shifts within the nation’s strategy, namely focusing on developing:

• A smart country - that is at the centre of a digital transition based on data, network, and artificial intelligence (DNA) infrastructure;
• A green country - that achieves a balance among people, nature, and growth through a green transition towards net-zero emissions as a responsible member of the global community; and
• A safe country - that invests in human resources for a strong employment and a social safety net.

The Korean model leverages the full breadth of national power, with a growth-focused design, focused on building a robust, competitive, and resilient nation and economy for the next century, not one simply focused on the next election cycle as is so often the criticism of many of Australia’s political leaders.

Perhaps most promisingly, this model provides an opportunity for Australia to learn the lessons of the economic impact of COVID-19 and prepare the nation for the future in a similar way.

Final thoughts

While we are far from the end of Australia’s first recession in nearly three decades, the impacts are beginning to be felt and despite the best efforts of state, territory, and Commonwealth governments, it will force a major restructuring of the national economy and Australia’s relationships with both the broader global community and, more critically, its Indo-Pacific partners.

This predicament is further reinforced by a recent report conducted by The Australia Institute, which has revealed that the nation ranks last in manufacturing self-sufficiency among the membership of the Organisation of Economic Co-operation and Development (OECD) member states.

Explaining this, Tom McIlroy, writing for The Australian Financial Review, reveals some rather troubling details about the nation’s declining economic and industrial diversity and, critically, its impact upon Australia’s national security and sovereignty: “As the COVID-19 pandemic highlights problems with global supply chains and gaps in Australia’s manufacturing capability, the report released by the Australia Institute’s Centre for Future Work shows renewal of the sector could generate as much as $180 billion in new sales, $50 billion in additional GDP and more than 400,000 jobs.

“It blames failures of trade and industrial policy for undermining domestic manufacturers’ success in doing business with key global markets, producing ‘dangerously lopsided patterns’ in overseas trade.

“Manufacturing jobs make up about 6.9 per cent of Australia’s workforce, but more than 26.4 per cent of all research and development spending. Total employment in the sector has dropped by 9.6 per cent since 2010, the report shows.”

McIlroy added, “With manufacturing output worth US$270 billion ($378 billion), Australia ranks below all other Organisation for Economic Co-operation and Development economies, including countries producing more manufactured output than they consume, such as Germany, the Netherlands, South Korea, Sweden and Japan.”

The growing importance of local, competitive manufacturing capabilities was further explained by the author of The Australia Institute report, Dr Jim Stanford, who said, “As Australian governments and business leaders realise the importance of manufacturing in rebuilding the national economy after COVID, this research shows that Australia now has the smallest manufacturing industry relative to domestic purchases of any OECD country.”

While this economic, political and strategic turmoil is in some ways “unprecedented”, the favoured catchphrase of many a media personality seeking to describe anything from the bushfires that devastated swathes of the landmass, the economic impact of COVID-19, coupled with mounting great power tensions and domestic societal upheaval sweeping the West, is that Australia does its best work when its chips are down.

Contemporary Australia has been far removed from the harsh realities of conflict, with many generations never enduring the reality of rationing for food, energy, medical supplies or luxury goods, and even fewer within modern Australia understanding the sociopolitical and economic impact such rationing would have on the now world-leading Australian standard of living.

Equally, we have to begin to confront the question of “What sort of region and world do we want to live in and hand down to our children?”, for if Australia does not embrace the opportunities presented by the Indo-Pacific and more broadly the era of competition that is coming to characterise the 21st century, we will have the world created for us by nations that hold their national interests as sacrosanct and put them before all other considerations.

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